As filed with the Securities and Exchange Commission on October 15, 2004
Registration No. 333-          

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form S-1 
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

American Reprographics Company
(Exact Name of Registrant as Specified in Its Charter)

 	 	 	 	 	
Delaware	 	7334	 	20-1700361	
(State or other jurisdiction of	 	(Primary Standard Industrial	 	(I.R.S. Employer	
incorporation or organization)	 	Classification Code Number)	 	Identification Number)	
700 North Central Avenue, Suite 550
Glendale, California 91203
(818) 500-0225
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Sathiyamurthy Chandramohan
Chief Executive Officer
American Reprographics Company
700 North Central Avenue, Suite 550
Glendale, California 91203
(818) 500-0225
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
 	 	 	 	 	
Teresa V. Pahl	 	Brett E. Cooper	 	Frank H. Golay, Jr.	
Hanson, Bridgett, Marcus,	 	Orrick, Herrington & Sutcliffe LLP	 	Sullivan & Cromwell LLP	
Vlahos & Rudy, LLP	 	The Orrick Building	 	1888 Century Park East	
333 Market Street, Suite 2100	 	405 Howard Street	 	Los Angeles, California 90067	
San Francisco, California 94105	 	San Francisco, California 94105	 	(310) 712-6600	
(415) 777-3200	 	(415) 773-5700	 	 	
       Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective.
      If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box.     o
      If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.     o
      If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.     o
      If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.     o
      If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box.     o  
CALCULATION OF REGISTRATION FEE

	

	
		Proposed			
		Maximum			
		Aggregate		Amount of	
Title of Each Class of		Offering		Registration	
Securities to be Registered		Price(1)(2)		Fee	

Common Stock, $.001 par value per share	 	$230,000,000	 	$29,141	

		
(1) 	Includes shares to be sold upon exercise of the underwriters’ over-allotment option.	
 		
(2) 	Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act of 1933, as amended.	
       The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted. 	
Subject to Completion. Dated October 15, 2004.
               Shares

Common Stock

       This is an initial public offering of shares of common stock of American Reprographics Company (“ARC”).
       ARC is offering                     of the shares to be sold in the offering. The selling stockholders identified in this prospectus are offering an additional          shares. ARC will not receive any of the proceeds from the sale of the shares being sold by the selling stockholders.
       Prior to this offering, there has been no public market for the common stock. It is currently estimated that the initial public offering price will be between $          and $          per share. ARC intends to list the common stock on the New York Stock Exchange under the symbol “ARP”.
       See “Risk Factors” beginning on page 13 to read about factors you should consider before buying shares of the common stock.

       Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

 	 	 	 	 	 	 	 	 	
		Per Share		Total	
					
Initial public offering price	 	$	 	 	 	$	 	 	
Underwriting discount	 	$	 	 	 	$	 	 	
Proceeds, before expenses, to ARC	 	$	 	 	 	$	 	 	
Proceeds, before expenses, to the selling stockholders	 	$	 	 	 	$	 	 	
       To the extent the underwriters sell more than            shares of common stock, the underwriters have the option to purchase up to an additional            shares of common stock from the selling stockholders at the initial public offering price less the underwriting discount.

       The underwriters expect to deliver the shares against payment in New York, New York on                     .

Goldman, Sachs & Co.	JPMorgan	
Credit Suisse First Boston
		
Robert W. Baird & Co.	CIBC World Markets	

Prospectus dated                     . 

 

TRADEMARKS AND TRADE NAMES
       We own or have rights to trademarks, service marks, copyrights and trade names that we use in conjunction with the operation of our business, including the names “American Reprographics Company SM ,” “ARC SM ,” “Abacus PCR TM ,” “BidCaster SM ,” “EWO SM ,” “MetaPrint TM ,” “OneView SM ,” “PEiR SM ,” “PlanWell®,” “PlanWell PDS TM ,” “PlanWell Enterprise SM ,” and various design marks associated therewith. This prospectus also includes trademarks, service marks and trade names of other companies.
MARKET DATA
       We operate in an industry in which it is difficult to obtain precise industry and market information. Although we have obtained some industry data from third party sources that we believe to be reliable, in many cases we have based certain statements contained in this prospectus regarding our industry and our position in the industry on estimates concerning our customers and competitors. These estimates are based on our experience in the industry, conversations with our principal vendors, our own investigation of market conditions and information obtained through our numerous acquisitions. We cannot assure you as to the accuracy of any such estimates, and such estimates may not be indicative of our position in our industry.
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PROSPECTUS SUMMARY
       This summary highlights only selected information contained elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing in our common stock. You should read this entire prospectus carefully, including “Risk Factors,” “Forward-Looking Statements,” and the consolidated financial statements and related notes beginning on page F-1, before investing in our common stock. In this prospectus, unless the context indicates otherwise, “we,” “us,” “our,” “American Reprographics,” “ARC,” “our company,” and similar terms refer to American Reprographics Company and its consolidated subsidiaries.
Our Company
       We are the leading reprographics company in the United States providing business-to-business document management services to the architectural, engineering and construction industry, or AEC industry. We also provide these services to companies in non-AEC industries, such as technology, financial services, retail, entertainment, and food and hospitality, that also require sophisticated document management services. The business-to-business services we provide to our customers include document management, document distribution and logistics, and print-on-demand. We provide our core services through industry leading technology and innovation, a sophisticated network of 173 locally branded reprographics service centers, and more than 1,560 facilities management programs at our customers’ locations. We also sell reprographics equipment and supplies to complement our full range of service offerings. In further support of our core services, we license our suite of reprographics technology products, including our flagship internet-based application, PlanWell, to independent reprographers. We also operate PEiR (Profit and Education in Reprographics) through which we charge membership fees and provide purchasing, technology and educational benefits to other reprographers, while promoting our reprographics technology as the industry standard. Our services are critical to our customers because they shorten their document processing and distribution time, improve the quality of their document information management, and provide a secure, controlled document management environment.
       We operate 173 reprographics service centers, including 170 service centers in 133 cities in 29 states throughout the United States and three reprographics service centers in the Toronto metropolitan area. Our reprographics service centers are located in close proximity to the majority of our customers and offer pickup and delivery services within a 15 to 30 mile radius. These service centers are arranged in a hub and satellite structure and are digitally connected as a cohesive network, allowing us to provide our services both locally and nationally. We service more than 65,000 active customers and employ over 3,450 people, including a sales force of approximately 270 employees.
       In terms of revenue, number of service facilities and number of customers, we believe we are the largest company in our industry, operating in more than eight times as many cities and with more than five times the number of service facilities as our next largest competitor. We believe that our extensive national footprint, our industry leading technology, and our comprehensive offering of value-added services, including logistics and facilities management, provide us with a distinct competitive advantage.
       For the year ended December 31, 2003, our net sales were $416.0 million, our income from operations was $62.5 million, our adjusted EBITDA (adjusted to exclude a one-time charge of $14.9 million related to the early extinguishment of debt) was $81.9 million, and our net income was $4.9 million. For the six months ended June 30, 2004, our net sales were $226.1 million, our income from operations was $40.0 million, our EBITDA was $49.2 million, and our net income was $19.2 million. Based on our year to date net sales, we believe that the AEC market accounted for approximately 80% of our net sales, with the remaining 20% consisting of sales to non-AEC markets. During the five years ended December 31, 2003, we grew our net sales at a compounded annual growth rate, or CAGR, of 24.3% and maintained an adjusted EBITDA margin in excess of
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19.1%. See footnotes 2, 3 and 4 in “— Summary Historical and Unaudited Pro Forma Financial Data” for the definition of EBITDA and adjusted EBITDA.
       We have continued to expand our geographic coverage and market share by entering complementary markets through strategic acquisitions of high quality companies with well-recognized local brand names and, in most cases, more than 25 years of operating history. Since 1997, we have acquired 80 companies and have retained approximately 93% of the management of the acquired companies. As part of our growth strategy, we have recently begun opening and operating branch service centers, which we view as a low cost, rapid form of market expansion. Our branch openings require modest capital expenditures and are expected to generate operating profit within 12 months from opening. We have opened 15 new branches in key markets since September 2003 and expect to open an additional 14 branches by the end of the first quarter of 2005.
Industry Overview
       The reprographics industry has traditionally provided services related to the reproduction and distribution of large format architectural, engineering and construction documents. Customer demands for speed and efficiency and advances in technology have transformed the reprographics industry such that reprographers are now expected to offer complex digital document management capabilities, document distribution expertise, comprehensive logistics, and the ability to provide document services under intense deadlines. These sophisticated services typically are charged as part of a per square foot printing cost.
       According to the International Reprographics Association, or IRgA, the reprographics industry in the United States is estimated to be $5 billion in size. The IRgA indicates that the reprographics industry is highly fragmented, consisting of approximately 3,000 firms with average annual sales of approximately $1.5 million and 20 to 25 employees. Since construction documents are the primary medium of communication for the AEC industry, demand for reprographics services in the AEC market is closely tied to the level of activity in the construction industry, which in turn is driven by macroeconomic trends such as GDP growth, interest rates, job creation, office vacancy rates, and tax revenues. According to FMI Corporation, or FMI, a consulting firm to the construction industry, construction industry spending in the United States for 2004 is estimated at $975 billion, with expenditures divided between residential construction (55%) and commercial and public, or non-residential, construction (45%). The $5 billion reprographics industry is approximately 0.5% of the $975 billion construction industry in the United States. Our AEC revenues are most closely correlated to the non-residential sectors of the construction industry which sectors are the largest users of reprographics services. According to FMI, the non-residential sectors of the construction industry are projected to grow at an average of 5.4% per year over the next three years.
       Non-residential construction projects are generally large in scale, time consuming, and subject to cost overruns and delays. A frequent cause of such problems is the complexity of the construction documentation and the logistics involved in distributing documents to their intended recipients. Reprographers can facilitate better document management through technology applications. For example, reprographers can provide more efficient document distribution by shifting from an analog “print and distribute” business model, where customer orders are placed and produced in one location and physically distributed locally or nationally, to a digital “distribute and print” model, where customer orders are placed in one location, distributed digitally and physically produced at one or more local service centers.
       Market opportunities for business-to-business document management services such as ours are rapidly expanding into non-AEC industries. For example, non-AEC customers are increasingly using large and small format color imaging for point-of-purchase displays, digital publishing, presentation materials, educational materials and marketing materials as these services have become more efficient and available on a short-run, on-demand basis through digital technology. As a result, we believe that our addressable market is substantially larger than the core AEC
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reprographics market. We believe that the growth of non-AEC industries is generally tied to growth in the U.S. gross domestic product, or GDP, which is projected to grow 4.3% in 2004 and 3.6% in 2005 according to Wall Street’s consensus estimates.
       The development of digital technology and internet-based solutions for managing documents and the corresponding distribution and reproduction processes have created the opportunity for reprographics companies such as ourselves to offer complementary, value-added services to AEC and non-AEC customers through intelligent technological solutions and an extensive physical network.
Our Services
       We provide business-to-business services to our customers in three key areas: document management, document distribution and logistics, and print-on-demand. These services include:

		
• 	PlanWell, our proprietary, internet-based planroom launched in June 2000, and our suite of other reprographics software products that enable the online purchase and fulfillment of reprographics services. From PlanWell’s inception in June 2000 through September 1, 2004, more than 650,000 orders have been placed through PlanWell online planrooms for the management of more than 54,000 projects and over seven million complex, large format documents.	
 		
• 	Production services, including print-on-demand, document assembly, document finishing, mounting, laminating, binding, and kitting, provided through our national footprint of service centers, all of which are connected through a sophisticated digital network.	
 		
• 	Logistics, including pick up, delivery, and shipping of time-sensitive, critical documents. These services are supported by a fleet of approximately 675 vehicles and nearly 700 employees. Contracted courier services allow our divisions to manage additional delivery capacity through approximately 157 vehicles and drivers.	
 		
• 	Highly customized large and small format reprographics in color and black and white. These customizable services, made possible by advances in digital production equipment and software, have allowed us to expand our service offerings to both our traditional AEC customer base, as well as pursue new, recurring business in the non-AEC market.	
 		
• 	Facilities management, including recurring on-site document management services, staffing, and management and procurement of related on-site equipment and supplies at our customers’ locations through our more than 1,560 facilities management programs.	
 		
• 	Sales of reprographics equipment and supplies to end-users in the AEC industry to further complement our full range of service offerings and further increase our purchasing power.	
 		
• 	Other document management and reprographics software, including Abacus PCR (Print Cost Recovery System), BidCaster, EWO (Electronic Work Order), MetaPrint and OneView, among others, that support ordering, tracking, job costing, and other customer specific accounting information for a variety of projects and services.	
       To further support and promote our core services ( document management, document distribution and logistics, and print-on-demand ), we also:

		
• 	License our suite of reprographics technology products, including PlanWell, to independent reprographers to promote our technology as the digital standard for the fulfillment of reprographics services in the AEC industry and enhance our leading position in AEC document management. Through September 1, 2004, we have licensed PlanWell and our other technology products to 64 reprographics companies operating 80 service facilities throughout the United States.	
 		
• 	Operate PEiR, a trade organization wholly owned by us, through which we charge membership fees and provide purchasing, technology and educational benefits to other reprographers. PEiR members, currently consisting of 43 independent reprographers, are required to license PlanWell	
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	and may purchase equipment and supplies at a lower cost than they could obtain independently. In turn, their purchasing volumes increase our buying power and influence with vendors.	
Our Competitive Strengths
       We believe that we maintain the following competitive strengths:

		
• 	Leading Market Position in Fragmented Industry. In terms of revenue, number of service facilities and number of customers, we believe we are the largest company in our industry, operating in more than eight times as many cities and with more than five times the number of service facilities as our next largest competitor. We are the largest reprographer in most of the geographic markets we serve, as the majority of the approximately 3,000 firms in the reprographics industry are small and locally focused. Our size and national footprint provide us with significant purchasing power, economies of scale, the ability to invest in industry leading technologies, and the resources to service large, national customers.	
 		
• 	Leader in Technology and Innovation. We strive to maintain the leading position in our industry by creating innovative, value-added technology solutions for our customers and other independent reprographers. We believe PlanWell is well positioned to become the industry standard within the AEC industry. In addition, we have developed other proprietary software applications that complement PlanWell and have enabled us to improve the efficiency of our services, add complementary services and increase our revenue.	
 		
• 	Extensive National Footprint with Regional Expertise. Our national network of service centers maintains local customer relationships while benefiting from our centralized corporate functions and national scale. Each service center provides sophisticated, personalized services that are tailored to meet the regional needs of our customers. Our service facilities are organized as hub and satellite structures within individual markets, allowing us to balance production capacity and minimize capital expenditures through technology sharing among our service centers within each market. The majority of our customers are no more than five miles from one of our service centers. We also leverage the geographic coverage of our production facilities to address the service needs of large companies that operate in multiple locations. Our Premier Accounts business unit offers regional and national customers our services under a single contract, while offering centralized access to project specific services, billing, and tracking information.	
 		
• 	Flexible Operating Model. We are able to tailor our operations to meet the demands of the local markets that we serve by promoting regional decision making for marketing, pricing, and selling practices. In this manner, we remain responsive to our customers while benefiting from the cost structure advantages of our centralized administrative functions. Our flexible operating model also allows us to capitalize on an improving business environment. For example, for the year ended December 31, 2003, we achieved an operating margin (income from operations divided by net sales) of 15.0% and an EBITDA margin (exclusive of a one-time charge related to the early extinguishment of debt) of 19.7%. For the six months ended June 30, 2004, we experienced revenue growth of 5.6% compared to the same period in 2003 and achieved an operating margin of 17.7% and an EBITDA margin of 21.8%, resulting in margin improvement of approximately 2.7 and 2.1 percentage points, respectively, compared to the year ended December 31, 2003, demonstrating the leverage in our operating model in an expanding business environment.	
 		
• 	Consistent, Strong Free Cash Flow. Through management of our inventory and receivables and our low capital expenditure requirements, we have consistently generated strong free cash flow (defined as operating cash flow less cash capital expenditures) regardless of recent industry and economic conditions. Our historical capital expenditures have been relatively low, with overall capital spending averaging approximately 1.5% of annual net sales over the last three years. In 2003, we generated free cash flow of $43.2 million. From the beginning of 2001 to the end of June 2004, we generated a cumulative $164.0 million of free cash flow.	
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• 	Low Cost Operator. We believe we are one of the lowest cost operators in the reprographics industry, which we have accomplished by minimizing branch level expenses and capitalizing on our significant scale for purchasing efficiencies. As a result of our national presence and size, we enjoy significant economies of scale, and receive favorable terms from major vendors of equipment, software and reprographics supplies such as Océ N.V., Xerox Corporation, Canon Inc., Xpedx, a division of International Paper Company, CDW Corporation, and Dell Inc. We also offer savings to other reprographers through our PEiR division, which allows members to purchase machinery and supplies at lower prices than they could obtain independently while further increasing our purchasing power.	
 		
• 	Experienced Management Team and Highly Trained Workforce. Our senior management team of S. “Mohan” Chandramohan, Chairman and Chief Executive Officer, K. “Suri” Suriyakumar, President and Chief Operating Officer, and Mark Legg, Chief Financial Officer, together with our divisional managers, has an average of over 20 years of industry experience. Mr. Chandramohan has been with us since February 1988 and Mr. Suriyakumar has been with us since November 1989. We have also successfully retained approximately 93% of the managers of the 80 businesses we have acquired since 1997.	
Our Business Strategy
       Our objective is to continue to strengthen our competitive position as the preferred provider of business-to-business document management, document distribution and logistics, and print-on-demand services . We seek to strengthen this position while increasing revenue, cash flow, profitability, and market share. Our key strategies to accomplish these objectives include:

		
• 	Continue to Increase Our Market Penetration and Expand Our Nationwide Footprint. Through our technical and operational expertise and strong customer relationships, we expect to continue to penetrate key markets and build our nationwide presence. We intend to increase our existing presence in key U.S. markets while expanding into under-penetrated regions through our facilities management contracts, targeted branch openings, strategic acquisitions, and national accounts.	

			
 	Õ  	Facilities Management Contracts. We expect to capitalize on the continued trend of our customers to outsource their document management services, including their in-house operations. Since January 1, 2001, the number of our facilities management contracts has more than doubled. Based on the six months ended June 30, 2004, annualized net sales from these contracts have grown to $69.0 million. We will continue to concentrate on developing ongoing facilities management relationships in all of the markets we serve and building our base of recurring revenue.	
 		
 	Õ  	Targeted Branch Openings. Significant opportunities exist to expand our geographic coverage, capture new customers and increase our market share by opening additional satellite branches in regions near our established operations. Our strategy with respect to branch openings is in the early stages of implementation, having evolved as the next stage of our growth to complement our traditional acquisition strategy. Since September 2003, we have opened 15 new branches in areas that expand or further penetrate our existing markets and expect to open an additional 14 branches by the end of the first quarter of 2005. Capital investment for a new branch is modest and these new branches are expected to generate positive operating profit within 12 months from opening.	
 		
 	Õ  	Strategic Acquisitions. Acquisitions have historically been an important component of our growth strategy. Since 1997, we have acquired 80 reprographics companies. We believe that there are significant opportunities to grow our business further through disciplined, strategic acquisitions due to the fragmented nature of our industry. Because our industry consists primarily of small, privately-held companies that serve only local markets, we believe that we	
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 		can continue to grow our business by successfully acquiring additional reprographics companies at reasonable prices, and realizing substantial operating and purchasing synergies by leveraging our existing corporate infrastructure.	
 		
 	Õ  	National Accounts. Our Premier Accounts business unit offers a comprehensive suite of reprographics services designed to meet the demands of large regional and national businesses. It provides local reprographics services to national companies through our national network of reprographics service centers, while offering centralized access to project-specific services, billing and tracking information. For example, we recently entered into an exclusive Premier Accounts contract with one of the leading construction companies in the United States under which we offer a full range of document management, distribution and logistics, and print-on-demand services on a national scale. This contract requires that the customer use PlanWell for every project, and the use of PlanWell by this customer’s contractors, subcontractors and outside work force should significantly improve the potential for revenue growth from this account. We believe that we will continue to capture additional revenues and national customers through this business unit.	

		
• 	Promote PlanWell as the Industry Standard for Procuring Reprographics Services Online. Our goal is to continue to expand market penetration of PlanWell and create a standardized, internet-based portal to manage, store, and retrieve documents. In order to increase market share and achieve industry standardization, we will continue to license our PlanWell technology to other reprographics companies, including members of PEiR. Through September 1, 2004, PlanWell and our other technology products have been licensed to 64 reprographics companies operating 80 service facilities throughout the United States. These efforts, combined with the strong functionality and growing capabilities of the PlanWell suite of products, should continue to position us at the forefront of technological innovation within the AEC and non-AEC reprographics markets, and create additional service and licensing revenue for us.	
 		
• 	Expand Our Non-AEC and Ancillary Product and Service Offerings. We have leveraged advances in digital production equipment and our expertise in providing highly customized, quick-turn services to the AEC industry to actively pursue customers from non-AEC industries that seek sophisticated document management, document distribution and logistics, and print-on-demand services. We have been successful in attracting non-AEC customers that require services such as the production of large format and small format color and black and white documents, educational and training materials, short-run publishing products, and retail and promotional items. We began targeting non-AEC customers upon our conversion to digital technology in 1997 and we believe that our services to these customers accounted for approximately 20% of our year to date net sales.	
In addition to expanding our non-AEC revenues, we continue to focus on creating new value-added services beyond traditional reprographics to offer all of our customers. We are actively engaged in services such as bid facilitation, print network management for offices and on-site production facilities, and on-demand color publishing. We plan to continue to capitalize on our technological innovation to enhance our existing services and to create new reprographics technologies.
Corporate Background and Reorganization
       Our predecessor, Ford Graphics, was founded in Los Angeles, California in 1960. In 1967, this sole proprietorship was dissolved and a new corporate structure was established under the name Micro Device, Inc., which continued to provide reprographics services under the name Ford Graphics. In 1989, our current senior management team purchased Micro Device, Inc., and in November 1997 our company was recapitalized as a California limited liability company, with management retaining a 50% ownership position and the remainder owned by outside investors. In February 2000, Code Hennessy & Simmons IV, L.P., a private equity fund formed by Code
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Hennessy & Simmons L.L.C., acquired a 50% stake in our company from these outside investors in a subsequent recapitalization transaction (referred to as the “2000 recapitalization”).
       We are currently organized as American Reprographics Holdings, L.L.C., a California limited liability company, or Holdings. We conduct our operations through our wholly-owned operating subsidiary, American Reprographics Company, L.L.C., a California limited liability company, or Opco, and its subsidiaries.
       Immediately prior to the closing of this offering, we will reorganize from a California limited liability company to a Delaware corporation, American Reprographics Company. In the reorganization, the members of Holdings will exchange their common units and options to purchase common units for shares of our common stock and options to purchase shares of our common stock. As required by the operating agreement of Holdings, we will repurchase all of the preferred equity of Holdings upon the closing of this offering with a portion of the net proceeds from this offering.
       Unless otherwise indicated, all information in this prospectus gives effect to our reorganization. Accordingly, the consolidated financial statements included in this prospectus are the financial statements of Holdings and its consolidated subsidiaries.
       Our principal executive offices are located at 700 North Central Avenue, Suite 550, Glendale, California 91203 and our telephone number at that address is (818) 500-0225. Our website address is www.e-arc.com. The information found on our website, however, is not a part of this prospectus. 
Risk Factors
       You should carefully consider all of the information in this prospectus. In particular, for a discussion of some specific factors that you should consider in evaluating an investment in our common stock, see “Risk Factors” beginning on page 13.
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The Offering

Common stock offered by us		                     shares	
 		
Common stock offered by the selling stockholders		                     shares	
 		
Total common stock offered		                     shares	
 		
Common stock to be outstanding after this offering		                     shares	
 		
Use of proceeds		We expect to use approximately $26.8 million of the net proceeds from this offering to repurchase our preferred equity; approximately $49.9 million to repay a portion of our senior second priority secured term loan facility; and the balance of approximately $27.8 million to repay a portion of our senior first priority secured term loan facility. We will not receive any proceeds from the sale of shares by the selling stockholders.	
 		
Dividend policy		We do not anticipate paying any dividends on our common stock in the foreseeable future.	
 		
Proposed New York Stock Exchange symbol		“ARP”	
Unless otherwise noted, the information in this prospectus, including the information above:

		
• 	assumes our conversion from a California limited liability company to a Delaware corporation, which will occur before the closing of this offering;	
 		
• 	assumes 35,487,511 shares of common stock outstanding at June 30, 2004;	
 		
• 	excludes                      shares of common stock subject to outstanding options at June 30, 2004 issued at a weighted average exercise price of $5.18 per share;	
 		
 • 	excludes                      shares of common stock issued upon option exercises since June 30, 2004;	
 		
• 	excludes                      shares of common stock issuable upon the exercise of options granted under our Unit Plan since June 30, 2004;	
 		
• 	excludes 5,000,000 shares of common stock reserved for future issuance under our 2005 Stock Plan, and 750,000 shares of common stock reserved for future issuance under our 2005 Employee Stock Purchase Plan;	
 		
• 	excludes 1,168,842 shares of common stock issuable upon the exercise of outstanding warrants at June 30, 2004 issued at an exercise price of $4.61 per share; and	
 		
• 	assumes no exercise of the underwriters’ option to purchase additional shares.	
8 

 
Summary Historical and Unaudited Pro Forma Financial Data
       The summary historical and unaudited pro forma financial data presented below are derived from the audited financial statements of Holdings for the fiscal years ended December 31, 1999, 2000, 2001, 2002, and 2003, and the unaudited financial statements of Holdings for the six-month periods ended June 30, 2003 and 2004. The summary historical financial data for the six-month periods ended June 30, 2003 and 2004 are derived from unaudited interim financial statements which, in the opinion of management, include all normal, recurring adjustments necessary to state fairly the data included therein in accordance with generally accepted accounting principles, or GAAP, for interim financial information, except for pro forma data. Interim results are not necessarily indicative of the results to be expected for the entire fiscal year. The unaudited pro forma financial data set forth below give effect to our conversion to a Delaware corporation and the completion of this offering, as described in “Use of Proceeds.” The unaudited pro forma financial data are not necessarily indicative of our financial position or results of operations that might have occurred had the transactions they give effect to been completed as of the dates indicated and do not purport to represent what our financial position or results of operations might be for any future period or date. For additional information see “Capitalization,” “Selected Historical and Unaudited Pro Forma Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our audited financial statements and unaudited financial statements included elsewhere in this prospectus. 

													
				Six Months Ended	
		Fiscal Year Ended December 31,		June 30,	
					
		1999		2000		2001		2002		2003		2003		2004	

												(Unaudited)	
			
		(Dollars in thousands)	
Statement of Operations Data:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net sales	 	$	223,836	 	 	$	351,099	 	 	$	420,701	 	 	$	418,924	 	 	$	415,960	 	 	$	214,154	 	 	$	226,133	 	
Cost of sales	 	 	134,531	 	 	 	201,390	 	 	 	243,710	 	 	 	247,778	 	 	 	252,028	 	 	 	127,311	 	 	 	130,790	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Gross profit	 	 	89,305	 	 	 	149,709	 	 	 	176,991	 	 	 	171,146	 	 	 	163,932	 	 	 	86,843	 	 	 	95,343	 	
Selling, general and administrative expenses	 	 	53,730	 	 	 	83,139	 	 	 	102,576	 	 	 	101,805	 	 	 	101,252	 	 	 	51,044	 	 	 	55,264	 	
Amortization of intangibles	 	 	2,823	 	 	 	3,966	 	 	 	5,731	 	 	 	218	 	 	 	131	 	 	 	67	 	 	 	54	 	
Costs incurred in connection with the 2000 recapitalization	 	 	—	 	 	 	20,544	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
Costs incurred in connection with acquisition activities	 	 	—	 	 	 	6,232	 	 	 	1,428	 	 	 	1,500	 	 	 	—	 	 	 	—	 	 	 	—	 	
Write-off of intangible assets	 	 	—	 	 	 	—	 	 	 	3,438	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Income from operations	 	 	32,752	 	 	 	35,828	 	 	 	63,818	 	 	 	67,623	 	 	 	62,549	 	 	 	35,732	 	 	 	40,025	 	
Other income	 	 	638	 	 	 	713	 	 	 	304	 	 	 	541	 	 	 	1,024	 	 	 	731	 	 	 	567	 	
Interest expense, net	 	 	(9,215	)	 	 	(29,238	)	 	 	(47,530	)	 	 	(39,917	)	 	 	(39,390	)	 	 	(18,116	)	 	 	(16,248	)	
Loss on early extinguishment of debt	 	 	—	 	 	 	(1,195	)	 	 	—	 	 	 	—	 	 	 	(14,921	)	 	 	—	 	 	 	—	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Income before income tax provision	 	 	24,175	 	 	 	6,108	 	 	 	16,592	 	 	 	28,247	 	 	 	9,262	 	 	 	18,347	 	 	 	24,344	 	
Income tax provision	 	 	4,068	 	 	 	4,784	 	 	 	5,802	 	 	 	6,304	 	 	 	4,321	 	 	 	3,641	 	 	 	5,174	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Net income	 	 	20,107	 	 	 	1,324	 	 	 	10,790	 	 	 	21,943	 	 	 	4,941	 	 	 	14,706	 	 	 	19,170	 	
Dividends and amortization of discount on preferred members’ equity	 	 	—	 	 	 	(2,158	)	 	 	(3,107	)	 	 	(3,291	)	 	 	(1,730	)	 	 	(1,730	)	 	 	—	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Net income (loss) attributable to common members	 	 	20,107	 	 	 	(834	)	 	 	7,683	 	 	 	18,652	 	 	 	3,211	 	 	 	12,976	 	 	 	19,170	 	
Unaudited pro forma incremental income tax provision(1)	 	 	5,304	 	 	 	2,618	 	 	 	2,622	 	 	 	6,275	 	 	 	1,407	 	 	 	4,305	 	 	 	5,937	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Unaudited pro forma net income (loss) attributable to common members	 	$	14,803	 	 	$	(3,452	)	 	$	5,061	 	 	$	12,377	 	 	$	1,804	 	 	$	8,671	 	 	$	13,233	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
9 

 

													
				Six Months Ended	
		Fiscal Year Ended December 31,		June 30,	
					
		1999		2000		2001		2002		2003		2003		2004	

												(Unaudited)	
			
		(In thousands, except per unit amounts)	
Unaudited pro forma net income (loss) attributable to common members per common unit:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Basic	 	$	0.60	 	 	$	(0.10	)	 	$	0.14	 	 	$	0.34	 	 	$	0.05	 	 	$	0.24	 	 	$	0.37	 	
 	Diluted	 	$	0.60	 	 	$	(0.10	)	 	$	0.14	 	 	$	0.34	 	 	$	0.05	 	 	$	0.24	 	 	$	0.35	 	
Weighted average units:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Basic	 	 	24,571	 	 	 	35,308	 	 	 	36,629	 	 	 	36,406	 	 	 	35,480	 	 	 	35,473	 	 	 	35,488	 	
 	Diluted	 	 	24,571	 	 	 	35,371	 	 	 	36,758	 	 	 	36,723	 	 	 	37,298	 	 	 	35,999	 	 	 	37,440	 	

				Six Months Ended	
		Fiscal Year Ended December 31,		June 30,	
					
		1999		2000		2001		2002		2003		2003		2004	

												(Unaudited)	
			
		(Dollars in thousands)	
Other Financial Data:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
EBIT(2)(3)	 	$	33,390	 	 	$	35,346	 	 	$	64,122	 	 	$	68,164	 	 	$	48,652	 	 	$	36,463	 	 	$	40,592	 	
EBITDA(2)(3)	 	$	42,932	 	 	$	50,288	 	 	$	89,494	 	 	$	86,062	 	 	$	67,011	 	 	$	45,878	 	 	$	49,215	 	
Adjusted EBITDA(4)	 	$	42,932	 	 	$	72,027	 	 	$	89,494	 	 	$	86,062	 	 	$	81,932	 	 	$	45,878	 	 	$	49,215	 	
Adjusted EBIT margin(5)	 	 	14.9	%	 	 	16.3	%	 	 	15.2	%	 	 	16.3	%	 	 	15.3	%	 	 	17.0	%	 	 	18.0	%	
Adjusted EBITDA margin(6)	 	 	19.2	%	 	 	20.5	%	 	 	21.3	%	 	 	20.5	%	 	 	19.7	%	 	 	21.4	%	 	 	21.8	%	
Depreciation and amortization(7)	 	$	9,542	 	 	$	14,942	 	 	$	25,372	 	 	$	17,898	 	 	$	18,359	 	 	$	9,415	 	 	$	8,623	 	
Capital expenditures, net	 	$	3,877	 	 	$	5,228	 	 	$	8,659	 	 	$	5,209	 	 	$	4,992	 	 	$	1,817	 	 	$	3,427	 	
Interest expense	 	$	9,215	 	 	$	29,238	 	 	$	47,530	 	 	$	39,917	 	 	$	39,390	 	 	$	18,116	 	 	$	16,248	 	

												As of June 30, 2004,	
													
						Pro	
		As of December 31,				Forma	
						As	
		1999		2000		2001		2002		2003		Actual		Adjusted(8)	

												(Unaudited)	
			
		(Dollars in thousands)	
Balance Sheet Data:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash and cash equivalents	 	$	15,814	 	 	$	31,565	 	 	$	29,110	 	 	$	24,995	 	 	$	17,315	 	 	$	16,809	 	 	$	6,307	 	
Total assets	 	$	204,464	 	 	$	358,026	 	 	$	371,948	 	 	$	395,677	 	 	$	376,843	 	 	$	389,133	 	 	$	376,916	 	
Long-term obligations and mandatorily redeemable preferred and common membership units(9)(10)	 	$	123,951	 	 	$	359,746	 	 	$	371,515	 	 	$	378,102	 	 	$	360,008	 	 	$	360,137	 	 	$	256,053	 	
Total members’ equity (deficit)(11)	 	$	32,422	 	 	$	(80,478	)	 	$	(78,900	)	 	$	(59,784	)	 	$	(57,329	)	 	$	(40,079	)	 	$	68,264	 	
Working capital	 	$	15,379	 	 	$	34,742	 	 	$	24,338	 	 	$	24,371	 	 	$	16,809	 	 	$	32,870	 	 	$	22,368	 	

		
  (1) 	Until our reorganization, which will be effective prior to the closing of this offering, a substantial portion of our business will continue to operate as a limited liability company, or LLC, and taxed as a partnership. As a result, the members of the LLC pay the income taxes on the earnings. The unaudited pro forma incremental income tax provision amounts reflected in the table above were calculated as if our reorganization became effective on January 1, 1999.	
 		
  (2) 	EBIT is a non-GAAP measure that represents earnings before interest expense and income taxes. EBITDA is a non-GAAP measure that represents earnings before interest expense, income taxes, depreciation, and amortization. We believe that EBIT and EBITDA are, and will continue to be, financial measures useful to financial analysts and to the lending community because they are generally used in analyzing the operating performance of a company and its ability to service debt and otherwise meet its cash needs. EBIT and EBITDA, however, are not measures of financial performance under GAAP and should not be considered as an alternative to, or more meaningful than, net income as a measure of operating performance or to cash flows from operating, investing or financing activities as a measure of liquidity. Since EBIT and EBITDA are not measures determined in accordance with GAAP and, thus, are susceptible to	
10 

 

		
	varying interpretations and calculations, EBIT and EBITDA, as presented, may not be comparable to other similarly titled measures of other companies. Neither EBIT nor EBITDA represents an amount of funds that is available for management’s discretionary use.	
 		
  (3) 	The following is a reconciliation of cash flows provided by operating activities to EBIT, EBITDA, and pro forma net income:	

				Six Months Ended	
		Fiscal Year Ended December 31,		June 30,	
					
		1999		2000		2001		2002		2003		2003		2004	

												(Unaudited)	
			
		(Dollars in thousands)	
Cash flows provided by operating activities	 	$	28,569	 	 	$	28,054	 	 	$	53,151	 	 	$	56,413	 	 	$	48,237	 	 	$	26,922	 	 	$	28,515	 	
 	Changes in operating assets and liabilities	 	 	242	 	 	 	(95	)	 	 	(533	)	 	 	(5,482	)	 	 	(4,860	)	 	 	1,503	 	 	 	1,247	 	
 	Noncash expenses, including depreciation and amortization	 	 	(8,704	)	 	 	(26,635	)	 	 	(41,828	)	 	 	(28,988	)	 	 	(38,436	)	 	 	(13,719	)	 	 	(10,592	)	
 	Income tax provision	 	 	4,068	 	 	 	4,784	 	 	 	5,802	 	 	 	6,304	 	 	 	4,321	 	 	 	3,641	 	 	 	5,174	 	
 	Interest expense, net	 	 	9,215	 	 	 	29,238	 	 	 	47,530	 	 	 	39,917	 	 	 	39,390	 	 	 	18,116	 	 	 	16,248	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
EBIT	 	 	33,390	 	 	 	35,346	 	 	 	64,122	 	 	 	68,164	 	 	 	48,652	 	 	 	36,463	 	 	 	40,592	 	
 	Depreciation and amortization(7)	 	 	9,542	 	 	 	14,942	 	 	 	25,372	 	 	 	17,898	 	 	 	18,359	 	 	 	9,415	 	 	 	8,623	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
EBITDA	 	 	42,932	 	 	 	50,288	 	 	 	89,494	 	 	 	86,062	 	 	 	67,011	 	 	 	45,878	 	 	 	49,215	 	
 	Interest expense	 	 	(9,215	)	 	 	(29,238	)	 	 	(47,530	)	 	 	(39,917	)	 	 	(39,390	)	 	 	(18,116	)	 	 	(16,248	)	
 	Income tax provision and unaudited pro forma incremental income tax provision(1)	 	 	(9,372	)	 	 	(7,402	)	 	 	(8,424	)	 	 	(12,579	)	 	 	(5,728	)	 	 	(7,946	)	 	 	(11,111	)	
 	Depreciation and amortization	 	 	(9,542	)	 	 	(14,942	)	 	 	(25,372	)	 	 	(17,898	)	 	 	(18,359	)	 	 	(9,415	)	 	 	(8,623	)	
 	Dividends and amortization of discount on preferred members’ equity	 	 	—	 	 	 	(2,158	)	 	 	(3,107	)	 	 	(3,291	)	 	 	(1,730	)	 	 	(1,730	)	 	 	—	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Unaudited pro forma net income (loss) attributable to common members	 	$	14,803	 	 	$	(3,452	)	 	$	5,061	 	 	$	12,377	 	 	$	1,804	 	 	$	8,671	 	 	$	13,233	 	

		
  (4) 	Adjusted EBITDA refers to our EBITDA, adjusted to exclude the impact of (i) costs incurred in connection with our recapitalization in 2000 and (ii) loss on early extinguishment of debt. We believe that adjustment for these items is recognized by the industry in which we operate to be relevant as a supplementary non-GAAP financial measure widely used by financial analysts and others in our industry to meaningfully evaluate a company’s operating performance and ability to comply with its applicable debt covenants. We also use adjusted EBITDA to measure and pay certain annual management bonuses. In addition, in evaluating adjusted EBITDA, you should be aware that in the future, we may incur expenses similar to the adjustments in this presentation. Our presentation of adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.	

		
 	The following is a reconciliation of EBITDA to adjusted EBITDA:	

				Six Months Ended	
		Fiscal Year Ended December 31,		June 30,	
					
		1999		2000		2001		2002		2003		2003		2004	

												(Unaudited)	
			
		(Dollars in thousands)	
EBITDA	 	$	42,932	 	 	$	50,288	 	 	$	89,494	 	 	$	86,062	 	 	$	67,011	 	 	$	45,878	 	 	$	49,215	 	
 	Costs incurred in connection with the 2000 recapitalization	 	 	—	 	 	 	20,544	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
 	Loss on early extinguishment of debt	 	 	—	 	 	 	1,195	 	 	 	—	 	 	 	—	 	 	 	14,921	 	 	 	—	 	 	 	—	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Adjusted EBITDA	 	$	42,932	 	 	$	72,027	 	 	$	89,494	 	 	$	86,062	 	 	$	81,932	 	 	$	45,878	 	 	$	49,215	 	

		
  (5) 	The adjusted EBIT margin is calculated by subtracting depreciation and amortization from adjusted EBITDA and dividing the result by net sales.	
 		
  (6) 	The adjusted EBITDA margin is calculated by dividing adjusted EBITDA by net sales.	
11 

 

		
  (7) 	Depreciation and amortization includes a write-off of intangible assets of $3.4 million for the year ended December 31, 2001.	
 		
  (8) 	Prepared on the same basis as the capitalization table. See “Capitalization.”	
 		
  (9) 	In July 2003, we adopted SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” In accordance with SFAS No. 150, the redeemable preferred equity of Holdings has been reclassified in our financial statements as a component of our total debt upon our adoption of this new standard. The redeemable preferred equity amounted to $25.8 million as of December 31, 2003 and $26.8 million as of June 30, 2004. SFAS No. 150 does not permit the restatement of financial statements for periods prior to the adoption of this standard.	

		
(10) 	Redeemable common membership units amounted to $6.0 million and $8.1 million at December 31, 2000 and 2001, respectively.	
 		
(11) 	The decline in total members’ equity (deficit) from December 31, 1999 to December 31, 2000 was a result of an $88.8 million cash distribution to Holdings’ common unit holders in connection with the 2000 recapitalization and the reclassification of $20.3 million of preferred equity issued in connection with the 2000 recapitalization upon the adoption of SFAS No. 150 in July 2003.	
12 

 

RISK FACTORS
       Investing in our common stock involves a number of risks. You should carefully consider all of the information contained in this prospectus, including the risk factors set forth below, before investing in the common stock offered pursuant to this prospectus. We may encounter risks in addition to those described below. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also impair or adversely affect our results of operations and financial condition. In such case, you may lose all or part of your original investment.
Risks Related to Our Business
Our business is sensitive to general economic conditions that could negatively impact our financial results.
       We believe that AEC markets accounted for approximately 80% of our year to date net sales. Our historical operating results reflect the cyclical and variable nature of the AEC industry. This industry historically experiences alternating periods of inadequate supplies of housing, commercial and industrial space coupled with low vacancies, causing a surge in construction activity and increased demand for reprographics services, followed by periods of oversupply and high vacancies and declining demand for reprographics services. In addition, existing and future government policies and programs may greatly influence the level of construction spending in the public sector, such as highways, schools, hospitals, sewers, and heavy construction. Since we derive a majority of our revenues from reprographics products and services provided to the AEC industry, our operating results are more sensitive to the nature of this industry than other companies who serve more diversified markets. Our experience has shown that the AEC industry generally experiences economic downturns six months after a downturn in the general economy. We expect that there may be a similar delay in the rebound of the AEC industry following a rebound in the general economy. Future economic and industry downturns may be characterized by diminished demand for our products and services and, therefore, any continued weakness in our customers’ markets and overall global economic conditions could adversely affect our results of operations and financial condition.
       In addition, because approximately 60% of our overall costs are fixed, changes in economic activity, positive or negative, affect our results of operations. As a result, our results of operations are subject to volatility and could deteriorate rapidly in an environment of declining revenues. Failure to maintain adequate cash reserves and effectively manage our costs could adversely affect our ability to offset our fixed costs and may have an adverse effect on our results of operations and financial condition.
Competition in our industry and innovation by our competitors may hinder our ability to execute our business strategy and maintain our profitability.
       The markets for our products and services are highly competitive, with competition primarily at a local and regional level. We compete primarily based on customer service, technological leadership, product performance and price. Our future success depends, in part, on our ability to continue to improve our service offerings, and develop and integrate technological advances. If we are unable to integrate technological advances into our service offerings to successfully meet the evolving needs of our customers in a timely manner, our operating results may be adversely affected. Technological innovation by our existing or future competitors could put us at a competitive disadvantage. In particular, our business could be adversely affected if any of our competitors develop or acquire superior technology that competes directly with or offers greater functionality than our technology, including PlanWell.
       We also face the possibility that competition will continue to increase, particularly if copy and printing or business services companies choose to expand into the reprographics services industry. Many of these companies are substantially larger and have significantly greater financial resources
13 

 

than us, which could place us at a competitive disadvantage. In addition, we could encounter competition in the future from large, well capitalized companies such as equipment dealers, system integrators, and other reprographics associations, that can produce their own technology and leverage their existing distribution channels. We could also encounter competition from non-traditional reprographics service providers that offer reprographics services as a component of the other services they provide to the AEC industry, such as vendors to our industry that provide services directly to our customers, bypassing reprographers. Any such future competition could have an adverse effect on our results of operations and financial condition.
The reprographics industry has undergone vast changes in the last six years and will continue to evolve, and our failure to anticipate and adapt to future changes in our industry could harm our competitive position.
       In the past six years, the reprographics industry has undergone vast changes. The industry’s main production technology has migrated from analog to digital. This has prompted a number of trends in the reprographics industry, including a rapid shift toward decentralized production and lower labor utilization. As digital output devices become smaller, less expensive, easier to use and interconnected, end users of construction drawings are placing these devices within their offices and other locations. On-site reprographics equipment allows a customer to print documents and review hard copies without the delays or interruptions associated with sending documents out for duplication. Also, as a direct result of advancements in digital technology, labor demands have decreased. Instead of producing one print at a time, reprographers now have the capability to produce multiple sets of documents with a single production employee. By linking output devices through a single print server, a production employee simply directs output to the device that is best suited for the job. As a result of these trends, reprographers have had to modify their operations to decentralize printing and shift costs from labor to technology.
       Looking forward, we expect the reprographics industry to continue to evolve. Our industry will continue to embrace digital technology, not only in terms of production services, but also in terms of network technology, digital document storage and management, and information distribution, all of which will require investment in, and continued development of, technological innovation. If we fail to keep pace with current changes or fail to anticipate or adapt to future changes in our industry, our competitive position could be harmed.
We cannot be certain that our service innovations will continue.
       In order to remain competitive, we must continually invest in new technologies that will enable us to meet the evolving demands of our customers. We cannot assure you that we will be successful in the introduction and marketing of any new services, or that we will develop and introduce in a timely manner innovative services that satisfy customer needs or achieve market acceptance. Our failure to develop new services and introduce them successfully could harm our ability to grow our business and could have a material adverse effect on our results of operations and financial condition.
       In addition, as reprographics technologies continue to be developed, one or more of our current service offerings may become obsolete. In particular, digital technologies may significantly reduce the need for high volume printing. Digital technology may also make traditional reprographics equipment smaller and cheaper, which may cause larger AEC customers to discontinue outsourcing their reprographics needs. Any such developments could adversely affect our results of operations and financial condition.
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If we are unable to charge for our value-added services to offset potential declines in print volumes, our long term revenue could be adversely affected.
       Our customers value the ability to view and order prints via the internet and print to output devices in their own offices and other locations throughout the country. This trend toward consuming information on an “as needed” basis could result in decreasing printing volumes and declining revenues in the longer term. Failure to offset these potential declines in printing volumes by changing how we charge for our services and developing additional revenue sources could have an adverse effect on our results of operations and financial condition.
We derive a significant percentage of net sales from within the State of California.
       We derived approximately half of our net sales in 2003, and in the six months ended June 30, 2004, from our operations in California. As a result, we are dependent to a large extent upon the AEC industry in California and, accordingly, are sensitive to economic factors affecting California, including general and local economic conditions, macroeconomic trends, and natural disasters. Any adverse developments affecting California could negatively affect our results of operations and financial condition.
Our growth strategy depends in part on our ability to successfully identify and manage our acquisitions and branch openings. Failure to do so could impede our future growth and adversely affect our competitive position.
       As part of our growth strategy, we intend to prudently pursue strategic acquisitions within the reprographics industry. Since 1997, we have acquired 80 businesses, most of which were long established in the communities in which they conduct their business. Our efforts to execute our acquisition strategy may be affected by our ability to continue to identify, negotiate, integrate, and close acquisitions. In addition, any governmental review or investigation of our proposed acquisitions, such as by the Federal Trade Commission, or FTC, may impede, limit or prevent us from proceeding with an acquisition. For example, our acquisition of Consolidated Reprographics in 2001 triggered an investigation by the FTC, which has since been concluded without any action being taken against us by the FTC. We regularly evaluate potential acquisitions, although we currently have no agreements or active negotiations with respect to any material acquisitions.
       Acquisitions involve a number of special risks. There may be difficulties integrating acquired personnel and distinct business cultures. Additional financing may be necessary and, if available, could increase our leverage, dilute our equity, or both. Acquisitions may divert management’s time and our resources from existing operations. It is possible that there could be a negative effect on our financial statements from the impairment related to goodwill and other intangibles. We may experience the loss of key employees or customers of acquired companies. In addition, risks may include high transaction costs and expenses of integrating acquired companies, as well as exposure to unforeseen liabilities of acquired companies and failure of the acquired business to achieve expected results. These risks could have an adverse effect on our results of operations and financial condition.
       In addition, we have recently begun to expand our geographic coverage by opening additional satellite branches in regions near our established operations to capture new customers and greater market share. Since September 2003, we have opened 15 new branches in areas that expand or further penetrate our existing markets, and we expect to open an additional 14 branches by the end of the first quarter of 2005. Although the capital investment for a new branch is modest, our growth strategy with respect to branch openings is in the early stages of implementation and the branches we open in the future may not ultimately produce returns that justify our investment.
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We operate under a dual operating structure which, if not successfully managed, could harm our business and profitability.
       We operate our company under a dual operating structure of centralized administrative functions and regional decision making on marketing, pricing, and selling practices. Since 1997, we have acquired 80 businesses and, in most cases, have delegated the responsibility for marketing, pricing, and selling practices with the local and operational managers of these businesses. If we do not successfully manage our subsidiaries under this decentralized operating structure, we risk having disparate results, lost market opportunities, lack of economic synergies, and a loss of vision and planning, all of which could harm our business and profitability.
       In August 2003, we restated our financial statements for the years ended December 31, 2001 and 2002 to correct accounting misstatements at one of our subsidiaries during 2001 due to fraud by certain managers at the subsidiary. The accounting misstatements at the subsidiary resulted in the overstatement of net income in 2001 by $1,461,000. In response to these accounting misstatements, we have strengthened our financial and management policies and procedures, established an internal audit group, and improved our accounting controls. However, we cannot assure that these new internal controls will be effective in preventing similar fraud in the future.
We depend on certain key vendors, and adverse developments concerning these vendors, or our relationships with these vendors, could adversely affect our business.
       We purchase reprographics equipment and maintenance services, as well as paper, toner and other supplies, from a limited number of vendors. Our four largest vendors, which supplied a substantial amount of our reprographics equipment, maintenance services, and production supplies in 2003, are Océ N.V., Xerox Corporation, Canon Inc., and Xpedx, a division of International Paper Company. Adverse developments concerning key vendors or our relationships with them could force us to seek alternate sources for our reprographics equipment, maintenance services and supplies or to purchase such items on unfavorable terms. An alternative source of supply of reprographics equipment, maintenance services and supplies may not be readily available. A delay in procuring reprographics equipment, maintenance services or supplies, or an increase in the cost to purchase such reprographics equipment, maintenance services or supplies could limit our ability to provide services to our customers on a timely and cost-effective basis, which would have an adverse effect on our results of operations and financial condition.
Our failure to adequately protect the proprietary aspects of our technology, including PlanWell, may cause us to lose market share.
       Our success depends on our ability to protect and preserve the proprietary aspects of our technologies, including PlanWell. We rely on a combination of copyright and trademark protection, confidentiality agreements, non-compete agreements, reseller agreements, customer contracts, and technical measures to establish and protect our rights in our proprietary technologies. Under our PlanWell license agreements, we grant other reprographers a non-exclusive, non-transferable, limited license to use our technology and receive our services. Our license agreements contain terms and conditions prohibiting the unauthorized reproduction or transfer of our products. These protections, however, may not be adequate to remedy harm we suffer due to misappropriation of our proprietary rights by third parties. In addition, U.S. law provides only limited protection of proprietary rights and the laws of some foreign countries may offer less protection than the laws of the United States. Unauthorized third parties may copy aspects of our products, reverse engineer our products or otherwise obtain and use information that we regard as proprietary. Others may develop non-infringing technologies that are similar or superior to ours. If competitors are able to develop such technology and we cannot successfully enforce our rights against them, they may be able to market and sell or license the marketing and sale of products that compete with ours, and this competition could adversely affect our results of operations and financial condition. Furthermore, intellectual
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property litigation can be expensive, a burden on management’s time and our company’s resources, and its results can be uncertain.
Our intellectual property rights may be subject to the rights of third parties.
       Other companies or individuals may pursue litigation against us with respect to intellectual property-based claims, including claims relating to the use of our brands, trademarks, logos, technologies, trade secrets, and other proprietary information. In the event of an adverse result in any litigation with respect to intellectual property rights relevant to our business that could arise in the future, we could be required to obtain licenses to the infringing technology; begin using other brands, trademarks and logos; pay substantial damages under applicable law; or expend significant resources to develop non-infringing technology. There can be no assurance that suitable replacement technologies would be available to us on commercially reasonable terms. Our insurance may not cover potential claims or may not be adequate to indemnify us for damages we incur. Also, litigation frequently involves substantial expenditures and can require significant management attention, even if we ultimately prevail.
Damage or disruption to our facilities, our technology centers, our vendors or a majority of our customers may have a significant impact on our revenues, expenses and financial condition.
       We currently store most of our customer data at our two technology centers located in Northern California near known earthquake fault zones. Damage or destruction of one or both of these technology centers or a disruption of our data storage processes resulting from sustained process abnormalities, human error, acts of terrorism, violence, war or a natural disaster, such as fire, earthquake or flood, could have a material adverse effect on the markets in which we operate, our business operations, our expectations and other forward-looking statements contained in this prospectus. In addition, such damage or destruction on a national scale resulting in a general economic downturn could adversely affect our results of operations and financial condition. We store and maintain critical customer data on computer servers at our technology centers that our customers access remotely through the internet and/or directly through telecommunications lines. If our back-up power generators fail during any power outage, if our telecommunications lines are severed or those lines on the internet are impaired for any reason, our remote access customers would be unable to access their critical data, causing an interruption in their operations. In such event, our remote access customers and their customers could seek to hold us responsible for any losses. We may also potentially lose these customers and our reputation could be harmed. In addition, such damage or destruction, particularly those that directly impact our technology centers or our vendors or customers could have an impact on our sales, supply chain, production capability, costs, and our ability to provide services to our customers.
       Although we currently maintain general property damage insurance, we do not maintain insurance for loss from earthquakes, acts of terrorism or war. If we incur losses from uninsured events, we could incur significant expenses which would adversely affect our results of operations and financial condition.
If we lose key personnel or qualified technical staff, our ability to manage the day-to-day aspects of our business will be adversely affected.
       We believe that the attraction and retention of qualified personnel is critical to our success. If we lose key personnel or are unable to recruit qualified personnel, our ability to manage the day-to-day aspects of our business will be adversely affected. Our operations and prospects depend in large part on the performance of our senior management team and the managers of our principal operating divisions. The loss of the services of one or more members of our senior management team, in particular, Mr. Chandramohan, our Chief Executive Officer, and Mr. Suriyakumar, our President and Chief Operating Officer, could have a material adverse effect on our business,
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financial condition and results of operations. Because our executive and divisional management team has on average more than 20 years of experience within the reprographics industry, it would be difficult to replace them.
If we are required to write down our goodwill, our operations and stockholders’ equity would be adversely affected.
       As described in the notes to our financial statements included elsewhere in this prospectus, we have $245 million of goodwill recorded on our balance sheet as of June 30, 2004. Goodwill arises when we pay more for a business than the fair market value of the acquired tangible and separately measurable intangible net assets. Until January 1, 2002, we amortized this goodwill on a straight-line basis over 40 years. Under accounting rules that we adopted beginning January 1, 2002, we are no longer able to amortize goodwill on a yearly basis. Instead, we are required to periodically determine if our goodwill has become impaired, in which case we would be required to write off the impaired portion of goodwill. The amount of goodwill that we would write off in any given year is treated as a charge against earnings under generally accepted accounting principles in the United States. If we are required to write off our goodwill, we could incur significant charges against earnings, which would adversely affect our results of operations and stockholders’ equity.
We have substantial debt and have the ability to incur additional debt. The principal and interest payment obligations of such debt may restrict our future operations and adversely affect our business.
       As of June 30, 2004, assuming that this offering and the application of the net proceeds from this offering as described under “Use of Proceeds” had been completed by that date, we would have had approximately $267 million of outstanding indebtedness. In addition, the credit agreements governing our credit facilities permit us to incur additional debt under certain circumstances.
       The incurrence of substantial amounts of debt may make it more difficult for us to satisfy our financial obligations; require us to dedicate a substantial portion of any cash flow from operations to the payment of interest and principal due under our debt, which will reduce funds available for other business purposes; increase our vulnerability to general adverse economic and industry conditions; limit our flexibility in planning for, or reacting to, changes in our business and the industries in which we operate; place us at a competitive disadvantage compared with some of our competitors that have less debt; and limit our ability to obtain additional financing required to fund working capital and capital expenditures and for other general corporate purposes.
       Our ability to satisfy our obligations and to reduce our total debt depends on our future operating performance and on economic, financial, competitive and other factors, many of which are beyond our control. Our business may not generate sufficient cash flow, and future financings may not be available to provide sufficient net proceeds to meet these obligations or to successfully execute our business strategy.
The agreements governing our credit facilities impose restrictions on our business.
       The credit agreements for our senior secured credit facilities contain, and other agreements we may enter into in the future may contain, covenants imposing significant restrictions on our business. These restrictions may affect our ability to operate our business and may limit our ability to take advantage of potential business opportunities as they arise. These covenants place restrictions on our ability to, among other things, incur additional debt, create liens, make investments, enter into transactions with affiliates, sell assets, guarantee debt, declare or pay dividends, redeem common stock or make other distributions to stockholders, and consolidate or merge. See “Description of Certain Indebtedness.”
       Our ability to comply with these covenants may be affected by events beyond our control, including prevailing economic, financial, and industry conditions. An event of default under our debt
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agreements would permit some of our lenders to declare all amounts borrowed from them to be due and payable, together with accrued and unpaid interest. If we were unable to repay debt to our senior lenders, these lenders could proceed against the collateral securing that debt.
Being a public company will increase our expenses and administrative workload.
       As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. In addition, our administrative staff will be required to perform additional tasks. For example, in anticipation of becoming a public company, we will have created or revised the roles and duties of our board committees, adopted additional internal controls and disclosure controls and procedures, retained a transfer agent and a financial printer, adopted an insider trading policy and will have all of the internal and external costs of preparing and distributing periodic public reports in compliance with our obligations under the securities laws. We also expect that being a public company and these new rules and regulations will make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our audit committee, and qualified executive officers.
We will be exposed to risks relating to evaluations of controls required by Section 404 of the Sarbanes-Oxley Act of 2002.
       Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002 and related regulations implemented by the Securities and Exchange Commission, or SEC, and the New York Stock Exchange, or NYSE, are creating uncertainty for public companies, increasing legal and financial compliance costs and making some activities more time consuming. We will be evaluating our internal controls systems to allow management to report on, and our independent auditors to attest to, our internal controls. We will be performing the system and process evaluation and testing (and any necessary remediation) required to comply with the management certification and auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act. As a result, we expect to incur substantial additional expenses and diversion of management’s time. While we anticipate being able to fully implement the requirements relating to internal controls and all other aspects of Section 404 by our December 31, 2005 deadline, we cannot be certain as to the timing of completion of our evaluation, testing and remediation actions or the impact of the same on our operations since there is presently no precedent available by which to measure compliance adequacy. If we are not able to implement the requirements of Section 404 in a timely manner or with adequate compliance, we might be subject to sanctions or investigation by regulatory authorities, such as the SEC or the NYSE. Any such action could adversely affect our financial results or investors’ confidence in our company, and could cause our stock price to fall.
Our operations subject us to potential environmental liabilities.
       Our printing operations are subject to numerous federal, state and local laws, and regulations relating to the environment. Such environmental regulations may affect us by restricting the use of certain products or regulating their disposal and regulatory or legislative changes may cause future increases in our operating costs or otherwise affect our operations. Although we believe we are and have been in substantial compliance with such regulations, there is no assurance that in the future we may not be adversely affected by such regulations or incur increased operating costs in complying with such regulations.
       Our operations involve some use of hazardous substances and the generation of wastes, primarily toner, which could have adverse environmental impacts if released into the environment. Environmental regulations impose obligations on various entities to clean up contaminated properties or to pay for the cost of such remediation, often upon parties that did not actually cause the
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contamination. Accordingly, we may become liable, either contractually or by operation of law, for remediation costs even if a contaminated property is not presently owned or operated by us, or if the contamination was caused by third parties during or prior to our ownership or operation of the property. While we are not subject to any existing remediation obligations, future events, such as changes in existing laws or policies or their enforcement, or the discovery of currently unknown contamination, may give rise to future remediation liabilities that may be material.
Risks Related to Our Common Stock
Our stock price may be volatile, and you may not be able to resell your shares at or above the initial public offering price.
       Prior to this offering, there has been no public market for shares of our common stock. An active public trading market for our common stock may not develop or, if it develops, may not be maintained after this offering, and the market price could fall below the initial public offering price. Factors such as quarterly variations in our financial results, announcements by us or others, developments affecting us, our customers and our suppliers, acquisition of products or businesses by us or our competitors, and general market volatility could cause the market price of our common stock to fluctuate significantly. As a result, you could lose all or part of your investment. Our company, the selling stockholders, and the representatives of the underwriters will negotiate to determine the initial public offering price. The initial public offering price may be higher than the trading price of our common stock following this offering.
Anti-takeover provisions in our charter documents and Delaware corporate law may make it difficult for our stockholders to replace or remove our current board of directors and could deter an unsolicited third party acquisition offer, which may adversely affect the marketability and market price of our common stock.
       Provisions in our amended and restated certificate of incorporation and amended and restated bylaws and in Delaware corporate law will make it difficult for stockholders to change the composition of our board of directors, which consequently will make it difficult to change the composition of management. In addition, these provisions may make it difficult and expensive for a third party to pursue a tender offer, change in control or takeover attempt that is opposed by our management and board of directors. Public stockholders who might desire to participate in this type of transaction may not have an opportunity to do so. These anti-takeover provisions could substantially impede the ability of public stockholders to benefit from a change in control or change our management and board of directors and, as a result, may adversely affect the market price of our common stock and your ability to realize any potential change of control premium.
Our board of directors can issue preferred stock without stockholder approval of the terms of such stock.
       Our amended and restated certificate of incorporation will authorize our board of directors, without stockholder approval, to issue up to 25,000,000 shares of preferred stock in one or more series and to fix the rights, preferences, privileges, and restrictions granted to or imposed upon the preferred stock, including voting rights, dividend rights, conversion rights, terms of redemption, liquidation preference, sinking fund terms, subscription rights, and the number of shares constituting any series or the designation of a series. Our board of directors will be able to issue preferred stock with voting and conversion rights that could adversely affect the voting power of the holders of common stock, without stockholder approval. At the completion of this offering, no shares of preferred stock will be outstanding and we have no present plan to issue any shares of preferred stock.
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Shares available for sale and future stock sales could decrease the market price of our stock.
       Sales of shares of our common stock in the public market following this offering, or the perception that sales may occur, could depress the market price of our common stock. After this offering, we will have                      shares of common stock outstanding. The number of shares of common stock available for sale in the public market is temporarily limited by restrictions under federal securities law and under lock-up agreements that our directors, executive officers, the selling stockholders, and the holders of substantially all other shares of our common stock have entered into with the underwriters. Those lock-up agreements restrict these persons from disposing of or hedging their shares or securities convertible into or exchangeable for their shares until 180 days after the date of this prospectus without the prior written consent of Goldman, Sachs & Co. and J.P. Morgan Securities Inc. However, Goldman, Sachs & Co. and J.P. Morgan Securities Inc. may release all or any portion of the shares from the restrictions of the lock-up agreements. All of the shares sold in this offering will be freely tradable without restrictions or further registration under the Securities Act of 1933, as amended, or the Securities Act, except for any shares purchased by our affiliates (as defined in Rule 144 of the Securities Act). The remaining shares outstanding after this offering will be available for sale into the public market after the expiration of the initial 180-day lock-up period, except for any shares purchased by our affiliates (as defined in Rule 144 of the Securities Act). Additional shares of common stock underlying options will become available for sale in the public market. We expect to file a registration statement on Form S-8 that will register approximately 5.8 million shares of common stock, including shares of common stock issuable under our stock plans.
       As restrictions on resale end, our stock price could drop significantly if the holders of these restricted shares sell them or the market perceives they intend to sell them. These sales may also make it more difficult for us to sell securities in the future at a time and at a price we deem appropriate.
Because a limited number of stockholders control the majority of the voting power of our common stock, investors in this offering will not be able to determine the outcome of stockholder votes.
       Following this offering, our executive officers, directors, Code, Hennessy & Simmons IV, L.P., and their affiliated entities will control           % of the voting power of our common stock, or           % if the underwriters’ over-allotment option is exercised in full. So long as these stockholders continue to hold, directly or indirectly, shares of common stock representing more than 50% of the voting power of our common stock, they will be able to direct the election of all of the members of our board of directors who will determine our strategic plans and financing decisions and appoint senior management. These stockholders will also be able to determine the outcome of substantially all matters submitted to a vote of our stockholders, including matters involving mergers, acquisitions, and other transactions resulting in a change in control of our company. These stockholders do not have any obligation to us to either retain or dispose of our common stock. They may seek to cause us to take courses of action that, in their judgment, could enhance their investment in us, but which might involve risks to other holders of our common stock or adversely affect us or other investors, including investors in this offering.
You will incur immediate and substantial dilution as a result of this offering.
       The initial public offering price will be substantially higher than the book value per share of our common stock. As a result, purchasers in this offering will experience immediate and substantial dilution of $ per share in the tangible book value of the common stock from the assumed initial public offering price of $                    . In addition, to the extent that currently outstanding options to purchase common stock at a price per share less than our tangible net book value per share are exercised, there will be further dilution.
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FORWARD-LOOKING STATEMENTS
       This prospectus includes “forward-looking statements,” as defined by federal securities laws, with respect to our financial condition, results of operations and business, and our expectations or beliefs concerning future events. Words such as, but not limited to, “believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” “targets,” “likely,” “will,” “would,” “could,” and similar expressions or phrases identify forward-looking statements.
       All forward-looking statements involve risks and uncertainties. The occurrence of the events described, and the achievement of the expected results, depend on many events, some or all of which are not predictable or within our control. Actual results may differ materially from expected results.
       Factors that may cause actual results to differ from expected results include, among others:

		
• 	general economic conditions and the level of construction activity;	
 		
• 	competition in our industry and innovation by our competitors;	
 		
• 	our failure to anticipate and adapt to future changes in our industry;	
 		
• 	uncertainty regarding our product and service innovations;	
 		
• 	the inability to charge for our value-added services to offset potential declines in print volumes;	
 		
• 	adverse developments affecting the State of California, including general and local economic conditions, macroeconomic trends, and natural disasters;	
 		
• 	our inability to successfully identify and manage our acquisitions or open new branches;	
 		
• 	our inability to successfully manage our dual operating structure and uncertainty regarding the effectiveness of financial and management policies and procedures we established to improve accounting controls;	
 		
• 	adverse developments concerning our relationships with certain key vendors;	
 		
• 	our inability to adequately protect our intellectual property and litigation regarding intellectual property;	
 		
• 	acts of terrorism, violence, war, natural disaster or other circumstances that cause damage or disruption to us, our facilities, our technology centers, our vendors or a majority of our customers;	
 		
• 	the loss of key personnel or qualified technical staff;	
 		
• 	the potential writedown of goodwill we have recorded in connection with our acquisitions;	
 		
• 	the availability of cash to operate and expand our business as planned and to service our debt;	
 		
• 	the increased expenses and administrative workload associated with being a public company;	
 		
• 	risks relating to evaluations of controls required by Section 404 of the Sarbanes-Oxley Act of 2002; and	
 		
• 	potential environmental liabilities.	
       All future written and verbal forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We undertake no obligation, and specifically decline any obligation, to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this prospectus might not occur.
       See the section entitled “Risk Factors” for a more complete discussion of these risks and uncertainties and for other risks and uncertainties. These factors and the other risk factors described
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in this prospectus are not necessarily all of the important factors that could cause actual results to differ materially from those expressed in any of our forward-looking statements. Other unknown or unpredictable factors also could harm our results. Consequently, there can be no assurance that the actual results or developments anticipated by us will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, us. Given these uncertainties, prospective investors are cautioned not to place undue reliance on such forward-looking statements.
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USE OF PROCEEDS
       We expect to receive net proceeds of approximately $104.5 million from the sale of            shares of common stock by us in this offering at an assumed initial public offering price of $     per share (the mid-point of the range set forth on the cover page of this prospectus), after deducting estimated underwriting commissions and discounts and estimated expenses and assuming no exercise of the underwriters’ over-allotment option. We will not receive any of the proceeds from the sale of shares by the selling stockholders.
       We anticipate using the net proceeds to us from this offering as follows (as if the proceeds were applied as of June 30, 2004):

		
• 	approximately $26.8 million to repurchase our preferred equity, including accrued interest, which becomes payable upon our initial public offering;	
 		
• 	approximately $49.9 million to repay a portion of our $225 million senior second priority secured term loan facility, which has a maturity date of December 2009 and bears interest at a floating rate which was 8.625% as of September 1, 2004; and	
 		
• 	the balance of approximately $27.8 million to repay a portion of our $100 million senior first priority secured term loan facility, which has a maturity date of June 2009 and bears interest at a floating rate which was 4.179% as of September 1, 2004.	
       Pending application of the balance of the net proceeds described above, we plan to invest such balance in short and medium-term, interest-bearing obligations, investment-grade instruments, certificates of deposit or direct or guaranteed obligations of the U.S. government.
DIVIDEND POLICY
       We have never declared or paid cash dividends on our common equity. We currently intend to retain all available funds and any future earnings for use in the operation of our business and do not anticipate paying any cash dividends in the foreseeable future. Any future determination to declare cash dividends will be made at the discretion of our board of directors, subject to compliance with certain covenants under our credit facilities, and will depend on our financial condition, results of operations, capital requirements, general business conditions, and other factors that our board of directors may deem relevant.
REORGANIZATION
       Immediately prior to this offering, we will reorganize from a California limited liability company to a Delaware corporation, American Reprographics Company. In the reorganization:

		
• 	each common unit of Holdings will be exchanged for one share of our common stock;	
 		
• 	each Holdings option will be exchanged for an option exercisable for shares of our common stock equal to the number of units subject to the Holdings option and with the same exercise price and vesting terms as the Holdings option; and	
 		
• 	each Holdings warrant will become exercisable for shares of our common stock equal to the number of units subject to the Holdings warrant and on the same terms as the Holdings warrant.	
       Pursuant to the operating agreement of Holdings, cash distributions are to be made to members of Holdings to provide them with funds to pay taxes that the members will owe for their share of our profits as a limited liability company through the date of our reorganization, calculated at the highest combined federal and state income tax rate applicable for tax withholding purposes, currently 43%. Accordingly, immediately prior to our reorganization, we will make a cash distribution to all members of Holdings of the estimated amount due the members with respect to such taxes in the amount of approximately $596,000. Within approximately 45 days after the closing of this
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offering, when the final amount due the members with respect to such taxes has been calculated, we will make a final payment for the balance, if any, due to the members. In addition, certain of our members, Code Hennessey & Simmons IV, L.P. and ARC Acquisition Co., L.L.C. (the “CHS Entities”), in the past have received less than their proportionate share of distributions for such taxes and, under the terms of the operating agreement of Holdings, are owed the amount of the shortfall. In order to bring the total distributions to the CHS Entities into parity with the distributions with respect to such taxes made to other members, immediately prior to our reorganization, a distribution of approximately $10.5 million will be made to the CHS Entities. We may also make a further distribution to CHS Entities within 45 days after the closing of this offering if the estimated payment to the CHS Entities did not fully offset such shortfall.
CHANGE IN INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
       On October 24, 2003, Holdings’ board of advisors determined to no longer use the audit services of Ernst & Young LLP and approved the appointment of PricewaterhouseCoopers LLP to serve as our independent public accountants for the fiscal year ending December 31, 2003. During the years ended December 31, 2002 and 2001 and the subsequent interim period through October 24, 2003, we did not consult with PricewaterhouseCoopers LLP with respect to the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on our consolidated financial statements, or any other matters or reportable events as set forth in Items 304(a)(2)(i) and (ii) of Regulation S-K.
       The reports of Ernst & Young LLP on our consolidated financial statements for the years ended December 31, 2002 and 2001 did not contain an adverse opinion or disclaimer of opinion, or a qualification or modification as to uncertainty, audit scope, or accounting principles. During our fiscal years 2001 and 2002 and the subsequent interim period through October 24, 2003, there were no disagreements between Ernst & Young LLP and us on any matter of accounting principle or practice, financial statement disclosure, or auditing scope or procedure, which disagreements if not resolved to the satisfaction of Ernst & Young LLP would have caused it to make reference thereto in its reports on the financial statements for such period. There has been no matter that was the subject of a reportable event (as defined in Item 304(a)(1)(v) of Regulation S-K).
       We have provided Ernst & Young LLP with a copy of the foregoing disclosures and requested that Ernst & Young LLP furnish us with a letter addressed to the Securities and Exchange Commission stating whether or not Ernst & Young LLP agrees with the above statements. A copy of such letter, dated October 15, 2004, is filed as an exhibit to the registration statement of which this prospectus is a part.
25 

 

CAPITALIZATION
       The following table sets forth our unaudited consolidated capitalization as of June 30, 2004:

		
• 	on an actual basis;	
 		
• 	on a “pro forma” basis to reflect the reorganization of our company from a limited liability company to a corporation prior to the completion of this offering (see “Reorganization”); and	
 		
• 	on a “pro forma as adjusted” basis to reflect the sale of          shares of our common stock by us in this offering and the application of the net proceeds as described under “Use of Proceeds.”	
       This table should be read in conjunction with “Reorganization,” “Use of Proceeds,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our consolidated financial statements, including the related notes, appearing elsewhere in this prospectus. 

			
		As of June 30, 2004	
			
				Pro Forma	
		Actual		Pro Forma		As Adjusted	

		(Dollars in thousands)	
Cash and cash equivalents(1)	 	$	16,809	 	 	$	6,307	 	 	$	6,307	 	
 	 	 		 	 	 		 	 	 		 	
Long-term debt, excluding current maturities:	 	 	 	 	 	 	 	 	 	 	 	 	
 	Existing senior secured credit facilities(2)	 	$	321,696	 	 	$	321,696	 	 	$	244,385	 	
 	Capital leases	 	 	9,230	 	 	 	9,230	 	 	 	9,230	 	
 	Mandatorily redeemable preferred membership units(3)	 	 	26,773	 	 	 	26,773	 	 	 	—	 	
 	Seller notes from acquisitions(4)	 	 	2,438	 	 	 	2,438	 	 	 	2,438	 	
 	 	 		 	 	 		 	 	 		 	
 	 	 	Total long-term debt	 	 	360,137	 	 	 	360,137	 	 	 	256,053	 	
Total equity/ deficit:	 	 	 	 	 	 	 	 	 	 	 	 	
 	Common members’ capital — 35,487,511 member common membership units issued and outstanding actual; none pro forma and pro forma as adjusted	 	 	28,529	 	 	 	—	 	 	 	—	 	
 	Common stock, par value $0.001 per share — 150,000,000 shares authorized; none issued and outstanding actual; 35,487,511 issued and outstanding pro forma;                 issued and outstanding pro forma as adjusted	 	 	—	 	 	 	35	 	 	 	35	 	
 	Preferred stock, par value $0.001 per share — 25,000,000 shares authorized; none issued and outstanding actual; none issued and outstanding pro forma; none issued and outstanding pro forma as adjusted	 	 	—	 	 	 	—	 	 	 	—	 	
 	Additional paid-in-capital	 	 	—	 	 	 	28,494	 	 	 	132,994	 	
 	Deferred compensation	 	 	(2,134	)	 	 	(2,134	)	 	 	(2,134	)	
 	Accumulated equity (deficit):	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Accumulated earnings from inception, less distributions to members (1)(5)	 	 	(66,610	)	 	 	(60,596	)	 	 	(62,767	)	
 	 	Accumulated other comprehensive income	 	 	136	 	 	 	136	 	 	 	136	 	
 	 	 		 	 	 		 	 	 		 	
 	 	 	Total equity (deficit)(6)	 	 	(40,079	)	 	 	(34,065	)	 	 	68,264	 	
 	 	 		 	 	 		 	 	 		 	
 	 	 	Total capitalization	 	$	320,058	 	 	$	326,072	 	 	$	324,317	 	

		
(1) 	Reflects the payment of $10.5 million to the CHS Entities in connection with our reorganization, but does not reflect the $596,000 distribution in respect to taxes. See “Reorganization.”	
26 

 

		
(2) 	At June 30, 2004, our senior secured credit facilities consisted of two facilities: (i) a $130 million senior first priority secured facility, consisting of a $100 million term loan facility, of which $99.8 million was outstanding at June 30, 2004, and a $30 million revolving credit facility, none of which was outstanding at June 30, 2004; and (ii) a $225 million senior second priority secured term facility of which $225.0 million was outstanding at June 30, 2004. Subsequent to June 30, 2004, we repaid $11.6 million of our senior second priority secured term facility. We intend to apply the net proceeds from this offering to repay approximately $49.9 million of our second priority secured facility and the balance of approximately $27.8 million to repay a portion of our first priority secured facility. See “Use of Proceeds.”	
 		
(3) 	Holdings issued 20,000 redeemable preferred units in connection with the 2000 recapitalization. Holders of such preferred units are entitled to an investment return of 13.25% per annum for periods prior to April 10, 2003 and 15.0% per annum thereafter. A portion of the investment return is distributed quarterly under a formula which takes into account federal and certain state and local income tax rates applicable to such investment return. The unpaid portion of the investment return accumulates annually and will be payable upon any redemption or repurchase of the preferred units. Pursuant to the terms of Holdings’ operating agreement, on the closing date of the offering, we will use a portion of the net proceeds of this offering to repurchase all outstanding preferred units. The total amount we expect to pay to repurchase such preferred units, including the unpaid portion of the investment return, is approximately $26.8 million.	
 		
(4) 	The seller notes were issued in connection with certain acquisitions, with interest rates ranging between 7.0% and 8.0% and maturities between 2004 and 2007.	
 		
(5) 	Accumulated earnings from inception includes the income tax effects of the reorganization which will result in an income tax benefit and distributions to members of $16.5 million	
 		
(6) 	The deficit of $40.1 million, as of June 30, 2004, includes $88.8 million in cash distributions to Holdings’ common unit holders made in connection with the 2000 recapitalization.	
27 

 

DILUTION
       If you invest in our common stock, your interest will be diluted to the extent of the difference between the initial public offering price per share of our common stock and the net tangible book value per share of our common stock upon the completion of this offering.
       On a pro forma basis to give effect to our reorganization as Delaware corporation, as described in “Reorganization,” our net tangible book value as of June 30, 2004 equaled approximately $(285.2) million, or $(8.04) per share of common stock. Net tangible book value per share represents the amount of our total tangible assets less total liabilities, divided by the total number of shares of common stock outstanding. After giving effect to the sale of shares of common stock offered by us in this offering at an assumed initial public offering price of $          per share and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, our net tangible book value, as adjusted, as of June 30, 2004 would have equaled approximately $                    million, or $          per share of common stock. This represents an immediate increase in net tangible book value of $          per share to our existing stockholders and an immediate dilution in net tangible book value of $          per share to new investors of common stock in this offering. The following table illustrates this per share dilution to new investors purchasing our common stock in this offering.

Assumed initial public offering price per share	 	 	 	 	 	$	 	 	
 	Net tangible book value per share at June 30, 2004	 	 	(8.04	)	 	 	 	 	
 	Increase in net tangible value per share attributable to this offering	 	 	 	 	 	 	 	 	
 	 	 		 	 	 	 	 	
Net tangible book value per share after this offering	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 		 	
Dilution per common share to new investors	 	 	 	 	 	$	 	 	
 	 	 	 	 	 	 		 	
       The following table summarizes the differences between our existing stockholders and new investors, as of June 30, 2004, with respect to the number of shares of common stock issued by us, the total consideration paid and the average price per share paid. The calculations with respect to common shares purchased by new investors in this offering reflect the initial public offering price of $     per share before deducting the underwriting discounts and commissions and estimated offering expenses payable by us. 

						Average	
		Shares Purchased		Total Consideration		Price	
						Per	
		Number		Percent		Amount		Percent		Share	
											
Existing stockholders	 	 	35,487,511	 	 	 	 	%	 	$	168,954,000	 	 	 	 	%	 	$	4.76	 	
New investors	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Total	 	 	 	 	 	 	100	%	 	$	 	 	 	 	100	%	 	 	 	 	
The discussion and tables above assume no exercise of any of the stock options to purchase 1,657,000 shares with exercise prices ranging from $4.88 to $5.85 per share and a weighted average exercise price of $5.18 per share outstanding at June 30, 2004. If all our outstanding options at June 30, 2004 had been exercised, the net tangible book value per share, as adjusted, would have been $(7.68) per share, representing an immediate increase in net tangible book value of $0.36 per share to our existing stockholders and an immediate dilution in net tangible book value of $          per share to new investors purchasing shares in this offering.
       If the underwriters’ over-allotment option is exercised in full, sales by the selling stockholders in this offering will reduce the number of shares of common stock held by existing stockholders to                      shares or approximately           % of the total number of shares of common stock outstanding upon the closing of this offering and will increase the number of shares held by new public investors to                      shares or approximately           % of the total number of shares of common stock outstanding after this offering. See “Principal and Selling Stockholders.”
28 

 

SELECTED HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL DATA
       The selected historical and unaudited pro forma financial data presented below are derived from the audited financial statements of Holdings for the fiscal years ended December 31, 1999, 2000, 2001, 2002, and 2003, and the unaudited financial statements of Holdings for the six-month periods ended June 30, 2003 and 2004. The selected historical financial data for the six-month periods ended June 30, 2003 and 2004 are derived from unaudited interim financial statements which, in the opinion of management, include all normal, recurring adjustments necessary to state fairly the data included therein in accordance with GAAP for interim financial information, except for pro forma data. Interim results are not necessarily indicative of the results to be expected for the entire fiscal year. The unaudited pro forma financial data set forth below give effect to our conversion to a Delaware corporation and the completion of this offering, as described in “Use of Proceeds.” The unaudited pro forma financial data are not necessarily indicative of our financial position or results of operations that might have occurred had the transactions they give effect to been completed as of the dates indicated and do not purport to represent what our financial position or results of operations might be for any future period or date. The financial data set forth below should be read in conjunction with “Capitalization,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited financial statements and unaudited financial statements included elsewhere in this prospectus. 

													
				Six Months Ended	
		Fiscal Year Ended December 31,		June 30,	
					
		1999		2000		2001		2002		2003		2003		2004	

												(Unaudited)	
			
		(Dollars in thousands)	
Statement of Operations Data:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net sales	 	$	223,836	 	 	$	351,099	 	 	$	420,701	 	 	$	418,924	 	 	$	415,960	 	 	$	214,154	 	 	$	226,133	 	
Cost of sales	 	 	134,531	 	 	 	201,390	 	 	 	243,710	 	 	 	247,778	 	 	 	252,028	 	 	 	127,311	 	 	 	130,790	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Gross profit	 	 	89,305	 	 	 	149,709	 	 	 	176,991	 	 	 	171,146	 	 	 	163,932	 	 	 	86,843	 	 	 	95,343	 	
Selling, general and administrative expenses	 	 	53,730	 	 	 	83,139	 	 	 	102,576	 	 	 	101,805	 	 	 	101,252	 	 	 	51,044	 	 	 	55,264	 	
Amortization of intangibles	 	 	2,823	 	 	 	3,966	 	 	 	5,731	 	 	 	218	 	 	 	131	 	 	 	67	 	 	 	54	 	
Costs incurred in connection with the 2000 recapitalization	 	 	—	 	 	 	20,544	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
Costs incurred in connection with acquisition activities	 	 	—	 	 	 	6,232	 	 	 	1,428	 	 	 	1,500	 	 	 	—	 	 	 	—	 	 	 	—	 	
Write-off of intangible assets	 	 	—	 	 	 	—	 	 	 	3,438	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Income from operations	 	 	32,752	 	 	 	35,828	 	 	 	63,818	 	 	 	67,623	 	 	 	62,549	 	 	 	35,732	 	 	 	40,025	 	
Other income	 	 	638	 	 	 	713	 	 	 	304	 	 	 	541	 	 	 	1,024	 	 	 	731	 	 	 	567	 	
Interest expense	 	 	(9,215	)	 	 	(29,238	)	 	 	(47,530	)	 	 	(39,917	)	 	 	(39,390	)	 	 	(18,116	)	 	 	(16,248	)	
Loss on early extinguishment of debt	 	 	—	 	 	 	(1,195	)	 	 	—	 	 	 	—	 	 	 	(14,921	)	 	 	—	 	 	 	—	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Income before income tax provision	 	 	24,175	 	 	 	6,108	 	 	 	16,592	 	 	 	28,247	 	 	 	9,262	 	 	 	18,347	 	 	 	24,344	 	
Income tax provision	 	 	4,068	 	 	 	4,784	 	 	 	5,802	 	 	 	6,304	 	 	 	4,321	 	 	 	3,641	 	 	 	5,174	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Net income	 	 	20,107	 	 	 	1,324	 	 	 	10,790	 	 	 	21,943	 	 	 	4,941	 	 	 	14,706	 	 	 	19,170	 	
Dividends and amortization of discount on preferred members’ equity	 	 	—	 	 	 	(2,158	)	 	 	(3,107	)	 	 	(3,291	)	 	 	(1,730	)	 	 	(1,730	)	 	 	—	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Net income (loss) attributable to common members	 	 	20,107	 	 	 	(834	)	 	 	7,683	 	 	 	18,652	 	 	 	3,211	 	 	 	12,976	 	 	 	19,170	 	
Unaudited pro forma incremental income tax provision(1)	 	 	5,304	 	 	 	2,618	 	 	 	2,622	 	 	 	6,275	 	 	 	1,407	 	 	 	4,305	 	 	 	5,937	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Unaudited pro forma net income (loss) attributable to common members	 	$	14,803	 	 	$	(3,452	)	 	$	5,061	 	 	$	12,377	 	 	$	1,804	 	 	$	8,671	 	 	$	13,233	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
29 

 

													
				Six Months Ended	
		Fiscal Year Ended December 31,		June 30,	
					
		1999		2000		2001		2002		2003		2003		2004	

												(Unaudited)	
			
		(In thousands, except per unit amounts)	
Unaudited pro forma net income (loss) attributable to common members per common unit:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Basic	 	$	0.60	 	 	$	(0.10	)	 	$	0.14	 	 	$	0.34	 	 	$	0.05	 	 	$	0.24	 	 	$	0.37	 	
 	Diluted	 	$	0.60	 	 	$	(0.10	)	 	$	0.14	 	 	$	0.34	 	 	$	0.05	 	 	$	0.24	 	 	$	0.35	 	
 	
Weighted average units:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Basic	 	 	24,571	 	 	 	35,308	 	 	 	36,629	 	 	 	36,406	 	 	 	35,480	 	 	 	35,473	 	 	 	35,488	 	
 	Diluted	 	 	24,571	 	 	 	35,371	 	 	 	36,758	 	 	 	36,723	 	 	 	37,298	 	 	 	35,999	 	 	 	37,440	 	

				Six Months Ended	
		Fiscal Year Ended December 31,		June 30,	
					
		1999		2000		2001		2002		2003		2003		2004	

												(Unaudited)	
			
		(Dollars in thousands)	
Other Financial Data:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
EBIT(2)(3)	 	$	33,390	 	 	$	35,346	 	 	$	64,122	 	 	$	68,164	 	 	$	48,652	 	 	$	36,463	 	 	$	40,592	 	
EBITDA(2)(3)	 	$	42,932	 	 	$	50,288	 	 	$	89,494	 	 	$	86,062	 	 	$	67,011	 	 	$	45,878	 	 	$	49,215	 	
Adjusted EBITDA(4)	 	$	42,932	 	 	$	72,027	 	 	$	89,494	 	 	$	86,062	 	 	$	81,932	 	 	$	45,878	 	 	$	49,215	 	
Depreciation and amortization(5)	 	$	9,542	 	 	$	14,942	 	 	$	25,372	 	 	$	17,898	 	 	$	18,359	 	 	$	9,415	 	 	$	8,623	 	
Capital expenditures, net	 	$	3,877	 	 	$	5,228	 	 	$	8,659	 	 	$	5,209	 	 	$	4,992	 	 	$	1,817	 	 	$	3,427	 	
Interest expense	 	$	9,215	 	 	$	29,238	 	 	$	47,530	 	 	$	39,917	 	 	$	39,390	 	 	$	18,116	 	 	$	16,248	 	

		As of December 31,		As of	
				June 30,	
		1999		2000		2001		2002		2003		2004	
													
												(Unaudited)	
			
		(Dollars in thousands)	
Balance Sheet Data:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash and cash equivalents	 	$	15,814	 	 	$	31,565	 	 	$	29,110	 	 	$	24,995	 	 	$	17,315	 	 	$	16,809	 	
Total assets	 	$	204,464	 	 	$	358,026	 	 	$	371,948	 	 	$	395,677	 	 	$	376,843	 	 	$	389,133	 	
Long term obligations and mandatorily redeemable preferred and common membership units(6)(7)	 	$	123,951	 	 	$	359,746	 	 	$	371,515	 	 	$	378,102	 	 	$	360,008	 	 	$	360,137	 	
Total members’ equity (deficit)(8)	 	$	32,422	 	 	$	(80,478	)	 	$	(78,900	)	 	$	(59,784	)	 	$	(57,329	)	 	$	(40,079	)	
Working capital	 	$	15,379	 	 	$	34,742	 	 	$	24,338	 	 	$	24,371	 	 	$	16,809	 	 	$	32,870	 	

		
(1) 	Until our reorganization, which will be effective prior to the closing of this offering, a substantial portion of our business will continue to operate as a limited liability company, or LLC, and taxed as a partnership. As a result, the members of the LLC pay the income taxes on the earnings. The unaudited pro forma incremental income tax provision amounts reflected in the table above were calculated as if our reorganization became effective on January 1, 1999.	
 		
(2) 	EBIT is a non-GAAP measure that represents earnings before interest expense and income taxes. EBITDA is a non-GAAP measure that represents earnings before interest expense, income taxes, depreciation, and amortization. We believe that EBIT and EBITDA are, and will continue to be, financial measures useful to financial analysts and to the lending community because they are generally used in analyzing the operating performance of a company and its ability to service debt and otherwise meet its cash needs. EBIT and EBITDA, however, are not measures of financial performance under GAAP and should not be considered as an alternative to, or more meaningful than, net income as a measure of operating performance or to cash flows from operating, investing or financing activities as a measure of liquidity. Since EBIT and EBITDA are not measures determined in accordance with GAAP and, thus, are susceptible to varying interpretations and calculations, EBIT and EBITDA, as presented, may not be comparable to other similarly titled measures of other companies. Neither EBIT nor EBITDA represents an amount of funds that is available for management’s discretionary use.	
30 

 

		
(3) 	The following is a reconciliation of cash flows provided by operating activities to EBIT, EBITDA, and pro forma net income:	

				Six Months Ended	
		Fiscal Year Ended December 31,		June 30,	
					
		1999		2000		2001		2002		2003		2003		2004	

												(Unaudited)	
			
		(Dollars in thousands)	
Cash flows provided by operating activities	 	$	28,569	 	 	$	28,054	 	 	$	53,151	 	 	$	56,413	 	 	$	48,237	 	 	$	26,922	 	 	$	28,515	 	
 	Changes in operating assets and liabilities	 	 	242	 	 	 	(95	)	 	 	(533	)	 	 	(5,482	)	 	 	(4,860	)	 	 	1,503	 	 	 	1,247	 	
 	Noncash expenses, including depreciation and amortization(5)	 	 	(8,704	)	 	 	(26,635	)	 	 	(41,828	)	 	 	(28,988	)	 	 	(38,436	)	 	 	(13,719	)	 	 	(10,592	)	
 	Income tax provision	 	 	4,068	 	 	 	4,784	 	 	 	5,802	 	 	 	6,304	 	 	 	4,321	 	 	 	3,641	 	 	 	5,174	 	
 	Interest expense, net	 	 	9,215	 	 	 	29,238	 	 	 	47,530	 	 	 	39,917	 	 	 	39,390	 	 	 	18,116	 	 	 	16,248	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
EBIT	 	 	33,390	 	 	 	35,346	 	 	 	64,122	 	 	 	68,164	 	 	 	48,652	 	 	 	36,463	 	 	 	40,592	 	
 	Depreciation and amortization	 	 	9,542	 	 	 	14,942	 	 	 	25,372	 	 	 	17,898	 	 	 	18,359	 	 	 	9,415	 	 	 	8,623	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
EBITDA	 	 	42,932	 	 	 	50,288	 	 	 	89,494	 	 	 	86,062	 	 	 	67,011	 	 	 	45,878	 	 	 	49,215	 	
 	Interest expense	 	 	(9,215	)	 	 	(29,238	)	 	 	(47,530	)	 	 	(39,917	)	 	 	(39,390	)	 	 	(18,116	)	 	 	(16,248	)	
 	Income tax provision and unaudited pro forma incremental income tax provision(1)	 	 	(9,372	)	 	 	(7,402	)	 	 	(8,424	)	 	 	(12,579	)	 	 	(5,728	)	 	 	(7,946	)	 	 	(11,111	)	
 	Depreciation and amortization(5)	 	 	(9,542	)	 	 	(14,942	)	 	 	(25,372	)	 	 	(17,898	)	 	 	(18,359	)	 	 	(9,415	)	 	 	(8,623	)	
 	Dividends and amortization of discount on preferred members’ equity	 	 	—	 	 	 	(2,158	)	 	 	(3,107	)	 	 	(3,291	)	 	 	(1,730	)	 	 	(1,730	)	 	 	—	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Unaudited pro forma net income (loss) attributable to common members	 	$	14,803	 	 	$	(3,452	)	 	$	5,061	 	 	$	12,377	 	 	$	1,804	 	 	$	8,671	 	 	$	13,233	 	

		
(4) 	Adjusted EBITDA refers to our EBITDA, adjusted to exclude the impact of (i) costs incurred in connection with our recapitalization in 2000 and (ii) loss on early extinguishments of debt. We believe that adjustment for these items is recognized by the industry in which we operate to be relevant as a supplementary non-GAAP financial measure widely used by financial analysts and others in our industry to meaningfully evaluate a company’s operating performance and ability to comply with its applicable debt covenants. We also use adjusted EBITDA to measure and pay annual management bonuses.	
 		
   	In addition, in evaluating adjusted EBITDA, you should be aware that in the future, we may incur expenses similar to the adjustments in this presentation. Our presentation of adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.	
 		
   	The following is a reconciliation of EBITDA to adjusted EBITDA:	

				Six Months Ended	
		Fiscal Year Ended December 31,		June 30,	
					
		1999		2000		2001		2002		2003		2003		2004	

												(Unaudited)	
			
		(Dollars in thousands)	
EBITDA	 	$	42,932	 	 	$	50,288	 	 	$	89,494	 	 	$	86,062	 	 	$	67,011	 	 	$	45,878	 	 	$	49,215	 	
 	Costs incurred in connection with the 2000 recapitalization	 	 	—	 	 	 	20,544	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
 	Loss on early extinguishment of debt	 	 	—	 	 	 	1,195	 	 	 	—	 	 	 	—	 	 	 	14,921	 	 	 	—	 	 	 	—	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Adjusted EBITDA	 	$	42,932	 	 	$	72,027	 	 	$	89,494	 	 	$	86,062	 	 	$	81,932	 	 	$	45,878	 	 	$	49,215	 	

		
(5) 	Depreciation and amortization includes a write-off of intangible assets of $3.4 million for the year ended December 31, 2001.	
 		
(6) 	In July 2003, we adopted SFAS No. 150,“Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” In accordance with SFAS No. 150, the redeemable preferred equity of Holdings has been reclassified in our financial statements as a component of our total debt upon our adoption of this new standard. The redeemable preferred equity amounted to $25.8 million as of December 31, 2003 and $26.8 million as of June 30, 2004. SFAS No. 150 does not permit the restatement of financial statements for periods prior to the adoption of this standard.	
 		
(7) 	Redeemable common membership units amounted to $6.0 million and $8.1 million at December 31, 2000 and 2001, respectively.	
 		
(8) 	The decline in total members’ equity (deficit) from December 31, 1999 to December 31, 2000 was a result of an $88.8 million cash distribution to Holdings’ common unit holders in connection with the 2000 recapitalization and the reclassification of $20.3 million of preferred equity issued in connection with the 2000 recapitalization upon the adoption of SFAS No. 150 in July 2003.	
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MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
       The following discussion should be read in conjunction with our consolidated financial statements and the related notes and other financial information appearing elsewhere in this prospectus. This prospectus contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those indicated in forward-looking statements. See “Risk Factors” and “Forward-Looking Statements.”
Overview
       We are the leading reprographics company in the United States providing business-to-business document management services to the architectural, engineering and construction industry, or AEC industry. We also provide these services to companies in non-AEC industries, such as the technology, financial services, retail, entertainment, and food and hospitality industries, that also require sophisticated document management services. The business-to-business services we provide to our customers include document management, document distribution and logistics, and print-on-demand . We provide our core services through industry leading technology and innovation, a sophisticated network of 173 locally branded reprographics service centers, and more than 1,560 facilities management programs at our customers’ locations. We also sell reprographics equipment and supplies to complement our full range of service offerings. In further support of our core services, we license our suite of reprographics technology products, including our flagship online planroom, PlanWell, to independent reprographers. For the year ended December 31, 2003, our net sales were $416.0 million, of which approximately half were derived from our operations in California.
Factors Affecting Financial Performance
       Based on a review of the top 30% of our customers, representing approximately 90% of our net sales, and designating our customers as either AEC or non-AEC based on their primary use of our services, we believe that sales to the AEC market accounted for approximately 80% of our year to date net sales through August 31, 2004, with the remaining 20% consisting of sales to non-AEC markets. As a result, our operating results and financial condition are significantly impacted by various economic factors affecting the AEC industry, such as non-residential construction spending, GDP growth, interest rates, employment rates, office vacancy rates, and government expenditures. Similar to the AEC industry, we believe that the reprographics industry typically lags the recovery in the broader economy by approximately six months.
Key Financial Measures
       The following key financial measures are used by our management to operate and assess the performance of our business: net sales, EBIT, EBITDA, Adjusted EBITDA and costs and expenses.
Net Sales
       Net sales represent total sales less returns, discounts and allowances. These sales consist of document management services, document distribution and logistics services, print-on-demand services, reprographics equipment and supplies, software licenses and PEiR memberships. We generate sales by individual orders through commissioned sales personnel and, in some cases, pursuant to national contracts. Our document management, document distribution and logistics, and print-on-demand services, including the use of PlanWell by our customers, are typically invoiced to a customer as part of a per square foot printing cost.
       In 2003, our print-on-demand services represented approximately 76% of our net sales, facilities management revenues represented approximately 14%, and sales of reprographics equipment and supplies represented approximately 10%. Although our PlanWell and other software
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licenses and our PEiR memberships are strategic to providing our other services, to date these services have not been significant revenue contributors.
       We identify reportable segments based on how management internally evaluates financial information, business activities and management responsibility. On that basis, we operate in a single reportable business segment.
       To a large extent, our continued engagement by our customers for successive jobs depends upon the customer’s satisfaction with the quality of services that we provide. Our customer orders tend to be of a short-run, but recurring, nature. Since we do not operate with a backlog, it is difficult for us to predict the number, size and profitability of reprographics work that we expect to undertake more than a few weeks in advance.
EBIT, EBITDA, and Adjusted EBITDA
       EBIT, EBITDA, Adjusted EBITDA (and related ratios presented in this prospectus) are supplemental measures of our performance that are not required by, or presented in accordance with GAAP. EBIT, EBITDA and Adjusted EBITDA are not measurements of our financial performance under GAAP and should not be considered as alternatives to net income, income from operations, or any other performance measures derived in accordance with GAAP or as an alternative to cash flow from operating activities as a measure of our liquidity.
       EBIT represents net income before interest and taxes. EBITDA represents net income before interest, taxes, depreciation and amortization. Adjusted EBITDA represents EBITDA adjusted to exclude the impact of costs incurred in connection with our recapitalization in 2000 and loss on early extinguishment of debt. We present EBIT, EBITDA and Adjusted EBITDA because we consider them important supplemental measures of our performance and believe they are frequently used by securities analysts, investors, lenders and other interested parties in the evaluation of business services companies, many of which present EBITDA and/or Adjusted EBITDA when reporting their results. Our presentation of these measures should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.
       We also use EBIT, EBITDA and Adjusted EBITDA for the following purposes: to measure the performance of our operating units, to control cash remittances from our branches, to evaluate potential acquisitions, to evaluate whether to incur capital expenditures, and to determine our compliance with the covenants in our credit agreements. We further use EBIT to measure performance and determine compensation at the division level, and EBITDA and Adjusted EBITDA to measure performance and determine compensation at the consolidated level.
       We calculate Adjusted EBITDA by adjusting EBITDA to eliminate the impact of a number of items we do not consider indicative of our ongoing operations and for the other reasons noted above. You are encouraged to evaluate each adjustment and whether you consider it appropriate. In addition, in evaluating Adjusted EBITDA, you should be aware that in the future we may incur expenses similar to the adjustments in the presentation of Adjusted EBITDA. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items.
       EBIT, EBITDA and Adjusted EBITDA have limitations as analytical tools, and you should not consider them in isolation, or as a substitute for analysis of our results as reported under GAAP. Some of these limitations are:

		
• 	they do not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments;	
 		
• 	they do not reflect changes in, or cash requirements for, our working capital needs;	
 		
• 	they do not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments on our debts;	
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• 	although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements;	
 		
• 	Adjusted EBITDA does not reflect the impact of earnings or charges resulting from matters we consider not to be indicative of our ongoing operations, as discussed in our presentation of “Adjusted EBITDA” in this prospectus; and	
 		
• 	other companies, including companies in our industry, may calculate these measures differently than we do, limiting their usefulness as comparative measures.	
       Because of these limitations, EBIT, EBITDA and Adjusted EBITDA should not be considered as measures of discretionary cash available to us to invest in the growth of our business or reduce our indebtedness. We compensate for these limitations by relying primarily on our GAAP results and using EBIT, EBITDA and Adjusted EBITDA only supplementally. For more information, see our consolidated financial statements and related notes included elsewhere in this prospectus.
Costs and Expenses
       Our cost of sales consists primarily of paper, toner and other consumables, labor, and maintenance, repair, rental and insurance costs associated with operating our facilities and equipment, along with depreciation charges. Paper cost is the most significant component of our material cost; however, paper pricing typically does not impact our operating margins because changes in paper pricing are generally passed on to our customers. We closely monitor material cost as a percentage of net sales to measure volume and waste. We also track labor utilization, or net sales per employee, to measure productivity and determine staffing levels.
       We maintain low inventory balances as well as low levels of other working capital requirements. In addition, capital expenditure requirements are low as most facilities and equipment are leased, with overall capital spending averaging approximately 1.5% of annual net sales over the last three years. Since we typically lease our reprographics equipment for periods averaging between three and five years, we are able to upgrade our equipment in response to rapid changes in technology.
       Our selling expenses generally include the salaries and commissions paid to our sales professionals, along with promotional, travel and entertainment costs. Our general and administrative expenses generally include the salaries and benefits paid to support personnel at our reprographics businesses and our corporate staff, as well as office rent, utilities, insurance and communications expenses, and various professional services.
       Our general and administrative expenses also include management fees paid to CHS Management IV, L.P. in accordance with a management agreement entered into in connection with our recapitalization in 2000. These management fees, which may not exceed $1 million in any year, amounted to $803,000 during 2001, $889,000 during 2002, $858,000 during 2003, $415,000 during the six months ended June 30, 2003, and $413,000 during the six months ended June 30, 2004. The management agreement will be terminated upon the completion of this offering.
Income Taxes
       Holdings and Opco, through which a substantial portion of our business is operated, are limited liability companies which are taxed as partnerships. As a result, the members of Holdings pay income taxes on the earnings of Opco, which are passed through to Holdings. Certain divisions are consolidated in Holdings and are treated as separate corporate entities for income tax purposes (the consolidated corporations). These consolidated corporations pay income tax and record provisions for income taxes in their financial statements. Following the reorganization of our company to a Delaware corporation, our earnings will be subject to federal, state and local taxes at a combined statutory rate of approximately 43%.
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Members’ Deficit and Capital Accounts
       Our members’ deficit of $40.1 million as of June 30, 2004 includes $88.8 million in cash distributions to our common unit holders made in connection with our recapitalization in 2000 and previous cash distributions made to the members of Holdings to provide them with funds to pay taxes owed for their share of our profits as a limited liability company.
       Immediately prior to our reorganization, we will make a cash distribution to all members of Holdings of the estimated amount due the members with respect to such taxes in the amount of approximately $596,000. After the closing of this offering, when the members’ final tax liability has been calculated, we will make a final payment for the balance, if any, due to the members. In addition, certain of our members, Code Hennessey & Simmons IV, L.P. and ARC Acquisition Co., L.L.C. (the “CHS Entities”), have in the past received less than their proportionate share of distributions for such taxes and are owed a distribution of approximately $10.5 million, which we will pay immediately prior to our reorganization. We may also make a further distribution to the CHS Entities after the closing of this offering if the estimated payment to the CHS Entities did not fully offset such shortfall.
Acquisitions
       Our financial results during the periods discussed below were impacted by the acquisition of 14 reprographics businesses in 2001 for a total purchase price of $32.6 million, eight acquisitions in 2002 for a total purchase price of $34.4 million, four acquisitions in 2003 for a total purchase price of $870,000 and three acquisitions in the six months ended June 30, 2004 for a total purchase price of $1.4 million. Because each acquisition was accounted for using the purchase method of accounting, our consolidated income statements reflect sales and expenses of acquired businesses only for post-acquisition periods. For more details regarding these acquisitions, see Note 2 to our consolidated financial statements.
       In connection with certain large acquisitions, we have made certain payments to employees of the acquired companies and our management that could not be capitalized and included in goodwill because such payments represented compensation expense. These expenses are reflected in the expense line item titled “Costs incurred in connection with acquisition activities” within our consolidated financial statements.
Critical Accounting Policies
       The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. We evaluate our estimates and assumptions on an ongoing basis and rely on historical experience and various other factors that we believe to be reasonable under the circumstances to determine such estimates. Actual results could differ from those estimates and such differences may be material to the consolidated financial statements. We believe the critical accounting policies and areas that require more significant judgments and estimates used in the preparation of our consolidated financial statements to be: revenue recognition; goodwill and other intangible assets; impairment of long-lived assets; allowance for doubtful accounts; inventory reserves; and commitments and contingencies.
Revenue Recognition
       We apply the provisions of Securities and Exchange Commission (SEC) Staff Accounting Bulletin (SAB) No. 104, “Revenue Recognition in Financial Statements,” which provides guidance on the recognition, presentation and disclosure of revenue in financial statements filed with the SEC. SAB No. 104 outlines the basic criteria that must be met to recognize revenue and provides guidance for disclosure related to revenue recognition policies. In general, we recognize revenue
35 

 

when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) the sales price charged is fixed or determinable and (iv) collection is reasonably assured.
       We recognize revenues from reprographics services when services have been rendered while revenues from the resale of reprographics supplies and equipment are recognized upon shipment. Revenues from software licensing activities are recognized over the term of the license. Revenues from membership fees are recognized over the term of the membership agreement.
       Management provides for returns, discounts and allowances based on historic experience and adjusts such allowances as considered necessary. To date, such provisions have been within the range of management’s expectations.
Goodwill and Other Intangible Assets
       Effective January 1, 2002, we adopted Statement of Financial Accounting Standard (SFAS) No. 142, “Goodwill and Other Intangible Assets”, which requires, among other things, the use of a nonamortization approach for purchased goodwill and certain intangibles. Under a nonamortization approach, goodwill and intangibles having an indefinite life are not amortized, but instead will be reviewed for impairment at least annually or if an event occurs or circumstances indicate the carrying amount may be impaired. Goodwill impairment testing is performed at the reporting unit level.
       SFAS 142 requires that goodwill be tested for impairment using a two-step process. The first step of the goodwill impairment test, used to identify potential impairment, compares the fair value of a reporting unit with its carrying amount, including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not considered to be impaired and the second step of the impairment test is unnecessary. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test must be performed to measure the amount of impairment loss, if any. The second step of the goodwill impairment test compares the implied fair value of reporting unit goodwill with the carrying amount of that goodwill. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. If the carrying amount of the reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess.
       We have selected September 30 as the date on which we will perform our annual goodwill impairment test. Based on our valuation of goodwill, no impairment charges related to the write-down of goodwill were recognized for the years ended December 31, 2002 and 2003. During the year ended December 31, 2001, we wrote-off $3.4 million of goodwill recorded from an acquisition completed during 2000 because the business was closed in 2001 due to underperformance.
Impairment of Long-Lived Assets
       We periodically assess potential impairments of our long-lived assets in accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 144, “Accounting for the Impairment or Disposal of Long-lived Assets.” An impairment review is performed whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors considered by us include, but are not limited to, significant underperformance relative to expected historical or projected future operating results; significant changes in the manner of use of the acquired assets or the strategy for our overall business; and significant negative industry or economic trends. When we determine that the carrying value of a long-lived asset may not be recoverable based upon the existence of one or more of the above indicators of impairment, we estimate the future undiscounted cash flows expected to result from the use of the asset and its eventual disposition. If the sum of the expected future undiscounted cash flows and eventual disposition is less than the carrying amount of the asset, we recognize an impairment loss. An
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impairment loss is reflected as the amount by which the carrying amount of the asset exceeds the fair value of the asset, based on the fair market value if available, or discounted cash flows, if not. To date, we have not had an impairment of long-lived assets.
Allowance for Doubtful Accounts
       We perform periodic credit evaluations of the financial condition of our customers, monitor collections and payments from customers, and generally do not require collateral. Receivables are generally due within 30 days. We provide for the possible inability to collect accounts receivable by recording an allowance for doubtful accounts. We write-off an account when it is considered to be uncollectible. We estimate our allowance for doubtful accounts based on historical experience, aging of accounts receivable, and information regarding the creditworthiness of our customers. To date, uncollectible amounts have been within the range of management’s expectations.
Inventory Reserves
       On an ongoing basis, inventories are reviewed and written down for estimated obsolescence or unmarketable inventories equal to the difference between the costs of inventories and the estimated net realizable value. Charges to increase inventory reserves are recorded as an increase in cost of sales.
Commitments and Contingencies
       In the normal course of business, we estimate potential future loss accruals related to legal, tax and other contingencies. These accruals require management’s judgment on the outcome of various events based on the best available information. However, due to changes in facts and circumstances, the ultimate outcomes could be different than management’s estimates. 
Results of Operations
       The following table provides information on the percentages of certain items of selected financial data compared to net sales for the periods indicated:

			
		As a Percentage of Net Sales	

				Six Months	
		Year Ended		Ended	
		December 31,		June 30,	
					
		2001		2002		2003		2003		2004	

								(unaudited)	
Net sales	 	 	100.0	%	 	 	100.0	%	 	 	100.0	%	 	 	100.0	%	 	 	100.0	%	
Cost of sales	 	 	57.9	 	 	 	59.1	 	 	 	60.6	 	 	 	59.4	 	 	 	57.8	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
 	Gross profit	 	 	42.1	 	 	 	40.9	 	 	 	39.4	 	 	 	40.6	 	 	 	42.2	 	
Selling, general and administrative expenses	 	 	24.4	 	 	 	24.3	 	 	 	24.3	 	 	 	23.8	 	 	 	24.4	 	
Amortization of intangibles	 	 	1.4	 	 	 	0.1	 	 	 	—	 	 	 	—	 	 	 	—	 	
Costs incurred in connection with acquisition activities	 	 	0.3	 	 	 	0.4	 	 	 	—	 	 	 	—	 	 	 	—	 	
Write-off of intangible assets	 	 	0.8	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
 	Income from operations	 	 	15.2	 	 	 	16.1	 	 	 	15.1	 	 	 	16.8	 	 	 	17.8	 	
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		As a Percentage of Net Sales (Continued)	

				Six Months	
		Year Ended		Ended	
		December 31,		June 30,	
					
		2001		2002		2003		2003		2004	

								(unaudited)	
Other income	 	 	—	 	 	 	0.1	 	 	 	0.2	 	 	 	0.3	 	 	 	0.2	 	
Interest expense, net	 	 	(11.3	)	 	 	(9.5	)	 	 	(9.5	)	 	 	(8.5	)	 	 	(7.2	)	
Loss on early extinguishment of debt	 	 	—	 	 	 	—	 	 	 	(3.6	)	 	 	—	 	 	 	—	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Income before income tax provision	 	 	3.9	 	 	 	6.7	 	 	 	2.2	 	 	 	8.6	 	 	 	10.8	 	
Income tax provision	 	 	(1.4	)	 	 	(1.5	)	 	 	(1.0	)	 	 	(1.7	)	 	 	(2.3	)	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
 	Net income	 	 	2.5	%	 	 	5.2	%	 	 	1.2	%	 	 	6.9	%	 	 	8.5	%	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Six Months Ended June 30, 2004 Compared to Six Months Ended June 30, 2003
       Net Sales. Net sales for the six months ended June 30, 2004 increased $12.0 million, or 5.6%, to $226.1 million from $214.2 million in the six months ended June 30, 2003. The increase in net sales was primarily attributable to the improvement of the U.S. economy in the Western United States, acquisition activity, the expansion of our revenue base through the opening of new branches, and by increasing our market share in certain markets. Of the $12.0 million increase in our 2004 net sales, $4.8 million was attributable to our acquisition activity during 2003 and 2004.
       Net sales for the six months ended June 30 2004 from our Southern California divisions increased 7.4% compared to the same period in 2003. This was driven by our efforts to capture market share combined with a strong local economy.
       Net sales derived from our divisions located in Northern California increased 8.1% in the first half of 2004 compared to the same period in 2003, due to improving economic conditions, business derived from new markets we entered, and increased market share.
       Net sales from our divisions in the Southern United States increased 10.5% in the six months ended June 30, 2004 over the same period in 2003 driven by strong construction activity in Las Vegas and Tampa. These gains were partially offset by a 2.2% decline in net sales from our Houston divisions due to weak AEC activity in that market as a result of local corporate scandals that created an abundance of vacant office space.
       Net sales from our Midwest divisions declined 7.1% in the six months ended June 30, 2004 compared to the same period in 2003 due to the continued softness in the manufacturing economy coupled with high unemployment rates in this region’s major markets.
       Net sales from our Northeast divisions increased 6.8% due to new business gained from the purchase of customers from a competitor that filed bankruptcy in New York in 2003. Excluding this purchase, net sales in the Northeast declined 1.1% due to the continued sluggish AEC economy in the Northeast since the 9/11 terrorist attacks.
       Gross Profit. Gross profit for the six months ended June 30, 2004 increased $8.5 million to $95.3 million from $86.8 million in the six months ended June 30, 2003 due primarily to the increase in our net sales coupled with the fixed cost nature of our leases for production equipment and facilities. Our gross margin improved by approximately 1.6 percentage points to 42.2% for the six months ended June 30, 2004 compared to 40.6% in the comparable 2003 period. We were able to reduce our material cost as a percentage of net sales from 16.2% in the 2003 period to 15.6% in the 2004 period due to a negotiated reduction in the cost of material from one of our major vendors, coupled with better waste control procedures. Production labor cost as a percentage of net sales declined from 21.1% in the 2003 period to 20.7% in the 2004 period due to better staffing
38 

 

efficiencies. The gains we achieved in material use and labor efficiency were partially offset by increased costs for energy and employee health benefits.
       Selling, General and Administrative Expenses. Selling, general and administrative expenses for the six months ended June 30, 2004 increased 8.4% to $55.3 million from $51.0 million in the six months ended June 30, 2003. This was primarily due to higher sales commissions related to increased sales and higher incentive bonus accruals during 2004 compared to 2003 related to improved operating results. As a percentage of net sales, selling, general and administrative expenses during the six months ended June 30, 2004 increased slightly to 24.5% from 23.8% in the comparable 2003 period. This increase reflected our larger sales force and increased selling and marketing activities during 2004 as we continued to pursue market share expansion. We also continued to make investments in personnel training and education.
       Interest Expense, Net. Net interest expense for the six months ended June 30, 2004 decreased 10.5% to $16.2 million from $18.1 million in the six months ended June 30, 2003 due to the refinancing of our debt in December 2003, which lowered our overall effective interest rate in 2004 by approximately 1.8 percentage points. Also, since June 30, 2003, we reduced our outstanding debt by $45.7 million. During the six months ended June 30, 2003, the interest benefit from our interest rate swap contracts was $3.0 million. The interest rate swap contracts expired in September 2003, and we entered into a new interest rate hedge in September 2003. This hedge instrument is accounted for as a hedge, and fluctuations in the market value of the hedge do not impact our income statement.
       Income Taxes. We provided for income taxes of $5.2 million for the six months ended June 30, 2004, as compared to $3.6 million in the six months ended June 30, 2003, primarily due to higher pretax income at the consolidated corporations. Our overall effective income tax rate for the 2004 period decreased slightly to 21.2% compared to 19.8% in the comparable 2003 period.
       Net Income. Net income for the six months ended June 30, 2004 increased 30.3% to $19.2 million from $14.7 million in the six months ended June 30, 2003. The increase was primarily related to increased sales resulting from the improvement in the overall U.S. economy, increased AEC activity, as well as our reduced interest expense due to the refinancing of our debt in December 2003.
       EBITDA. EBITDA for the six months ended June 30, 2004 was $49.2 million, representing a $3.3 million, or 7.3%, increase from $45.9 million for the same period of 2003. Our EBITDA margin increased to 21.8% in the six months ended June 30, 2004 compared to 21.4% in the six months ended June 30, 2003 period primarily due to higher revenues. For a reconciliation of EBITDA to pro forma net income, please see “— Reconciliation of Non-GAAP Measures” below.
Year Ended December 31, 2003 Compared to Year Ended December 31, 2002
       Net Sales. Net sales for 2003 decreased $2.9 million, or 0.7%, to $416.0 million from $418.9 million in 2002, primarily due to the continued slowdown in the economy and the AEC industry, particularly in our Northern California and Northeast divisions, and the continued pricing pressure on our sales due to reduction in activity levels due to contraction in the economy. Our acquisitions in 2002 and 2003 partially offset this negative trend. Excluding the benefit of acquisitions completed in 2002 and 2003, our net sales would have decreased by $19.9 million or 5.1%.
       Net sales in our Southern California divisions increased 13.1% primarily due to the acquisition of Consolidated Reprographics in May 2002.
       Net sales derived from our divisions located in Northern California declined 12.1% to $77.5 million as a result of the continued soft economy and high commercial vacancy rates created from the continued contraction in the internet and technology sectors.
39 

 

       Net sales from our Northeast divisions in 2003 decreased 7.1% compared to 2002 due to the economic slowdown in New York City and Washington, D.C. after the 9/11 terrorist attacks. Additionally, our Washington, D.C. division was negatively affected by the entry of another reprographics firm in this market.
       Gross Profit. Gross profit in 2003 declined to $163.9 million from $171.1 million during 2002. This decline was mainly due to lower net sales in 2003, particularly in Northern California and the Northeast where aggregate net sales in 2003 declined by $16.1 million, combined with strong pricing pressure which reduced our profit margins. Our overall gross profit margin declined by 1.5 percentage points to 39.4% in 2003 from 40.9% in 2002, driven primarily by the fixed cost nature of our equipment and facility leases. Production overhead as a percentage of net sales, which includes lease and maintenance costs, increased from 17.5% in 2002 to 19.0% in 2003. Additionally, our cost of production labor increased $364,000 due to increased health and workers compensation insurance rates. These increases were partially offset by a decrease in our material cost as a percentage of net sales.
       Selling, General and Administrative Expenses. Selling, general and administrative expenses for 2003 remained flat at $101.3 million, or 24.3% of net sales, compared to $101.8 million in 2002 despite the decrease in our net sales and gross profit because we pursued market share expansion amid difficult industry conditions. As a result, our selling and marketing expenses increased by $1.0 million in 2003 compared to 2002 despite lower net sales in 2003. This was offset by a $2.5 million decrease in general and administrative expenses in 2003, which was primarily due to lower incentive bonus accruals resulting from the decline in our operating results.
       Acquisition Costs. There were no costs incurred in connection with acquisition activities during 2003 that could not be capitalized into goodwill, compared to $1.5 million expensed in 2002 related to signing bonuses to the senior management of a division acquired in 2002.
       Interest Expense, Net. Net interest expense increased 1.3% in 2003 to $39.4 million compared to $39.9 million in 2002 due primarily to a net interest benefit from our interest rate swap contracts of $4.0 million in 2003 compared to a net interest benefit of $1.6 million in 2002, which was partially offset by a higher monthly average total debt balance during 2003 compared to 2002. Our monthly average total debt balance was higher during 2003 because of our acquisition of Consolidated Reprographics in May 2002 for which we incurred $20.0 million of net borrowings. The interest benefit related to the interest rate swap contracts was due to the improvement in the market value of the interest rate swap contracts as they moved closer to their expiration dates in September 2003.
       Income Taxes. We provided for income taxes of $4.3 million for 2003, as compared to $6.3 million in 2002 primarily due to lower pretax income at the consolidated corporations. Our overall effective income tax rate was 22.3% in 2002 and 21.2% in 2003.
       Net Income. We had net income of $4.9 million for 2003 compared to net income of $21.9 million for 2002. The $17.0 million decrease was primarily related to a $14.9 million loss related to the early extinguishment of debt in connection with our debt refinancing in December 2003.
       EBITDA and Adjusted EBITDA. EBITDA for 2003 was $67.0 million, representing a $19.1 million, or 22.1%, decrease from $86.1 million for 2002. EBITDA as a percentage of net sales for 2003 decreased to 16.1% from 20.5% for 2002 primarily as a result of the $14.9 million of loss from early extinguishment of debt, which we incurred as part of our debt refinancing in December 2003. Our Adjusted EBITDA for 2003, which excludes this early extinguishment charge, was $81.9 million, or 19.7% of net sales compared to 20.5% for 2002. Our EBITDA margin decreased in 2003 from 2002 primarily because of lower revenues. For a reconciliation of EBITDA and Adjusted EBITDA to pro forma net income, please see “— Reconciliation of Non-GAAP Measures” below.
40 

 

Year Ended December 31, 2002 Compared to Year Ended December 31, 2001
       Net Sales. Net sales for 2002 decreased $1.8 million, or 0.4% to $418.9 million from $420.7 million in 2001, despite our acquisition of Consolidated Reprographics and seven other smaller reprographics companies in 2002. Excluding net sales related to businesses acquired during 2002 and 2001, net sales from our operations decreased by approximately $39.1 million, or 10.0%. The decrease in net sales was attributable to the continued downturn in the economy generally and the AEC industry and continued pricing pressure on our sales.
       Excluding 2002 acquisitions, our divisions located in Southern California, Northern California, the Pacific Northwest, and the Northeast each reported net sales declines in 2002 of 4.5%, 13.5%, 7.3% and 9.6%, respectively, compared to 2001. This decline was attributable to the nationwide softness in the economy, which fueled unemployment and high non-residential vacancy rates.
       Gross Profit. Gross profit in 2002 declined to $171.1 million from $177.0 million in 2001. This decline was due primarily to lower net sales in 2002. Our overall gross profit margin declined by 1.2 percentage points to 40.9% in 2002 from 42.1% in 2001, driven primarily by the fixed-cost nature of our leases for production equipment and facilities. Production overhead as a percentage of net sales, which includes lease and maintenance costs, increased from 15.6% in 2001 to 17.5% in 2002. This increase was partially offset by a decrease in our material cost as a percentage of net sales, caused by the lower cost of paper.
       Selling, General and Administrative Expenses. Selling, general and administrative expenses for 2002 decreased 0.8% to $101.8 million from $102.6 million in 2001. Our legal fees in 2002 increased by $0.9 million compared to 2001 as a result of the investigation of our company by the Federal Trade Commission that was triggered by the Consolidated Reprographics acquisition and litigation that we pursued against certain competitors. Both of these matters have been concluded. This increase was offset by cost savings from the elimination of certain redundant administrative offices during late 2001. As a percentage of net sales, selling, general and administrative expenses for 2002 decreased slightly to 24.3% from 24.4% in 2001.
       Amortization of Intangibles. Amortization of intangibles for 2002 decreased to $0.2 million from $5.7 million in 2001, due to our discontinuing the amortization of goodwill pursuant to our adoption of SFAS No. 142 as of January 1, 2002. In 2001, we wrote off $3.4 million of goodwill relating to a business acquired in 2000, which was subsequently closed in 2001 due to underperformance.
       Acquisition Costs. Costs incurred in connection with acquisition activities for 2002 increased 5.0% to $1.5 million from $1.4 million in 2001. The costs expensed in 2002 represented $1.5 million in signing bonuses to the senior management of a division acquired in 2002. In 2001, these costs represented a bonus paid to the president of a division acquired in 2000. See note 2 to our consolidated financial statements.
       Interest Expense, Net. Net interest expense for 2002 decreased 16.0% to $39.9 million from $47.5 million in 2001. This decrease was due to lower average borrowings and interest rates throughout 2002 as compared to 2001 and a net interest benefit from our interest rate swap contracts of $1.6 million compared to a net interest expense from our swap contracts of $5.6 million in 2001. The decrease was partially offset by additional borrowings incurred in May 2002 to finance the acquisition of Consolidated Reprographics, the addition of new capital leases, and higher interest expense from Holdings’ previously outstanding notes. The benefit from the swap contracts was due to the improvement in the market value of these rate swap contracts in 2002 as they moved closer to their expiration dates in September 2003.
       Income Taxes. We provided for income taxes of $6.3 million for 2002, as compared to $5.8 million in 2001 due to higher pretax income at the consolidated corporations. Our overall effective income tax rate for 2002 decreased to 22.3% as compared to 35.0% in 2001 due to the
41 

 

write off of non-deductible goodwill in 2001, as well as the impact of the SFAS No. 133 transition adjustment.
       Net Income. Net income for 2002 increased to $21.9 million from $10.8 million in 2001. The increase was primarily due to a $7.2 million improvement in interest income related to an interest rate swap contract and a decrease of $5.5 million related to discontinuing the amortization of goodwill pursuant to our adoption of SFAS No. 142 as of January 1, 2002.
       EBITDA. EBITDA for 2002 was $86.1 million, representing a decrease of $3.4 million, or 3.8%, from $89.5 million for 2001. EBITDA as a percentage of net sales for 2002 decreased to 20.5% from 21.3% for 2001 primarily as a result of lower revenues. For a reconciliation of EBITDA to pro forma net income, please see “— Reconciliation of Non-GAAP Measures” below.
Quarterly Results of Operations
       The following table sets forth certain quarterly financial data for the six quarters ended June 30, 2004. This quarterly information is unaudited, has been prepared on the same basis as the annual financial statements and, in our opinion, reflects all adjustments, consisting only of normal recurring accruals, necessary for a fair presentation of the information for periods presented. Operating results for any quarter are not necessarily indicative of results for any future period. 

			
		Quarter Ended	
			
		Mar. 31,		June 30,		Sept. 30,		Dec. 31,		Mar. 31,		June 30,	

		2003		2004	

		(Unaudited, dollars in thousands)	
Net sales	 	$	105,272	 	 	$	108,882	 	 	$	102,184	 	 	$	99,622	 	 	$	110,518	 	 	$	115,615	 	
Gross profit	 	$	42,292	 	 	$	44,551	 	 	$	39,229	 	 	$	37,860	 	 	$	45,919	 	 	$	49,424	 	
Income from operations	 	$	17,014	 	 	$	18,718	 	 	$	14,114	 	 	$	12,703	 	 	$	18,986	 	 	$	21,039	 	
EBITDA	 	$	21,989	 	 	$	23,889	 	 	$	19,097	 	 	$	2,036	 	 	$	23,376	 	 	$	25,839	 	
Adjusted EBITDA	 	$	21,989	 	 	$	23,889	 	 	$	19,097	 	 	$	16,957	 	 	$	23,376	 	 	$	25,839	 	
Net income (loss)	 	$	5,469	 	 	$	9,237	 	 	$	2,845	 	 	$	(12,610	)	 	$	8,729	 	 	$	10,441	 	
       The following is a reconciliation of Adjusted EBITDA and EBITDA to net income (loss) for each respective quarter. 

			
		Quarter Ended	
			
		Mar. 31,		June 30,		Sept. 30,		Dec. 31,		Mar. 31,		June 30,	

		2003		2004	

		(Unaudited, dollars in thousands)	
Adjusted EBITDA	 	$	21,989	 	 	$	23,889	 	 	$	19,097	 	 	$	16,957	 	 	$	23,376	 	 	$	25,839	 	
Loss on early extinguishment of debt	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(14,921	)	 	 	—	 	 	 	—	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
EBITDA	 	 	21,989	 	 	 	23,889	 	 	 	19,097	 	 	 	2,036	 	 	 	23,376	 	 	 	25,839	 	
Interest expense	 	 	(9,317	)	 	 	(8,799	)	 	 	(10,842	)	 	 	(10,432	)	 	 	(7,984	)	 	 	(8,264	)	
Income tax benefit (provision)	 	 	(2,428	)	 	 	(1,213	)	 	 	(776	)	 	 	96	 	 	 	(2,547	)	 	 	(2,627	)	
Depreciation and amortization	 	 	(4,775	)	 	 	(4,640	)	 	 	(4,634	)	 	 	(4,310	)	 	 	(4,116	)	 	 	(4,507	)	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Net income (loss)	 	$	5,469	 	 	$	9,237	 	 	$	2,845	 	 	$	(12,610	)	 	$	8,729	 	 	$	10,441	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
       We believe that quarterly revenues and operating results may vary significantly in the future and that quarter-to-quarter comparisons of our results of operations are not necessarily meaningful and should not be relied upon as indications of future performance. In addition, our quarterly
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operating results are typically affected by seasonal factors, primarily the number of working days in a quarter. Historically, our fourth quarter is the slowest, reflecting the slowdown in construction activity during the holiday season, and our second quarter is the strongest, reflecting the fewest holidays and best weather compared to the other quarters.
Impact of Inflation
       Inflation has not had a significant effect on our operations. Price increases for raw materials such as paper typically have been, and we expect will continue to be, passed on to customers in the ordinary course of business. 
Liquidity and Capital Resources
       Our principal sources of cash have been cash provided by operations and borrowings under our bank credit facilities or debt agreements. Our historical uses of cash have been for acquisitions of reprographics businesses, payment of principal and interest on outstanding debt obligations, capital expenditures and tax-related distributions to our LLC members. Supplemental information pertaining to our historical sources and uses of cash is presented as follows and should be read in conjunction with our consolidated statements of cash flows and notes thereto included elsewhere in this prospectus. 

				Six Months	
		Year Ended December 31,		Ended	
				June 30,	
		2001		2002		2003		2004	
									
								(Unaudited)	
			
		(Dollars in thousands)	
Net cash provided by operating activities	 	$	53,151	 	 	$	56,413	 	 	$	48,237	 	 	$	28,515	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	
Acquisitions of businesses	 	$	(27,822	)	 	$	(40,355	)	 	$	(3,116	)	 	$	(1,880	)	
Capital expenditures	 	 	(8,659	)	 	 	(5,209	)	 	 	(4,992	)	 	 	(3,427	)	
Other	 	 	(584	)	 	 	(354	)	 	 	(228	)	 	 	53	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	
 	Net cash used in investing activities	 	$	(37,065	)	 	$	(45,918	)	 	$	(8,336	)	 	$	(5,254	)	
 	 	 		 	 	 		 	 	 		 	 	 		 	
Proceeds from borrowings under debt agreements	 	$	5,220	 	 	$	32,000	 	 	$	337,750	 	 	$	1,000	 	
Payments under debt agreements	 	 	(20,350	)	 	 	(35,507	)	 	 	(375,613	)	 	 	(21,367	)	
Payment of loan fees	 	 	—	 	 	 	(950	)	 	 	(8,159	)	 	 	(355	)	
Proceeds from issuance of common membership units	 	 	—	 	 	 	—	 	 	 	111	 	 	 	—	 	
Member distributions and redemptions	 	 	(3,411	)	 	 	(10,153	)	 	 	(1,670	)	 	 	(3,045	)	
 	 	 		 	 	 		 	 	 		 	 	 		 	
 	Net cash used in financing activities	 	$	(18,541	)	 	$	(14,610	)	 	$	(47,581	)	 	$	(23,767	)	
 	 	 		 	 	 		 	 	 		 	 	 		 	
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       Our cash position, working capital and debt obligations as of December 31, 2001, 2002 and 2003 and June 30, 2004 are shown below and should be read in conjunction with our consolidated balance sheets and notes thereto included elsewhere in this prospectus. 

					
		December 31,			
				June 30,	
		2001		2002		2003		2004	
									
								(Unaudited)	
			
		(Dollars in thousands)	
Cash and cash equivalents	 	$	29,110	 	 	$	24,995	 	 	$	17,315	 	 	$	16,809	 	
Working capital	 	$	24,338	 	 	$	24,371	 	 	$	16,809	 	 	$	32,870	 	
Mandatorily redeemable preferred and common membership units	 	$	30,116	 	 	$	23,903	 	 	$	25,791	 	 	$	26,773	 	
Other debt obligations	 	 	364,738	 	 	 	378,608	 	 	 	359,340	 	 	 	344,130	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	
 	Total debt obligations	 	$	394,854	 	 	$	402,511	 	 	$	385,131	 	 	$	370,903	 	
       Debt obligations as of December 31, 2003 and June 30, 2004 include $25.8 million and $26.8 million of redeemable preferred equity which has been reclassified in our financial statements as a component of our total debt upon our adoption of SFAS No. 150 in July 2003. Debt obligations as of December 31, 2001 includes $8.2 million of redeemable common membership units.
       We believe that our cash flow provided by operations will be adequate to cover our 2005 working capital needs, debt service requirements and planned capital expenditures to the extent such items are known or are reasonably determinable based on current business and market conditions. However, we may elect to finance certain of our capital expenditure requirements through borrowings under our credit facilities or the issuance of additional debt.
       We continually evaluate potential acquisitions. Absent a compelling strategic reason, we expect that all future acquisitions will be cash flow accretive within six months. Currently, we are not party to any agreements or engaged in any negotiations regarding a material acquisition. We expect to fund future acquisitions through cash flow provided by operations, additional borrowings or the issuance of our equity. The extent to which we will be willing or able to use our equity or a mix of equity and cash payments to make acquisitions will depend on the market value of our shares from time to time and the willingness of potential sellers to accept equity as full or partial payment.
Debt Obligations
       Senior Secured Credit Facilities. We have two senior secured credit facilities: a $130 million senior first priority secured facility, or first priority facility, and a $225 million senior second priority secured facility, or second priority facility. Our first priority facility consists of a $100 million senior first priority secured term loan facility, or term facility, and a $30 million senior first priority secured revolving credit facility, or revolving facility. Our second priority facility consists of a $225 million senior second priority secured term loan facility. The proceeds of the term facility and a portion of the revolving facility, together with substantially all of the proceeds of the second priority facility, were used to refinance our then existing debt in December 2003. We may use amounts remaining available under the revolving facility for working capital, certain permitted acquisitions and general corporate purposes. See “Description of Certain Indebtedness.”
       The term facility matures in June 2009, the revolving facility matures in December 2008 and the second priority facility matures in December 2009. Opco’s obligations under each of the credit facilities are guaranteed by Holdings and each of its domestic subsidiaries. In addition, subject to limited exceptions, the first priority facility is secured by first priority security interests in all of Opco’s assets and the assets of Holdings and its domestic subsidiaries and 65% of the assets of its foreign subsidiary. The second priority facility is secured by second priority security interests in the assets securing the first priority facility. The priority of the security interests and related creditor rights
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between the first priority facility and the second priority facility are subject to an intercreditor agreement.
       Loans made under the credit facilities bear interest at a floating rate and may be maintained as index rate loans or as LIBOR rate loans. Index rate loans bear interest at the index rate plus the applicable index rate margin, as described in the first priority facility. Index rate is defined as the higher of (1) the rate of interest publicly quoted from time to time by The Wall Street Journal as the base rate on corporate loans posted by at least 75% of the nation’s 30 largest banks, and (2) the Federal Reserve reported overnight funds rate plus 1/2 of 1%. LIBOR rate loans bear interest at the LIBOR rate, as described in the first priority facility, plus the applicable LIBOR rate margin.
       The applicable margin with respect to the term facility is 2.00% in the case of index rate loans and 3.00% in the case of LIBOR rate loans. The applicable margin for the revolving facility is determined by a grid based on the ratio of our consolidated indebtedness to our consolidated adjusted EBITDA (as defined in our credit facilities) for the most recently ended four fiscal quarters and range between 2.00% and 2.75% for LIBOR rate loans and range between 1.00% and 1.75% for index rate loans.
       The applicable margin with respect to loans made under the second priority facility is 5.875% in the case of index rate loans and 6.875% in the case of LIBOR rate loans; provided, that, if the ratio of our consolidated indebtedness over our consolidated adjusted EBITDA (as defined in our credit facilities) is greater than 4.8:1.0 for any four fiscal quarters, each of the applicable margins set forth above will be increased by 100 basis points. In addition to the foregoing, loans made under the second priority facility are issued at a discount of 1.0% to the face amount.
       The following tables sets forth the outstanding balance, borrowing capacity and applicable interest rate under our senior secured credit facilities. 

					
		As of December 31, 2003		As of June 30, 2004	
					
				Available						Available			
				Borrowing		Interest				Borrowing		Interest	
		Balance		Capacity		Rate		Balance		Capacity		Rate	
													
										(unaudited)			
			
		(Dollars in thousands)	
Term facility	 	$	100,000	 	 	$	—	 	 	 	5.75%	 	 	$	99,750	 	 	$	—	 	 	 	4.18%	 	
Revolving facility	 	 	15,000	 	 	 	15,000	 	 	 	5.75%	 	 	 	—	 	 	 	30,000	 	 	 	—	 	
Second priority facility, excluding debt discount	 	 	225,000	 	 	 	—	 	 	 	9.8%	 	 	 	225,000	 	 	 	—	 	 	 	8.63%	 	
 	 	 		 	 	 		 	 	 	 	 	 	 		 	 	 		 	 	 	 	 	
 	 	$	340,000	 	 	$	15,000	 	 	 	 	 	 	$	324,750	 	 	$	30,000	 	 	 	 	 	
 	 	 		 	 	 		 	 	 	 	 	 	 		 	 	 		 	 	 	 	 	
       In addition, under the revolving facility, we are required to pay a fee equal to 0.50% of the total unused commitment amount. We may also draw upon this credit facility through letters of credit which carry specific fees.
       Redeemable Preferred Units. As of June 30, 2004, we had $26.8 million of redeemable, non-voting preferred membership units. Holders of the redeemable preferred units are entitled to receive a yield of 13.25% of its liquidation value per annum for the first three years starting in April 2000, and increasing to 15% of the liquidation value per annum thereafter. The discount inherent in the yield for the first three years was recorded as an adjustment to the carrying amount of the redeemable preferred units. This discount was amortized as a dividend over the initial three years. Of the total yield on the redeemable preferred units, 48% is mandatorily payable quarterly in cash to the redeemable preferred unit holders. The unpaid portion of the yield accumulates annually and is added to the liquidation value of the redeemable preferred units. The preferred units are redeemable without premium or penalty, wholly or in part, at Holdings’ option at any time, for the
45 

 

liquidation value, including any unpaid yield. The preferred units are mandatorily redeemable on the closing of this offering to the extent of 25% of the net proceeds from this offering.
       Seller Notes. As of June 30, 2004, we had $6.0 million of seller notes outstanding, with interest rates ranging between 7.0% and 8.0% and maturities between 2004 and 2007. These notes were issued in connection with prior acquisitions.
Off-Balance Sheet Arrangements
       At December 31, 2003 and 2002, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. 
Contractual Obligations and Other Commitments
       Our future contractual obligations as of June 30, 2004 by fiscal year are as follows:

		Six Months					
		Ending		Twelve Months Ending December 31,			
		December 31,					
		2004		2005		2006		2007		2008		Thereafter	

		(Dollars in thousands)	
Debt obligations, including mandatorily redeemable preferred equity	 	$	2,335	 	 	$	3,722	 	 	$	1,696	 	 	$	635	 	 	$	47,875	 	 	$	298,949	 	
Capital lease obligations	 	 	3,503	 	 	 	5,646	 	 	 	3,379	 	 	 	1,813	 	 	 	818	 	 	 	532	 	
Operating lease obligations	 	 	15,037	 	 	 	23,800	 	 	 	13,982	 	 	 	9,279	 	 	 	6,329	 	 	 	18,794	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
 	Total	 	$	20,875	 	 	$	33,168	 	 	$	19,057	 	 	$	11,727	 	 	$	55,022	 	 	$	318,275	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
       Operating Leases. We have entered into various noncancelable operating leases primarily related to facilities, equipment and vehicles used in the ordinary course of our business.
       Contingent Transaction Consideration. We have entered into earnout agreements in connection with prior acquisitions. If the acquired businesses generate operating profits in excess of pre-determined targets, we are obligated to make additional cash payments in accordance with the terms of such earnout agreements. As of June 30, 2004, we estimate that we will be required to make additional cash payments of up to $822,000 between 2004 to 2007. These additional cash payments are accounted for as goodwill when earned.
       We are involved in a dispute with a state tax authority related to an unresolved sales tax issue which arose from such state tax authority’s audit findings from their sales tax audit of certain of our operating divisions for the period from October 1998 to September 2001. The unresolved issue relates to the application of sales taxes on certain discounts we granted to our customers. Based on the position taken by the state tax authority on this unresolved issue, they have claimed that an additional $1.2 million of sales taxes are due from us for the period in question, plus approximately $0.4 million of interest. We strongly disagree with the state tax authority’s position and have filed a petition for redetermination requesting an appeals conference to resolve this issue. A date for the appeals conference originally scheduled in July 2004 has been postponed at the request of the state tax authority to a later date which has not yet been determined. The accrued expenses in our consolidated balance sheet as of December 31, 2003 and June 30, 2004 each include approximately $0.2 million of reserves related to this unresolved matter.
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Reconciliation of Non-GAAP Measures
       The following is a reconciliation of cash flows provided by operating activities to EBIT, EBITDA and unaudited pro forma net income:

					
		Fiscal Year Ended		Six Months Ended	
		December 31,		June 30,	
					
		2001		2002		2003		2003		2004	

								(Unaudited)	
			
		(Dollars in thousands)	
Cash flows provided by operating activities	 	$	53,151	 	 	$	56,413	 	 	$	48,237	 	 	$	26,922	 	 	$	28,515	 	
 	Changes in operating assets and liabilities	 	 	(533	)	 	 	(5,482	)	 	 	(4,860	)	 	 	1,503	 	 	 	1,247	 	
 	Non-cash expenses, including depreciation and amortization	 	 	(41,828	)	 	 	(28,988	)	 	 	(38,436	)	 	 	(13,719	)	 	 	(10,592	)	
 	Income tax provision	 	 	5,802	 	 	 	6,304	 	 	 	4,321	 	 	 	3,641	 	 	 	5,174	 	
 	Interest expense	 	 	47,530	 	 	 	39,917	 	 	 	39,390	 	 	 	18,116	 	 	 	16,248	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
EBIT	 	 	64,122	 	 	 	68,164	 	 	 	48,652	 	 	 	36,463	 	 	 	40,592	 	
 	Depreciation and amortization	 	 	25,372	 	 	 	17,898	 	 	 	18,359	 	 	 	9,415	 	 	 	8,623	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
EBITDA	 	 	89,494	 	 	 	86,062	 	 	 	67,011	 	 	 	45,878	 	 	 	49,215	 	
 	Interest expense	 	 	(47,530	)	 	 	(39,917	)	 	 	(39,390	)	 	 	(18,116	)	 	 	(16,248	)	
 	Income tax provision and unaudited pro forma incremental income tax provision	 	 	(8,424	)	 	 	(12,579	)	 	 	(5,728	)	 	 	(7,946	)	 	 	(11,111	)	
 	Depreciation and amortization	 	 	(25,372	)	 	 	(17,898	)	 	 	(18,359	)	 	 	(9,415	)	 	 	(8,456	)	
 	Dividends and amortization of discount on preferred members’ equity	 	 	(3,107	)	 	 	(3,291	)	 	 	(1,730	)	 	 	(1,730	)	 	 	—	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Unaudited pro forma net income attributable to common members	 	$	5,061	 	 	$	12,377	 	 	$	1,804	 	 	$	8,671	 	 	$	13,233	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
       The following is a reconciliation of EBITDA to Adjusted EBITDA: 

					
		Fiscal Year Ended		Six Months Ended	
		December 31,		June 30,	
					
		2001		2002		2003		2003		2004	

								(Unaudited)	
			
		(Dollars in thousands)	
EBITDA	 	$	89,494	 	 	$	86,062	 	 	$	67,011	 	 	$	45,878	 	 	$	49,215	 	
 	Loss on early extinguishment of debt	 	 	—	 	 	 	—	 	 	 	14,921	 	 	 	—	 	 	 	—	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Adjusted EBITDA	 	$	89,494	 	 	$	86,062	 	 	$	81,932	 	 	$	45,878	 	 	$	49,215	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
For the reasons why we use EBIT, EBITDA, and Adjusted EBITDA, see “— Key Financial Measures — EBIT, EBITDA, and Adjusted EBITDA” above. 
Quantitative and Qualitative Disclosure About Market Risk
       Our primary exposure to market risk is interest rate risk associated with our debt instruments. We use both fixed and variable rate debt as sources of financing. In September 2003, we entered into an interest rate hedge agreement with a notional amount of $111.2 million to reduce our
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exposure to fluctuations in interest rates. Under the hedge agreement, we pay a fixed rate of 2.29% and we receive a variable rate equal to the 1-month LIBOR rate. The difference between the fixed and variable rates is settled monthly and is recognized as an increase or decrease in interest expense. The notional amount of the hedge agreement is reduced quarterly by an amount equal to 50% of our scheduled quarterly principal payments on our senior credit facilities. Upon the expiration of the hedge agreement in September 2005, the notional amount will have been reduced to $96.0 million.
       In January 2004, we entered into two interest rate collar agreements, referred to as the front-end and the back-end interest rate collar agreements. The front-end interest rate collar agreement has an initial notional amount of $22.6 million which is increased quarterly to reflect reductions in the notional amount of our interest rate swap agreement, such that the notional amount of the swap agreement, together with the notional amount of the front-end interest rate collar agreement, remains not less than 40% of the aggregate principal amount outstanding on our senior credit facilities. The front-end interest rate collar agreement expires in September 2005. The back-end interest rate collar agreement becomes effective upon expiration of the swap agreement and front-end interest rate collar agreement in September 2005 and has a fixed notional amount of $111.0 million. The back-end interest rate collar agreement expires in December 2006. At June 30, 2004, the fair value of these interest rate collar agreements was immaterial.
       At December 31, 2003, we had $385.1 million of total debt outstanding of which $340.0 million was bearing interest at variable rates approximating 8.5%. A 1.0% change in interest rates on variable rate debt would have resulted in interest expense fluctuating by approximately $2.3 million during the year ended December 31, 2003.
       We have not, and do not plan to, enter into any derivative financial instruments for trading or speculative purposes. As of December 31, 2003, we had no other significant material exposure to market risk, including foreign exchange risk and commodity risks.
Recent Accounting Pronouncements
       In April 2002, the FASB issued SFAS No. 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections.” SFAS No. 145 updates, clarifies, and simplifies existing accounting pronouncements. This statement rescinds SFAS No. 4, which required all gains and losses from extinguishment of debt to be aggregated and, if material, classified as an extraordinary item, net of related income tax effect. As a result, the criteria in Accounting Principles Board No. 30 will now be used to classify those gains and losses. SFAS No. 64 amended SFAS No. 4 and is no longer necessary as SFAS No. 4 has been rescinded. SFAS No. 44 has been rescinded as it is no longer necessary. SFAS No. 145 amends SFAS No. 13 to require that certain lease modifications that have economic effects similar to sale-leaseback transactions be accounted for in the same manner as sale-lease transactions. This statement also makes technical corrections to existing pronouncements. While those corrections are not substantive in nature, in some instances, they may change accounting practice. Our adoption of SFAS No. 145 did not have a material impact on our financial position, results of operations or cash flows.
       In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” SFAS No. 146 nullifies Emerging Issues Task Force (“EITF”) Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity,” under which a liability for an exit cost was recognized as of the date of an entity’s commitment to an exit plan. SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized at fair value when the liability is incurred. Our adoption of this standard effective January 1, 2003 had no impact on our financial position, results of operations or cash flows.
       In November 2002, the FASB issued FASB Interpretation No. 45 (FIN 45), “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” This interpretation elaborates on disclosures required in financial
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statements concerning obligations under certain guarantees. It also clarifies the requirements related to the recognition of liabilities by a guarantor at the inception of certain guarantees. Our adoption of FIN 45 did not have a material impact on our financial position or results of operations or cash flows.
       In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure,” an amendment of SFAS No. 123. SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require more prominent and more frequent disclosures in financial statements about the effects of stock-based compensation. This statement is effective for financial statements for fiscal years ending after December 15, 2002. Our adoption of SFAS No. 148 did not have any impact on our financial statements as management does not have any intention to change to the fair value method.
       In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46), “Consolidation of Variable Interest Entities,” which addresses the consolidation of business enterprises (variable interest entities) to which the usual condition (ownership of a majority voting interest) of consolidation does not apply. The interpretation focuses on financial interests that indicate control. It concludes that in the absence of clear control through voting interests, a company’s exposure (variable interest) to the economic risks and potential rewards from the variable interest entity’s assets and activities are the best evidence of control. Variable interests are rights and obligations that convey economic gains or losses from changes in the values of the variable interest entity’s assets and liabilities. Variable interests may arise from financial instruments, service contracts, nonvoting ownership interests and other arrangements. If an enterprise holds a majority of the variable interests of an entity, it would be considered the primary beneficiary. The primary beneficiary would be required to include the assets, liabilities and the results of operations of the variable interest entity in its financial statements. In December 2003, the FASB issued a revision to FIN 46 to address certain implementation issues. The adoption of FIN 46 and FIN 46 (revised) had no material impact on our results of operations, financial position or cash flows.
       In April 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” SFAS No. 149 amends and clarifies the financial accounting and reporting of derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” This Statement is effective for contracts entered into or modified after June 30, 2003, except for certain hedging relationships designated after June 30, 2003. The adoption of SFAS No. 149 did not have a material effect on our financial position, results of operations or cash flows.
       In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity” (SFAS 150). SFAS 150 requires issuers to classify as liabilities (or assets in some circumstances) three classes of freestanding financial instruments that embody obligations for the issuer. SFAS 150 is effective for financial instruments entered into or modified after May 31, 2003, and is otherwise effective at the beginning of the first interim period beginning after June 15, 2003. We adopted SFAS 150 on July 1, 2003, which resulted in classifying mandatorily redeemable preferred stock as a liability in the balance sheet and related accretion being charged to interest expense in the statement of operations. See Note 1 to our consolidated financial statements for more detail.
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BUSINESS
Our Company
       We are the leading reprographics company in the United States providing business-to-business document management services to the architectural, engineering and construction industry, or AEC industry. We also provide these services to companies in non-AEC industries, such as technology, financial services, retail, entertainment, and food and hospitality, that also require sophisticated document management services. The business-to-business services we provide to our customers include document management, document distribution and logistics , and print-on-demand . We provide our core services through industry leading technology and innovation, a sophisticated network of 173 locally branded reprographics service centers, and more than 1,560 facilities management programs at our customers’ locations. We also sell reprographics equipment and supplies to complement our full range of service offerings. In further support of our core services, we license our suite of reprographics technology products, including our flagship internet-based application, PlanWell, to independent reprographers. We also operate PEiR (Profit and Education in Reprographics) through which we charge membership fees and provide purchasing, technology and educational benefits to other reprographers, while promoting our reprographics technology as the industry standard. Our services are critical to our customers because they shorten their document processing and distribution time, improve the quality of their document information management, and provide a secure, controlled document management environment.
       We operate 173 reprographics service centers, including 170 service centers in 133 cities in 29 states throughout the United States and three reprographics service centers in the Toronto metropolitan area. Our reprographics service centers are located in close proximity to the majority of our customers and offer pickup and delivery services within a 15 to 30 mile radius. These service centers are arranged in a hub and satellite structure and are digitally connected as a cohesive network, allowing us to provide our services both locally and nationally. We service more than 65,000 active customers and employ over 3,450 people, including a sales force of approximately 270 employees.
       In terms of revenue, number of service facilities and number of customers, we believe we are the largest company in our industry, operating in more than eight times as many cities and with more than five times the number of service facilities as our next largest competitor. We believe that our extensive national footprint, our industry leading technology, and our comprehensive offering of value-added services, including logistics and facilities management, provide us with a distinct competitive advantage.
       While we began our operations in California and currently derive approximately half of our net sales from our operations in the state, we have continued to expand our geographic coverage and market share by entering complementary markets through strategic acquisitions of high quality companies with well recognized local brand names and, in most cases, more than 25 years of operating history. Since 1997, we have acquired 80 companies and have retained approximately 93% of the management of the acquired companies. As part of our growth strategy, we have recently begun opening and operating branch service centers, which we view as a low cost, rapid form of market expansion. Our branch openings require modest capital expenditures and are expected to generate operating profit within 12 months from opening. We have opened 15 new branches in key markets since September 2003 and expect to open an additional 14 branches by the end of the first quarter of 2005.
Corporate Background and Reorganization
       Our predecessor, Ford Graphics, was founded in Los Angeles, California in 1960. In 1967, this sole proprietorship was dissolved and a new corporate structure was established under the name Micro Device, Inc., which continued to provide reprographics services under the name Ford
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Graphics. In 1989, our current senior management team purchased Micro Device, Inc., and in November 1997 our company was recapitalized as a California limited liability company, with management retaining a 50% ownership position and the remainder owned by outside investors. In February 2000, Code Hennessy & Simmons IV, L.P., or CHS IV, a private equity fund formed by Code Hennessy & Simmons L.L.C., or CHS, acquired a 50% stake in our company from these outside investors in the 2000 recapitalization.
       We are currently organized as American Reprographics Holdings, L.L.C., a California limited liability company, or Holdings. We conduct our operations through our wholly-owned operating subsidiary, American Reprographics Company, L.L.C., a California limited liability company, or Opco, and its subsidiaries.
       Immediately prior to the closing of this offering, we will reorganize from a California limited liability company to a Delaware corporation, American Reprographics Company. In the reorganization, the members of Holdings will exchange their common units and options to purchase common units for shares of our common stock and options to purchase shares of our common stock. As required by the operating agreement of Holdings, we will repurchase all of the preferred equity of Holdings upon the closing of this offering with a portion of the net proceeds from this offering. After our reorganization, all outstanding warrants to purchase common units will be exercisable for shares of our common stock.
Current Ownership
       CHS is a private equity firm based in Chicago, Illinois specializing in leveraged buyouts and recapitalizations of middle market companies in partnership with company management through its private equity funds, including CHS IV. Since its founding in 1988, CHS has formed four private equity funds totaling $1.6 billion and currently has investments in 19 operating companies with combined annual revenues of more than $4.0 billion. CHS presently manages $1.5 billion of equity capital from leading financial institutions, pension funds, insurance companies, and university endowments. Its principal offices are located at 10 South Wacker Drive, Suite 3175, Chicago, Illinois 60606. As of September 30, 2004, CHS IV and its affiliates owned approximately 49% of our outstanding common equity.
       Our founders, Mr. Chandramohan, Chairman and Chief Executive Officer, and Mr. Suriyakumar, President and Chief Operating Officer, purchased ARC in 1989 under its predecessor name, Micro Device, Inc., are still actively involved in the business, and have provided continuity of leadership and control since then. As of September 30, 2004, our executive officers had a pecuniary interest in approximately 33% of our outstanding common equity. See “Principal and Selling Stockholders.”
Major Acquisitions
       In addition to our primary focus on the growth of our business, we have pursued tactical acquisitions to expand and complement our existing service offerings and to expand our geographic locations where we believe we could be a market leader. For example, our acquisition of Ridgways, Inc. in September 2000 enabled us to expand our geographic reach and market penetration in 14 major metropolitan markets. In March 2002, we acquired certain assets of the Consolidated Reprographics division of Lason Systems, Inc., which allowed us to increase our market penetration in Southern California. In May 1999, we purchased certain technology and related know-how for software, which helped us expand our technology center and add personnel necessary to assist in developing PlanWell. In March 2000, we acquired certain assets of Sierra Network Systems, Inc., including technologies that contributed to our continued development of PlanWell.
       We intend to continue to pursue a disciplined course of growing our business through complementary acquisitions. We regularly evaluate potential acquisitions and may engage in acquisition negotiations at any time and from time to time. Currently, we are not party to any agreements or engaged in any negotiations regarding a material acquisition.
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Industry Overview
       The reprographics industry has traditionally provided services related to the reproduction and distribution of large format architectural, engineering and construction documents. Customer demands for speed and efficiency and advances in technology have transformed the reprographics industry such that reprographers are now expected to offer complex digital document management capabilities, document distribution expertise, comprehensive logistics, and the ability to provide document services under intense deadlines. These sophisticated services typically are charged as part of a per square foot printing cost.
       According to the International Reprographics Association, or IRgA, the reprographics industry in the United States is estimated to be $5 billion in size. The IRgA indicates that the reprographics industry is highly fragmented, consisting of approximately 3,000 firms with average annual sales of approximately $1.5 million and 20 to 25 employees. Since construction documents are the primary medium of communication for the AEC industry, demand for reprographics services in the AEC market is closely tied to the level of activity in the construction industry, which in turn is driven by macroeconomic trends such as GDP growth, interest rates, job creation, office vacancy rates, and tax revenues. According to FMI Corporation, or FMI, a consulting firm to the construction industry, construction industry spending in the United States for 2004 is estimated at $975 billion, with expenditures divided between residential construction (55%) and commercial and public, or non-residential, construction (45%). Our AEC revenues are most closely correlated to the non-residential sectors of the construction industry because these sectors are the largest users of reprographics services. According to FMI, the non-residential sectors of the construction industry are projected to grow at an average of 5.4% per year over the next three years.
       For over 100 years, AEC customers have used reprographics services to print, distribute, and store architectural, engineering and construction diagrams and plans. Prior to the 1980’s, the blueprint was the primary medium of communication among the highly fragmented team of AEC professionals who was responsible for the creation and development of a construction project. With the advent of Computer Aided Drafting (CAD) software and the corresponding need for improved graphic reproduction and color graphics to support the digital nature of construction documents, reprographers have evolved their products and services to facilitate better communication through digital means. The production of documents through digital means significantly decreases errors in drawing interpretation due to the increased quality of information and the clarity with which these documents can be produced. The introduction of the internet spurred additional service and technology development, especially in the area of document management, document distribution and logistic services and print-on-demand.
       Non-residential construction projects are generally large in scale, time consuming, and subject to cost overruns and delays. A frequent cause of such problems is the complexity of the construction documentation and the logistics involved in distributing documents to their intended recipients. Reprographers can facilitate better document management through technology applications. For example, reprographers can provide more efficient document distribution by shifting from an analog “print and distribute” business model, where customer orders are placed and produced in one location and physically distributed locally or nationally, to a digital “distribute and print” model, where customer orders are placed in one location, distributed digitally and physically produced at one or more local service centers.
       Market opportunities for business-to-business document management services such as ours are rapidly expanding into non-AEC industries. For example, non-AEC customers are increasingly using large and small format color imaging for point-of-purchase displays, digital publishing, presentation materials, educational materials and marketing materials as these services have become more efficient and available on a short run, on-demand basis through digital technology. As a result, we believe that our addressable market is substantially larger than the core AEC reprographics market. We believe that the growth of non-AEC industries is generally tied to growth in
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the U.S. gross domestic product, or GDP, which is projected to grow 4.3% in 2004 and 3.6% in 2005 according to Wall Street’s consensus estimates.
       The development of digital technology and internet-based solutions for managing documents and the corresponding distribution and reproduction processes have also created an additional opportunity for reprographics companies such as ourselves to offer complementary, value-added services to AEC and non-AEC customers through intelligent technological solutions and an extensive physical network.
       We believe the following general trends will continue to impact our business:

		
• 	Economic Recovery. The recovery in the overall economy is expected to boost construction activity. We estimate that recovery in non-residential construction typically lags the recovery in the broader economy by approximately six months, and we believe that we are at the early stages of an upturn in the non-residential construction cycle. FMI forecasts increases in non-residential construction spending at an average of 5.4% per year over the next three years. The economy is continuing to show signs of recovery as indicated by positive GDP growth, employment growth, increased consumer confidence and supportive monetary policy. Wall Street’s consensus estimates forecast real GDP growth of 4.3% in 2004 and 3.6% in 2005.	

		
 	We believe we are well positioned to capitalize on these recovery trends through our economies of scale and through our nationwide network of service centers.	

		
• 	Digitization. The AEC industry is increasingly becoming digital, creating substantial efficiencies and cost savings for participants of the AEC industry through electronic design and collaboration. Improved document management by the AEC industry is compelling to participants due to frequent cost overruns and completion delays attributable to poor and inaccurate use of plans, specifications and other construction documentation, as well as the complex nature of construction projects. AEC and non-AEC customers alike are increasingly demanding higher value-added, comprehensive digital reprographics services. To meet the demands of the customers, the reprographics industry has been converting its main production technology from analog to digital. Digital technology is cost effective, allows for just-in-time printing and results in high quality documents that can be stored electronically, modified easily and printed in any quantity at any time. The internet is becoming the new distribution channel for the AEC industry, allowing reprographics businesses to shift from a “print and distribute” business model to a “distribute and print” model.	

		
 	We believe we are at the forefront of this industry trend and conduct our operations entirely by digital means through our 173 digitally connected service centers, each with similar production equipment and quality standards, and by enabling the digital fulfillment of our reprographics services through the development of our proprietary software, including PlanWell.	

		
• 	Expanding Geographic Presence. AEC firms of all sizes are expanding their operations into larger geographic territories. This trend requires reprographers to expand their service levels and offerings to keep up with customer demand. As a result, the ability to fulfill reprographics services across wider areas increases the logistical burden for the vast majority of reprographers, which are typically small, privately-held companies that serve only local markets. In addition, the desire for customers to possess a degree of centralized administrative control over their documents requires the support of a corresponding digital infrastructure. As AEC firms continue to decentralize and shift to the “distribute and print” model, we believe that reprographics firms with a comprehensive digital network and footprint of service facilities such as ours will be best positioned to serve their customers.	

		
 	The digitization of the AEC industry has also enabled AEC firms to expand globally to take advantage of opportunities in the global construction industry, which according to FMI is $3.3 trillion in size, and diversify the risks associated with operating in one region or one country. International reprographics markets appear to mirror the fragmentation and the small business	
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 	orientation of the U.S. market, with few large reprographics companies. In addition, our recent efforts to introduce our technology solutions into Europe and Asia indicate that there is a significant lag in the adoption and availability of digital reprographics technology in those markets.	
 		
 	We believe that the addressable reprographics market of the global construction industry is significantly larger than the U.S. reprographics market and that we are well positioned to service the needs of global AEC firms. Our abilities to leverage our technology, offer value-added business service offerings, expand our physical operations, and successfully integrate new businesses offer us significant opportunities for growth outside the United States.	

		
• 	Secular Trends Favoring Outsourcing. Both AEC and non-AEC businesses are focused on increasing productivity by specializing in their core competencies and outsourcing non-core operations such as reprographics. The rapid pace of technological advances and the high costs of purchasing and operating equipment for in-house reprographics departments have further contributed to this trend. According to IDC, a global market intelligence and advisory firm, on-site outsourcing revenue will increase from $4.8 billion in 2003 to $6.6 billion in 2008, resulting in a projected CAGR of 6%. IDC also indicates that revenue from facilities management services and mailroom management services, from which the bulk of on-site revenue is derived, is expected to increase from $4.3 billion in 2003 to $5.9 billion in 2008, representing a projected CAGR of 6%.	

		
 	With a current base of more than 1,560 on-site facilities management programs, we believe we can leverage our depth of experience in selling and managing these programs into a growth opportunity that will meet or exceed the potential growth rate of the market itself.	
Our Competitive Strengths
       We believe that we maintain the following competitive strengths:

		
• 	Leading Market Position in Fragmented Industry. In terms of revenue, number of service facilities and number of customers, we believe we are the largest company in our industry, operating in more than eight times as many cities and with more than five times the number of service facilities as our next largest competitor. We are the largest reprographer in most of the geographic markets we serve, as the majority of the approximately 3,000 firms in the reprographics industry are small and locally focused. Our size and national footprint provide us with significant purchasing power, economies of scale, the ability to invest in industry leading technologies, and the resources to service large, national customers. Our well-recognized local brand names and our reputation for quality and reliability within the reprographics and AEC industries, supported by our ability to provide a wide range of services, have allowed us to gain and sustain the leading position in our industry.	
 		
• 	Leader in Technology and Innovation. We strive to maintain the leading position in our industry by creating innovative, value-added technology solutions for our customers and other independent reprographers. We develop and support our industry leading suite of reprographics technology products through a team of approximately 20 full-time engineers and technical specialists at our two technology centers in Silicon Valley, as well as through continued investment in research and development. We also draw upon the combined experience, expertise and market insight of the management of our acquired reprographics firms to design, evaluate and improve our reprographics technology products. We believe PlanWell is best positioned to become the industry standard within the AEC industry. From PlanWell’s inception in June 2000 through September 1, 2004, more than 650,000 orders have been placed through PlanWell online planrooms for the management of more than 54,000 projects and seven million complex, large format documents. In addition, we have developed other proprietary software applications that complement PlanWell and have enabled us to improve the efficiency of our services, add complementary services and increase our opportunities for capturing revenue. These include Abacus PCR, our proprietary job tracking software, BidCaster, our proprietary “Invitation to Bid” tool (ITB), EWO, our proprietary electronic work order application, MetaPrint, our print automation	
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	and device manager, and OneView, our proprietary centralized project and administrative module for larger customers.	
 		
• 	Extensive National Footprint with Regional Expertise. Our service centers maintain local customer relationships while benefiting from our centralized corporate functions and national scale. Each service center provides sophisticated, personalized services that are tailored to meet the regional needs of our customers. Our service facilities are organized as hub and satellite structures within individual markets, allowing us to balance production capacity and minimize capital expenditures through technology sharing among our service centers within each market. Our service centers are in close proximity to the majority of our customers and offer pickup and delivery services within a 15 to 30 mile radius. This enables us to maintain our national “distribute and print” operations and allows our service facilities to act as backup and supply centers for the more than 1,560 facilities management programs we have in place at customer sites throughout the United States. We also leverage the geographic coverage of our production facilities to address the service needs of large companies that operate in multiple locations. Our Premier Accounts sales initiative offers regional and national customers our localized services under a single contract, while offering centralized access to project specific services, billing, and tracking information.	
 		
• 	Flexible Operating Model. We are able to tailor our operations to meet the demands of the local markets that we serve by promoting regional decision making for marketing, pricing, and selling practices. In this manner, we remain responsive to our customers while benefiting from the cost structure advantages of our centralized administrative functions. Our flexible operating model also allows us to capitalize on an improving business environment. Capital investment for a new branch is modest and these new branches are expected to generate positive operating profit within 12 months from opening. The economies associated with opening a new branch give us flexibility and market response times that can significantly enhance our regional growth. We use our wide area network and management information systems to benchmark daily financial and operational data to help us identify and respond to changes in operating trends and disseminate best practices across all branches. We estimate that approximately 60% of our cost base is fixed and that the operating margin on our incremental revenue is more than two times our current operating margin. For example, for the year ended December 31, 2003, we achieved an operating margin of 15.0% and an EBITDA margin (exclusive of a one-time charge related to the early extinguishment of debt) of 19.7%. For the six months ended June 30, 2004, we experienced revenue growth of 5.6% compared to the same period in 2003, and achieved an operating margin of 17.7% and an EBITDA margin of 21.8%, resulting in margin improvement of approximately 2.7 and 2.1 percentage points, respectively, compared to the year ended December 31, 2003, demonstrating the leverage in our operating model in an expanding business environment.	
 		
• 	Consistent, Strong Free Cash Flow. Through management of our inventory and receivables and our low capital expenditure requirements, we have consistently generated strong free cash flow (defined as operating cash flow less cash capital expenditures), regardless of recent industry and economic conditions. Our historical cash capital expenditures have been relatively low, with overall capital spending averaging approximately 1.5% of annual net sales over the last three years. In 2003, we generated free cash flow of $43.2 million. From the beginning of 2001 to the end of June 2004, we generated a cumulative $164.0 million of free cash flow.	
 		
• 	Low Cost Operator. We believe we are one of the lowest cost operators in the reprographics industry, which we have accomplished by minimizing branch level expenses and capitalizing on our significant scale for purchasing efficiencies. As a result of our national presence and size, we enjoy significant economies of scale, and we receive favorable terms from major vendors of equipment, software and reprographics supplies, such as Océ N.V., Xerox Corporation, Canon Inc., Xpedx, a division of International Paper Company, CDW Corporation, and Dell Inc. We also offer savings to other reprographers through our PEiR division, which allows members to purchase	
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	machinery and supplies at lower prices than they could obtain independently while further increasing our purchasing power.	
 		
• 	Experienced Management Team and Highly Trained Workforce. Our senior management team of S. “Mohan” Chandramohan, Chairman and Chief Executive Officer, K. “Suri” Suriyakumar, President and Chief Operating Officer, and Mark Legg, Chief Financial Officer, together with our divisional managers, has an average of over 20 years of industry experience. Mr. Chandramohan has been with us since February 1988 and Mr. Suriyakumar has been with us since November 1989. We have also successfully retained approximately 93% of the managers of the 80 businesses we have acquired since 1997. As a result of these acquisitions, we have developed a formalized training program that collects and disseminates best practices to our employees through formal instruction and seminars. The program covers all of our business practices, including general management, operations, sales and marketing, technology, human resources and accounting.	
Our Business Strategy
       Our objective is to continue to strengthen our competitive position as the preferred provider of business-to-business document management, document distribution and logistics, and print-on-demand services. We seek to strengthen this position while increasing revenue, cash flow, profitability, and market share. We believe our leadership position through our nationwide footprint, our continuous technological innovation, our promotion of PlanWell as the industry standard, and our value-added service offerings will allow us to continue to meet our objectives. Our key strategies to accomplish these objectives include:

		
• 	Continue to Increase Our Market Penetration and Expand Our Nationwide Footprint. Through our technical and operational expertise and strong customer relationships, we expect to continue to penetrate key markets and build our nationwide presence. We believe that customers rely on local relationships for their document management services, and we intend to increase our existing presence in key U.S. markets while expanding into under-penetrated regions through facilities management contracts, targeted branch openings, strategic acquisitions, and national accounts.	

			
 	Õ  	Facilities Management Contracts: We expect to capitalize on the continued trend of our customers to outsource their document management services, including their in-house operations. Our facilities management services are turnkey solutions to our customers that can transform what was a cost center for our customers into a profit center. Rather than absorbing the entire cost of such a facility, our customers receive an invoice from us based on their use which is typically reimbursable by project owners and developers. Since January 1, 2001, the number of our facilities management contracts has more than doubled. Based on the six months ended June 30, 2004, annualized net sales from these contracts have grown to $69.0 million. We will continue to concentrate on developing ongoing facilities management relationships in all of the markets we serve and building our base of recurring revenue.	
 		
 	Õ  	Targeted Branch Openings: Significant opportunities exist to expand our geographic coverage, capture new customers and increase our market share by opening additional satellite branches in regions near our established operations. Our strategy with respect to branch openings is in the early stages of implementation, having evolved as the next stage of our growth to complement our traditional acquisition strategy. Since September 2003, we have opened 15 new branches in areas that expand or further penetrate our existing markets and plan to open an additional 14 branches by the end of the first quarter of 2005. Capital investment for a new branch is modest and these new branches are expected to generate positive operating profit within 12 months from opening. We plan to open branches within our existing markets to serve new customers, in new markets to serve both existing and new customers, and in markets that have no ideal acquisition candidates or where potential	
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 		acquisitions are likely to be too costly. We believe that our existing corporate infrastructure is capable of supporting a much larger branch network and significantly higher revenue.	
 		
 	Õ  	Strategic Acquisitions: Acquisitions have historically been an important component of our growth strategy. Since 1997, we have acquired 80 reprographics companies and have developed a structured approach to acquiring and integrating companies. We believe that there are significant opportunities to grow our business further through disciplined, strategic acquisitions due to the fragmented nature of our industry. Because our industry consists primarily of small, privately-held companies that serve only local markets, we believe that we can continue to grow our business by successfully acquiring additional reprographics companies at reasonable prices and subsequently realizing substantial operating and purchasing synergies by leveraging our existing corporate infrastructure. We will continue to leverage our acquisition and integration expertise to expand into new markets and increase our presence in existing underpenetrated markets.	
 		
 	Õ  	National Accounts: Our Premier Accounts business unit offers a comprehensive suite of reprographics services designed to meet the demands of large regional and national businesses. It provides local reprographics services to national companies through our national network of reprographics service centers, while offering centralized access to project-specific services, billing and tracking information. For example, we recently entered into an exclusive Premier Accounts contract with one of the leading construction companies in the United States under which we offer a full range of document management, distribution and logistics, and print-on-demand services on a national scale. This contract requires that the customer use PlanWell for every project, and the use of PlanWell by this customer’s contractors, subcontractors and outside work force should significantly improve the potential for revenue growth from this account. Through our extensive national footprint and industry leading technology, we believe that we are well-positioned to meet the demands of national companies and will continue to capture additional revenues and customers through this business unit.	

		
• 	Promote PlanWell as the Industry Standard for Procuring Reprographics Services Online. Our goal is to continue to expand market penetration of PlanWell and create a standardized, internet-based portal to manage, store, and retrieve documents. In order to increase market share and achieve industry standardization, we will continue to license our PlanWell technology to other reprographics companies, including members of PEiR. Through September 1, 2004, we have licensed PlanWell and our other technology products to 64 reprographics companies operating 80 service facilities across the United States. These efforts, combined with the strong functionality and growing capabilities of the PlanWell suite of products, should continue to position us at the forefront of technological innovation within the AEC and non-AEC reprographics markets, and create additional service and licensing revenue for us.	
 		
• 	Expand Our Non-AEC and Ancillary Product and Service Offerings. We believe that offering our services to non-AEC customers and expanding our existing suite of product and service offerings are effective methods of increasing sales to both new and existing customers. We have leveraged our expertise in providing highly customized, quick-turn services to the AEC industry to attract customers from non-AEC industries that are increasingly seeking sophisticated document management, document distribution and logistics, and print-on-demand services. We have been successful in attracting non-AEC customers that require services such as the production of large format and small format color and black and white documents, educational and training materials, short-run publishing products, and retail and promotional items. We began targeting non-AEC customers upon our conversion to digital technology in 1997, and we believe that our services to these customers accounted for approximately 20% of our year to date net sales.	
In addition to expanding our non-AEC revenues, we continue to focus on creating new value-added services beyond traditional reprographics to offer all of our customers. We are actively engaged in
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services such as bid facilitation, print network management for offices and on-site production facilities, and on-demand color publishing. We plan to continue to capitalize on our technological innovation to enhance our existing services and to create new reprographics technologies.
Our Services
       We provide business-to-business services to our customers in three key areas: document management, document distribution and logistics , and print-on-demand . These services are provided to our AEC industry customers, as well as to our customers in non-AEC industries that have similar document management and production requirements. Our AEC customers work primarily with high volumes of large format construction plans and small format specification documents that are technical, complex, constantly changing and frequently confidential. Our non-AEC customers generally require services that apply to black and white and color small format documents, promotional documents of all sizes, and the digital distribution of document files to multiple locations for a variety of print-on-demand needs including short-run digital publishing.
       We provide our business-to-business services through industry leading technology, a sophisticated network of 173 locally-branded reprographics service centers, and more than 1,560 facilities management programs. These services include:

		
• 	PlanWell, our proprietary, internet-based planroom launched in June 2000, and our suite of other reprographics software products that enable the online purchase and fulfillment of reprographics services. From Planwell’s inception in June 2000 through September 1, 2004, more than 650,000 orders have been placed through PlanWell online planrooms for the management of more than 54,000 projects and seven million complex, large format documents. While PlanWell typically facilitates the management of large and small format documents for professionals in the AEC industry, the application can be used to manage small format document collections and color documents for non-AEC users. PlanWell is provided in two primary configurations: PlanWell Enterprise , a hosted, comprehensive documentation system with a wide variety of administration and document management features; and PlanWell PDS, a simple, stand alone online planroom that acts as a document viewing and distribution tool for a single set of plans.	
 		
• 	Production services, including print-on-demand, document assembly, document finishing, mounting, laminating, binding, and kitting. We utilize a broad range of digital output equipment and finishing and assembly skills to produce print-on-demand projects at each of our 173 service centers. These services include the production of large format and small format documents in both black and white and color. Documents can be digitally transferred from one service facility to another to balance production capacity or take advantage of a “distribute and print” operating system.	
 		
• 	Document distribution and logistics, including the physical pick up, delivery, and shipping of time-sensitive, critical documents. These services are supported by a fleet of approximately 675 vehicles and nearly 700 employees. Our service facilities provide pedestrian, bicycle and car courier services in most metropolitan markets, and we also offer third party shipping services to all of our customers. Contracted courier services allow our divisions to manage additional delivery capacity through approximately 157 vehicles and drivers.	
 		
• 	Highly customized large and small format reprographics in color and black and white. For our non-AEC customers this includes digital reproduction of posters, tradeshow displays, plans, banners, signage and maps. We offer large format color services through a variety of processes, including inkjet, bubblejet, large format electrostatic printing and photographic printing. We also offer small format color reprographics services, which typically use laser printing technology, for products such as flyers, real estate deal books and financial presentations.	
 		
• 	Facilities management, including recurring on-site document management services and staffing at our customers’ locations. We currently have more than 1,560 facilities management programs,	
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	which typically include the management and procurement of related on-site equipment and supplies. Our facilities management services generally eliminate reprographics capital expenditures for our customers and keep equipment current and in good condition. Our facilities management services also help our customers track and capture reprographics costs that are often reimbursable, and frequently transform a customer’s cost center into profit center.	
 		
• 	Sales of reprographics equipment and supplies to other reprographics companies and end-users in the AEC industry to further complement our full range of service and product offerings and increase our purchasing power. In addition, a number of our service centers are authorized dealers for reprographics equipment manufactures such as Océ and Xerox. Sales of reprographics equipment and supplies accounted for over $40.7 million, or 9.8%, of our net sales in 2003.	
 		
• 	The design and development of other document management and reprographics software, in addition to PlanWell, that supports ordering, tracking, job costing, and other customer specific accounting information for a variety of projects and services. Many of these applications create greater value and offer a wider range of services when used in conjunction with one another, providing an incentive to our customers to use our services beyond a single need. These proprietary applications include:	

			
 	Õ  	Electronic Work Order (EWO), which offers our customers access to the services of all of our service centers through the internet. This application also offers the reprographer the ability to create internet-based order forms that conform to their available service offerings and pricing. Customers can use a simple upload application to send files to the reprographer or schedule a pickup for original documents. This application can also be configured to interface with other third party internet-based products, acting as the driving e-commerce engine for a reprographics organization.	
 		
 	Õ  	Abacus Print Cost Recovery (PCR) System, which provides a suite of software modules for reprographers and their customers to track documents produced from equipment installed as a part of a facilities management program.	
 		
 	Õ  	BidCaster “Invitation-to-Bid” (ITB) System, a data management internet application that issues customizable “invitations to bid” from a customer’s desktop using email and a hosted fax server. This application links potential bidders directly to a PlanWell online planroom to evaluate and order plans used in the submission of project bids, and tracks bid responses to provide the customer a much faster, convenient and efficient way to gather and complete project bids.	
 		
 	Õ  	MetaPrint Print Automation and Device Manager, a universal print driver that facilitates the printing of documents with output devices manufactured by multiple vendors, and allows the reprographer to print multiple documents in various formats as a single print submission.	
 		
 	Õ  	OneView Document Access and Customer Administration System, an internet-based application that leverages the security attributes of PlanWell to provide a single point of access to all of a customer’s project documents, regardless of which of our local production facilities stores the relevant documents. This application also imports and consolidates invoice data from each of our service centers in a variety of formats and reports.	
       To further support and promote our core suite of services (document management, document distribution and logistics, and print-on-demand) , as well as lead our industry forward and establish ourselves firmly at the forefront of technology and innovation in the reprographics industry, we also:

		
• 	License our suite of reprographics technology products, including our flagship online planroom, PlanWell, to independent reprographers. Our licensing efforts promote our technology as the digital standard for the fulfillment of reprographics services in the AEC industry. Through September 1, 2004, we have licensed PlanWell and our other technology products to 64 reprographics companies operating 80 service facilities across the United States.	
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• 	Operate PEiR (Profit and Education in Reprographics), a trade organization wholly owned by us, through which we charge membership fees and provide purchasing, technology and educational benefits to other reprographers. PEiR members, currently consisting of 43 independent reprographers, are required to license PlanWell and may purchase equipment and supplies at a lower cost than they could obtain independently. In turn, their purchasing volumes increase our buying power and influence with our vendors. We also distribute our educational programs to PEiR members to help establish and promote best practices within the reprographics industry.	
Customers and Representative Projects
       Our customers are both local and national companies, with no single customer accounting for more than 2% of our net sales in 2003.
       We have historically provided reprographics and related business services primarily to the AEC market. However, since 1997, we have focused on increasing the number of non-AEC customers in our customer base to increase diversification and expand our core services into markets that seek sophisticated document management, document distribution and logistics, and print-on-demand services. We generated approximately 80% of our year to date net sales from AEC customers. We began targeting non-AEC customers upon our conversion to digital technology in 1997 and we believe that services to these customers accounted for approximately 20% of our year to date net sales. 
Top 20 AEC Customers
       The following is a list of our top 20 AEC customers based upon year to date net sales through August 2004:

Anshen & Allen, Architects, Inc.
BSW Architects
EDAW, Inc.
Ewing Cole Cherry Brott
Gensler
Hammel, Green & Abrahamson, Inc.
Hillier International
The Irvine Company
KTGY Group, Inc.
MBH Architects, Inc.	 	Parsons Brinkerhoff Inc.
Perini Corporation
RBF Consulting
Rockwell Group
Skanska USA Building Inc.
Skidmore Owens & Merrill LLP
Standard Pacific Corporation
The Turner Corporation
URS Corporation
Wimberly Allison Tong & Goo	
Top 20 Non-AEC Customers
       The following is a list of our top 20 non-AEC customers based upon year to date net sales through August 2004:

Adac Laboratories, Inc.
AIM Management Group Inc.
Applied Materials, Inc.
Baker Hughes Incorporated
The Boeing Company
Chevron Phillips Chemical
DBL Realtors Corp.
Etec Systems
Helix U.S.A. Ltd.
Lam Research Corporation	 	Los Angeles County Dept. of Public Works
NACE International
San Manuel Indian Bingo & Casino
Sound Transit
Southern California Edison
Staedtler, Inc.
Taco Bell Corp.
WDI/ Document Controls
Wells Fargo & Company
University of California, Los Angeles	
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Representative Projects
       The following is a representative list of recent small and large projects in which we supplied reprographics services:

Name of Project		Architect		Builder	
					
Miami International Airport	 	Corgan Associates, Inc.	 	The Turner Corporation	
 	North Terminal Development
(Miami, FL)	 	 	 	 	
Walt Disney Concert Hall	 	Frank O. Gehry & Associates, Inc.	 	M. A. Mortenson Company	
 	(Los Angeles, CA)	 	 	 	 	
University of Michigan	 	Polshek Partnership Architects LLP	 	Skanska USA Building Inc.	
 	Biomedical Science Research Building
(Ann Arbor, MI)	 	 	 	 	
Toyota Headquarters South	 	LPA, Inc.	 	The Turner Corporation	
 	Campus Office Development
(Torrance, CA)	 	 	 	 	
Bellagio Resort and Casino,	 	Marnell Carrao Associates	 	Marnell Carrao Associates	
 	Sam’s Town Gambling Hall
(Las Vegas, NV)	 	 	 	 	
FDA Regional Laboratory-Southwest
(Irvine, CA)	 	Zimmer, Gunsul, Frasca Partnership + HDR	 	Hensel Phelps	
Fluor Corporation Campus	 	Fluor Corporation	 	Fluor Corporation	
 	Headquarters (Irvine, CA)	 	 	 	 	
City of Aliso Viejo	 	Multiple	 	Multiple	
 	Masterplan (Aliso Viejo, CA)	 	 	 	 	
Minutemaid Park (Houston, TX)	 	HOK Sport + Venue + Event	 	Kellogg Brown & Root (KBR)	
Chesapeake Bay Bridge	 	PCL Civil Constructors Inc.	 	Multiple	
 	Tunnel (Virginia Beach, VA)	 	 	 	 	
Caltrans District 7	 	Morphosis Architects	 	Clark Construction Group, LLC	
 	Headquarters
(Los Angeles, CA)	 	 	 	 	
Norman Mineta San Jose	 	Gensler	 	Gilbane Building Company	
 	International Airport (San Jose, CA)	 	 	 	 	
Nissan Automotive Assembly	 	SSOE, Inc.	 	W.G. Yates & Sons	
 	Facility (Canton, MS)	 	 	 	Construction Co.,
Yates/ Walbridge	
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Operations
       Geographic Presence. We operate 173 reprographics service centers, including 170 service centers in 133 cities in 29 states throughout the United States and three service centers in the Toronto metropolitan area. Our reprographics service centers are located in close proximity to the majority of our customers and offer pickup and delivery services within a 15 to 30 mile radius. The map below illustrates the number of our service centers by state.

       Hub and Satellite Configuration. We are organized into 42 divisions that typically consist of a cluster configuration of at least one large service facility, or hub facility, and several smaller facilities, or satellite facilities, that are digitally connected as a cohesive network, allowing us to provide all of our services both locally and nationwide. Our hub and satellite configuration enables us to shorten our customers’ document processing and distribution time, as well as achieve higher utilization of output devices by coordinating the distribution of work orders digitally among our service centers. In addition, this organizational structure allows us to balance production capacity, improve equipment utilization, and minimize capital expenditures through technology sharing among our service centers within each market. The hub and satellite model supports our ability to respond to the demands of local markets by promoting regional decision making for marketing, pricing, and selling practices while benefiting from centralized administrative functions.
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Overview of Typical Hub and Satellite Capabilities

Central Hub Facilities		Satellite Facilities	
			
• All capabilities and equipment of our satellite facilities	 	• Process simple reprographics	
• Process larger, more complex reprographics	 	• Quick turnaround capabilities	
• Higher production capacity	 	• Sophisticated equipment	
• Manage facilities management programs	 	• Responsive, localized service	
• Back-up support to satellite facilities	 	• Local delivery service	
 	 	• Light production capacity	
 	 	• Finishing services	

		
• 	Central Hub Facilities. In each of our major markets, we operate one or more large scale full service facilities that have high production capacity and sophisticated equipment. These larger facilities offer specialized services such as laser digital imaging on photographic material, large format color printing, and finishing services that may not be economically viable for smaller facilities to provide. Each central hub facility also maintains a library of design and imaging software, including architectural software, to process customer orders in digital format. In addition, digital equipment at all of our service facilities is networked, allowing a single order to be processed simultaneously on multiple pieces of equipment. These facilities also offer customers access to PlanWell, as well as document storage and retrieval services. Our central hub facilities also coordinate our facilities management programs.	
 		
• 	Satellite Facilities. To supplement the capabilities of our central hub facilities, we operate satellite facilities that are typically located closer to our customers than the central hubs. Our satellite facilities have quick turnaround capabilities, responsive, localized service, and handle the majority of digital processes. By utilizing a fleet of approximately 675 vehicles and nearly 700 employees, together with approximately 157 vehicles and drivers from contracted courier services for additional flexible capacity, these satellite facilities interact directly with customers and our central hub facilities to provide customers with a full range of high quality, on-demand reprographics services. In addition, our delivery fleet enables the smaller satellite facilities to coordinate with each other to reduce turnaround time for customers by evenly distributing work orders. The smaller satellite centers also typically provide digital black and white printing and imaging, color printing and limited finishing services.	
       Management Systems and Controls. We operate our business under a dual operating structure of centralized administrative functions and regional decision making. Acquired companies typically retain their local business identities, managers, sales force, and marketing efforts in order to maintain strong local relationships. Our local management maintains autonomy over the day-to-day operations of their business units, including profitability, customer billing, receivables collection, and service mix decisions. We believe that this decentralized and entrepreneurial approach to our operations is essential in capitalizing on our managers’ knowledge of local markets and long established customer relationships.
       Although we operate on a decentralized basis, our senior management closely monitors and reviews each of our 42 divisions through daily reports that contain operating and financial information such as sales, inventory levels, purchasing commitments, collections, and receivables. In addition, our operating divisions submit monthly reports to senior management that track each division’s financial and operating performance in comparison to monthly budgets.
Suppliers and Vendors
       We purchase raw materials, consisting primarily of paper, toner, and other consumables, and purchase or lease reprographics equipment. To minimize our materials cost, we maintain a paper
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converting operation whereby we purchase rolls of paper directly from paper mills that are cut to size and used in our operations, as well as sold to our customers. Our reprographics equipment, which includes imaging and printing equipment, is typically leased for use in our service facilities and facilities management sites. We use a two-tiered approach to purchasing in order to maximize the economies associated with our size, while maintaining the local efficiencies and time sensitivity required to meet customer demands. We continually monitor market conditions and product developments, as well as regularly review the contractual terms of our national purchasing agreements, to take advantage of our buying power and to maximize the benefits associated with these agreements.
       Our primary vendors of equipment, maintenance services and reprographics supplies include Océ N.V., Xerox Corporation, Canon Inc., and Xpedx, a division of International Paper Company. We have long standing relationships with all of our suppliers and we believe we receive favorable prices as compared to our competition due to the large quantities we purchase and strong relationships with our vendors. We have entered into annual supply contracts with certain vendors to guarantee prices. Significant market fluctuations in our raw material costs have historically been limited to paper prices and we have typically maintained strong gross margins as the result of our ability to pass increased material costs through to our customers.
Sales and Marketing
       Divisional Sales Force. We market our products and services throughout the United States through localized sales forces and marketing efforts at the divisional level. We had approximately 270 sales and customer service representatives as of September 1, 2004. Each sales force generally consists of a sales manager and a staff of between two to 12 sales and customer service representatives that target various customer segments. Depending on the size of the operating division, a sales team may serve both the central hub service facility and satellite facilities, or if market demographics require, operate on behalf of a single service facility.
       Our sales associates have been trained in our entire portfolio of services. They are in close contact with the local business community and offer our portfolio of services to customers in a variety of local industries in both the AEC and non-AEC markets.
       In most locations, we follow a customized sales approach to the market that is dependent on the distinctive trade practices of the region. For example, in some major metropolitan markets, architects exert controlling influence over the management of construction projects, whereas in other markets, general contractors have greater control. We believe our strong connections to AEC and general business communities and our long operating history provide us with the insight and understanding to effectively address regionally focused trade practices through our targeted sales efforts.
       Premier Accounts. To further enhance our strong market share and service portfolio on a national level, we operate a “Premier Accounts” business unit. Designed to meet the requirements of large regional or national businesses, we established this operating division to take advantage of growing globalization within the AEC market, and to establish ourselves at the corporate level as the leading national reprographer with extensive geographic and service capabilities. The “Premier Accounts” sales initiative allows us to attract large AEC and non-AEC companies with document management, distribution and logistics, and print-on-demand needs that span wide geographical or organizational boundaries. Since its launch in the middle of 2003, we have established six national accounts through Premier Accounts, including our most recent exclusive contract with one of the leading construction companies in the United States.
       PEiR Group. We established the PEiR Group (Profit and Education in Reprographics) in July 2003, a separate operating division of our company that is a membership-based organization for the reprographics industry. Comprised of independent reprographers and reprographics vendors, its mission is to “create a large, unified group of successful independent reprographers able to advance
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the industry by improving the profitability, productivity and professionalism of its members.” PEiR members are required to license our PlanWell online planroom application, facilitating the promotion of our technology as the industry standard. We also provide general purchasing discounts to PEiR members through our preferred vendors. This provides other reprographics companies the opportunity to purchase equipment and supplies at a lower cost than they could obtain independently, while increasing our influence and purchasing power with our vendors. Through PEiR, we also present educational programs to members to establish and promote best practices within the industry.
Competition
       According to the IRgA, most firms in the U.S. reprographics services industry are small, privately held entrepreneurial businesses. The larger reprographers in the United States include Service Point USA, a subsidiary of Service Point Solutions, S.A., Thomas Reprographics, Inc., ABC Imaging, LLC, and National Reprographics Inc. While we have no nationwide competitors, we do compete at the local level with a number of privately held reprographics companies, commercial printers, digital imaging firms, and to a limited degree, retail copy shops. Competition is primarily based on customer service, technological leadership, product performance and price. We believe that the scale and scope of our operations are distinct competitive advantages that differentiate us from our competitors. See “Risk Factors — Competition in our industry and innovation by our competitors may hinder our ability to execute our business strategy and maintain our profitability.”
Research and Development
       We believe that to compete effectively we must continue to invest in research and development of our services. Our research and development efforts are focused on improving and enhancing PlanWell as well as developing new proprietary services. As of September 1, 2004, we employed approximately 20 engineers and technical specialists with expertise in software, internet-based applications, database management, internet security and quality assurance. Cash outlays for research and development which include both capitalized and expensed items amounted to $2.5 million in 2001, $2.7 million in 2002, $2.8 million in 2003, and $1.3 million for the six months ended June 30, 2004.
Proprietary Rights
       Our success depends on our proprietary information and technology. We rely on a combination of copyright, trademark and trade secret laws, license agreements, nondisclosure and noncompete agreements, reseller agreements, customer contracts, and technical measures to establish and protect our rights in our proprietary technology. Our PlanWell license agreements grant our customers a nonexclusive, nontransferable, limited license to use our products and receive our services and contain terms and conditions prohibiting the unauthorized reproduction or transfer of our services. We retain all title and rights of ownership in our software products. In addition, we enter into agreements with some of our employees, third-party consultants and contractors that prohibit the disclosure or use of our confidential information and require the assignment to us of any new ideas, developments, discoveries or inventions related to our business. We also require other third parties to enter into nondisclosure agreements that limit use of, access to, and distribution of our proprietary information. We also rely on a variety of technologies that are licensed from third parties to perform key functions.
       We have registered “PlanWell” as a trademark with the United States Patent and Trademark Office and have applied for registration in Canada, Australia and the European Union. Additionally, we have applied to register the trademark “PlanWell PDS” with the United States Patent and Trademark Office and in Canada, Australia and the European Union. We do not have any other trademarks, service marks or patents that are material to our business.
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       For a discussion of the risks associated with our proprietary rights, see “Risk Factors — Our failure to adequately protect the proprietary aspects of our technology, including PlanWell, may cause us to lose market share” and “Risk Factors — Our intellectual property rights may be subject to the rights of third parties.”
Information Technology
       We operate two technology centers in Silicon Valley to support our reprographics services. Our second technology center was recently opened to accommodate the continuing growth of our digital operations, and to provide redundancy for our critical equipment and communication infrastructure. Our technology centers also serve as design and development facilities for our software applications, and house our nationwide database administration team and networking engineers.
       From these technology centers, our technical staff is able to remotely manage, control and troubleshoot the primary databases and connectivity of each of our 42 operating divisions. This allows us to avoid the costs and expenses of employing costly database administrators and network engineers in each of our service facilities.
       All of our reprographics service centers are connected via a high performance, dedicated wide area network (WAN), with additional capacity and connectivity through a virtual private network (VPN) to handle customer data transmissions and e-commerce transactions. Our technology centers are standardized on HP/Compaq ProLiant TM Servers and Microsoft Window 2000 Enterprise Server software. Our technology centers use both commonly available software and custom applications running in a clustered computing environment and employ industry leading technologies for redundancy, backup and security.
       We apply the extensive industry knowledge and experience of the managers of our acquired reprographics companies to our technology development in order to create solutions that are immediately practical to reprographers and their customers.
       We employ advanced digital technology to improve processes, reduce costs, and increase our efficiency. We have built our technology infrastructure in a manner which provides us with engineering talent, development tools, and powerful computing resources while carefully managing our costs. 
Employees
       As of September 1, 2004, we had over 3,450 employees. Approximately 27 of our employees are covered by two collective agreements. The collective bargaining agreement with our subsidiary, Ridgway’s Ltd., expires on November 30, 2007 and the agreement with our subsidiary, B.P. Independent Reprographics, Inc., expires on December 4, 2006, but will continue thereafter from year to year unless either party terminates the agreement. We have not experienced a work stoppage during the past five years and believe that our relationships with our employees and collective bargaining units are good.
Facilities
       We currently operate 180 production facilities, including five production support facilities and our two technology centers in Fremont, California, totaling approximately 1,343,057 square feet. We have five administrative facilities, totaling approximately 25,082 square feet. Our executive offices are located in Glendale, California.
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       The table below lists our facilities by region, type of facility, number of facilities and square footage as of September 1, 2004. 

		Number of				Number of			
		Administrative		Square		Production		Square	
Region		Facilities		Footage		Facilities(1)		Footage(1)	
									
Southern California	 	1	 	 	7,183	 	 	 	37	 	 	 	307,605	 	
Northern California	 	1	 	 	4,659	 	 	 	34	 	 	 	264,146	 	
Pacific Northwest	 	0	 	 	0	 	 	 	9	 	 	 	96,640	 	
Northeast	 	3	 	 	13,240	 	 	 	33	 	 	 	193,560	 	
Southern	 	0	 	 	0	 	 	 	42	 	 	 	284,281	 	
Midwest	 	0	 	 	0	 	 	 	25	(2)	 	 	196,825	 	
 	 		 	 		 	 	 		 	 	 		 	
 	Total	 	5	 	 	25,082	 	 	 	180	 	 	 	1,343,057	 	

		
(1) 	Includes five production support facilities and our two technology centers in Fremont, California.	
 		
(2) 	Includes our three service centers in the Toronto metropolitan area.	
       We lease 168 of our production facilities, each of our administrative facilities and both of our technology centers. These leases generally expire between 2005 and 2009. Substantially all of the leases contain renewal provisions with automatic rent escalation clauses. The owned facilities are subject to major encumbrances under our credit facilities. In addition to the facilities that are owned, our fixed assets are comprised primarily of machinery and equipment, trucks, and computer equipment. 
Legal Proceedings
       We are a creditor and participant in the Chapter 7 Bankruptcy of Louis Frey Company, Inc., or LF Co., which is pending in the United States Bankruptcy Court, Southern District of New York. We managed LF Co. under a contract from May through September of 2003. LF Co. filed for Bankruptcy protection in August 2003, and the proceeding was converted to a Chapter 7 liquidation in October 2003. On or about June 30, 2004, the Bankruptcy Estate Trustee filed a complaint in the LF Co. Bankruptcy proceeding against us, which was amended on or about July 19, 2004, alleging, among other things, breach of contract, breach of fiduciary duties, conversion, unjust enrichment, tortious interference with contract, unfair competition and false commercial promotion in violation of The Lanham Act, misappropriation of trade secrets and fraud regarding our handling of the assets of LF Co. The Trustee claims damages of not less than $9.5 million, as well as punitive damages and treble damages with respect to the Lanham Act claims. Previously, on or about October 10, 2003, a secured creditor of LF Co., Merrill Lynch Business Financial Services, Inc., or Merrill, had filed a complaint in the LF Co. Bankruptcy proceeding against us, which was most recently amended on or about July 6, 2004. Merrill’s claims are duplicated in the Trustee’s suit. We, in turn, have filed answers and counterclaims denying liability to the Trustee and seeking reimbursement of all costs and damages sustained as a result of the Trustee’s actions and in our efforts to assist LF Co. Discovery has commenced and is ongoing in each of these cases. We believe that we have meritorious defenses as well as substantial counterclaims against Merrill Lynch and the Trustee. We intend to vigorously contest the above matters. Based on the discovery and depositions to date, we do not believe that the outcome of the above matters will have a material adverse impact on our results of operations or financial condition.
       We are involved in various legal proceedings and other legal matters from time to time in the normal course of business. We do not believe that the outcome of any of these matters will have a material adverse effect on our consolidated financial position, results of operations or cash flows.
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Environmental and Regulatory Considerations
       Our property consists principally of reprographics and related production equipment and we lease substantially all of our production and administrative facilities. We are not aware of any environmental liabilities which would have a material impact on our operations and financial condition.
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MANAGEMENT 
Directors and Executive Officers
       The following table sets forth the name, age and position of the persons who will be our directors and executive officers as of the date of the completion of the offering.

Name		Age		Position	
					
Sathiyamurthy Chandramohan	 	 	45	 	 	Chief Executive Officer; Chairman of the Board of Directors	
Kumarakulasingam Suriyakumar	 	 	51	 	 	President; Chief Operating Officer; Director	
Mark W. Legg	 	 	49	 	 	Chief Financial Officer; Secretary	
Rahul K. Roy	 	 	45	 	 	Chief Technology Officer	
Andrew W. Code	 	 	46	 	 	Director	
Thomas J. Formolo	 	 	40	 	 	Director	
Manuel Perez de la Mesa	 	 	47	 	 	Director	
       Executive officers are appointed by and serve at the pleasure of our board of directors. A brief biography of each person who will serve as a director or executive officer upon consummation of this offering follows below. Prior to our conversion from a California limited liability company to a Delaware corporation, each officer served Holdings in the capacities discussed below.
       Sathiyamurthy (“Mohan”) Chandramohan has served as an advisor and the Chairman of the Board of Advisors of Holdings since March 1998 and has served as a director and the Chairman of the Board of Directors of American Reprographics Company since October 2004. Mr. Chandramohan joined Micro Device, Inc. (our predecessor company) in February 1988 as President and became the Chief Executive Officer in March 1991. Prior to joining our company, Mr. Chandramohan was employed with U-Save Auto Parts Stores from December 1981 to February 1988, and became the company’s Chief Financial Officer in May 1985 and Chief Operating Officer in March 1987. Mr. Chandramohan served as the President of the International Reprographics Association (IRgA) from August 1, 2001 to July 31, 2002 and continues to be an active member of the IRgA.
       Kumarakulasingam (“Suri”) Suriyakumar has served as an advisor of Holdings since March 1998 and has served as a director of American Reprographics Company since October 2004. Mr. Suriyakumar joined Micro Device, Inc. in 1989. He became the Vice President of Micro Device, Inc. in 1990 and became the company’s President and Chief Operating Officer in 1991. Prior to joining our company, Mr. Suriyakumar was employed with Aitken Spence & Co. LTD, a highly diversified conglomerate and one of the five largest corporations in Sri Lanka. Mr. Suriyakumar is an active member of the IRgA.
       Mark W. Legg joined Holdings as its Chief Financial Officer in April 1998. From 1987 to 1998, Mr. Legg was employed at Vivitar Corporation, a distributor of photographic, optical, electronic and digital imaging products, as a Vice President and the Chief Financial Officer, and later as its Chief Operating Officer. Before Vivitar, he was director of corporate accounting at Sunrise Medical from 1984 to 1986. From 1979 to 1984, Mr. Legg was employed as an accountant with Price Waterhouse & Co.
       Rahul K. Roy joined Holdings as our Chief Technology Officer in September 2000. Prior to joining our company, Mr. Roy was the Founder, President and Chief Executive Officer of MirrorPlus Technologies, Inc., which developed software for the reprographics industry, from August 1993 until it was acquired by us in 1999. Mr. Roy served as the Chief Operating Officer of InPrint, a provider of printing, software, duplication, packaging, assembly and distribution services to technology companies, from 1993 until it was acquired by us in 1999.
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       Andrew W. Code has served as an advisor of Holdings since May 2002 and has served as a director of American Reprographics Company since October 2004. Mr. Code is a partner of CHS and founded its predecessors in 1988. Mr. Code is also a director of SCP Pool Corporation.
       Thomas J. Formolo has served as an advisor of Holdings since April 2000 and has served as a director of American Reprographics Company since October 2004. Mr. Formolo has been a partner of CHS since 1997 and employed by its affiliates since 1990.
       Manuel Perez de la Mesa functioned as a director for Holdings from July 2002 until his appointment as a director of American Reprographics Company in October 2004. Mr. Perez de la Mesa has been Chief Executive Officer of SCP Pool Corporation, a wholesale distributor of swimming pool supplies and related equipment, since May 2001 and has also been the President of SCP Pool Corporation since February 1999. Mr. Perez de la Mesa served as Chief Operating Officer of SCP Pool Corporation from February 1999 to May 2001.
Board Composition
       Prior to our reorganization to a Delaware corporation, we were governed under the direction of a board of advisors, consisting of Messrs. Chandramohan, Suriyakumar, Code, Formolo and Marcus J. George, a managing director of CHS. In connection with our reorganization from a limited liability company to a corporation, we have established a board of directors consisting initially of Messrs. Chandramohan, Suriyakumar, Code, Formolo, and Perez, who are listed above.
       In addition, in order to ensure compliance with the independence requirements of the New York Stock Exchange, the composition of the board of directors may change prior to and following this offering. It is our intention to be in full and timely compliance with all applicable rules of the New York Stock Exchange and applicable law, including with respect to the independence of our directors. As discussed in greater detail below, we intend to comply with the requirements of the Sarbanes-Oxley Act of 2002 and the New York Stock Exchange rules which require that, among other things, our audit committee include at least a majority of independent directors within 90 days after the effective date of our registration statement. In addition, within one year after such effectiveness, our audit committee must consist entirely of independent directors.
       The board has determined that Mr. Perez is an independent director under the rules governing companies listed on the New York Stock Exchange. No later than one year after the completion of this offering, we will satisfy the requirements for independent directors contained in the rules governing companies listed on the New York Stock Exchange through the appointment of three additional independent directors, one of whom will replace one of the five current directors, resulting in a board consisting of seven members, four of whom will be independent.
       In accordance with the terms of our amended and restated certificate of incorporation to be filed prior to the completion of this offering, the board of directors will be elected annually. There are no family relationships among any of the directors or executive officers of our company.
Board Compensation
       Except for reimbursement for reasonable travel expenses relating to attendance at board meetings and the grant of stock options, employee directors are not compensated for their services as directors. Directors who are not our employees receive cash compensation for their services as directors at a rate of $90,000 per year ($50,000 of which will be payable through annual grants of nonstatutory stock options under our 2005 Stock Plan). In addition, directors who are not our employees will receive $5,000 per year for duties as committee chair. Directors who are our employees are eligible to participate in our 2005 Stock Option Plan and, beginning in 2005, they will also be eligible to participate in our 2005 Employee Stock Purchase Plan. See “— Benefit Plans.”
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Board Committees
Audit Committee
       Presently, our audit committee consists of Messrs. Perez,                     and                     . Mr. Perez is an audit committee financial expert and is an independent audit committee member. Our audit committee must have at least one independent member at the time our registration statement becomes effective, as required by the rules governing companies listed on the New York Stock Exchange. The audit committee must have a majority of independent members within 90 days after the effective date of our registration statement and the entire audit committee must consist of independent members within one year after the effective date of our registration statement, one of which must be a financial expert. The audit committee will comply with all of the rules governing companies listed on the New York Stock Exchange.
       Our audit committee is responsible for reviewing the adequacy of our system of internal accounting controls; reviewing the results of the independent accountants’ annual audit, including any significant adjustments, management judgments and estimates, new accounting policies and disagreements with management; reviewing our audited financial statements and discussing the statements with management; reviewing the audit reports submitted by the independent accountants; reviewing disclosures by independent accountants concerning relationships with our company and the performance of our independent accountants and annually recommending independent accountants; and preparing such reports or statements as may be required by securities laws.
Corporate Governance and Nominating Committee
       We do not currently have a nominating committee. The responsibilities of a nominating committee have been assumed by our board of directors. Following the completion of this offering, we will have a corporate governance and nominating committee and anticipate that it will consist of individuals who meet the independence requirements established by the New York Stock Exchange. The corporate governance and nominating committee will, among other things, identify individuals qualified to become members of the board of directors, select or recommend to the board of directors the nominees to stand for election as directors and develop and recommend to the board of directors a set of corporate governance principles. The corporate governance and nominating committee will be governed by a charter that complies with the rules of the New York Stock Exchange.
Compensation Committee
       We do not currently have a compensation committee. The responsibilities of a compensation committee have been assumed by our board of directors. Following the completion of this offering, we anticipate that our compensation committee will consist of individuals meeting the independence requirements established by the New York Stock Exchange. The compensation committee will, among other things, review, approve and make determinations concerning our compensation practices, policies and procedures for the members of senior management. The compensation committee will be governed by a charter that complies with the rules of the New York Stock Exchange. 
Compensation Committee Interlocks and Insider Participation
       During 2003, our entire board of advisors, consisting of Messrs. Chandramohan, Suriyakumar, Code, Formolo, and George, determined executive compensation. We did not have a compensation committee apart from the board of advisors. During 2003, Mr. Chandramohan served as our Chief Executive Officer and Mr. Suriyakumar served as our President and Chief Operating Officer.
       Messrs. Code and Formolo, both members of our board of directors, are affiliated with CHS Management IV, L.P. We are party to a management agreement with CHS Management IV, L.P.,
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pursuant to which CHS Management IV, L.P. has agreed to provide certain consulting services to us. The management agreement will be terminated upon the consummation of this offering.
       Messrs. Chandramohan and Suriyakumar, both members of our board of advisors, are affiliated with Sumo Holdings LA, LLC, Sumo Holdings San Jose, LLC, Sumo Holdings Irvine, LLC, Sumo Holdings Sacramento, LLC, Sumo Holdings Maryland, LLC, and Sumo Holdings Costa Mesa, LLC, each of which are parties to various real property leases with our subsidiaries relating to our facilities.
       For a further description of the transactions between the members of our board of directors, their affiliates and us, see “Certain Relationships and Related Transactions.” 
Executive Compensation
       The compensation paid to our Chief Executive Officer and the only other executive officers who received compensation in excess of $100,000 for services in all capacities to our company and our subsidiaries during 2003 is set forth below. We did not grant any options or membership unit appreciation rights, restricted units or long-term incentive plan, or LTIP, awards to our executive officers during 2003. 
Summary Compensation Table

					
		Annual Compensation			
					
				Other Annual		All Other	
Name and Principal Position		Salary		Bonus		Compensation(1)		Compensation	
									
S. Chandramohan	 	$	600,000	 	 	$	—	 	 	$	52,150	(2)	 	$	288	(3)	
 	Chairman of the Board of Directors and Chief Executive Officer	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
K. Suriyakumar	 	 	600,000	 	 	 	—	 	 	 	65,527	(4)	 	 	288	(3)	
 	President, Chief Operating Officer and Director	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Mark W. Legg	 	 	200,000	 	 	 	387,000	 	 	 	—	 	 	 	1,288	(5)	
 	Chief Financial Officer and Secretary	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Rahul Roy	 	 	360,000	 	 	 	—	 	 	 	—	 	 	 	2,688	(6)	
 	Chief Technology Officer	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	

		
(1) 	Certain personal benefits provided by us to the named executive officers are not included in the above table as permitted by the SEC regulations because the aggregate amount of such personal benefits for each named executive officer in each year reflected in the table did not exceed the lesser of $50,000 or 10% of the sum of such officer’s salary and bonus in each respective year.	
 		
(2) 	Includes $47,770 for automobile lease payments.	
 		
(3) 	Consists of premiums for life insurance.	
 		
(4) 	Consists of automobile lease payments.	
 		
(5) 	Consists of $288 of premiums for life insurance and $1,000 paid by us as the employer match under our 401(k) plan.	
 		
(6) 	Consists of $288 of premiums for life insurance and $2,400 paid by us as the employer match under our 401(k) plan.	
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Option Grants During the Year Ended December 31, 2003
       During 2003, no options to purchase any shares of common stock were granted to the named executive officers listed in the above Summary Compensation Table. None of such persons received awards of stock appreciation rights, restricted stock or LTIP awards during 2003.
Aggregated Option Exercises During the Year Ended December 31, 2003 and Value of Options Held at December 31, 2003
       The following table provides summary information concerning the shares of common stock acquired in 2003, the value realized upon exercise of stock options in 2003, and the year end number and value of unexercised options with respect to each of the named executive officers as of December 31, 2003. The value was calculated by determining the difference between the fair market value of underlying securities and the exercise price. The fair market value of our common stock at December 31, 2003 was assumed to be $          per share. 
Fiscal Year-End Option Values

						Number of			
						Securities		Value of	
						Underlying		Unexercised	
						Unexercised		in-the-Money	
						Options at		Options at	
						FY-End(#)		FY-End($)	
		Shares							
		Acquired on		Value		Exercisable/		Exercisable/	
Name		Exercise(#)		Realized($)		Unexercisable		Unexercisable	
									
S. Chandramohan	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
K. Suriyakumar	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
Mark W. Legg	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
Rahul Roy	 	 	—	 	 	 	—	 	 	 	420,000/280,000	 	 	 	/	 	
       During 2004, we granted Mr. Legg an option to purchase 15,000 shares of our common stock at an exercise price of $5.62 per share, and granted Mr. Roy an option to purchase 100,000 shares of our common stock at an exercise price of $5.85 per share.
Employment Agreements
       We had an agreement with each of Mr. Chandramohan and Mr. Suriyakumar that expired in December 2002. These agreements provided that, at the closing of an acquisition, each would be paid in cash a fee equal to one percent (1%) of the aggregate consideration paid by us in connection with the acquisition (including, without limitation, all interest bearing obligations assumed, the deferred purchase price of property or assets, all non-compete, consulting, employment or lease arrangements and similar forms of consideration). For purposes of these agreements with Messrs. Chandramohan and Suriyakumar, “acquisition” was defined as an acquisition by us of all or substantially all of the outstanding capital stock or of all or substantially all of the assets and business of any person, division or any similar business unit of any person. Since the expiration of these agreements, we have continued to pay Messrs. Chandramohan and Suriyakumar acquisition bonuses in accordance with the agreements. These payments will be discontinued upon the consummation of this offering. We intend to enter into new employment agreements with each of our executive officers that will be effective upon the consummation of this offering.
       We have entered into a 2004 Bonus Plan with Mr. Legg that provides for the payment to Mr. Legg of (1) a bonus of up to $300,000 based on the financial results for the twelve months ended December 31, 2004 of three divisions specified in the Bonus Plan (up to $100,000 bonus per division), (2) a bonus of $100,000 for the repayment of no less than $30,700,000 of bank debt by December 31, 2004 (subject to increase for repayments of bank debt above this amount), and (3) a
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bonus of $100,000 for the achievement of 100% of divisional cash flow divided by divisional earnings before depreciation and amortization for the year ended December 31, 2004 (subject to increases of $25,000 for each percentage point over 100%). Under the Bonus Plan, Mr. Legg is not eligible to receive any of the bonus payments described above if our EBIT margin is equal to or less than 10% for the year ended December 31, 2004. In that situation, our CEO will determine the appropriate bonus based upon his evaluation of Mr. Legg’s performance. In accordance with the 2004 Bonus Plan, $210,000 of the bonus was paid in advance on July 31, 2004, with the balance to be paid on February 15, 2005.
Benefit Plans
American Reprographics Holdings, L.L.C. Unit Option Plan II
       On January 1, 2001, Holdings adopted the American Reprographics Holdings, L.L.C. Unit Option Plan II, or Unit Plan, under which selected employees, independent advisors, members of the board of advisors of Holdings (or any subsidiary) or members of the board of directors of any subsidiary may be granted common unit options. The members of Holdings approved the Unit Plan on December 22, 2000. Under the Unit Plan, 1,735,415 shares of Holdings’ plan member common units have been reserved for the grant of options. As of December 31, 2003, options to purchase a total of 1,446,000 plan member common units were outstanding under the Unit Plan. The exercise price of the units is to be determined by the board of advisors, provided, however, that the option price is not to be less than 85% of the fair market value of such unit at the time such option is granted, or, in the case of a person who owns units possessing more than 10% of the total combined voting power of all units of Holdings, 110% of the fair market value of such unit at the time such option is granted. For purposes of the Unit Plan, the term “fair market value” means the fair market value of a unit determined as of any particular date by the board of advisors, on a fully diluted basis assuming the exercise or conversion of all then exercisable options, warrants, and other rights to purchase units and, to the extent that the board of advisors in its discretion determines to be appropriate, the exercise or conversion of such options, warrants, and other rights to purchase units that are not then exercisable or convertible.
       Holdings’ board of advisors is to determine the vesting period of each option at the date of the grant, provided, however, that except for options granted to officers or consultants, or officers, directors or consultants of any of Holdings’ subsidiaries, each option shall become exercisable at no lesser rate than 20% for each full year elapsed after the grant of the option and on or before termination of service as an employee until fully exercisable. Upon termination of employment, Holdings and an affiliate of Holdings, ARC Acquisition Co., L.L.C., have the right to redeem the options. On July 1, 2003, Holdings amended the Unit Plan to extend the exercise period and vesting period for certain optionholders, provided (a) the optionholder had been employed by Holdings or any of its subsidiaries for a period of at least 10 years, (b) the optionholder was at least 55 years old on the date of termination, and (c) the optionholder’s service with Holdings and any of its subsidiaries terminated because of his or her retirement or any other voluntary reason other than his or her death or permanent disability. If an optionholder satisfies the aforementioned criteria, Holdings may elect to treat the portion of the option that was exercisable on the date of such termination of employment as exercisable by the optionholder until such time that he or she chose to “compete” (as defined in the Unit Plan) with Holdings or any of its subsidiaries. In addition, as long as the optionholder did not compete with Holdings or any of its subsidiaries, the option would continue to vest according to the Unit Plan and the applicable option agreement.
       Upon completion of this offering, members of Holdings will exchange their outstanding options granted under the Unit Plan for options under our 2005 Stock Plan exercisable for shares of our common stock equal to the number of units subject to the Holdings option and with the same exercise price and vesting terms as the Holdings option and all outstanding options under the Unit Plan will be canceled. The Unit Plan will be terminated prior to the completion of this offering, and no additional options will be granted under the Unit Plan.
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2005 Stock Plan
       We will adopt the American Reprographics Company 2005 Stock Plan, and obtain stockholder approval of the plan, prior to the completion of this offering. Upon our reorganization, all outstanding options under our Unit Option Plan will be canceled in exchange for an option under our 2005 Stock Plan exercisable for shares of our common stock equal to the number of units subject to the Holdings option and with the same exercise price and vesting terms as the Holdings option. The 2005 Stock Plan will be administered by our compensation committee.
       Type of Awards. The 2005 Stock Plan provides for the discretionary grant after the consummation of this offering of incentive stock options (within the provisions of Section 422 of the Internal Revenue Code) to employees, including officers and employee directors, and for the discretionary grant of nonstatutory stock options, restricted stock awards, restricted stock unit awards, and stock appreciation rights to employees, directors and consultants. No person may be granted options or stock appreciation rights under the 2005 Stock Plan covering more than 500,000 shares of common stock in any calendar year.
       Reservation of Shares. The total shares of common stock currently reserved and authorized for issuance under the 2005 Stock Plan equals 5,000,000 shares of common stock. This authorization shall automatically increase annually on the first day of our fiscal year, from 2006 through and including 2010, by the lesser of (i) 1.0% of the outstanding shares on the date of the increase; (ii) 300,000 shares; or (iii) such smaller number of shares determined by our board of directors. The board may elect to increase, with stockholder approval, or reduce the number of additional shares authorized in any given year. In the event of a stock split or other alteration in our capital structure, appropriate adjustments will be made to the authorized shares and outstanding awards to prevent dilution or enlargement of participants’ rights.
       Administration. Our compensation committee, which generally administers the 2005 Stock Plan, has the authority to determine the terms of the options, restricted stock, restricted stock units, or stock appreciation rights granted, including the exercise price of the option or purchase price for a restricted stock grant or restricted stock unit; the number of shares subject to each option or restricted stock grant or the number of restricted stock units or stock appreciation rights; the vesting and exercise forms of each award; and the form of consideration payable upon the exercise of each option or stock purchase right.
       Nonassignability. Generally, options, restricted stock or other awards granted under our 2005 Stock Plan are not transferable by the participant, and each option is exercisable during the lifetime of the participant and only by such participant.
       Stock Options. The exercise price of nonstatutory stock options and stock purchase rights granted under the 2005 Stock Plan is determined by the compensation committee. With respect to nonstatutory stock options intended to qualify as “performance-based compensation” within the meaning of Section 162(m) of the Internal Revenue Code, the exercise price must be at least equal to the fair market value of our common stock on the date of grant. Generally, the exercise price of all incentive stock options must be at least equal to the fair market value of the common stock on the date of grant. With respect to any participant who owns stock possessing more than 10% of the voting power of all classes of our outstanding capital stock, the exercise price of any incentive stock option granted must at least equal 110% of the fair market value on the grant date and the term of such incentive stock option must not exceed five years. The term of all other options granted under the 2005 Stock Plan may not exceed 10 years. Options granted under the 2005 Stock Plan vest at the rate specified in the option agreement. Unless the terms of an optionholder’s stock option agreement provide for earlier or later termination, if an optionholder’s service with us, or any affiliate of ours, ceases due to disability or death, the optionholder, or his or her beneficiary, may exercise any vested options up to 12 months, or 18 months in the event of death, after the date such service ends. If an optionholder’s service with us, or any affiliate of ours, ceases without cause for any reason other than disability or death, the optionholder may exercise any vested options up to three
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months from cessation of service, unless the terms of the stock option agreement provide for earlier or later termination. If an optionholder’s service with us, or any affiliate of ours, ceases with cause, the option will terminate at the time such service ceases. In no event may an option be exercised after its expiration date.
       Restricted Stock Awards. Restricted stock awards granted under the 2005 Stock Plan may be either in the form of a restricted stock purchase right, giving the participant a right to immediately purchase common stock, or in the form of a restricted stock award, for which the participant will be required to furnish consideration in the form of services to us (in consideration for past services to us). The purchase price shall be determined by the committee and may be less than the current fair market value of the common stock. Restricted stock awards may be subject to vesting conditions based upon such services to be rendered as specified by the committee, and the shares acquired may not be transferred by the participant until vested. If a restricted stock award recipient’s service with us, or any affiliate of ours, terminates, we may reacquire all of the shares of our common stock issued to the recipient pursuant to a restricted stock award which have not vested as of the date of termination. Participants holding restricted stock will be permitted to vote the shares and receive any dividends paid in cash.
       Restricted Stock Units. Restricted stock units granted under the 2005 Stock Plan represent a right to receive payment for units in the form or cash or shares of our common stock at a future date determined in accordance with the participant’s award agreement. The consideration for a restricted stock unit award may be payable in any form permitted under applicable laws. Restricted stock unit awards shall be granted subject to vesting conditions as determined by the compensation committee. Participants have no voting rights or rights to receive cash dividends with respect to restricted stock unit awards until shares of common stock are issued in settlement of such awards. However, the compensation committee may grant restricted stock units that entitle their holders to receive dividend equivalents, which are rights to receive additional restricted stock units for a number of shares whose value is equal to any cash dividends we pay. If a restricted stock unit award recipient’s service with us, or any affiliate of ours, terminates, any unvested portion of the restricted stock unit award is forfeited upon the recipient’s termination of service.
       Stock Appreciation Rights. A stock appreciation right provides a participant the right to receive the appreciation in the fair market value of our common stock between the date of grant of the award and the date of its exercise. We may pay the appreciation either in cash or in shares of our common stock. We may pay cash payments in a lump sum, or we may defer payment in accordance with the terms of the participant’s award agreement. Stock appreciation rights vest and become exercisable at the times and on the terms established by the compensation committee. The maximum term of any stock appreciation right is 10 years. If a stock appreciation right recipient’s service with us, or any affiliate of ours, ceases for any reason, the recipient may exercise any vested stock appreciation right up to three months from cessation of service, unless the terms of the stock appreciation right agreement provide for earlier or later termination.
       Non-Employee Director Awards. Commencing with our first annual meeting of stockholders (on or after the effective date of this offering), each non-employee director automatically will receive a nonstatutory stock option with a fair market value, as determined under the Black-Scholes option pricing formula, equal to $50,000 (or 55.56%) of such non-employee director’s annual cash compensation (exclusive of committee fees). Each nonstatutory stock option will cover his or her service since either the previous annual meeting or the date on which he or she was first elected or appointed.
       Corporate Transactions and Change in Control. In the event of certain corporate transactions, the surviving entity may assume all stock-based awards outstanding under the 2005 Stock Plan or substitute substantially equivalent awards. If the surviving entity elects not to assume or substitute for all such awards, then with respect to stock-based awards held by persons providing us or any of our affiliates service, the vesting (and, if applicable, the time during which the award
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may be exercised) will be accelerated in full. Stock awards will terminate if not exercised (if applicable) before the effective time of the corporate transaction. In addition, the relevant award agreement may accelerate the vesting and settlement of any award upon a change in control.
       Amendment and Termination. The 2005 Stock Plan will continue in effect until the tenth anniversary of its approval by the board of directors or our stockholders, whichever is earlier, unless earlier terminated by the board of directors. The board of directors may amend, suspend or terminate the 2005 Stock Plan at any time, provided that without stockholder approval, the plan cannot be amended to increase the number of shares authorized, change the class of persons eligible to receive incentive stock options or effect any other change that would require stockholder approval under any applicable law or listing rule. Amendment, suspension or termination of the 2005 Stock Plan may not adversely affect any outstanding award without the consent of the participant, unless such amendment, suspension or termination is necessary to comply with applicable laws, regulations or rules.
2005 Employee Stock Purchase Plan
       We will adopt the American Reprographics Company 2005 Employee Stock Purchase Plan, or ESPP, and obtain stockholder approval of the plan, prior to the completion of this offering.
       Purpose. The purpose of the ESPP is to advance our interests and the interests of our stockholders by providing an incentive to attract, retain and reward eligible employees. It is intended to qualify as an “employee stock purchase plan” under Section 423 of the Internal Revenue Code.
       Shares Subject to Purchase Plan. A total of 750,000 shares of our common stock are initially authorized and reserved for sale under the ESPP. Appropriate adjustments will be made in the number of authorized shares and in outstanding purchase rights to prevent dilution or enlargement of participants’ rights in the event of a stock split or other change in our capital structure.
       Administration. Our board of directors or a committee of the board will serve as administrator of the ESPP. The administrator has the authority to construe and interpret the terms of the ESPP and the purchase rights granted under it, to determine eligibility to participate, and to establish policies and procedures for administration of the plan.
       Eligibility. Our employees and employees of any parent corporation designated by the administrator are eligible to participate in the ESPP if they are customarily employed by us for more than 20 hours per week and more than five months in any calendar year. However, an employee may not be granted a right to purchase stock under the ESPP if: (1) the employee immediately after grant would own stock possessing 5 percent or more of the total combined voting power or value of all classes of our capital stock or of any parent or subsidiary corporation, or (2) the employee’s rights to purchase stock under all of our employee stock purchase plans would accrue at a rate that exceeds $25,000 in value for each calendar year of participation in such plans.
       Offerings. The ESPP is implemented by offerings of purchase rights to eligible employees. Under the ESPP, we may specify offerings with a duration of not more than 27 months, and may specify shorter purchase periods within each offering. A new offering will automatically begin on March 1 and September 1 of each year, will generally be 24 months in duration and will consist of four six-month purchase periods, except that the first offering will commence on the effective date of the ESPP and will end on August 31, 2005. The administrator is authorized to establish additional or alternative sequential or overlapping offering periods and offering periods having a different duration or different starting or ending dates, provided that no offering period may have a duration exceeding 27 months.
       Participation. Eligible employees who enroll in the ESPP may elect to have up to 15 percent of their eligible compensation withheld and accumulated for the purchase of shares at the end of each purchase period in each offering in which they participate. However, all eligible employees will
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be automatically enrolled in the ESPP’s initial offering period and may only purchase shares by delivering an exercise notice and payment of the applicable purchase price prior to the initial purchase date, provided that participants may elect to begin payroll deductions under the ESPP after the effective date of a Form S-8 registration statement registering the shares reserved for issuance under the ESPP. Participants may voluntarily withdraw from the ESPP at any time during an offering period and receive a refund, without interest, of all amount withheld from compensation not previously applied to purchase shares. Participation ends automatically upon termination of employment.
       Purchase of Shares. Amounts accumulated for each participant are used to purchase shares of our common stock at the end of each purchase period at a price generally equal to 85 percent of the lower of the fair market value of our common stock at the beginning of an offering period or at the end of the corresponding purchase period. Prior to commencement of an offering period, the administrator is authorized to reduce, but not increase, this purchase price discount for that offering period, or, under the circumstances described in the ESPP, during that offering period; provided that such purchase price discount complies with the applicable provisions of Section 423 of the Internal Revenue Code. The maximum number of shares a participant may purchase in any calendar year is the lesser of 400 shares or a number of shares having a fair market value of $10,000 (determined on the date of purchase). Prior to the beginning of any offering period, the administrator may alter the maximum number of shares that may be purchased by any participant during the offering period or specify a maximum aggregate number of shares that may be purchased by all participants in the offering period. If an insufficient number of shares remain available under the plan to permit all participants to purchase the number of shares to which they would otherwise be entitled, the administrator will make a pro rata allocation of the available shares. Any amounts withheld from participants’ compensation in excess of the amounts used to purchase shares will be refunded, without interest, or held in the participant’s account for the purchase of shares under the next offering period.
       Corporate Transactions. In the event of certain corporate transactions, an acquiring or successor corporation may assume our rights and obligations under the ESPP. If the acquiring or successor corporation does not assume such rights and obligations or does not substitute them with similar rights and obligations, then the purchase date of the offering periods then in progress will be accelerated to a date prior to the effective time of the corporate transaction.
       Nonassignability. Rights granted under the ESPP are not transferable by a participant other than by will or the laws of descent and distribution. However, a participant may designate a beneficiary who is to receive any cash and/or shares from the participant’s account in the event the participant’s death.
       Amendment and Termination. The ESPP will continue in effect until terminated by the administrator. The administrator may amend, suspend or terminate the ESPP at any time, provided that unless stockholder approval is obtained within 12 months of such amendment, the plan cannot be amended to increase the number of shares authorized or change the definition of the corporations that may be designated by the administrator for participation in the plan. Amendment, suspension or termination of the ESPP may not adversely affect any purchase rights previously granted without the consent of the participant, unless such amendment, suspension or termination is necessary to qualify the plan under Section 423 of the Internal Revenue Code or to comply with applicable law, or is effected after a determination by the administrator that continuation of the plan or an offering period would result in unfavorable accounting consequences to us as a result of a change, after the plan’s effective date, in the generally accepted accounting principles applicable to the ESPP.
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401(k) Plan
       Holdings sponsors a defined contribution plan intended to qualify under Section 401 of the Internal Revenue Code covering substantially all employees who are at least 21 years of age. Plan participants may contribute up to 75% of their annual eligible compensation, subject to contribution limitations imposed by the Internal Revenue Service. Holdings matches up to 20% of a participant’s contributions up to a maximum of 4% of their eligible annual compensation.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
       Certain of our directors, executive officers, 5% beneficial owners and their affiliates have engaged in transactions with us in the ordinary course of business. We believe these transactions involved terms comparable to, or more favorable to us than, terms that would be obtained from an unaffiliated third party. The following is a description of these transactions:
Related Party Leases and Purchases
       We are party to certain leases with entities owned by Mr. Chandramohan and Mr. Suriyakumar for our facilities located in Los Angeles, California, San Jose, California, Irvine, California, Sacramento, California, Oakland, California, Gaithersburg, Maryland, and Costa Mesa, California. Under these leases, we paid these entities rent in the aggregate amount of approximately $1,036,356 in 2001, $1,092,600 in 2002, $1,092,600 in 2003, and $744,590 for the six months ended June 30, 2004. We are also obligated to reimburse these entities for certain real property taxes and assessments. These leases expire between January 2006 and December 2013.
       We sell certain products and services to Thomas Reprographics, Inc. and Albinson Inc., each of which is owned or controlled by William Thomas, who beneficially owns more than 5% of our common equity. These companies purchased products and services from us of approximately $215,000 and $95,000 during the twelve months ended December 31, 2002 and 2003, respectively, and $32,000 during the six months ended 2004.
Management Agreement
       We are party to a management agreement with CHS Management IV, L.P., a Delaware limited partnership. Messrs. Code and Formolo, both members of our board of directors, have a direct beneficial ownership in CHS Management IV, L.P. Under the management agreement, we paid CHS Management IV, L.P. a management fee of $803,000 in 2001, $889,000 in 2002 and $858,000 in 2003, and we anticipate paying CHS Management IV, L.P. a management fee of $858,000 in 2004. The annual management fee is subject to an annual increase based on our financial results but shall not exceed $1,000,000 annually. This management fee is in consideration of CHS Management IV, L.P. providing ongoing consulting and management advisory services to us. Our board of directors may terminate the management agreement if it determines in good faith that CHS Management IV, L.P. has materially failed to diligently provide such management services. This management agreement will be terminated upon our initial public offering.
Indemnification Agreements
       We will enter into indemnification agreements with each director which provide indemnification under certain circumstances for acts and omissions which may not be covered by any directors’ and officers’ liability insurance. The indemnification agreements may require us, among other things, to indemnify our officers and directors against certain liabilities that may arise by reason of their status or service as officers and directors (other than liabilities arising from willful misconduct of a culpable nature), to advance their expenses incurred as a result of any proceeding against them as to which they could be indemnified, and to obtain officers’ and directors’ insurance if available on reasonable terms.
Registration Rights Agreement
       We have entered into a registration rights agreement with certain holders of our common stock and holders of warrants to purchase our common stock, including entities affiliated with certain of our executive officers and directors. The holders of 27,220,839 shares of common stock and the holders of 1,168,842 shares of common stock issuable upon exercise of warrants are entitled to certain rights with respect to the registration of such shares under the Securities Act. For more detailed
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information regarding these registration rights, please see “Description of Capital Stock — Registration Rights Agreement.”
Investor Unitholders Agreement
       Holdings entered into an Investor Unitholders Agreement with ARC Acquisition Co., L.L.C. and certain other parties that hold warrants to purchase Holdings common units. Under this agreement, subject to certain exceptions, (i) Holdings has a right of first refusal in connection with a transfer of units acquired by the warrant holders, (ii) the warrant holders have a right to participate in transfers of units by ARC Acquisition Co., L.L.C., (iii) ARC Acquisition Co., L.L.C. has limited preemptive rights in connection with an issuance of units by Holdings to the warrant holders and the warrant holders have limited preemptive rights in connection with an issuance of units by Holdings to ARC Acquisition Co., L.L.C., (iv) the warrant holders have the right to receive certain financial information from Holdings, and (v) the warrant holders have certain property inspection rights. The Investor Unitholders Agreement will be terminated upon the consummation of this offering.
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PRINCIPAL AND SELLING STOCKHOLDERS
       The following table sets forth information, as of September 30, 2004, regarding the beneficial ownership of our common stock: (1) immediately prior to the consummation of the offering, but after giving effect to our reorganization; and (2) as adjusted to reflect the sale of the shares of common stock in this offering, by:

		
• 	each of our directors and named executive officers;	
 		
• 	all directors and named executive officers as a group;	
 		
• 	each person who is known to us to own beneficially more than 5% of our common stock; and	
 		
• 	each of the selling stockholders.	
       The table includes all shares of common stock issuable within 60 days of September 30, 2004 upon the exercise of options and other rights beneficially owned by the indicated stockholders on that date. Beneficial ownership is determined in accordance with the rules of the SEC and includes voting and investment power with respect to shares. To our knowledge, except under applicable community property laws or as otherwise indicated in the footnotes to this table, the persons named in the table have sole voting and sole investment control regarding all shares beneficially owned. The applicable percentage of ownership for each stockholder is based on 35,487,511 shares of common stock outstanding as of September 30, 2004, together with applicable options for that stockholder. Shares of common stock issuable upon exercise of options and other rights beneficially owned were deemed outstanding for the purpose of computing the percentage ownership of the person holding these options and other rights, but are not deemed outstanding for computing the percentage ownership of any other person. 

							
		Shares Beneficially				Shares Beneficially	
		Owned				Owned	
		Prior to Offering				After Offering***	
				Number of			
Name and Address*		Number		Percent		Shares Offered(1)		Number		Percent	
											
Principal Stockholders:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
ARC Acquisition Co., L.L.C.(2)	 	 	17,334,221	 	 	 	48.9	%	 	 	 	 	 	 	 	 	 	 	 	 	
 	10 S. Wacker Drive, Suite 3175	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Chicago, IL 90606	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	
Micro Device, Inc. 	 	 	7,064,964	 	 	 	19.9	%	 	 	 	 	 	 	 	 	 	 	 	 	
 	
William Thomas(3)(4)	 	 	5,075,964	 	 	 	14.3	%	 	 	 	 	 	 	 	 	 	 	 	 	
 	600 North Central Expressway	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Richardson, TX 75080	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	
OCB Reprographics, Inc. 	 	 	4,616,631	 	 	 	13.0	%	 	 	 	 	 	 	 	 	 	 	 	 	
 	17721 Mitchell North	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Irvine, CA 92714	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	
Directors and Named Executive Officers:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Andrew W. Code(5)	 	 	17,334,221	 	 	 	48.9	%	 	 	 	 	 	 	 	 	 	 	 	 	
 	
Thomas J. Formolo(5)	 	 	17,334,221	 	 	 	48.9	%	 	 	 	 	 	 	 	 	 	 	 	 	
 	
Sathiyamurthi Chandramohan(3)(4)(6)(7)(8)	 	 	14,810,502	 	 	 	41.7	%	 	 	 	 	 	 	 	 	 	 	 	 	
 	
Kumarakulasingam Suriyakumar(3)(4)(6)(7)(8)(9)	 	 	14,777,145	 	 	 	41.6	%	 	 	 	 	 	 	 	 	 	 	 	 	
 	1981 N. Broadway, Suite 202	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Walnut Creek, CA 94596	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	
Rahul K. Roy(10)	 	 	637,500	 	 	 	1.8	%	 	 	 	 	 	 	 	 	 	 	 	 	
 	
Mark W. Legg(11)	 	 	335,001	 	 	 	1.0	%	 	 	 	 	 	 	 	 	 	 	 	 	
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		Shares Beneficially				Shares Beneficially	
		Owned				Owned	
		Prior to Offering				After Offering***	
				Number of			
Name and Address*		Number		Percent		Shares Offered(1)		Number		Percent	

Manuel Perez de la Mesa(12)	 	 	37,000	 	 	 	**	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	
All directors and executive officers as a group (seven persons)	 	 	33,276,366	 	 	 	92.3	%	 	 	 	 	 	 	 	 	 	 	 	 	
 	
Other Selling Stockholders:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	
Brownies Blueprint, Inc.	 	 	1,656,051	 	 	 	4.7	%	 	 	 	 	 	 	 	 	 	 	 	 	
 	
Dietrich-Post Company	 	 	858,024	 	 	 	2.4	%	 	 	 	 	 	 	 	 	 	 	 	 	
 	
Color Expressions of California, Inc.	 	 	459,333	 	 	 	1.3	%	 	 	 	 	 	 	 	 	 	 	 	 	
 	
Ted Carlson	 	 	300,000	 	 	 	**	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	
Steve Gilmore	 	 	300,000	 	 	 	**	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	
Patrick Duggan	 	 	225,000	 	 	 	**	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	
Richard Nelson	 	 	75,000	 	 	 	**	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	
Ken Gini(13)	 	 	41,001	 	 	 	**	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	
Jack Anderson	 	 	35,001	 	 	 	**	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	
Janine Brandel	 	 	35,001	 	 	 	**	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	
John Coats	 	 	35,001	 	 	 	**	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	
Johann De Abeyesinhe	 	 	35,001	 	 	 	**	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	
David Dodge(14)	 	 	35,001	 	 	 	**	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	
Trevor Fernando	 	 	35,001	 	 	 	**	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	
Dan Hagan	 	 	35,001	 	 	 	**	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	
Doug McCrae	 	 	35,001	 	 	 	**	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	
Monita Sarthou	 	 	35,001	 	 	 	**	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	
Virgilio Sim	 	 	35,001	 	 	 	**	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	
Noel Van Langenberg	 	 	35,001	 	 	 	**	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	
Laurie Williams	 	 	35,001	 	 	 	**	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	
CHS Associates IV, L.P.	 	 	28,465	 	 	 	**	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	
Karl Winkelman	 	 	9,000	 	 	 	**	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	
Paige Walsh	 	 	1,473	 	 	 	**	 	 	 	 	 	 	 	 	 	 	 	 	 	

			
 	*	Except as otherwise noted, the address of each person listed in the table is c/o American Reprographics Company, 700 North Central Avenue, Suite 550, Glendale, California 91203.	

			
 	**	Less than one percent of the outstanding shares of common stock.	

			
 	*** 	Assumes underwriters have not exercised their option to purchase additional shares.	
 		
 	(1) 	If the underwriters’ overallotment option is exercised in full, the additional shares sold would be allocated among the selling stockholders as follows:	

				Shares Beneficially	
				Owned Assuming	
				Exercise of	
		Shares Beneficially		Overallotment	
		Owned Subject to		Option	
		Overallotment			
Selling Stockholders		Option		Number		Percent	
							
ARC Acquisition Co., L.L.C. 	 	 	 	 	 	 	 	 	 	 	 	 	
Andrew W. Code(5)	 	 	 	 	 	 	 	 	 	 	 	 	
Thomas J. Formolo(5)	 	 	 	 	 	 	 	 	 	 	 	 	
CHS Associates IV, L.P. 	 	 	 	 	 	 	 	 	 	 	 	 	
Paige Walsh	 	 	 	 	 	 	 	 	 	 	 	 	

			
 		If the underwriters’ overallotment option is exercised in part, the additional shares sold would be allocated pro rata based upon the share amounts set forth in the preceding table.	
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 	(2) 	The sole member of ARC Acquisition Co., L.L.C. is Code Hennessey Simmons IV, L.P. The general partner of Code Hennessy Simmons IV, L.P. is CHS Management IV, L.P. The general partner of CHS Management IV, L.P. is Code Hennessy & Simmons LLC. Code Hennessy & Simmons LLC, CHS Management IV, L.P. and Code Hennessy Simmons IV, L.P. may be deemed to beneficially own these shares, but disclaim beneficial ownership of shares in which they do not have a pecuniary interest. The investment committee of Code Hennessy & Simmons LLC is composed of Andrew W. Code, Daniel J. Hennessy, Brian P. Simmons, Thomas J. Formolo, Jon S. Vesely and Peter M. Gotsch. Messrs. Code, Hennessy, Simmons, Formolo, Vesely and Gotsch may be deemed to beneficially own these shares due to the fact that they share investment and voting control over shares held by ARC Acquisition Co., L.L.C., but disclaim beneficial ownership of shares in which they do not have a pecuniary interest.	
 		
 	(3) 	Includes 4,616,631 shares held by OCB Reprographics, Inc. As Messrs. Chandramohan, Suriyakumar and Thomas have ownership interests of 22.4%, 17.6% and 40%, respectively, in OCB Reprographics, Inc. and serve on its Board of Directors, each could be deemed to have beneficial ownership of all these shares. Messrs. Chandramohan and Suriyakumar each disclaim beneficial ownership of these shares except to the extent of each of their pecuniary interests therein.	
 		
 	(4) 	Includes 459,333 shares held by Color Expressions of California, Inc. As Messrs. Chandramohan, Suriyakumar and Thomas have ownership interests of 24.8%, 19.5% and 26.7%, respectively, in Color Expressions of California, Inc. and serve on its Board of Directors, each could be deemed to have beneficial ownership of all these shares. Messrs. Chandramohan and, Suriyakumar each disclaim beneficial ownership of these shares except to the extent of each of their pecuniary interests therein.	
 		
 	(5) 	Andrew W. Code and Thomas J. Formolo are members of the investment committee of Code Hennessy & Simmons LLC, the general partner of CHS Management IV, L.P., which in turn is the general partner of Code, Hennessy & Simmons IV, L.P., which is the sole member of ARC Acquisition Co., L.L.C. Messrs. Code and Formolo may be deemed to beneficially own the shares owned by ARC Acquisition Co., L.L.C., but disclaim beneficial ownership of shares in which they do not have a pecuniary interest.	
 		
 	(6) 	Includes 7,064,964 shares held by Micro-Device, Inc. As Messrs. Chandramohan and Suriyakumar have ownership interests of 56% and 44%, respectively, in Micro-Device, Inc. and serve on its Board of Directors, each could be deemed to have beneficial ownership of all these shares. Messrs. Chandramohan and Suriyakumar each disclaim beneficial ownership of these shares except to the extent of each of their pecuniary interests therein.	
 		
 	(7) 	Includes 1,656,051 shares held by Brownies Blueprint, Inc. As Messrs. Chandramohan and Suriyakumar have ownership interests of 42% and 33%, respectively, in Brownies Blueprint, Inc. and serve on its Board of Directors, each could be deemed to have beneficial ownership of all these shares. Messrs. Chandramohan and Suriyakumar each disclaim beneficial ownership of these shares except to the extent of each of their pecuniary interests therein.	
 		
 	(8) 	Includes 858,024 shares held by Dietrich-Post Company. As Messrs. Chandramohan and Suriyakumar have ownership interests of 47.6% and 37.4%, respectively, in Dietrich-Post Company and serve on its Board of Directors, each could be deemed to have beneficial ownership of all these shares. Messrs. Chandramohan and Suriyakumar each disclaim beneficial ownership of these shares except to the extent of each of their pecuniary interests therein.	
 		
 	(9) 	Includes 122,142 shares held by the Suriyakumar Family Trust. Mr. Suriyakumar and his spouse, as trustees of the Suriyakumar Family Trust, share voting and investment power over these shares.	

		
(10) 	Includes 540,000 shares issuable upon exercise of outstanding stock options exercisable within 60 days of September 30, 2004.	
 		
(11) 	Shares held by the Legg Family Trust. Mr. Legg and his spouse, as trustees of the Legg Family Trust, share voting and investment power over these shares.	
 		
(12) 	Includes 17,000 shares issuable upon exercise of outstanding stock options exercisable within 60 days of September 30, 2004. Includes 6,000 shares held by Mr. Perez’s children.	
 		
(13) 	Includes 6,000 shares issuable upon exercise of outstanding stock options exercisable within 60 days of September 30, 2004.	
 		
(14) 	Shares held by David N. Dodge and Linda P. Dodge, as trustees of the David and Linda Dodge Family Trust u/a/d March 12, 2004. Mr. Dodge has sole voting and investment control over these shares.	
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DESCRIPTION OF CAPITAL STOCK
       Our authorized capital stock consists of 150 million shares of common stock, $.001 par value per share, and 25 million shares of undesignated preferred stock, $.001 par value per share. Immediately following the consummation of this offering                     of the authorized shares of common stock will be issued and outstanding and no shares of our preferred stock will be outstanding.
Common Stock
       The holders of common stock are entitled to one vote for each share held of record on all matters submitted to a vote of the stockholders. Subject to preferences that may be applicable to any outstanding preferred stock, holders of common stock are entitled to receive ratably such dividends as may be declared by the board of directors out of funds legally available for that purpose. See “Dividend Policy.” In the event of our liquidation, dissolution or winding up, the holders of common stock are entitled to share ratably in all assets remaining after payment of liabilities, subject to the prior distribution rights of any outstanding preferred stock. The common stock has no preemptive or conversion rights or other subscription rights. The outstanding shares of common stock (after giving effect to our reorganization) are, and the shares of common stock to be issued upon completion of this offering will be, fully paid and non-assessable.
Preferred Stock
       Upon the closing of this offering, the board of directors will have the authority, without further action by the stockholders, to issue up to 25 million shares of preferred stock, $.001 par value, in one or more series. The board of directors will also have the authority to designate the rights, preferences, privileges, and restrictions of each such series, including dividend rights, dividend rates, conversion rights, voting rights, terms of redemption, redemption prices, liquidation preferences, and the number of shares constituting any series.
       The issuance of preferred stock may have the effect of delaying, deferring or preventing a change in control of our company without further action by the stockholders. The issuance of preferred stock with voting and conversion rights may also adversely affect the voting power of the holders of common stock. In certain circumstances, an issuance of preferred stock could have the effect of decreasing the market price of the common stock. As of the closing of the offering, no shares of preferred stock will be outstanding and we currently have no plans to issue any shares of preferred stock.
Registration Rights Agreement
       The holders of 27,220,839 shares of common stock and the holders of 1,168,842 shares of our common stock issuable upon exercise of warrants are entitled to rights with respect to the registration of their shares under the Securities Act. These registration rights are contained in a registration rights agreement and are described below.
       Demand Registrations. At any time following six months after the closing of this offering, the holders of a majority of the registrable securities held by ARC Acquisition Co., L.L.C. and the holders of a majority of the registrable securities held by Messrs. Chandramohan and Suriyakumar (or entities in which they control a majority of the voting shares) shall each be entitled (as a group) to request up to two registrations on Form S-1 or similar long-form registration statements, respectively, and two short-form registrations on Form S-2, S-3 or any similar short-form registration statements, respectively. The holders of a majority of all other registrable securities under this agreement are entitled to request one short-form registration.
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       Piggyback Rights. The holders of registrable securities other than those originally requesting registration pursuant to a demand registration can request to participate in, or “piggyback” on, any demand registration.
       Piggyback Registrations. If we propose to register any of our equity securities under the Securities Act (other than pursuant to a demand registration of registrable securities or a registration on Form S-4 or Form S-8) for us or for holders of securities other than the registrable securities, we will offer the holders of registrable securities the opportunity to register their registrable securities.
       Conditions and Limitations; Expenses. The registration rights are subject to conditions and limitations, including the right of the underwriters to limit the number of shares to be included in a registration and our right to delay or withdraw a registration statement under specified circumstances. We will pay the registration expenses of the holders of registrable securities in demand registrations and piggyback registrations in connection with the registration rights agreement.
Warrants
       At June 30, 2004, after giving effect to our reorganization as a Delaware corporation, we had outstanding warrants to purchase 1,168,842 shares of our common stock at an exercise price of $4.61 per share. The warrants expire on April 10, 2010.
Delaware Anti-Takeover Law and Charter and Bylaw Provisions
       Provisions of Delaware law and our charter documents could make the acquisition of our company and the removal of incumbent officers and directors more difficult. These provisions are expected to discourage certain types of coercive takeover practices and inadequate takeover bids and to encourage persons seeking to acquire control of our company to negotiate with it first. We believe that the benefits of increased protection of its potential ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure our company outweigh the disadvantages of discouraging such proposals because, among other things, negotiation of such proposals could result in an improvement of their terms.
       Section 203. We are subject to the provisions of Section 203 of the Delaware General Corporation Law. In general, the statute prohibits a publicly-held Delaware corporation from engaging in a “business combination” with an “interested stockholder” for a period of three years after the date that the person became an interested stockholder unless, subject to exceptions, the business combination or the transaction in which the person became an interested stockholder is approved in a prescribed manner. Generally, a “business combination” includes a merger, asset or stock sale, or other transaction resulting in a financial benefit to the stockholder. Generally, an “interested stockholder” is a person who, together with affiliates and associates, owns, or within three years prior, did own, 15% or more of the corporation’s voting stock. These provisions may have the effect of delaying, deferring or preventing a change in control of our company without further action by the stockholders.
       Special Stockholder Meetings. Our amended and restated certificate of incorporation will provide that special meetings of the stockholders for any purpose or purposes, unless required by law, may only be called by the board of directors, the chairman of the board, if any, the chief executive officer or the president. This limitation on the ability to call a special meeting could make it more difficult for stockholders to initiate actions that are opposed by the board. These actions could include the removal of an incumbent director or the election of a stockholder nominee as a director. They could also include the implementation of a rule requiring stockholder ratification of specific defensive strategies that have been adopted by the board with respect to unsolicited takeover bids. In addition, the limited ability to call a special meeting of stockholders may make it more difficult to change the existing board and management.
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       Board of Directors. Subject to the rights of the holders of any outstanding series of preferred stock, our amended and restated certificate of incorporation will authorize only the board of directors to fill vacancies, including newly created directorships. Our amended and restated certificate of incorporation will also provide that directors may be removed by stockholders only by affirmative vote of holders of two-thirds of the outstanding shares of voting stock.
       Supermajority Vote to Amend Charter and Bylaws. Our amended and restated certificate of incorporation and amended and restated bylaws each will provide that our bylaws may be amended by our stockholders only with a two-thirds vote of the outstanding shares. In addition, our amended and restated certificate of incorporation will provide that its provisions related to, among other things, limitation of director liability and indemnification may only be amended by a two-thirds vote of the outstanding shares.
       No Stockholder Action by Written Consent. Our amended and restated certificate of incorporation will provide that stockholder action can be taken only at an annual or special meeting of stockholders and may not be taken by written consent. The amended and restated bylaws will provide that special meetings of stockholders can be called only by the board of directors, the chairman of the board, if any, the chief executive officer and the president. Moreover, the business permitted to be conducted at any special meeting of stockholders is limited to the business brought before the meeting by the board of directors, the chairman of the board, if any, and the President.
       Advance Notice Procedures. Our amended and restated bylaws will provide for an advance notice procedure for the nomination, other than by or at the direction of our board of directors, of candidates for election as directors as well as for other stockholder proposals to be considered at annual meetings of stockholders.
Indemnification Provisions
       Our amended and restated certificate of incorporation will limit the liability of directors to the maximum extent permitted by Delaware law. Delaware law expressly permits a corporation to provide that its directors will not be personally liable for monetary damages for breach of their fiduciary duties as directors, except liability for:

		
• 	any breach of their duty of loyalty to the corporation or its stockholders;	
 		
• 	acts or omissions that are not in good faith or that involve intentional misconduct or a knowing violation of law;	
 		
• 	unlawful payments of dividends or unlawful stock repurchases or redemptions; or	
 		
• 	any transaction from which the director derived an improper personal benefit.	
       These express limitations do not apply to liabilities arising under the federal securities laws and do not affect the availability of equitable remedies, including injunctive relief or rescission.
       The provisions of Delaware law that relate to indemnification expressly state that the rights provided by the statute are not exclusive and are in addition to any rights provided in a certificate of incorporation, bylaws, agreement or otherwise. Our amended and restated certificate of incorporation will provide that we will indemnify our directors and officers, to the maximum extent permitted by law and that we may indemnify other employees and agents. Our amended and restated bylaws will also permit us to secure insurance on behalf of any officer, director, employee or agent for any liability arising out of actions in his or her capacity as an officer, director, employee or agent. Prior to the completion of this offering, we will obtain an insurance policy that insures our directors and officers against losses, above a deductible amount, from specified types of claims. We believe that these provisions and policies will help us attract and retain qualified persons.
       The limited liability and indemnification provisions in our amended and restated certificate of incorporation, amended and restated bylaws and any related indemnification agreements may
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discourage stockholders from bringing a lawsuit against our directors for breach of their fiduciary duties and may reduce the likelihood of derivative litigation against our directors and officers, even though a derivative action, if successful, might otherwise benefit us and our stockholders. A stockholder’s investment in us may be adversely affected to the extent we pay the costs of settlement or damage awards against our directors and officers under these indemnification provisions.
       At present, there is no pending litigation or proceeding involving any of our directors, officers or employees in which indemnification is sought, nor are we aware of any threatened litigation that may result in claims for indemnification.
       Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers, employees, and agents under our restated certificate of incorporation or any related indemnification agreements we have been advised that, in the opinion of the SEC, this indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. 
Transfer Agent and Registrar
       The transfer agent and registrar for our common stock is Mellon Investor Services LLC.
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SHARES ELIGIBLE FOR FUTURE SALE
       No public market for our common stock existed before this offering. Future sales of substantial amounts of our common stock in the public market could cause the prevailing market price for our common stock to decline. A large number of our outstanding shares of common stock will not be available for sale shortly after this offering because of contractual and legal restrictions on resale as described below. Sales of substantial amounts of our common stock in the public market after these restrictions lapse, and the potential for such sales, could depress the prevailing market price of our common stock and limit our ability to raise equity capital in the future.
       Upon completion of this offering, we will have outstanding an aggregate of                      shares of common stock, assuming no exercise of the underwriters’ over-allotment option. All of the shares sold in this offering, other than those sold to our affiliates, will be freely tradable without restriction or further registration under the Securities Act. The remaining                     shares of common stock held by existing stockholders, as of September 30, 2004, are restricted securities. Subject to the restrictions on transfer contained in the lock-up agreements described in “Underwriting,” restricted securities may be sold in the public market only if registered or if they qualify for an exemption from registration under the Securities Act.
Lock-Up Agreements
       Our executive officers, directors, the selling stockholders and holders of substantially all other shares of our common stock have agreed not to dispose of or hedge, directly or indirectly, any shares of our common stock or any securities convertible into or exercisable or exchangeable for shares of our common stock, until 180 days after the date of this prospectus. Transfers or dispositions can be made sooner with the prior written consent of Goldman, Sachs & Co. and J.P. Morgan Securities Inc.
Rule 144
       In general, under Rule 144 of the Securities Act, beginning 90 days after the date of this prospectus, a person who has beneficially owned shares of our common stock for at least one year would be entitled to sell within any three-month period a number of shares that does not exceed the greater of:

		
• 	1% of the shares of common stock then outstanding, which will equal approximately          shares immediately after this offering; or	
 		
• 	the average weekly trading volume of the common stock on the New York Stock Exchange during the four calendar weeks preceding the filing of a notice on Form 144 with respect to the sale.	
       We believe that holders of common stock issued to them in exchange for units of our predecessor’s common equity prior to our recapitalization in contemplation of this offering should generally be able to count the period of time during which they held such predecessor common equity for purposes of determining the length of time they have held our common stock for purposes of Rule 144. Sales under Rule 144 must comply with manner of sale provisions and post-sale notice requirements, and may only occur if information about us is publicly available.
Rule 144(k)
       Under Rule 144(k) of the Securities Act, a person who has not been one of our affiliates at any time during the 90 days preceding a sale, and who has beneficially owned the shares proposed to be sold for at least two years, is entitled to sell those shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144. Therefore, unless otherwise restricted, shares eligible for sale under Rule 144(k) may be sold immediately upon the completion of this offering.
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       Substantially all of the shares of our common stock outstanding prior to this offering are held by CHS IV or other individuals who are our affiliates, and although many of such shares have been held for at least two years, such shares cannot be sold by any such holder pursuant to Rule 144(k) until 90 days after such holder ceases to be an affiliate.
Rule 701
       Rule 701 permits our employees, officers, directors or consultants who purchased shares pursuant to a written compensatory plan or contract to resell such shares in reliance upon Rule 144, but without compliance with certain restrictions. Rule 701 provides that affiliates may, under Rule 144, sell their Rule 701 shares 90 days after effectiveness of this registration statement without complying with the holding period requirement and that non-affiliates may sell such shares in reliance on Rule 144 90 days after effectiveness of this registration statement without complying with the holding period, public information, volume limitation or notice requirements of Rule 144.
Registration Rights
       After giving effect to our reorganization as a Delaware corporation, the holders of 28,389,681 shares of our common stock, assuming the exercise of outstanding warrants to purchase registrable securities, may demand that we register their shares under the Securities Act or, if we file another registration statement under the Securities Act, may elect to include their shares in such registration. If these shares are registered, they will be freely tradeable without restriction under the Securities Act. For more detailed information regarding these registration rights, please see “Description of Capital Stock — Registration Rights Agreement.”
Stock Options
       Upon the completion of this offering, we intend to file a registration statement on Form S-8 under the Securities Act registering approximately 5.8 million shares of our common stock, including shares issuable under our stock plans. The registration statement will become effective upon filing. Accordingly, shares of our common stock registered under the registration statement on Form S-8 will be available for sale in the open market immediately thereafter, after complying with Rule 144 volume limitations applicable to affiliates and with lock-up restrictions.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
Senior Secured Credit Facilities
       We have two senior secured credit facilities, a $130 million senior first priority secured facility, or first priority facility, and a $225 million senior second priority secured facility, or second priority facility, each pursuant to a credit and guaranty agreement dated as of December 18, 2003 between Opco, Holdings, the domestic subsidiaries of Holdings and a syndicate of financial institutions, including Goldman Sachs Credit Partners L.P. Our first priority facility consists of a $100 million senior first priority secured term loan facility, or term facility, and a $30 million senior first priority secured revolving credit facility, or revolving facility. Our second priority facility consists of a $225 million senior second priority secured term loan facility.
       The proceeds of the term facility and a portion of the revolving facility, together with substantially all of the proceeds of the second priority facility, were used to refinance our then existing debt. Amounts remaining available under the revolving facility may be used by us for working capital, certain permitted acquisitions and general corporate purposes.
Maturity
       The term facility matures in June 2009, the revolving facility matures in December 2008 and the second priority facility matures in December 2009.
Guarantees and Security
       Opco’s obligations under each of the credit facilities are guaranteed by Holdings and each of its domestic subsidiaries.
       In addition, subject to limited exceptions, the first priority facility is secured by first priority security interests in all of Opco’s assets and the assets of Holdings and its domestic subsidiaries and 65% of the assets of its foreign subsidiaries. The second priority facility is secured by second priority security interests in the assets securing the first priority facility. The priority of the security interests and related creditor rights between the first priority facility and the second priority facility are subject to an intercreditor agreement.
Interest and Fees
       Loans made under the credit facilities bear interest at a floating rate and may be maintained as index rate loans or as LIBOR rate loans. Index rate loans bear interest at the index rate plus the applicable index rate margin. The index rate is defined as the higher of (1) the rate of interest publicly quoted from time to time by The Wall Street Journal as the base rate on corporate loans posted by at least 75% of the nation’s 30 largest banks, and (2) the Federal Reserve reported overnight funds rate plus  1/2 of 1%. The LIBOR rate loans bear interest at the LIBOR rate plus the applicable LIBOR rate margin.
       The applicable margin with respect to the term facility is 2.00% in the case of index rate loans and 3.00% in the case of LIBOR rate loans. The applicable margin for the revolving facility is determined by a grid based on the ratio of the consolidated indebtedness of Holdings and its subsidiaries to the consolidated adjusted EBITDA (as defined in the credit facilities) of Holdings and its subsidiaries for the most recently ended four fiscal quarters and range between 2.00% and 2.75% for LIBOR rate loans and range between 1.00% and 1.75% for index rate loans.
       The applicable margin with respect to loans made under the second priority facility is 5.875% in the case of index rate loans and 6.875% in the case of LIBOR rate loans. However, if the ratio of the consolidated indebtedness of Holdings and its subsidiaries over the consolidated adjusted EBITDA (as defined in the credit facilities) of Holdings and its subsidiaries is greater than 4.8:1.0 for any four fiscal quarters, each of the applicable margins set forth above will be increased by 100 basis points.
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In addition, loans made under the second priority facility are issued at a discount of 1.0% to the face amount.
       Under the revolving facility, we are also required to pay a fee equal to 0.50% of the total unused commitment amount. We may also draw upon the credit facilities through letters of credit which carry specific fees.
Covenants
       Our credit facilities require Holdings to meet certain financial tests, including minimum interest coverage, maximum leverage and minimum fixed charge coverage ratios. The credit facilities also limit Opco’s ability and the ability of Holdings and its other domestic subsidiaries to, among other things, incur debt, incur additional liens, make distributions on or repurchase equity, make certain investments, sell certain assets, enter into operating leases, engage in reorganizations or mergers, or change the character of our business. Certain of these covenants are subject to exceptions and materiality qualifiers.
Mandatory Prepayment
       We are required to apply any net proceeds received from (i) asset sales, (ii) insurance on account of any loss of any property or assets, or (iii) the incurrence of indebtedness for borrowed money, first to repay amounts outstanding under the term facility, second, to repay amounts outstanding (and to permanently reduce commitments) under the revolving facility, and third, provided there are no amounts outstanding under the first priority facility, to repay amounts outstanding under the second priority facility, subject to the call premium described below.
       Upon our receipt of cash proceeds from (i) the issuance of equity securities by us or any of our subsidiaries or (ii) excess cash flow, we are required to apply 75% of such net proceeds, or 50% if the consolidated indebtedness of Holdings and its subsidiaries over the consolidated adjusted EBITDA of Holdings and its subsidiaries is 3.0:1.0 or less for the most recent four fiscal quarters, to repay amounts outstanding under the second priority facility, in an amount not to exceed $67,500,000. We are required to apply the balance of such net proceeds to repay amounts outstanding under the first priority facility as described above.
Optional Prepayment
       The term facility and revolving facility may be prepaid in whole or in part without premium or penalty. In the event that there are no amounts outstanding under the term facility and revolving facility, amounts outstanding under the second priority facility may be prepaid in whole or in part subject to the call premium described below.
Call Premium
       Subject to certain exceptions, any repayments or prepayments of the second priority facility prior to December 2007 are subject to the payment of a premium ranging from 2.50% to 11.00% of the amount repaid or prepaid.
Events of Default
       The credit facilities contain customary events of default, including, payment defaults, defaults under other indebtedness, breach of covenant, breach of representations or warranties, certain events of bankruptcy, insolvency or dissolution, judgment defaults, change of control, invalidity of any loan documents or provisions supporting the credit facilities, and defaults or events relating to the employee benefit plans of Holdings or any of its subsidiaries. Certain of the events of default are subject to exceptions and materiality qualifiers. If an event of default occurs under the credit facilities and is not cured within the proscribed grace period, the lenders under the credit facilities will be
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entitled to take various actions, including terminating all loans and demanding payment for all outstanding amounts and foreclosing on collateral. In addition, under the second priority facility, the lenders may, upon a change of control, require us to repurchase all or any portion of the loans outstanding under the second priority facility at a purchase price of 101% of the principal amount.
       The terms used in this summary have specific meanings as used in the credit facilities. This summary of the credit facilities may not contain all of the information that is important to you and is subject to, and qualified in its entirety by reference to, all of the provisions of the credit agreements and related documents, copies of which are filed as exhibits to the registration statement of which this prospectus forms a part. See “Where You Can Find More Information.”
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UNDERWRITING
       ARC, the selling stockholders and the underwriters named below have entered into an underwriting agreement with respect to the shares of common stock being offered. Subject to certain conditions, each underwriter has severally agreed to purchase the number of shares of common stock indicated in the following table. Goldman, Sachs & Co., J.P. Morgan Securities Inc., Credit Suisse First Boston LLC, Robert W. Baird & Co. Incorporated and CIBC World Markets Corp. are the representatives of the underwriters. 

		Number of	
Underwriters		Shares	
			
Goldman, Sachs & Co.	 	 	
J.P. Morgan Securities Inc. 	 	 	
Credit Suisse First Boston LLC	 	 	
Robert W. Baird & Co. Incorporated	 	 	
CIBC World Markets Corp. 	 	 	
 	 		
 	Total	 	 	
 	 		
       The underwriters are committed to take and pay for all of the shares being offered, if any are taken, other than the shares covered by the option described below, unless and until this option is exercised.
       If the underwriters sell more shares than the total number set forth in the table above, the underwriters have an option to buy up to an additional                     shares of common stock from the selling stockholders to cover such sales. They may exercise that option for 30 days. If any shares are purchased pursuant to this option, the underwriters will severally purchase shares in approximately the same proportion as set forth in the table above.
       The following tables show the per share and total underwriting discounts and commissions to be paid to the underwriters by ARC and the selling stockholders. Such amounts are shown assuming both no exercise and full exercise of the underwriters’ option to purchase                additional shares. 
Paid by ARC
 	 	 	 	 	 	 	 	 	
		No Exercise		Full Exercise	
					
Per Share	 	$	 	 	 	$	 	 	
Total	 	$	 	 	 	$	 	 	
Paid by the Selling Stockholders

		No Exercise		Full Exercise	
					
Per Share	 	$	 	 	 	$	 	 	
Total	 	$	 	 	 	$	 	 	
       Shares sold by the underwriters to the public will initially be offered at the initial public offering price set forth on the cover of this prospectus. Any shares sold by the underwriters to securities dealers may be sold at a discount of up to $     per share from the initial public offering price. Any such securities dealers may resell any shares purchased from the underwriters to certain other brokers or dealers at a discount of up to $     per share from the initial public offering price. If all the shares are not sold at the initial public offering price, the representatives may change the offering price and the other selling terms.
       ARC, its officers and directors, the selling stockholders and other stockholders who collectively hold substantially all of ARC’s common stock have agreed with the underwriters not to dispose of or
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hedge any of their common stock or securities convertible into or exchangeable for shares of common stock during the period from the date of this prospectus continuing through the date 180 days after the date of this prospectus, except with the prior written consent of Goldman, Sachs & Co. and J.P. Morgan Securities Inc.
       Prior to the offering, there has been no public market for the common stock. The initial public offering price has been negotiated among ARC, the selling stockholders and the representatives. Among the factors to be considered in determining the initial public offering price of the common stock, in addition to prevailing market conditions, will be ARC’s historical performance, estimates of its business potential and earnings prospects, an assessment of its management and the consideration of the above factors in relation to market valuation of companies in related businesses.
       An application has been made to list the common stock on the New York Stock Exchange under the symbol “ARP”. In order to meet one of the requirements for listing the common stock on the NYSE, the underwriters have undertaken to sell lots of 100 or more shares to a minimum of 2,000 beneficial holders.
       In connection with the offering, the underwriters may purchase and sell shares of common stock in the open market. These transactions may include short sales, stabilizing transactions and purchases to cover positions created by short sales. Short sales involve the sale by the underwriters of a greater number of shares than they are required to purchase in the offering. “Covered” short sales are sales made in an amount not greater than the underwriters’ option to purchase additional shares from the selling stockholders in the offering. The underwriters may close out any covered short position by either exercising their option to purchase additional shares or purchasing shares in the open market. In determining the source of shares to close out the covered short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase additional shares pursuant to the option granted to them. “Naked” short sales are any sales in excess of such option. The underwriters must close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the common stock in the open market after pricing that could adversely affect investors who purchase in the offering. Stabilizing transactions consist of various bids for or purchases of common stock made by the underwriters in the open market prior to the completion of the offering.
       The underwriters may also impose a penalty bid. This occurs when a particular underwriter repays to the underwriters a portion of the underwriting discount received by it because the representatives have repurchased shares sold by or for the account of such underwriter in stabilizing or short covering transactions.
       Purchases to cover a short position and stabilizing transactions may have the effect of preventing or retarding a decline in the market price of the common stock, and together with the imposition of the penalty bid, may stabilize, maintain or otherwise affect the market price of the common stock. As a result, the price of the common stock may be higher than the price that otherwise might exist in the open market. If these activities are commenced, they may be discontinued at any time. These transactions may be effected on the New York Stock Exchange, in the over-the-counter market or otherwise.
       Each underwriter has represented, warranted and agreed that: (i) it has not offered or sold and, prior to the expiry of a period of six months from the date of the closing of this offering, will not offer or sell any shares to persons in the United Kingdom except to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their businesses or otherwise in circumstances which have not resulted and will not result in an offer to the public in the United Kingdom within the meaning of the Public Offers of Securities Regulations 1995; (ii) it has only communicated or caused to be communicated and will only communicate or cause to be communicated any invitation or inducement to engage in
95 

 

investment activity (within the meaning of Section 21 of the Financial Services and Markets Act 2000 (“FSMA”)), received by it in connection with the issue or sale of any shares in circumstances in which section 21(1) of the FSMA does not apply to ARC; and (iii) it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the shares of common stock in, from or otherwise involving the United Kingdom.
       The shares may not be offered or sold, transferred or delivered, as part of their initial distribution or at any time thereafter, directly or indirectly, to any individual or legal entity in the Netherlands other than to individuals or legal entities who or which trade or invest in securities in the conduct of their profession or trade, which includes banks, securities intermediaries, insurance companies, pension funds, other institutional investors and commercial enterprises which, as an ancillary activity, regularly trade or invest in securities.
       The shares may not be offered or sold by means of any document other than to persons whose ordinary business is to buy or sell shares or debentures, whether as principal or agent, or in circumstances which do not constitute an offer to the public within the meaning of the Companies Ordinance (Cap. 32) of Hong Kong, and no advertisement, invitation or document relating to the shares may be issued, whether in Hong Kong or elsewhere, which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to shares of common stock which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” within the meaning of the Securities and Futures Ordinance (Cap. 571) of Hong Kong and any rules made thereunder.
       The prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation or subscription or purchase, of the shares of common stock may not be circulated or distributed, nor may the shares of common stock be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than under circumstances in which such offer, sale or invitation does not constitute an offer or sale, or invitation for subscription or purchase, of the shares of common stock to the public in Singapore.
       The shares of common stock have not been and will not be registered under the Securities and Exchange Law of Japan (the Securities and Exchange Law) and each underwriter has agreed that it will not offer or sell any shares, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan (which means any person resident in Japan, including any corporation or other entity organized under the laws of Japan), or to others for re-offering or resale, directly or indirectly, in Japan or to a resident of Japan, except pursuant to an exemption from the registration requirements of, and otherwise in compliance with, the Securities and Exchange Law and any other applicable laws, regulations and ministerial guidelines of Japan.
       At ARC’s request, the underwriters have reserved for sale, at the initial public offering price, up to                      shares offered by this prospectus for sale to some of ARC’s directors, officers and employees and related persons. If these persons purchase reserved shares, this will reduce the number of shares available for sale to the general public. Any reserved shares that are not orally confirmed for purchase within one day of the pricing of this offering will be offered by the underwriters to the general public on the same terms as the other shares offered by this prospectus.
       The underwriters do not expect sales to discretionary accounts to exceed five percent of the total number of shares offered.
       ARC estimates that its share of the total expenses of the offering, excluding underwriting discounts and commissions, will be approximately $           million.
       ARC and the selling stockholders have agreed to indemnify the several underwriters against certain liabilities, including liabilities under the Securities Act.
96 

 

       Certain of the underwriters and their respective affiliates have, from time to time, performed, and may in the future perform, various financial advisory and investment and commercial banking services for ARC, for which they received or will receive customary fees and expenses. An affiliate of Goldman, Sachs & Co. is a lender under ARC’s credit facilities, holding $9.0 million under the second priority facility and having a commitment to lend up to $5.0 million under the revolving facility which currently has no balance. In addition, in connection with the purchase of certain debt of Holdings which has since been repaid, affiliates of Goldman, Sachs & Co. were issued warrants to purchase common units of Holdings. Upon the reorganization, such affiliates will hold warrants to purchase approximately 1,168,842 shares of ARC’s common stock. For more detailed information regarding these warrants, please see “Description of Capital Stock — Warrants.” In connection with a project to construct a new Goldman, Sachs & Co. headquarters in New York City, following a competitive bidding process, the developer, with Goldman, Sachs & Co.’s concurrence, has selected ARC to provide reprographics services for the project.
VALIDITY OF COMMON STOCK
       The validity of the shares of common stock being offered will be passed upon for American Reprographics Company by Hanson, Bridgett, Marcus, Vlahos & Rudy, LLP, San Francisco, California, and for the underwriters by Sullivan & Cromwell LLP, Los Angeles, California.
EXPERTS
       The consolidated financial statements and financial statement schedule as of December 31, 2003 and for the year then ended, included in this prospectus have been so included in reliance on the report of PricewaterhouseCoopers LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.
       The consolidated financial statements of American Reprographics Holdings, L.L.C. at December 31, 2002 and for each of the two years in the period ended December 31, 2002, appearing in this prospectus and registration statement have been audited by Ernst & Young LLP, independent registered public accounting firm, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
       We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the shares of common stock we are offering. This prospectus contains all information about us and our common stock that may be material to an investor in this offering. The registration statement includes exhibits to which you should refer for additional information about us.
       You may inspect a copy of the registration statement and the exhibits and schedules to the registration statement without charge at the offices of the SEC at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain copies of all or any part of the registration statement from the Public Reference Section of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549 upon the payment of the prescribed fees. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements and other information regarding registrants like us that file electronically with the SEC. You can also inspect our registration statement on this website.
97 

 
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Reports of Independent Registered Public Accounting Firms	 	F-2	
Consolidated Balance Sheets as of December 31, 2002 and 2003 and June 30, 2004	 	F-4	
Consolidated Statements of Operations for the years ended December 31, 2001, 2002 and 2003 and for the six months ended June 30, 2003 and 2004	 	F-5	
Consolidated Statements of Members’ Deficit and Comprehensive Income (Loss) for the years ended December 31, 2001, 2002 and 2003 and for the six months ended June 30, 2004	 	F-6	
Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2002 and 2003 and for the six months ended June 30, 2003 and 2004	 	F-7	
Notes to Consolidated Financial Statements	 	F-9	
F-1 

 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Advisors and Members
American Reprographics Holdings, L.L.C.:
       In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of operations, members’ deficit and comprehensive income, and cash flows present fairly, in all material respects, the financial position of American Reprographics Holdings, L.L.C. and its subsidiaries (the “Company”) at December 31, 2003, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule for the year ended December 31, 2003 listed in the index at Item 16(b) presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and the financial statement schedule are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements and the financial statement schedule based on our audit. We conducted our audit of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
       As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for its redeemable preferred members’ equity upon the adoption of Statement of Financial Accounting Standard No. 150 effective July 1, 2003.
/s/ PRICEWATERHOUSECOOPERS LLP
Los Angeles, California
February 25, 2004
F-2 

 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Advisors and Members
American Reprographics Holdings, L.L.C.
       We have audited the accompanying consolidated balance sheet of American Reprographics Holdings, L.L.C. as of December 31, 2002, and the related consolidated statements of operations, members’ equity (deficit), and cash flows for the years ended December 31, 2001 and 2002. Our audit also included the financial statement schedule listed to the index at Item 16(b) for the years ended December 31, 2001 and 2002. These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
       We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
       In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of American Reprographics Holdings, L.L.C. at December 31, 2002, and the consolidated results of its operations and its cash flows for the years ended December 31, 2001 and 2002, in conformity with United States generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
       As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for derivative financial instruments in 2001 upon the adoption of Statement of Financial Accounting Standard No. 133. The Company also changed its method of accounting for goodwill and other intangible assets in 2002 upon the adoption of Statement of Financial Accounting Standard No. 142.

		
 	/s/ ERNST & YOUNG, LLP	
Woodland Hills, California
February 28, 2003
F-3 

 
AMERICAN REPROGRAPHICS HOLDINGS, L.L.C.
CONSOLIDATED BALANCE SHEETS

					
		December 31,			
				June 30,	
		2002		2003		2004	

		(Dollars in thousands)	
				(Unaudited)	
Assets	 	 	 	 	 	 	 	 	 	 	 	 	
Current assets:	 	 	 	 	 	 	 	 	 	 	 	 	
 	Cash and cash equivalents	 	$	24,995	 	 	$	17,315	 	 	$	16,809	 	
 	Accounts receivable, less allowance of $2,148, $2,790 and $3,019 (unaudited) at December 31, 2002 and 2003, and June 30, 2004, respectively	 	 	60,080	 	 	 	56,663	 	 	 	67,101	 	
 	Inventories, net	 	 	7,223	 	 	 	5,937	 	 	 	6,089	 	
 	Prepaid expenses and other current assets	 	 	6,448	 	 	 	5,661	 	 	 	6,613	 	
 	 	 		 	 	 		 	 	 		 	
 	 	 	Total current assets	 	 	98,746	 	 	 	85,576	 	 	 	96,612	 	
Property and equipment, net	 	 	46,079	 	 	 	37,268	 	 	 	37,550	 	
Goodwill	 	 	242,134	 	 	 	243,668	 	 	 	245,136	 	
Deferred financing costs, net	 	 	6,688	 	 	 	8,288	 	 	 	7,835	 	
Other assets	 	 	2,030	 	 	 	2,043	 	 	 	2,000	 	
 	 	 		 	 	 		 	 	 		 	
 	 	 	Total assets	 	$	395,677	 	 	$	376,843	 	 	$	389,133	 	

Liabilities and members’ deficit	 	 	 	 	 	 	 	 	 	 	 	 	
Current liabilities:	 	 	 	 	 	 	 	 	 	 	 	 	
 	Accounts payable	 	$	19,426	 	 	$	18,742	 	 	$	19,828	 	
 	Accrued payroll and payroll-related expenses	 	 	10,102	 	 	 	9,906	 	 	 	12,158	 	
 	Accrued expenses	 	 	13,508	 	 	 	14,622	 	 	 	20,990	 	
 	Accrued earnout payments	 	 	2,142	 	 	 	374	 	 	 	—	 	
 	Current portion of derivative liability	 	 	4,788	 	 	 	—	 	 	 	—	 	
 	Current portion of long-term debt and capital leases	 	 	24,409	 	 	 	25,123	 	 	 	10,766	 	
 	 	 		 	 	 		 	 	 		 	
 	 	 	Total current liabilities	 	 	74,375	 	 	 	68,767	 	 	 	63,742	 	
Long-term debt and capital leases, net of debt discount	 	 	354,199	 	 	 	334,217	 	 	 	333,364	 	
Mandatorily redeemable preferred membership units	 	 	—	 	 	 	25,791	 	 	 	26,773	 	
Other long-term liabilities	 	 	2,984	 	 	 	5,397	 	 	 	5,333	 	
 	 	 		 	 	 		 	 	 		 	
 	 	 	Total liabilities	 	 	431,558	 	 	 	434,172	 	 	 	429,212	 	

Commitments and contingencies (Note 6)	 	 	 	 	 	 	 	 	 	 	 	 	
 	
Mandatorily redeemable preferred membership units	 	 	23,903	 	 	 	—	 	 	 	—	 	

Members’ deficit:	 	 	 	 	 	 	 	 	 	 	 	 	
 	Common members’ capital, including warrants to purchase common membership units — 35,467,511 and 35,487,511 and 35,487,511 common membership units issued and outstanding at December 31, 2002 and 2003, and June 30, 2004, respectively	 	 	26,117	 	 	 	26,228	 	 	 	28,529	 	
 	Deferred compensation	 	 	—	 	 	 	—	 	 	 	(2,134	)	
 	Accumulated deficit:	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Accumulated distributions to members	 	 	(139,734	)	 	 	(142,343	)	 	 	(145,388	)	
 	 	Accumulated earnings	 	 	54,667	 	 	 	59,608	 	 	 	78,778	 	
 	 	Accumulated other comprehensive (loss) income	 	 	(834	)	 	 	(822	)	 	 	136	 	
 	 	 		 	 	 		 	 	 		 	
 	 	 	Total members’ deficit	 	 	(59,784	)	 	 	(57,329	)	 	 	(40,079	)	
 	 	 		 	 	 		 	 	 		 	
 	 	 	Total liabilities and members’ deficit	 	$	395,677	 	 	$	376,843	 	 	$	389,133	 	
 	 	 		 	 	 		 	 	 		 	
The accompanying notes are an integral part of these consolidated financial statements.
F-4 

 
AMERICAN REPROGRAPHICS HOLDINGS, L.L.C.
CONSOLIDATED STATEMENTS OF OPERATIONS

									
				Six Months Ended	
		Year Ended December 31,		June 30,	
					
		2001		2002		2003		2003		2004	

		(Dollars in thousands, except per unit amounts)	
					
				(Unaudited)	
Net sales	 	$	420,701	 	 	$	418,924	 	 	$	415,960	 	 	$	214,154	 	 	$	226,133	 	
Cost of sales	 	 	243,710	 	 	 	247,778	 	 	 	252,028	 	 	 	127,311	 	 	 	130,790	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Gross profit	 	 	176,991	 	 	 	171,146	 	 	 	163,932	 	 	 	86,843	 	 	 	95,343	 	
Selling, general and administrative expenses	 	 	102,576	 	 	 	101,805	 	 	 	101,252	 	 	 	51,044	 	 	 	55,264	 	
Amortization of intangibles	 	 	5,731	 	 	 	218	 	 	 	131	 	 	 	67	 	 	 	54	 	
Costs incurred in connection with acquisition activities	 	 	1,428	 	 	 	1,500	 	 	 	—	 	 	 	—	 	 	 	—	 	
Write-off of goodwill	 	 	3,438	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Income from operations	 	 	63,818	 	 	 	67,623	 	 	 	62,549	 	 	 	35,732	 	 	 	40,025	 	
Other income	 	 	304	 	 	 	541	 	 	 	1,024	 	 	 	731	 	 	 	567	 	
Interest expense, net	 	 	(47,530	)	 	 	(39,917	)	 	 	(39,390	)	 	 	(18,116	)	 	 	(16,248	)	
Loss on early extinguishment of debt	 	 	—	 	 	 	—	 	 	 	(14,921	)	 	 	—	 	 	 	—	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Income before income tax provision	 	 	16,592	 	 	 	28,247	 	 	 	9,262	 	 	 	18,347	 	 	 	24,344	 	
Income tax provision	 	 	5,802	 	 	 	6,304	 	 	 	4,321	 	 	 	3,641	 	 	 	5,174	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Net income	 	 	10,790	 	 	 	21,943	 	 	 	4,941	 	 	 	14,706	 	 	 	19,170	 	
Dividends and amortization of discount on preferred members’ equity	 	 	(3,107	)	 	 	(3,291	)	 	 	(1,730	)	 	 	(1,730	)	 	 	—	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Net income attributable to common members	 	$	7,683	 	 	$	18,652	 	 	$	3,211	 	 	$	12,976	 	 	$	19,170	 	

Unaudited pro forma data:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	
Net income attributable to common members	 	$	7,683	 	 	$	18,652	 	 	$	3,211	 	 	$	12,976	 	 	$	19,170	 	
Unaudited pro forma incremental income tax provision (Notes 1 and 5)	 	 	2,622	 	 	 	6,275	 	 	 	1,407	 	 	 	4,305	 	 	 	5,937	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Unaudited pro forma net income attributable to common members	 	$	5,061	 	 	$	12,377	 	 	$	1,804	 	 	$	8,671	 	 	$	13,233	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Unaudited pro forma net income per unit attributable to common members:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	
 	Basic	 	 	$0.14	 	 	$	0.34	 	 	$	0.05	 	 	$	0.24	 	 	$	0.37	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
 	Diluted	 	 	$0.14	 	 	$	0.34	 	 	$	0.05	 	 	$	0.24	 	 	$	0.35	 	

Weighted average common member units outstanding:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Basic	 	 	36,628,801	 	 	 	36,406,220	 	 	 	35,480,289	 	 	 	35,473,067	 	 	 	35,487,511	 	
 	Diluted	 	 	36,757,814	 	 	 	36,723,031	 	 	 	37,298,349	 	 	 	35,999,421	 	 	 	37,440,127	 	
The accompanying notes are an integral part of these consolidated financial statements.
F-5 

 
AMERICAN REPROGRAPHICS HOLDINGS, L.L.C.
CONSOLIDATED STATEMENTS OF MEMBERS’ DEFICIT AND COMPREHENSIVE INCOME

													
								Retained Earnings					
								(Accumulated Deficit)					
										Accumulated			
		Common		Common				Accumulated				Other			
		Membership		Members’		Deferred		Distributions to		Accumulated		Comprehensive			
		Units		Capital		Compensation		Members		Earnings		Income (Loss)		Total	

		(Dollars in thousands)	
Balance at December 31, 2000	 	 	35,467,511	 	 	$	26,117	 	 	$	—	 	 	$	(128,530	)	 	$	21,934	 	 	$	—	 	 	$	(80,479	)	
 	Comprehensive income:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Net income	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	10,790	 	 	 	—	 	 	 	10,790	 	
 	 	Cumulative effect of accounting change	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(3,060	)	 	 	(3,060	)	
 	 	Reclassification to interest expense related to swap contract	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	1,113	 	 	 	1,113	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		 	
 	Comprehensive income	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	8,843	 	
 	Distributions to members	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(3,411	)	 	 	—	 	 	 	—	 	 	 	(3,411	)	
 	Accretion of noncash portion of yield on mandatorily redeemable preferred membership units	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(1,447	)	 	 	—	 	 	 	—	 	 	 	(1,447	)	
 	Amortization of discount on mandatorily redeemable preferred membership units	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(325	)	 	 	—	 	 	 	—	 	 	 	(325	)	
 	Accretion to redemption price of redeemable common membership units	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(2,081	)	 	 	—	 	 	 	—	 	 	 	(2,081	)	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Balance at December 31, 2001	 	 	35,467,511	 	 	 	26,117	 	 	 	—	 	 	 	(135,794	)	 	 	32,724	 	 	 	(1,947	)	 	 	(78,900	)	
 	Comprehensive income:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Net income	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	21,943	 	 	 	—	 	 	 	21,943	 	
 	 	Reclassification to interest expense related to swap contract	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	1,113	 	 	 	1,113	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		 	
 	Comprehensive income	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	23,056	 	
 	Distributions to members	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(3,897	)	 	 	—	 	 	 	—	 	 	 	(3,897	)	
 	Accretion of noncash portion of yield on mandatorily redeemable preferred membership units	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(1,543	)	 	 	—	 	 	 	—	 	 	 	(1,543	)	
 	Amortization of discount on mandatorily redeemable preferred membership units	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(325	)	 	 	—	 	 	 	—	 	 	 	(325	)	
 	Redemption of common membership units	 	 	—	 	 	 	—	 	 	 	—	 	 	 	1,825	 	 	 	—	 	 	 	—	 	 	 	1,825	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Balance at December 31, 2002	 	 	35,467,511	 	 	 	26,117	 	 	 	—	 	 	 	(139,734	)	 	 	54,667	 	 	 	(834	)	 	 	(59,784	)	
 	Comprehensive income:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Net income	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	4,941	 	 	 	—	 	 	 	4,941	 	
 	 	Reclassification to interest expense related to swap contract	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	834	 	 	 	834	 	
 	 	Interest rate swap fair value adjustment	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(822	)	 	 	(822	)	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		 	
 	Comprehensive income	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	4,953	 	
 	Issuance of common membership units	 	 	20,000	 	 	 	111	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	111	 	
 	Distributions to members	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(1,670	)	 	 	—	 	 	 	—	 	 	 	(1,670	)	
 	Accretion of noncash portion of yield on mandatorily redeemable preferred membership units	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(858	)	 	 	—	 	 	 	—	 	 	 	(858	)	
 	Amortization of discount on mandatorily redeemable preferred membership units	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(81	)	 	 	—	 	 	 	—	 	 	 	(81	)	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Balance at December 31, 2003	 	 	35,487,511	 	 	 	26,228	 	 	 	 	 	 	 	(142,343	)	 	 	59,608	 	 	 	(822	)	 	 	(57,329	)	
 	Comprehensive income:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Deferred stock-based compensation charge for options issued to employees (unaudited)	 	 	—	 	 	 	2,301	 	 	 	(2,301	)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
 	 	Amortization of deferred stock-based compensation (unaudited)	 	 	—	 	 	 	—	 	 	 	167	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	167	 	
 	 	Net income (unaudited)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	19,170	 	 	 	—	 	 	 	19,170	 	
 	 	Interest rate swap fair value adjustment (unaudited)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	958	 	 	 	958	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 		 	
 	Comprehensive income (unaudited)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	20,295	 	
 	Distributions to members (unaudited)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	(3,045	)	 	 	—	 	 	 	—	 	 	 	(3,045	)	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Balance at June 30, 2004 (unaudited)	 	 	35,487,511	 	 	$	28,529	 	 	$	(2,134	)	 	$	(145,388	)	 	$	78,778	 	 	$	136	 	 	$	(40,079	)	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
The accompanying notes are an integral part of these consolidated financial statements.
F-6 

 
AMERICAN REPROGRAPHICS HOLDINGS, L.L.C.
CONSOLIDATED STATEMENTS OF CASH FLOWS

									
				Six Months Ended	
		Year Ended December 31,		June 30,	
					
		2001		2002		2003		2003		2004	

		(Dollars in thousands)	
					
				(Unaudited)	
Operating activities	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Net income	 	$	10,790	 	 	$	21,943	 	 	$	4,941	 	 	$	14,706	 	 	$	19,170	 	
Adjustments to reconcile net income to net cash provided by operating activities:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Accretion of yield on redeemable preferred member units	 	 	—	 	 	 	—	 	 	 	949	 	 	 	—	 	 	 	982	 	
 	Allowance for doubtful accounts	 	 	682	 	 	 	816	 	 	 	1,698	 	 	 	660	 	 	 	820	 	
 	Reserve for inventory obsolescence	 	 	68	 	 	 	135	 	 	 	248	 	 	 	97	 	 	 	30	 	
 	Depreciation	 	 	16,203	 	 	 	17,680	 	 	 	18,228	 	 	 	9,348	 	 	 	8,402	 	
 	Amortization of intangible assets	 	 	5,731	 	 	 	218	 	 	 	131	 	 	 	67	 	 	 	54	 	
 	Amortization of deferred financing costs	 	 	1,239	 	 	 	1,350	 	 	 	1,559	 	 	 	762	 	 	 	987	 	
 	Noncash interest expense	 	 	15,217	 	 	 	9,740	 	 	 	8,565	 	 	 	3,542	 	 	 	—	 	
 	Deferred income taxes	 	 	2,182	 	 	 	491	 	 	 	1,812	 	 	 	1,748	 	 	 	894	 	
 	Write-off of intangible assets	 	 	3,438	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
 	Write-off of unamortized debt discount	 	 	—	 	 	 	—	 	 	 	3,875	 	 	 	—	 	 	 	—	 	
 	Write-off of deferred financing costs	 	 	—	 	 	 	—	 	 	 	5,129	 	 	 	—	 	 	 	—	 	
 	Amortization of deferred stock-based compensation	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	167	 	
 	Changes in operating assets and liabilities, net of effect of business acquisitions:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	Accounts receivable, net	 	 	5,332	 	 	 	(1,395	)	 	 	1,802	 	 	 	(3,796	)	 	 	(11,424	)	
 	 	Inventory	 	 	1,388	 	 	 	718	 	 	 	1,034	 	 	 	313	 	 	 	(161	)	
 	 	Prepaid expenses and other assets	 	 	1,402	 	 	 	2,058	 	 	 	410	 	 	 	(323	)	 	 	(928	)	
 	 	Accounts payable and accrued expenses	 	 	(10,521	)	 	 	2,659	 	 	 	(2,144	)	 	 	(202	)	 	 	9,522	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Net cash provided by operating activities	 	 	53,151	 	 	 	56,413	 	 	 	48,237	 	 	 	26,922	 	 	 	28,515	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Investing activities	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Capital expenditures	 	 	(8,659	)	 	 	(5,209	)	 	 	(4,992	)	 	 	(1,817	)	 	 	(3,427	)	
Payments for businesses acquired, net of cash acquired and including other cash payments associated with the acquisitions	 	 	(27,822	)	 	 	(40,355	)	 	 	(3,116	)	 	 	(2,349	)	 	 	(1,880	)	
Other	 	 	(584	)	 	 	(354	)	 	 	(228	)	 	 	(128	)	 	 	53	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Net cash used in investing activities	 	 	(37,065	)	 	 	(45,918	)	 	 	(8,336	)	 	 	(4,294	)	 	 	(5,254	)	

The accompanying notes are an integral part of these consolidated financial statements.
F-7 

 
AMERICAN REPROGRAPHICS HOLDINGS, L.L.C.
CONSOLIDATED STATEMENTS OF CASH FLOWS — (Continued)

									
				Six Months Ended	
		Year Ended December 31,		June 30,	
					
		2001		2002		2003		2003		2004	

		(Dollars in thousands)	
					
				(Unaudited)	
Financing activities	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Proceeds from borrowings under debt agreements	 	$	5,220	 	 	$	32,000	 	 	$	337,750	 	 	$	—	 	 	$	1,000	 	
Payments on long-term debt under debt agreements	 	 	(20,350	)	 	 	(35,507	)	 	 	(375,613	)	 	 	(12,510	)	 	 	(21,367	)	
Payment of loan fees	 	 	—	 	 	 	(950	)	 	 	(8,159	)	 	 	(736	)	 	 	(355	)	
Proceeds from issuance of common membership units	 	 	—	 	 	 	—	 	 	 	111	 	 	 	111	 	 	 	—	 	
Member distributions and redemptions	 	 	(3,411	)	 	 	(10,153	)	 	 	(1,670	)	 	 	(1,477	)	 	 	(3,045	)	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Net cash used in financing activities	 	 	(18,541	)	 	 	(14,610	)	 	 	(47,581	)	 	 	(14,612	)	 	 	(23,767	)	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Net increase (decrease) in cash and cash equivalents	 	 	(2,455	)	 	 	(4,115	)	 	 	(7,680	)	 	 	8,016	 	 	 	(506	)	
Cash and cash equivalents at beginning of period	 	 	31,565	 	 	 	29,110	 	 	 	24,995	 	 	 	24,995	 	 	 	17,315	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Cash and cash equivalents at end of period	 	$	29,110	 	 	$	24,995	 	 	$	17,315	 	 	$	33,011	 	 	$	16,809	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Supplemental disclosure of cash flow information	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Cash paid for:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Interest	 	$	32,469	 	 	$	29,891	 	 	$	28,190	 	 	$	13,883	 	 	$	12,063	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
 	Income taxes	 	$	4,471	 	 	$	4,233	 	 	$	1,966	 	 	$	1,454	 	 	$	2,242	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Noncash investing and financing activities	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Noncash transactions include the following:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Accretion of noncash portion of yield on preferred membership units	 	$	1,447	 	 	$	1,543	 	 	$	858	 	 	$	858	 	 	$	—	 	
 	Amortization of discount on preferred membership units	 	$	325	 	 	$	325	 	 	$	81	 	 	$	81	 	 	$	—	 	
 	Accretion to redemption price of redeemable common membership units	 	$	2,081	 	 	$	(1,825	)	 	$	—	 	 	$	—	 	 	$	—	 	
 	Capital lease obligations incurred	 	$	8,975	 	 	$	5,685	 	 	$	4,443	 	 	$	2,630	 	 	$	4,696	 	
 	Issuance of subordinated notes in connection with the acquisition of businesses	 	$	10,071	 	 	$	316	 	 	$	—	 	 	$	—	 	 	$	250	 	
 	Interest rate swap change in fair value	 	$	—	 	 	$	—	 	 	$	(822	)	 	$	—	 	 	$	958	 	
 
The accompanying notes are an integral part of these consolidated financial statements.
F-8 

 

AMERICAN REPROGRAPHICS HOLDINGS, L.L.C. 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except dollars per unit)
1.     Description of Business and Summary of Significant Accounting Policies
       American Reprographics Holdings, L.L.C. (the Company), formerly known as Ford Graphics Holdings, LLC, is a California limited liability company organized on October 24, 1997, and has a finite life through December 31, 2047. The Company, through its operating subsidiary, American Reprographics Company, L.L.C., is a leading provider of digital reprographics services and supplies to companies operating primarily in the architecture, engineering, and construction industries throughout the United States.
Corporate Conversion Transaction
       Prior to the consummation of the proposed initial public offering as discussed in Note 12, the Company will convert from a California limited liability company (American Reprographics Holdings, L.L.C.) to a Delaware corporation (American Reprographics Company). The unaudited pro forma data presented in the consolidated statements of operations gives effect to the Company’s reorganization as a corporation as if it occurred on January 1, 2001.
       As a limited liability company, all income taxes were paid by the Company’s members. As a corporation, the Company will be responsible for the payment of all federal and state corporate income taxes. The unaudited pro forma net income attributable to common members represents the Company’s net income for the period as adjusted to give effect to the incremental provision for income taxes. See Note 5.
Principles of Consolidation
       The consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly owned. Intercompany accounts and transactions have been eliminated in consolidation.
Unaudited Interim Financial Information
       The accompanying unaudited consolidated financial statements for the interim periods ended June 30, 2003 and 2004 have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission and, therefore, do not include all information and notes necessary for a fair presentation of financial position, results of operations, and cash flows in conformity with generally accepted accounting principles. The unaudited consolidated financial statements include the accounts of American Reprographics Holdings, L.L.C. and its subsidiaries. In the opinion of management, the unaudited interim period consolidated financial statements include all adjustments, which consist of normal recurring adjustments, necessary for a fair presentation of the financial position, result of operations and cash flows. The unaudited interim period consolidated financial statements are not necessarily an indication of the results to be expected for the full fiscal year. All financial information as of June 30, 2004 and for the six months ended June 30, 2003 and 2004 presented herein are unaudited.
F-9 

 

AMERICAN REPROGRAPHICS HOLDINGS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in thousands, except dollars per unit)

1.	Description of Business and Summary of Significant Accounting Policies — (Continued)	
Cash Equivalents
       Cash equivalents include demand deposits and short-term investments with a maturity of three months or less when purchased.
       The Company maintains its cash deposits at numerous banks located throughout the United States, which at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant risk on cash and cash equivalents.
Concentrations of Credit Risk and Significant Vendors
       Concentrations of credit risk with respect to trade receivables are limited due to a large, diverse customer base. No individual customer represented more than 2% of net sales for any of the three years in the period ended December 31, 2003 or for the six months ended June 30, 2003 and 2004.
       The Company performs periodic credit evaluations of the financial condition of its customers, monitors collections and payments from customers, and generally does not require collateral. Receivables are generally due within 30 days. The Company provides for the possible inability to collect accounts receivable by recording an allowance for doubtful accounts. The Company writes off an account when it is considered to be uncollectible. The Company estimates its allowance for doubtful accounts based on historical experience, aging of accounts receivable, and information regarding the creditworthiness of its customers. To date, losses have been within the range of management’s expectations.
       The Company contracts with various suppliers. Although there are a limited number of suppliers that could supply the Company’s inventory, management believes any shortfalls from existing suppliers would be absorbed from other suppliers on comparable terms. However, a change in suppliers could cause a delay in sales and adversely effect results.
       Purchases from the Company’s three largest vendors during the years ended December 31, 2001, 2002, and 2003, and the six months ended June 30, 2003 and 2004 comprised approximately 49%, 54%, 51%, 50% and 47%, respectively, of the Company’s total purchases of inventory and supplies.
Inventories
       Inventories are valued at the lower of cost (principally determined on a first-in, first-out basis) or market. Inventories primarily consist of reprographics materials for use and resale and equipment for resale. On an ongoing basis, inventories are reviewed and written down for estimated obsolescence or unmarketable inventories equal to the difference between the cost of inventories and the estimated net realizable value. Charges to increase inventory reserves are recorded as an increase in cost of goods sold. Estimated inventory obsolescence has been provided for in the financial statements and has been within the range of management’s expectations. As of December 31, 2002 and 2003, and June 30, 2004, the reserves for inventory obsolescence amounted to $273, $278, and $282, respectively.
F-10 

 

AMERICAN REPROGRAPHICS HOLDINGS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in thousands, except dollars per unit)

1.	Description of Business and Summary of Significant Accounting Policies — (Continued)	
Property and Equipment
       Property and equipment are stated at cost and are depreciated using the straight-line method over their estimated useful lives, as follows:

Buildings and leasehold improvements	 	 	10 - 20  years	 	
Machinery and equipment	 	 	3 - 7 years	 	
Furniture and fixtures	 	 	3 - 7 years	 	
       Assets acquired under capital lease arrangements are recorded at the present value of the minimum lease payments and are amortized using the straight-line method over the life of the asset or term of the lease, whichever is shorter. Such amortization expense is included in depreciation expense. Leasehold improvements are amortized using the straight-line method over the shorter of the lease terms or the useful lives of the improvements. Expenses for repairs and maintenance are charged to expense as incurred, while renewals and betterments are capitalized. Gains or losses on the sale or disposal of property and equipment are reflected in operating income.
       The Company accounts for computer software costs developed for internal use in accordance with Statement of Position 98-1 (SOP 98-1), “Accounting for the Costs of Computer Software Developed or Obtained for Internal Use,” which requires companies to capitalize certain qualifying costs incurred during the application development stage of the related software development project. The primary use of this software is for internal use and, accordingly, such capitalized software development costs are amortized on a straight-line basis over the economic lives of the related products not to exceed three years. The Company’s machinery and equipment (see Note 3) include $4,535, $4,574 and $4,409 of capitalized software development costs as of December 31, 2002 and 2003, and June 30, 2004, respectively, net of accumulated amortization of $755, $2,519 and $3,531 as of December 31, 2002 and 2003, and June 30, 2004, respectively. Depreciation expense includes the amortization of capitalized software development costs which amounted to $378, $377, $1,763, $882 and $1,012 during the years ended December 31, 2001, 2002, and 2003, and the six months ended June 30, 2003 and 2004, respectively.
       In August 2002, the Company decided to license internally developed software for use by third party reprographics companies. In accordance with SOP 98-1, the Company applies the net revenues from certain of its software licensing activity to reduce the carrying amount of the capitalized software costs. Software licensing revenues which have been offset against the carrying amount of capitalized software costs amounted to $0, $0, $98, $20, and $95 during the years ended December 31, 2001, 2002 and 2003, and the six months ended June 30, 2003 and 2004, respectively.
Impairment of Long-Lived Assets
       The Company periodically assesses potential impairments of its long-lived assets in accordance with the provisions of SFAS No. 144, “Accounting for the Impairment or Disposal of Long-lived Assets”. An impairment review is performed whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. Factors considered by the Company include, but are not limited to, significant underperformance relative to expected historical or projected future operating results; significant changes in the manner of use of the acquired assets or the strategy for the overall business; and significant negative industry or economic trends. When the carrying value of a long-lived asset may not be recoverable based upon the existence of one or
F-11 

 

AMERICAN REPROGRAPHICS HOLDINGS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in thousands, except dollars per unit)

1.	Description of Business and Summary of Significant Accounting Policies — (Continued)	
more of the above indicators of impairment, the Company estimates the future undiscounted cash flows expected to result from the use of the asset and its eventual disposition. If the sum of the expected future undiscounted cash flows and eventual disposition is less than the carrying amount of the asset, the Company recognizes an impairment loss. An impairment loss is reflected as the amount by which the carrying amount of the asset exceeds the fair value of the asset, based on the fair market value if available, or discounted cash flows, if not. To date, the Company has not recognized an impairment charge related to the write-down of long-lived assets.
Goodwill and Intangible Assets
       Effective January 1, 2002, the Company adopted Statement of Financial Accounting Standard (SFAS) No. 142, “Goodwill and Other Intangible Assets”, which requires, among other things, the use of a nonamortization approach for purchased goodwill and certain intangibles. Under a nonamortization approach, goodwill and intangibles having an indefinite life are not amortized, but instead will be reviewed for impairment at least annually or if an event occurs or circumstances indicate that the carrying amount may be impaired. Goodwill impairment testing is performed at the reporting unit level.
       SFAS 142 requires that goodwill be tested for impairment using a two-step process. The first step of the goodwill impairment test, used to identify potential impairment, compares the fair value of a reporting unit with its carrying amount, including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is not considered to be impaired and the second step of the impairment test is unnecessary. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test must be performed to measure the amount of impairment loss, if any. The second step of the goodwill impairment test compares the implied fair value of reporting unit goodwill with the carrying amount of that goodwill. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. If the carrying amount of the reporting unit goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess.
       The Company has selected September 30 as the date on which it will perform its annual goodwill impairment test. Based on the Company’s valuation of goodwill, no impairment charges related to the write-down of goodwill were recognized for the years ended December 31, 2002 and 2003. During the year ended December 31, 2001, the Company wrote-off $3,438 of goodwill recorded from an acquisition completed during 2000 because the business was closed in 2001 due to underperformance.
       Had the Company adopted SFAS No. 142 on January 1, 2001, and, as such, goodwill was not amortized effective on that date, the Company’s unaudited pro forma net income attributable to common members for 2001 would have been higher by $5,274 or $0.14 per common member unit.
       Prior to January 1, 2002, goodwill related to businesses purchased was amortized on a straight-line basis over 40 years.
       In connection with its acquisitions subsequent to July 1, 2001, the Company has applied the provisions of SFAS No. 141 “Business Combinations”, using the purchase method of accounting. The assets and liabilities assumed were recorded at their estimated fair values as determined by the Company’s management based on information currently available and current assumptions as to
F-12 

 

AMERICAN REPROGRAPHICS HOLDINGS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in thousands, except dollars per unit)

1.	Description of Business and Summary of Significant Accounting Policies — (Continued)	
future operations. The excess purchase price over those fair values was recorded as goodwill. For its acquisitions during 2001 through June 30, 2004, the Company’s management attributed the entire excess purchase price to goodwill. Management determined based on its experience with acquisitions of reprographics companies, as well as its knowledge of dynamics within the reprographics industry, there were no other recognizable intangible assets acquired apart from goodwill.
       The changes in the carrying amount of goodwill from December 31, 2002 through June 30, 2004 are summarized as follows: 

Balance at December 31, 2002	 	$	242,134	 	
Additions	 	 	1,534	 	
 	 	 		 	
Balance at December 31, 2003	 	 	243,668	 	
Additions	 	 	1,468	 	
 	 	 		 	
Balance at June 30, 2004	 	$	245,136	 	
 	 	 		 	
       The additions to goodwill include the excess purchase price over fair value of net assets acquired, adjustments to acquisition costs and certain earnout payments. See Note 2.
       Separable intangible assets that have finite useful lives are amortized over their useful lives. An impaired asset is written down to fair value. Intangible assets with finite useful lives consist primarily of not-to-compete covenants and are amortized over the expected period of benefit which ranges from two to four years using the straight-line method. Such intangible assets amount to $2,125, $2,125 and $2,125 less accumulated amortization of $1,829, and $1,960 and $2,014 at December 31, 2002 and 2003 and June 30, 2004, respectively, and are included in other assets in the accompanying consolidated balance sheets.
Deferred Financing Costs
       Direct costs incurred in connection with indebtedness agreements are capitalized as incurred and amortized on a straight line basis over the term of the related indebtedness, which approximates the effective interest method. At December 31, 2002 and 2003, and June 30, 2004 the Company has deferred financing costs of $6,688, $8,288, and $7,835, respectively, net of accumulated amortization of $3,493, $47, and $856, respectively. As discussed further in Note 4, the Company wrote-off $6,318 of deferred financing costs in 2003 as a result of the refinancing of the Company’s credit facilities in December 2003. Approximately $1,189 of deferred financing costs written-off were incurred during 2003.
Derivative Financial Instruments
       In 2001, the Company adopted SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (SFAS No. 133), and its related amendments. As a result of the adoption of SFAS No. 133, the Company recognizes all derivative financial instruments, such as its interest rate swap contracts, as either assets or liabilities in the consolidated financial statements at fair value.
       The accounting for changes in the fair value (i.e., unrealized gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and further, on the type of hedging relationship. Derivatives that are not hedges must be adjusted to fair value through current earnings.
F-13 

 

AMERICAN REPROGRAPHICS HOLDINGS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in thousands, except dollars per unit)

1.	Description of Business and Summary of Significant Accounting Policies — (Continued)	
       The Company enters into interest rate swaps to manage its exposure to changes in interest rates. Interest rate swaps also allow the Company to raise funds at floating rates and effectively swap them into fixed rates. These agreements involve the exchange of floating-rate for fixed-rate payments without the exchange of the underlying principal amount.
       During 2000, the Company entered into two interest rate swap agreements with an aggregate notional amount of $117,500 which changed the nature of the interest rate paid on a portion of its long-term debt. Under the agreements, the Company paid fixed rates of 6.44% and 6.73% and received a variable rate at the lower of the Eurodollar rate or 7% on the notional amount. The differential between the fixed and variable rates was settled monthly and was recognized as an increase or decrease in interest expense related to the debt. These agreements were designed to hedge the variable portion of the interest rates on the credit facilities up to the notional amount to the extent the Eurodollar rate remained at 7% or lower. However, these agreements did not qualify as hedges under SFAS No. 133 and, therefore, the change in fair value of these interest rate swap agreements has been recorded as interest expense.
       The adoption of SFAS No. 133 in 2001 resulted in an adjustment for the cumulative effect of an accounting change of $3,060 which was recognized as a charge to other comprehensive income (loss) in the Company’s consolidated statements of members’ (deficit) and comprehensive income (loss) for the year ended December 31, 2001. This charge was amortized as interest expense related to the interest rate swap contract in the accompanying consolidated statements of operations over the term of the swap which expired in September 2003 using the effective-interest method.
       During 2001, the Company recorded additional interest expense of $5,590 based on the negative change in market value of the interest rate swap agreements, including $1,113 of amortization of the original transition adjustment. During 2002 and 2003, the Company recorded an interest benefit of $1,636 and $3,954, respectively, based on the improvement in the market value of the interest rate swap agreements as compared to the prior year, net of $1,113 and $834, respectively, of amortization of the original transition adjustment. The agreements expired in September 2003.
       In September 2003, the Company entered into a new interest rate swap agreement with an initial notional amount of $111,160. Under the terms of this swap agreement, the Company pays a fixed rate of 2.29% and receives a variable rate on the notional amount equal to the Eurodollar rate. The swap agreement provides for a quarterly reduction of $1,863 in the notional amount of the swap starting in October 2003 until July 2005, when the notional amount of the swap will be reduced to $95,988 until its expiration in September 2005. Because this swap agreement has been designated and qualifies as a cash flow hedge under SFAS No. 133, the Company has recorded the fair value of this swap agreement in the Company’s consolidated balance sheet in “Other long term liabilities” with a corresponding adjustment to other comprehensive income (loss) as of and for the year ended December 31, 2003 and for the six months ended June 30, 2004, respectively. This swap agreement had a negative fair value of $822 and a positive fair value of $136 as of December 31, 2003 and June 30, 2004, respectively. The counterparty to this interest rate swap is a financial institution with a high credit rating. Management does not believe that there is a significant risk of nonperformance by the counterparty. For the year ended December 31, 2003 and the six months ended June 30, 2004, the Company determined that its interest rate swap qualified as an effective hedge as defined by SFAS 133.
F-14 

 

AMERICAN REPROGRAPHICS HOLDINGS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in thousands, except dollars per unit)

		
1.	Description of Business and Summary of Significant Accounting Policies — (Continued)	
       In January 2004, the Company entered into two interest rate collar agreements, referred to as the front-end and the back-end interest rate collar agreements. The front-end interest rate collar agreement has an initial notional amount of $22,566 which is increased quarterly to reflect reductions in the notional amount of our interest rate swap agreement, such that the notional amount of the swap agreement, together with the notional amount of the front-end interest rate collar agreement, remains not less than 40% of the aggregate principal amount outstanding on our 2003 Senior Credit Facility. The front-end interest rate collar agreement expires in September 2005. The back-end interest rate collar agreement becomes effective upon expiration of the swap agreement and front-end interest rate collar agreement in September 2005 and has a fixed notional amount of $111,000. The back-end interest rate collar agreement expires in December 2006. At June 30, 2004, the fair value of these interest rate collar agreements was immaterial.
Adoption of Statement of Financial Accounting Standard No. 150
       Effective July 1, 2003, the Company adopted SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity”. This statement establishes standards for classifying and measuring as liabilities certain financial instruments that embody obligations of the issuer and have characteristics of both liabilities and equity. The scope of this pronouncement includes mandatorily redeemable equity instruments.
       Upon the adoption of SFAS No. 150, the Company’s mandatorily redeemable preferred membership units (the Preferred Units) of $25,791 and $26,773 as of December 31, 2003 and June 30, 2004, respectively, have been classified as long-term liabilities in the Company’s consolidated balance sheet as they are redeemable at a fixed and determinable date (upon or after the earlier of the occurrence of a qualified IPO or April 10, 2010). Dividends and accretion related to the Preferred Units, which previously had been recorded below net income as a charge in determining net income available to common members have been charged to interest expense in the accompanying consolidated statement of operations since adoption of this standard on July 1, 2003 and amounted to $1,825 and $1,889 during the year ended December 31, 2003 and the six months ended June 30, 2004. In accordance with SFAS No. 150, dividends and accretion related to the mandatorily redeemable preferred membership units recorded prior to July 1, 2003 have not been reclassified to interest expense. Prior to the adoption of SFAS 150, dividends paid on the Preferred Units were accounted for as a direct reduction to members’ equity, and the Preferred Units were presented between liabilities and members’ deficit in the Company’s consolidated balance sheet.
Fair Values of Financial Instruments
       The following methods and assumptions were used by the Company in estimating the fair value of its financial instruments for disclosure purposes:

		
 	       Cash and cash equivalents: The carrying amounts reported in the balance sheets for cash and cash equivalents approximate their fair value due to the relatively short period to maturity of these instruments.	
 		
 	       Short- and long-term debt (excluding the Holdings and Opco Notes): The carrying amounts of the Company’s borrowings reported in the consolidated balance sheets approximate their fair value based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements or since the floating rates change with market conditions.	
F-15 

 

AMERICAN REPROGRAPHICS HOLDINGS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in thousands, except dollars per unit)

1.	Description of Business and Summary of Significant Accounting Policies — (Continued)	

		
 	       Holdings and Opco Notes: The carrying amount of the Company’s fixed interest rate borrowings under the Holdings and Opco Notes reported in the consolidated balance sheet at December 31, 2002 may not approximate their fair value because of changes in market interest rates. It was not practicable to estimate the fair value of the Holdings and Opco Notes because the terms of such notes payable were unique to the Company and its capitalization structure and there was no public market for such notes payable. As discussed further in Note 4, the Company redeemed the Holdings and Opco Notes before their maturity in connection with the refinancing of the Company’s credit facilities in December 2003.	
 		
 	       Interest rate swap agreements: The fair values of the interest rate swap agreements, as previously disclosed, are the amounts at which they could be settled based on estimated market rates.	

	Revenue Recognition	
       The Company applies the provisions of the Securities and Exchange Commission (SEC) Staff Accounting Bulletin (SAB) No. 104, “Revenue Recognition in Financial Statements,” which provides guidance on the recognition, presentation and disclosure of revenue in financial statements filed with the SEC. SAB No. 104 outlines the basic criteria that must be met to recognize revenue and provides guidance for disclosure related to revenue recognition policies. In general, the Company recognizes revenue when (i) persuasive evidence of an arrangement exists, (ii) shipment of products has occurred or services have been rendered, (iii) the sales price charged is fixed or determinable and (iv) collection is reasonably assured.
       The Company recognizes revenues from reprographics services when services have been rendered while revenues from the resale of reprographics supplies and equipment are recognized upon shipment.
       Included in revenues are fees charged to customers for shipping, handling and delivery services. Such revenues amounted to $18,836, $20,500, $23,060, $11,943 and $12,450 for the years ended December 31, 2001, 2002 and 2003, and for the six months ended June 30, 2003 and 2004, respectively.
       Revenues from software licensing activities are recognized over the term of the license. Revenues from membership fees are recognized over the term of the membership agreement. Revenues from software licensing activities and membership revenues comprise less than 1% of the Company’s consolidated revenues during the years ended December 31, 2001, 2002 and 2003, and the six months ended June 30, 2003 and 2004.
       Management provides for returns, discounts and allowances based on historic experience and adjusts such allowances as considered necessary. To date, such provisions have been within the range of management’s expectations.

	Comprehensive Income	
       SFAS No. 130, “Reporting Comprehensive Income,” establishes guidelines for the reporting and display of comprehensive income and its components in financial statements. Comprehensive income generally represents all changes in members’ equity (deficit), except those resulting from investments by or distributions to members. The Company’s comprehensive income includes the
F-16 

 

AMERICAN REPROGRAPHICS HOLDINGS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in thousands, except dollars per unit)

1.	Description of Business and Summary of Significant Accounting Policies — (Continued)	
change in fair value of derivative instruments and is included in the consolidated statement of members’ deficit and comprehensive income.

	Segment and Geographic Reporting	
       The provisions of SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information”, require public companies to report financial and descriptive information about their reportable operating segments. The Company identifies reportable segments based on how management internally evaluates separate financial information, business activities and management responsibility. On that basis and based on operating segments that have similar economic characteristics, products and services and class of customers which have been aggregated, the Company operates in a single reportable business segment.
       The Company recognizes revenues in geographic areas based on the location to which the product was shipped or services have been rendered. Operations outside the United States of America have been immaterial to date.
       The following summary presents the Company’s revenues for each of the Company’s significant products and service lines: 

									
				Six Months Ended	
		Year Ended December 31,		June 30,	
					
		2001		2002		2003		2003		2004	

								(Unaudited)	
Print-on-demand services	 	$	338,124	 	 	$	324,169	 	 	$	315,227	 	 	$	164,769	 	 	$	170,705	 	
Facilities management	 	 	39,874	 	 	 	52,290	 	 	 	59,311	 	 	 	28,091	 	 	 	34,482	 	
Equipment and supplies sales	 	 	42,703	 	 	 	42,231	 	 	 	40,654	 	 	 	20,967	 	 	 	20,242	 	
Software licenses and memberships fees	 	 	—	 	 	 	234	 	 	 	768	 	 	 	327	 	 	 	704	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
 	Total	 	$	420,701	 	 	$	418,924	 	 	$	415,960	 	 	$	214,154	 	 	$	226,133	 	

		
	Advertising and Shipping and Handling Costs	
       Advertising costs are expensed as incurred and approximated $2,232, $2,036, $1,807, $972 and $1,182 during the years ended December 31, 2001, 2002 and 2003, and the six months ended June 30, 2003 and 2004, respectively. Shipping and handling costs incurred by the Company are included in cost of sales.

	Accounting for Equity-Based Compensation	
       The Company accounts for grants of options to purchase its common membership units to key personnel in accordance with SFAS No. 123, “Accounting for Stock-Based Compensation”. In December 2002, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure”, effective for fiscal years ending after December 15, 2002. SFAS No. 148 amends SFAS No. 123 to provide alternative methods of transition to the fair value method of accounting for stock-based employee compensation. SFAS No. 148 also amends the disclosure provisions of SFAS No. 123 to require disclosure in the summary of significant accounting policies of the effects of an entity’s accounting policy with respect to stock-based employee compensation on reported net income and earnings per share in annual
F-17 

 

AMERICAN REPROGRAPHICS HOLDINGS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in thousands, except dollars per unit)

1.	Description of Business and Summary of Significant Accounting Policies — (Continued)	
and interim financial statements. SFAS No. 148 does not amend SFAS No. 123 to require companies to account for their employee stock-based awards using the fair value method. The disclosure provisions are required, however, for all companies with stock-based employee compensation, regardless of whether they utilize the fair value method of accounting described in SFAS No. 123 or the intrinsic value method described in Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees”.
       The Company has adopted the disclosure requirements of SFAS No. 148 effective January 1, 2003. The adoption of this standard did not have a significant impact on the Company’s financial condition or operating results.
       The Company accounts for grants of options to employees to purchase its common membership units using the intrinsic value method in accordance with APB Opinion No. 25 and FIN No. 44, “Accounting for Certain Transactions Involving Stock Compensation”. As permitted by SFAS No. 123 and as amended by SFAS No. 148, the Company has chosen to continue to account for such option grants under APB Opinion No. 25 and provide the expanded disclosures specified in SFAS No. 123, as amended by SFAS No. 148.
       Had compensation cost for the Company’s option grants been determined based on their fair value at the grant date for awards consistent with the provisions of SFAS No. 123, the Company’s unaudited pro forma net income attributable to common members and earnings per common member unit for the years ended December 31, 2001, 2002, and 2003 and the six months ended June 30, 2003 and 2004 would have been decreased to the adjusted pro forma amounts indicated below: 

									
				Six Months	
		Year Ended December 31,		Ended June 30,	
					
		2001		2002		2003		2003		2004	

								(Unaudited)	
Unaudited pro forma net income attributable to common members:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Pro forma as reported	 	$	5,061	 	 	$	12,377	 	 	$	1,804	 	 	$	8,671	 	 	$	13,233	 	
 	Equity-based employee compensation cost, net of related tax effects, included in as reported unaudited pro forma net income	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	167	 	
 	Equity-based employee compensation cost, net of related tax effects, that would have been included in the determination of unaudited pro forma net income if the fair value method had been applied	 	 	(146	)	 	 	(112	)	 	 	(86	)	 	 	(60	)	 	 	(170	)	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
 	Adjusted pro forma	 	$	4,915	 	 	$	12,265	 	 	$	1,718	 	 	$	8,611	 	 	$	13,230	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
F-18 

 
AMERICAN REPROGRAPHICS HOLDINGS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in thousands, except dollars per unit)

1.	Description of Business and Summary of Significant Accounting Policies — (Continued)	

				Six Months	
		Year Ended December 31,		Ended June 30,	
					
		2001		2002		2003		2003		2004	

								(Unaudited)	
Basic earnings per common member unit:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Pro forma as reported	 	$	0.14	 	 	$	0.34	 	 	$	0.05	 	 	$	0.24	 	 	$	0.37	 	
 	Equity-based employee compensation cost, net of related tax effects, included in as reported unaudited pro forma net income	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
 	Equity-based employee compensation cost, net of related tax effects, that would have been included in the determination of unaudited pro forma net income if the fair value method had been applied	 	 	(0.01	)	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
 	Adjusted pro forma	 	$	0.13	 	 	$	0.34	 	 	$	0.05	 	 	$	0.24	 	 	$	0.37	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Diluted earnings per common member unit:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Pro forma as reported	 	$	0.14	 	 	$	0.34	 	 	$	0.05	 	 	$	0.24	 	 	$	0.35	 	
 	Equity-based employee compensation cost, net of related tax effects, included in as reported unaudited pro forma net income	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
 	Equity-based employee compensation cost, net of related tax effects, that would have been included in the determination of unaudited pro forma net income if the fair value method had been applied	 	 	(0.01	)	 	 	(0.01	)	 	 	—	 	 	 	—	 	 	 	—	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
 	Adjusted pro forma	 	$	0.13	 	 	$	0.33	 	 	$	0.05	 	 	$	0.24	 	 	$	0.35	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
       For purposes of computing the pro forma disclosures required by SFAS No. 123, the fair value of each option granted to employees and directors is estimated using the Black-Scholes option-pricing model with the following weighted-average assumptions for the years ended December 31, 2001, 2002, and 2003 and for the six months ended June 30, 2003 and 2004: dividend yields of 0% for all periods; expected volatility of 0%, 0%, 36%, 0% and 32.4%, respectively; risk-free interest rates of 3.5%, 3.5%, 2.6%, 3.5%, and 3.0%, respectively; and expected lives of 5 years, 4 years, 2 years, 2 years and 2.5 years, respectively.
       The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options, which do not have vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. Because the Company’s employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.
F-19 

 

AMERICAN REPROGRAPHICS HOLDINGS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in thousands, except dollars per unit)

1.	Description of Business and Summary of Significant Accounting Policies — (Continued)	

	Research and development expenses	
       Research and development activities relate to the development of software primarily for internal use. Costs incurred for research and development are comprised of a) amounts capitalized in accordance with SOP 98-1 as discussed in “Property and Equipment” in Note 1, and b) amounts which are expensed as incurred. During the twelve months ended December 31, 2001, 2002 and 2003, and the six months ended June 30, 2003 and 2004, the Company expensed costs incurred for research and development activities of $464, $569, $874, $414, and $323, respectively.

	Use of Estimates	
       The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

	Earnings Per Common Member Unit	
       The Company accounts for earnings per common member unit in accordance with SFAS No. 128, “Earnings per Share”. Basic earnings per common member unit is computed by dividing unaudited pro forma net income attributable to common members by the weighted-average number of common member units outstanding. Diluted earnings per common member unit is computed similar to basic earnings per unit except that the denominator is increased to include the number of additional common member units that would have been outstanding if the potential common member units had been issued and if the additional common member units were dilutive. Common member unit equivalents are excluded from the computation if their effect is anti-dilutive. There are no common member unit equivalents excluded for antidilutive effects for the periods presented below. The Company’s common member unit equivalents consist of member unit options issued under the Company’s Equity Option Plan as well as warrants to purchase common member units issued during 2000 to certain creditors of the Company as discussed further in the long-term debt section (Note 4).
F-20 

 

AMERICAN REPROGRAPHICS HOLDINGS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in thousands, except dollars per unit)

		
1.	Description of Business and Summary of Significant Accounting Policies — (Continued)	
       Basic and diluted earnings per common unit were calculated using the following units for the years ended December 31, 2001, 2002 and 2003 and the six months ended June 30, 2003 and 2004: 

									
				Six Months Ended	
		Year Ended December 31,		June 30,	
					
		2001		2002		2003		2003		2004	

								(Unaudited)	
Weighted common member units outstanding — basic	 	 	36,628,801	 	 	 	36,406,220	 	 	 	35,480,289	 	 	 	35,473,067	 	 	 	35,487,511	 	
 	
Effect of dilutive stock options	 	 	25,065	 	 	 	120,597	 	 	 	985,991	 	 	 	242,300	 	 	 	1,120,546	 	
 	
Effect of dilutive warrants	 	 	103,948	 	 	 	196,214	 	 	 	832,069	 	 	 	284,054	 	 	 	832,069	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Weighted average common member units outstanding — diluted	 	 	36,757,814	 	 	 	36,723,031	 	 	 	37,298,349	 	 	 	35,999,421	 	 	 	37,440,127	 	

		
	Recent Accounting Pronouncements	
       In April 2002, the FASB issued SFAS No. 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections.” SFAS No. 145 updates, clarifies, and simplifies existing accounting pronouncements. This statement rescinds SFAS No. 4, which required all gains and losses from extinguishment of debt to be aggregated and, if material, classified as an extraordinary item, net of related income tax effect. As a result, the criteria in Accounting Principles Board No. 30 will now be used to classify those gains and losses. SFAS No. 64 amended SFAS No. 4 and is no longer necessary as SFAS No. 4 has been rescinded. SFAS No. 44 has been rescinded as it is no longer necessary. SFAS No. 145 amends SFAS No. 13 to require that certain lease modifications that have economic effects similar to sale-leaseback transactions be accounted for in the same manner as sale-lease transactions. This statement also makes technical corrections to existing pronouncements. While those corrections are not substantive in nature, in some instances, they may change accounting practice. The Company’s adoption of SFAS No. 145 did not have a material impact on the Company’s financial position, results of operations, or cash flows.
       In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” SFAS No. 146 nullifies Emerging Issues Task Force (“EITF”) Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity,” under which a liability for an exit cost was recognized as of the date of an entity’s commitment to an exit plan. SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized at fair value when the liability is incurred. The Company’s adoption of this standard effective January 1, 2003 had no impact on its financial position, results of operations or cash flows.
       In November 2002, the FASB issued FASB Interpretation No. 45 (FIN 45), “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” This interpretation elaborates on disclosures required in financial statements concerning obligations under certain guarantees. It also clarifies the requirements related to the recognition of liabilities by a guarantor at the inception of certain guarantees. The Company’s
F-21 

 

AMERICAN REPROGRAPHICS HOLDINGS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in thousands, except dollars per unit)

1.	Description of Business and Summary of Significant Accounting Policies — (Continued)	
adoption of FIN 45 did not have a material impact on the Company’s financial position, results of operations or cash flows.
       In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure,” an amendment of SFAS No. 123. SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require more prominent and more frequent disclosures in financial statements about the effects of stock-based compensation. This statement is effective for financial statements for fiscal years ending after December 15, 2002. The Company’s adoption of SFAS No. 148 did not have any impact on the Company’s financial statements as management does not have any intention to change to the fair value method.
       In April 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” SFAS No. 149 amends and clarifies the financial accounting and reporting of derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” This Statement is effective for contracts entered into or modified after June 30, 2003, except for certain hedging relationships designated after June 30, 2003. The adoption of SFAS No. 149 did not have a material effect on the Company’s financial position, results of operations or cash flows.
       In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity” (SFAS 150). SFAS 150 requires issuers to classify as liabilities (or assets in some circumstances) three classes of freestanding financial instruments that embody obligations for the issuer. SFAS 150 is effective for financial instruments entered into or modified after May 31, 2003, and is otherwise effective at the beginning of the first interim period beginning after June 15, 2003. The Company adopted SFAS 150 on July 1, 2003, which resulted in classifying mandatorily redeemable preferred membership units as a liability in the balance sheet and related dividends and accretion being charged to interest expense in the statement of operations. See Note 1, Adoption of Statement of Financial Accounting Standard No. 150, to the consolidated financial statements for more detail.
       In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46), Consolidation of Variable Interest Entities, which addresses the consolidation of business enterprises (variable interest entities) to which the usual condition (ownership of a majority voting interest) of consolidation does not apply. The interpretation focuses on financial interests that indicate control. It concludes that in the absence of clear control through voting interests, a company’s exposure (variable interest) to the economic risks and potential rewards from the variable interest entity’s assets and activities are the best evidence of control. Variable interests are rights and obligations that convey economic gains or losses from changes in the values of the variable interest entity’s assets and liabilities. Variable interests may arise from financial instruments, service contracts, nonvoting ownership interests and other arrangements. If an enterprise holds a majority of the variable interests of an entity, it would be considered the primary beneficiary. The primary beneficiary would be required to include the assets, liabilities and the results of operations of the variable interest entity in its financial statements. In December 2003, the FASB issued a revision to FIN 46 to address certain implementation issues. The adoption of FIN 46 and FIN 46 (revised) had no material impact on the Company’s results of operations, financial position or cash flows.
F-22 

 

AMERICAN REPROGRAPHICS HOLDINGS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in thousands, except dollars per unit)

2.	Acquisitions	
       The Company acquired a group of reprographics companies in September 2000 (the Acquired Business). In connection with the acquisition of the Acquired Business, the Company issued 1,161,290 common membership units of the Company (the Purchase Consideration Units) to a former owner of the Acquired Business valued at $6,000 based on management’s estimate of the fair value of such units at the date of issuance. The Company granted the former owner of the Acquired Business an option (the Put Option) to sell the Purchase Consideration Units back to the Company for a price equal to the Net Equity Value, as defined, of each Purchase Consideration Unit, payable in cash. In August 2002, the former owner exercised the Put Option. The Company paid $6,256 in cash to the former owner in 2002 as consideration for the redemption of the Purchase Consideration Units resulting in a reduction of redeemable common members capital of $8,081 and an increase to accumulated earnings of $1,825.
       In 2001, the Company paid $1,428 of additional management bonuses specifically related to the acquisition of the Acquired Business. The $1,428 has been classified in the accompanying consolidated statements of operations as costs incurred in connection with acquisition activities in 2001.
       During 2001, the Company acquired the capital stock or assets and liabilities of fourteen reprographics companies in the United States. The aggregate purchase price of such acquisitions, including related acquisition costs, amounted to approximately $32,577, for which the Company paid approximately $22,506 in cash and issued $10,071 of notes payable to the former owners of the acquired companies.
       During 2002, the Company acquired the capital stock or assets and liabilities of eight reprographics companies in the United States. The aggregate purchase price of such acquisitions, including related acquisition costs, amounted to approximately $34,404, for which the Company paid approximately $34,088 in cash and issued $316 of notes payable to the former owners of the acquired companies. In connection with the acquisition of a reprographics company in 2002, the Company paid bonuses totaling $1,500 to a group of management employees of the acquired company. Such bonuses have been classified in the accompanying consolidated statements of operations as costs incurred in connection with acquisition activities in 2002.
       During 2003, the Company acquired the assets and liabilities of four reprographics companies in the United States. In addition, the Company also acquired certain assets of a reprographics company in bankruptcy. The aggregate purchase price of such acquisitions, including related acquisition costs, amounted to approximately $870, which the Company paid in cash.
       During the six months ended June 30, 2004, the Company acquired the assets and liabilities of three reprographics companies in the United States. The aggregate purchase price of such acquisitions, including related acquisition costs, amounted to approximately $1,418, for which the Company paid $1,168 in cash and issued $250 of notes payable to the former owners of the acquired companies.
       The results of operations of the companies acquired during the years ended December 31, 2001, 2002, and 2003, and the six months ended June 30, 2003 and 2004 have been included in the consolidated financial statements from their respective dates of acquisition. Such acquisitions were accounted for using the purchase method of accounting, and, accordingly, the assets and liabilities of the acquired entities have been recorded at their estimated fair values at the dates of acquisition. The excess purchase price over the net assets acquired has been allocated to goodwill. For income tax purposes, $2,240, $23,934, $217 and $827 of goodwill resulting from acquisitions
F-23 

 

AMERICAN REPROGRAPHICS HOLDINGS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in thousands, except dollars per unit)

2.	Acquisitions — (Continued)	
completed during the years ended December 31, 2001, 2002 and 2003, and June 30, 2004, respectively, are amortized over a 15-year period.
       The assets and liabilities of the entities acquired during each period are as follows: 

					
		December 31,			
				June 30,	
		2002		2003		2004	
							
						(Unaudited)	
Purchase price	 	$	34,404	 	 	$	870	 	 	$	1,418	 	

Cash and cash equivalents	 	 	77	 	 	 	12	 	 	 	6	 	
Accounts receivable	 	 	4,835	 	 	 	83	 	 	 	35	 	
Property and equipment	 	 	4,360	 	 	 	32	 	 	 	558	 	
Inventories	 	 	624	 	 	 	34	 	 	 	21	 	
Other assets	 	 	411	 	 	 	—	 	 	 	34	 	
 	 	 		 	 	 		 	 	 		 	
 	Total assets	 	 	10,307	 	 	 	161	 	 	 	654	 	
Accounts payable	 	 	1,234	 	 	 	75	 	 	 	13	 	
Accrued expenses	 	 	109	 	 	 	5	 	 	 	18	 	
Long-term debt	 	 	—	 	 	 	—	 	 	 	32	 	
 	 	 		 	 	 		 	 	 		 	
 	Net assets acquired	 	 	8,964	 	 	 	81	 	 	 	591	 	

Goodwill	 	$	25,440	 	 	$	789	 	 	$	827	 	
 	 	 		 	 	 		 	 	 		 	
       The following summary presents the Company’s unaudited proforma results, as if the acquisitions had been completed at the beginning of each year presented: 

									
				Six Months Ended	
		Year Ended December 31,		June 30,	
					
		2001		2002		2003		2003		2004	
											
Net sales	 	$	482,780	 	 	$	441,871	 	 	$	423,360	 	 	$	219,286	 	 	$	226,827	 	
Unaudited pro forma net income attributable to common members	 	$	9,485	 	 	$	13,510	 	 	$	1,929	 	 	$	8,735	 	 	$	13,270	 	
Earnings per common member unit:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Basic	 	$	0.26	 	 	$	0.37	 	 	$	0.05	 	 	$	0.25	 	 	$	0.37	 	
 	Diluted	 	$	0.26	 	 	$	0.37	 	 	$	0.05	 	 	$	0.24	 	 	$	0.35	 	
       The above proforma information is presented for comparative purposes only and is not necessarily indicative of what actually would have occurred had the acquisitions been completed as of the beginning of each period presented, nor are they necessarily indicative of future consolidated results.
F-24 

 

AMERICAN REPROGRAPHICS HOLDINGS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in thousands, except dollars per unit)

2.	Acquisitions — (Continued)	
       Certain acquisition agreements entered into by the Company contain earnout agreements which provide for additional consideration (Earnout Payments) to be paid if the acquired entity’s results of operations exceed certain targeted levels measured on an annual basis generally from four to five years after the acquisition. Targeted levels are generally set above the historical experience of the acquired entity at the time of acquisition. Earnout Payments are recorded as additional purchase price and are to be paid annually in cash. Accrued expenses in the accompanying consolidated balance sheets include $2,142, $374 and $150 of Earnout Payments payable as of December 31, 2002 and 2003 and June 30, 2004, respectively, to former owners of acquired companies based on the earnings of acquired entities. The increase to goodwill as of December 31, 2002 and 2003 and as of June 30, 2004 as a result of the earnouts was $1,307, $374, and $150, respectively.
       The earnout provisions generally contain limits on the amount of Earnout Payments that may be payable over the term of the agreement. The Company’s estimate of the aggregate amount of additional consideration that may be payable over the terms of the earnout agreements subsequent to June 30, 2004 is approximately $822.
       In accordance with FAS 141, the Company made certain adjustments to goodwill as a result of changes to the purchase price of acquired entities, during the one year period subsequent to the acquisition. The increase to goodwill as of December 31, 2002 and 2003 and as of June 30, 2004 as a result of purchase price adjustments was $126, $371 and $491, respectively.

3.	Property and Equipment	
       Property and equipment consist of the following: 

					
		December 31,			
				June 30,	
		2002		2003		2004	
							
						(Unaudited)	
Machinery and equipment	 	$	79,095	 	 	$	76,030	 	 	$	79,409	 	
Buildings and leasehold improvements	 	 	14,379	 	 	 	15,143	 	 	 	15,860	 	
Furniture and fixtures	 	 	2,268	 	 	 	3,086	 	 	 	2,926	 	
 	 	 		 	 	 		 	 	 		 	
 	 	 	95,742	 	 	 	94,259	 	 	 	98,195	 	
Less accumulated depreciation and amortization	 	 	(49,663	)	 	 	(56,991	)	 	 	(60,645	)	
 	 	 		 	 	 		 	 	 		 	
 	 	$	46,079	 	 	$	37,268	 	 	$	37,550	 	
 	 	 		 	 	 		 	 	 		 	
       Machinery and equipment includes $29,687, $28,209 and $30,941 of equipment recorded under capital lease agreements with related accumulated amortization of $14,081, $15,291 and $16,498 at December 31, 2002 and 2003, and June 30, 2004, respectively.
F-25 

 

AMERICAN REPROGRAPHICS HOLDINGS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in thousands, except dollars per unit)

4.	Long-Term Debt	
       Long-term debt consists of the following: 

					
		December 31,			
				June 30,	
		2002		2003		2004	
							
						(Unaudited)	
Borrowings from senior secured First Priority — Revolving Credit Facility; variable interest payable quarterly (5.75% interest rate at December 31, 2003); any unpaid principal and interest due December 18, 2008	 	$	—	 	 	$	15,000	 	 	$	—	 	
Borrowings from senior secured First Priority — Term Loan Credit Facility; variable interest payable quarterly (5.75% and 4.18% interest rate at December 31, 2003 and June 30, 2004); principal payable in varying quarterly installments; any unpaid principal and interest due June 18, 2009	 	 	—	 	 	 	100,000	 	 	 	99,750	 	
Borrowings from senior secured Second Priority — Term Loan Credit Facility; variable interest payable quarterly (9.88% and 8.63% interest rate at December 31, 2003 and June 30, 2004); any unpaid principal and interest due December 18, 2009	 	 	—	 	 	 	225,000	 	 	 	225,000	 	
Borrowings from senior secured term loan — Tranche A; variable interest payable quarterly (3.9% interest rate at December 31, 2002); principal payable in varying quarterly installments	 	 	47,668	 	 	 	—	 	 	 	—	 	
Borrowings from senior secured term loan — Tranche B; variable interest payable quarterly (5.1% interest rate at December 31, 2002); principal payable in varying quarterly installments	 	 	165,925	 	 	 	—	 	 	 	—	 	
Borrowings from senior secured term loan — Tranche B-1; variable interest payable quarterly (5.1% interest rate at December 31, 2002); principal payable in varying quarterly installments	 	 	19,900	 	 	 	—	 	 	 	—	 	
Senior subordinated notes payable (Opco Notes); 13.25% interest payable semiannually	 	 	54,412	 	 	 	—	 	 	 	—	 	
Senior subordinated notes payable (Holdings Notes) at Accreted Value; 19.6% effective interest rate	 	 	68,252	 	 	 	—	 	 	 	—	 	
Various subordinated notes payable; interest ranging from 6.6% to 11%; principal and interest payable monthly through January 2007	 	 	10,623	 	 	 	7,510	 	 	 	5,950	 	
Various capital leases; interest rates ranging to 15.9%; principal and interest payable monthly through September 2009	 	 	16,549	 	 	 	14,064	 	 	 	15,484	 	
 	 	 		 	 	 		 	 	 		 	
 	 	 	383,329	 	 	 	361,574	 	 	 	346,184	 	
F-26 

 
AMERICAN REPROGRAPHICS HOLDINGS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in thousands, except dollars per unit)

4.	Long-Term Debt — (Continued)	

		December 31,			
				June 30,	
		2002		2003		2004	
							
						(Unaudited)	
Less debt discount due to Warrants	 	 	(721	)	 	 	—	 	 	 	—	 	
Less debt discount due to difference between the Accreted Value and the carrying amount	 	 	(4,000	)	 	 	—	 	 	 	—	 	
Less debt discount on Second Priority Credit Facility	 	 	—	 	 	 	(2,234	)	 	 	(2,054	)	
 	 	 		 	 	 		 	 	 		 	
 	 	 	378,608	 	 	 	359,340	 	 	 	344,130	 	
Less current portion	 	 	(24,409	)	 	 	(25,123	)	 	 	(10,766	)	
 	 	 		 	 	 		 	 	 		 	
 	 	$	354,199	 	 	$	334,217	 	 	$	333,364	 	
 	 	 		 	 	 		 	 	 		 	
       During 2000, the Company entered into a credit agreement with a group of financial institutions which provided the Company with a Senior Credit Facility consisting of a $45,000 Senior Secured Revolving Facility, a $65,000 Senior Secured Tranche A Term Loan Facility, and a $170,000 Senior Secured Tranche B Term Loan Facility. The Company also received $54,412 and $38,088 in gross cash proceeds from the issuance during 2000 of senior subordinated Opco Notes (the Opco Notes) and senior subordinated Holdings Notes (the Holdings Notes, and collectively with the Opco Notes, the Notes), respectively. The Company capitalized $9,239 of loan fees incurred in connection with the credit facilities negotiated in 2000.
       Concurrent with the issuance of the Notes, the Company granted the holders of the Notes warrants to purchase up to an aggregate of 1,168,842 common units of the Company. Such warrants (the Warrants) are exercisable at any time subsequent to the grant date at an exercise price of $4.61 per warrant. The estimated aggregate fair value of the Warrants was $1,039 using the Black-Scholes option-pricing model based on the following assumptions: expected volatility of 15%, risk-free interest rate of 6%, and an expected life of 10 years. The fair value of the Warrants was recorded as a discount on the related Notes and was being amortized as interest expense over the term of the Notes. As a result of the debt refinancing completed by the Company in December 2003 (as discussed further below), the Company wrote off $616 of unamortized discount on the Warrants in December 2003. None of the Warrants have been exercised as of June 30, 2004.
       In May 2002, the Company negotiated an amendment to the credit agreement which provided a $20,000 Senior Secured Tranche B-1 Term Loan Facility. The Company used the net proceeds from the Tranche B-1 Term Loan Facility to finance its acquisition of the assets of a reprographics company in May 2002. During 2002, the Company capitalized $950 in loan fees incurred in connection with the amendment negotiated in May 2002.
       Interest on the Holdings Notes accreted monthly based on an accretion schedule specified in the Holdings Notes agreement and was added to the outstanding principal balance of the Holdings Notes (the Accreted Value) until April 2005. The effective interest rate on the Holdings Notes during its entire nine-year term through April 2009 was approximately 19.6%. The difference between the Accreted Value and the carrying amount of the Holdings Notes represented a discount (the Accretion Discount) which was being amortized over the nine-year term of the Holdings Notes using the effective interest method. The Holdings Notes were repaid in December 2003 in connection with the Company’s refinancing of its borrowings discussed below.
F-27 

 

AMERICAN REPROGRAPHICS HOLDINGS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in thousands, except dollars per unit)

4.	Long-Term Debt — (Continued)	
       In December 2003, the Company refinanced its borrowings under its then existing senior credit facilities, the Notes and the Holdings Notes by entering into a new credit agreement with a group of financial institutions which provides the Company a $355,000 Senior Secured Credit Facility (the 2003 Senior Credit Facility). Such credit facility is comprised of a $130,000 First Priority Facility (consisting of a $30,000 Senior Revolving Credit Facility and a $100,000 Senior Term Loan Credit Facility) and a $225,000 Second Priority Facility. At December 31, 2003, $771 of the $30,000 Senior Revolving Credit Facility has been utilized for the issuance of letters of credit related to the Company’s workers compensation and automobile insurance policies. There were no outstanding borrowings against such letters of credit as of June 30, 2004.
       As a result of the debt refinancing completed in December 2003, the Company recorded a $14,921 loss on early debt extinguishment, comprised of the following: a) the write-off of $6,318 in capitalized loan fees related to the Company’s credit facilities existing prior to the debt refinancing; b) $4,728 in early redemption premiums related to the Notes paid by the Company upon completion of the debt refinancing; and c) the write off of $3,875 in unamortized discounts related to the Warrants and the Accretion Discount. The Company also capitalized $8,335 of new loan fees incurred in connection with the 2003 Senior Credit Facility, of which $176 was included in prepaid expenses as of December 31, 2002.
       Borrowings under the First Priority Revolving Credit Facility bear interest at either (i) a Eurodollar rate plus a margin (the Applicable Margin) that ranges from 2% to 2.75% per annum, depending on the Company’s Leverage Ratio, as defined, or (ii) an Index Rate, as defined, plus the Applicable Margin less 1% per annum. The First Priority Revolving Credit Facility is also subject to a commitment fee equal to 0.50% of the average daily unused portion of such revolving facility. Borrowings under the First Priority Term Loan Facility bear interest at either (i) a Eurodollar rate plus 3% per annum, or (ii) an Index Rate, as defined, plus 2% per annum.
       Borrowings under the Second Priority Facility bear interest at either (i) a Eurodollar rate, subject to a Eurodollar rate minimum of 1.75% per annum, plus a margin of either 6.875% or 7.875% per annum, depending on the Company’s Leverage Ratio, as defined in the credit agreement, or (ii) a Base Rate, as defined in the credit agreement, plus a margin of either 5.875% or 6.875% per annum, depending on the Company’s Leverage Ratio, as defined in the credit agreement.
       The Company’s overall weighted average interest rate on its long term debt was approximately 8.9%, 8.4% and 7.3% for the years ended December 31, 2002 and 2003, and six months ended June 30, 2004.
       Under the terms of the 2003 Senior Credit Facility, the Company is subject to mandatory principal prepayments equal to 75% of Consolidated Excess Cash Flow, as defined, starting in the year ending December 31, 2004, or up to 75% of the net proceeds of equity offerings. Mandatory prepayments from such sources (the Permitted Payments) are applied first to the Second Priority Facility in an aggregate amount not to exceed $67,500, with any excess above $67,500 applied to the First Priority Facility. Mandatory principal prepayments are also required equal to 100% of the net proceeds from asset sales and insurance proceeds that each exceed $5 million in aggregate, as well as 100% of net proceeds from new debt offerings. Mandatory prepayments from such sources are applied to the First Priority Facility until it is fully paid, followed by the Second Priority Facility. With the exception of Permitted Payments as discussed above, prepayments on the Second Priority
F-28 

 

AMERICAN REPROGRAPHICS HOLDINGS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in thousands, except dollars per unit)

4.	Long-Term Debt — (Continued)	
Facility carry a penalty during the first three years of its term equal to a percentage of the prepayment, as follows: Year 1 — 11%; Year 2 — 7.5%; and Year 3 — 2.5%.
       Borrowings under the 2003 Senior Credit Facility are secured by substantially all of the assets of the Company. The 2003 Senior Credit Facility also contains restrictive covenants which, among other things, provide limitations on capital expenditures, and restrictions on indebtedness and distributions to the Company’s equity holders. Additionally, the Company is required to meet debt covenants based on certain financial ratio thresholds applicable to the First and Second Priority Facilities, as follows with ratio thresholds as of June 30, 2004: (i) First Priority Facility — Interest Coverage Ratio not lower than 1.70, Fixed Charge Coverage Ratio not lower than 1.25, Leverage Ratio not higher than 5.10, and First Priority Senior Debt Leverage Ratio not higher than 1.75, each as defined; and (ii) Second Priority Facility — Leverage Ratio not higher than 5.30, as defined. The Company is in compliance with all such covenants as of June 30, 2004.
       Minimum future maturities of long-term debt and capital lease obligations as of December 31, 2003 are as follows: 

		Long-Term		Capital Lease	
		Debt		Obligations	
					
Year ending December 31:	 	 	 	 	 	 	 	 	
 	2004	 	$	18,957	 	 	$	6,889	 	
 	2005	 	 	3,722	 	 	 	4,567	 	
 	2006	 	 	1,696	 	 	 	2,367	 	
 	2007	 	 	635	 	 	 	1,467	 	
 	2008	 	 	47,875	 	 	 	721	 	
Thereafter	 	 	272,391	 	 	 	128	 	
 	 	 		 	 	 		 	
 	 	$	345,276	 	 	 	16,139	 	
 	 	 		 	 	 	 	 	
Less interest	 	 	 	 	 	 	2,075	 	
 	 	 	 	 	 	 		 	
 	 	 	 	 	 	$	14,064	 	

		
5.	Income Taxes	
       A substantial portion of the Company’s business is operated in a limited liability company (LLC), taxed as a partnership. As a result, the members of the LLC pay the income taxes on the earnings, not the LLC. Accordingly, no income taxes have been provided on these earnings. The LLC had book income of $6,620, $13,225, $1,692, $10,762 and $12,788 during the years ended December 31, 2001, 2002 and 2003, and the six months ended June 30, 2003 and 2004, respectively, which are not subject to tax at the LLC level.
       As discussed in Note 1, the Company will convert from a California limited liability company to a Delaware corporation immediately prior to the completion of the proposed public offering. The unaudited pro forma incremental income tax provision included in the statement of operations reflects the additional income tax expense that would have been reported if the Company had been a corporation effective January 1, 2001.
F-29 

 

AMERICAN REPROGRAPHICS HOLDINGS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in thousands, except dollars per unit)

5.	Income Taxes — (Continued)	
       The following table includes the consolidated provision for income taxes related to that portion of the Company’s business not operated as an LLC and the unaudited pro forma income tax provision reflecting the incremental income tax expense that would have been reported if the LLC portion of the business had been a corporation resulting in a pro forma income tax provision, as follows: 

									
				Six Months	
		Year Ended December 31,		Ended June 30,	
					
		2001		2002		2003		2003		2004	

								(Unaudited)	
Current:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Federal	 	$	2,096	 	 	$	4,394	 	 	$	1,562	 	 	$	1,418	 	 	$	3,403	 	
 	State	 	 	1,524	 	 	 	1,419	 	 	 	947	 	 	 	475	 	 	 	877	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
 	 	 	3,620	 	 	 	5,813	 	 	 	2,509	 	 	 	1,893	 	 	 	4,280	 	
Deferred:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Federal	 	 	1,964	 	 	 	442	 	 	 	1,130	 	 	 	1,524	 	 	 	779	 	
 	State	 	 	218	 	 	 	49	 	 	 	682	 	 	 	224	 	 	 	115	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
 	 	 	2,182	 	 	 	491	 	 	 	1,812	 	 	 	1,748	 	 	 	894	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Income tax provision, as reported	 	 	5,802	 	 	 	6,304	 	 	 	4,321	 	 	 	3,641	 	 	 	5,174	 	
Unaudited pro forma incremental income tax provision	 	 	2,622	 	 	 	6,275	 	 	 	1,407	 	 	 	4,305	 	 	 	5,937	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Pro forma income tax provision	 	$	8,424	 	 	$	12,579	 	 	$	5,728	 	 	$	7,946	 	 	$	11,111	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
       The consolidated deferred tax assets and liabilities consist of the following: 

			
		December 31,	
			
		2002		2003	
					
Deferred tax assets:	 	 	 	 	 	 	 	 	
 	Financial statement accruals not currently deductible	 	$	1,387	 	 	$	1,179	 	
 	State taxes	 	 	52	 	 	 	28	 	
 	 	 		 	 	 		 	
 	 	 	1,439	 	 	 	1,207	 	
Deferred tax liabilities:	 	 	 	 	 	 	 	 	
 	Excess of net book value for financial reporting purposes over income tax basis of property, plant and equipment	 	 	(993	)	 	 	(1,700	)	
 	Excess of net book value for financial reporting purposes over income tax basis of intangible assets	 	 	(1,546	)	 	 	(2,494	)	
 	Change in method of accounting for tax purposes	 	 	(75	)	 	 	—	 	
 	 	 		 	 	 		 	
 	 	 	(2,614	)	 	 	(4,194	)	
 	 	 		 	 	 		 	
Net deferred tax liabilities	 	$	(1,175	)	 	$	(2,987	)	
 	 	 		 	 	 		 	
       Deferred tax assets and liabilities are included in prepaid expenses and other current assets and other long-term liabilities, respectively, in the accompanying consolidated balance sheets.
F-30 

 

AMERICAN REPROGRAPHICS HOLDINGS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in thousands, except dollars per unit)

		
5.	Income Taxes — (Continued)	
       A reconciliation of the statutory federal income tax rate to the Company’s pro forma effective tax rate is as follows: 

									
				Six Months	
		Year Ended		Ended	
		December 31,		June 30,	
					
		2001		2002		2003		2003		2004	
											
Statutory federal income tax rate	 	 	34	%	 	 	34	%	 	 	34	%	 	 	34	%	 	 	34	%	
State taxes	 	 	9	 	 	 	7	 	 	 	12	 	 	 	9	 	 	 	8	 	
Non-deductible expenses	 	 	8	 	 	 	4	 	 	 	16	 	 	 	—	 	 	 	4	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Pro forma effective income tax rate	 	 	51	%	 	 	45	%	 	 	62	%	 	 	43	%	 	 	46	%	

		
6.	Commitments and Contingencies	
       The Company leases machinery, equipment, and office and operational facilities under noncancelable operating lease agreements. Certain lease agreements for the Company’s facilities generally contain renewal options and provide for annual increases in rent based on the local Consumer Price Index. The following is a schedule of the Company’s future minimum lease payments as of December 31, 2003: 

		Third		Related			
		Party		Party		Total	
							
Year ending December 31:	 	 	 	 	 	 	 	 	 	 	 	 	
 	2004	 	$	28,329	 	 	$	2,612	 	 	$	30,941	 	
 	2005	 	 	20,499	 	 	 	2,470	 	 	 	22,969	 	
 	2006	 	 	10,769	 	 	 	2,260	 	 	 	13,029	 	
 	2007	 	 	6,075	 	 	 	2,239	 	 	 	8,314	 	
 	2008	 	 	3,217	 	 	 	2,252	 	 	 	5,469	 	
 	Thereafter	 	 	7,849	 	 	 	9,111	 	 	 	16,960	 	
 	 	 		 	 	 		 	 	 		 	
 	 	$	76,738	 	 	$	20,944	 	 	$	97,682	 	
 	 	 		 	 	 		 	 	 		 	
       Total rent expense under operating leases, including month-to-month rentals, amounted to $30,157, $32,143, $36,161, $17,810 and $18,674 during the years ended December 31, 2001, 2002, and 2003, and the six months ended June 30, 2003 and 2004, respectively. Under certain lease agreements, the Company is responsible for other costs such as property taxes, insurance, maintenance, and utilities.
       The Company is involved in a dispute with a state tax authority related to an unresolved sales tax issue which arose from such state tax authority’s audit findings from their sales tax audit of certain operating divisions of the Company for the period from October 1998 to September 2001. The unresolved issue relates to the application of sales taxes on certain discounts granted by the Company to its customers. Based on the position taken by the state tax authority on this unresolved issue, they have claimed that an additional $1,179 of sales taxes are due from the Company for the period in question, plus $372 of interest. The Company strongly disagrees with the state tax authority’s position and has filed a petition for redetermination requesting an appeals conference to resolve this issue. A date for the appeals conference originally scheduled in July 2004 has been
F-31 

 

AMERICAN REPROGRAPHICS HOLDINGS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in thousands, except dollars per unit)

6.	Commitments and Contingencies — (Continued)	
postponed at the request of the state tax authority to a later date which has not yet been determined. The Company’s accrued expenses in its consolidated balance sheet as of December 31, 2003 and June 30, 2004 include $151 of reserves related to this unresolved matter based on certain components of the state tax authority’s audit findings which the Company is not disputing.
       The Company has an agreement to pay its Chief Executive Officer (“CEO”) and its Chief Operating Officer (“COO”) each a fee equal to 1% of the aggregate consideration paid by the Company in connection with any acquisition. The Company recorded fees of $623, $653, $9, $3 and $28 during the years ended December 31, 2001, 2002 and 2003, and the six months ended June 30, 2003 and 2004, respectively, for which the Company is obligated to pay its CEO and COO in connection with this agreement. Such fees are expensed as incurred and are included in selling, general and administrative expenses.
       The Company has entered into employment agreements with certain of its management employees which require annual gross salary payments which range from $40 to $200 per annum. The employment agreements range from a period of one to three years and include a provision for annual bonuses based on specific performance criteria. In the event that such key management employees are terminated without cause, the Company is contractually obligated to pay the remaining balance due on the employment contracts.
       The following is a schedule of the Company’s future minimum annual payments under such employment agreements as of December 31, 2003:

Year ending December 31:	 	 	 	 	
  	2004	 	$	990	 	
 	2005	 	 	438	 	
 	2006	 	 	68	 	
 	 	 		 	
 	 	$	1,496	 	
 	 	 		 	
       The Company’s operating agreement provides for the indemnification of its officers and members of its board of advisors under certain circumstances for acts and omissions which may not be covered by any directors’ and officers’ liability insurance. The operating agreement provides for the Company, among other things, to indemnify its officers and board members against certain liabilities that may arise by reason of their status or service as officers and board members (other than liabilities arising from willful misconduct of a culpable nature), to advance their expenses incurred as a result of any proceeding against them as to which they could be indemnified, and to obtain officers’ and directors’ insurance if available on reasonable terms. There have been no events to date which would require the Company to indemnify its officers or members of its board of Advisors.
       The Company is a creditor and participant in the Chapter 7 Bankruptcy of Louis Frey Company, Inc., or LF Co., which is pending in the United States Bankruptcy Court, Southern District of New York. We managed LF Co. under a contract from May through September of 2003. LF Co. filed for Bankruptcy protection in August 2003, and the proceeding was converted to a Chapter 7 liquidation in October 2003. On or about June 30, 2004, the Bankruptcy Estate Trustee filed a complaint in the LF Co. Bankruptcy proceeding against the Company, which was amended on or about July 19, 2004, alleging, among other things, breach of contract, breach of fiduciary duties, conversion, unjust enrichment, tortious interference with contract, unfair competition and false commercial promotion in
F-32 

 

AMERICAN REPROGRAPHICS HOLDINGS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in thousands, except dollars per unit)
6.                          Commitments and Contingencies — (Continued)
violation of The Lanham Act, misappropriation of trade secrets and fraud regarding the Company’s handling of the assets of LF Co. The Trustee claims damages of not less than $9.5 million, as well as punitive damages and treble damages with respect to the Lanham Act claims. Previously, on or about October 10, 2003, a secured creditor of LF Co., Merrill Lynch Business Financial Services, Inc., or Merrill, had filed a complaint in the LF Co. Bankruptcy proceeding against the Company, which was most recently amended on or about July 6, 2004. Merrill’s claims are duplicated in the Trustee’s suit. The Company, in turn, has filed answers and counterclaims denying liability to the Trustee and seeking reimbursement of all costs and damages sustained as a result of the Trustee’s actions and in the Company’s efforts to assist LF Co. Discovery has commenced and is ongoing in each of these cases. The Company believes that it has meritorious defenses as well as substantial counterclaims against Merrill Lynch and the Trustee. The Company intends to vigorously contest the above matters. Based on the discovery and depositions to date, the Company does not believe that the outcome of the above matters will have a material adverse impact on its results of operations or financial condition.
       The Company may be involved in litigation and other legal matters from time to time in the normal course of business. Management does not believe that the outcome of any of these matters will have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows.

7.	Related Party Transactions	
       The Company leases several of its facilities under operating lease agreements with entities owned by certain of its executive officers and other related parties which expire through July 2019. Rental expense on these facilities amounted to $2,683, $2,281, $2,209, $1,059 and $1,291 during the years ended December 31, 2001, 2002, and 2003, and the six months ended June 30, 2003 and 2004, respectively.
       The Company has a management agreement with an equity investor (the Management Agreement) which requires the Company to pay annual management fees to the equity investor as compensation for certain management services rendered to the Company. In accordance with the Management Agreement, the management fees charged to the Company are subject to an annual increases based on the Company’s earnings but shall not exceed $1,000 annually. The Management Agreement expires in April 2005 and is automatically renewable. However, the Company’s board of advisors has the ability to terminate the Management Agreement under certain circumstances as defined in the Management Agreement. In addition, the Management Agreement will terminate upon completion of the Company’s initial public offering. Management fees paid by the Company to the equity investor amounted to $803, $889, $858, $415 and $413 during the years ended December 31, 2001, 2002, and 2003, and the six months ended June 30, 2003 and 2004, respectively.
       The Company sells certain products and services to Thomas Reprographics, Inc. and Albinson Inc., each of which is owned or controlled by William Thomas, who beneficially owns more than 5% of the common equity in the Company. These companies purchased products and services from the Company of approximately $215 and $95 during the twelve months ended December 31, 2002 and 2003, respectively, and $68 and $32 during the six months ended June 30, 2003 and 2004, respectively.
F-33 

 

AMERICAN REPROGRAPHICS HOLDINGS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in thousands, except dollars per unit)

8.	Retirement Plans	
       The Company sponsors a defined contribution plan (the Plan) covering substantially all employees who are at least 21 years of age and have satisfied a service requirement ranging from three to six months through December 31, 2001. Effective January 2002, the Plan was amended to remove the minimum service requirement. Plan participants may contribute up to 19% of their annual eligible compensation, subject to contribution limitations imposed by the Internal Revenue Service. The Company matches up to 20% of participant contributions to a maximum of 4% of their annual eligible compensation. The Company’s total expense under these plans amounted to $501, $388, $544, $269 and $303 during the years ended December 31, 2001, 2002, and 2003, and the six months ended June 30, 2003 and 2004, respectively.

9.	Equity Option Plan	
       In January 2001, the Company established the American Reprographics Holdings, LLC Unit Option Plan (the Option Plan) which permits the grant of options (the Options) to key personnel to purchase up to 1,735,415 common membership units of the Company (the Option Units). Options granted under the Option Plan are nontransferable and may be exercised at an option price to be determined by the Company’s board of advisors provided that the option price is not less than 85% of the fair market value of such unit of grant date.
       In the event of a key personnel’s termination of employment with the Company, Option Units attributable to the exercise of an Option shall generally be subject to redemption by the Company at a redemption price generally equal to the fair market value per common membership unit. In limited circumstances, the Option Units could be repurchased at the Option exercise price. As of June 30, 2004, a repurchase of any units under the Option Plan was not expected. The option to repurchase the Option Units shall terminate in the event of an initial public offering.
       The Company has granted Options to certain key personnel in accordance with the terms of the Option Plan at exercise prices equal to management’s estimate of the fair value of the common membership units at the date of issuance (except for 2004 grants described below). A summary of the activity related to the Company’s Option Plan is as follows: 

			
		Year Ended December 31,	

		2001		2002		2003	
							
				Weighted				Weighted				Weighted	
				Average				Average				Average	
		Number		Exercise		Number		Exercise		Number		Exercise	
		of Units		Price		of Units		Price		of Units		Price	
													
Outstanding at beginning of the period	 	 	—	 	 	$	—	 	 	 	667,500	 	 	$	4.87	 	 	 	1,421,500	 	 	$	5.07	 	
 	Granted	 	 	667,500	 	 	 	4.87	 	 	 	761,500	 	 	 	5.25	 	 	 	39,500	 	 	 	5.55	 	
 	Canceled	 	 	—	 	 	 	—	 	 	 	(7,500	)	 	 	(4.87	)	 	 	(15,000	)	 	 	(4.87	)	
 	Expired	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
 	Exercised	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	 	 	—	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
Outstanding at end of the period	 	 	667,500	 	 	$	4.87	 	 	 	1,421,500	 	 	$	5.07	 	 	 	1,446,000	 	 	$	5.09	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	 	 		 	
       Of the total options outstanding, 297,000, 485,000, 806,250 and 1,005,500 options were exercisable at December 31, 2001, 2002, and 2003 and June 30, 2004, respectively, at exercise prices ranging from $4.75 to $5.85 per option.
       During the six months ended June 30, 2004, the Company granted options to purchase common membership units to employees with exercise prices ranging from $5.62 to $5.85 per unit.
F-34 

 

AMERICAN REPROGRAPHICS HOLDINGS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in thousands, except dollars per unit)

9.	Equity Option Plan — (Continued)	
The Company recorded a deferred compensation charge of $2,301 in connection with the issuance as the exercise price of the units was less than the estimated fair market value of the Company’s membership units as of the date of grant after giving consideration to the anticipated fair value of the membership units during the one-year period preceeding the proposed initial public offering. The Company will amortize the deferred compensation charge over the vesting period of the options, generally five years. As of June 30, 2004, the Company has amortized $167 of the deferred compensation charge.

10.	Members’ Equity and Redeemable Membership Units	

	Common and Redeemable Common Membership Units	
       Each common membership unit is entitled to one vote with respect to any action presented for a vote of the Company’s members. Except for units issued in accordance with the Option Plan, common membership units may be transferred without the consent of the board of advisors under certain conditions specified in the Company’s Amended and Restated Operating Agreement. During the year ended December 31, 2002, the Company redeemed all outstanding redeemable common membership units. See Note 2.

	Mandatorily Redeemable Preferred Membership Units	
       Holders of the Company’s mandatorily redeemable preferred units are entitled to receive a yield of 13.25% of its Liquidation Value per annum for the first three years starting in April 2000, and increasing to 15% of the Liquidation Value per annum thereafter. The discount inherent in the yield for the first three years was recorded as an adjustment to the carrying amount of the mandatorily redeemable preferred units. This discount was amortized as a dividend over the initial three years. Of the total yield on the mandatorily redeemable preferred units, 48% is mandatorily payable quarterly in cash to the mandatorily redeemable preferred unit holders. The unpaid portion of the yield accumulates annually and is added to the Liquidation Value of the mandatorily redeemable preferred units. Such units have an aggregate liquidation preference over common units of $20 million plus accumulated and unpaid yield. Mandatorily redeemable preferred units have no voting rights.
       Mandatorily redeemable preferred units are redeemable without premium or penalty, wholly or in part, at the Company’s option at any time, for the Liquidation Value, including any unpaid yield. Redeemable preferred units are mandatorily redeemable on the earlier to occur of (i) an initial public offering of the Company (to the extent of 25% of the net proceeds thereof), (ii) a sale of equity or assets of the Company or any of its principal operating subsidiaries after retirement in full of the Company’s debt under its senior credit facilities, or (iii) April 10, 2010. At December 31, 2002 and 2003, and June 30, 2004, the Company had 20,000 redeemable preferred membership units issued and outstanding.
Distributions to Members
       In accordance with the Company’s Amended and Restated Operating Agreement, cash distributions will be made first, to all preferred members based on their tax liability imposed on the yield earned on their preferred units; second, to all common members, based on their tax liability imposed on the Company’s earnings. The Amended and Restated Operating Agreement also provides for certain members who receive less than their proportionate share of cash distributions, at
F-35 

 

AMERICAN REPROGRAPHICS HOLDINGS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in thousands, except dollars per unit)

10.	Members’ Equity and Redeemable Membership Units — (Continued)	
their election or the election of the Company’s management, to be granted an additional cash distribution to bring their proportionate share of cash distributions equal to the rest of the Company’s common members. Any remaining cash available for distribution will be distributed, at the discretion of the Company’s board of advisors, first to all preferred members to the extent of the Liquidation Value of their preferred units; second, to all common members, except to those common members where such distribution would cause or increase a deficit to their capital accounts.

11.	Quarterly Financial Data (Unaudited)	
       Quarterly financial data for the years ended December 31, 2002 and 2003 and the three months ended March 31, and June 30, 2004 are as follows: 

			
		Quarter Ended	
			
		March 31,		June 30,		September 30,		December 31,	
		2002		2002		2002		2002	
									
Net sales	 	$	100,772	 	 	$	110,078	 	 	$	107,549	 	 	$	100,525	 	
Gross profit	 	$	42,352	 	 	$	46,813	 	 	$	43,739	 	 	$	38,242	 	
Net income	 	$	7,469	 	 	$	6,864	 	 	$	5,489	 	 	$	2,121	 	
Net income attributable to common members	 	$	6,680	 	 	$	6,034	 	 	$	4,653	 	 	$	1,285	 	
Unaudited pro forma net income attributable to common members	 	$	4,628	 	 	$	3,874	 	 	$	3,053	 	 	$	822	 	
Unaudited pro forma net income attributable to common members per unit:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Basic	 	$	0.13	 	 	$	0.11	 	 	$	0.08	 	 	$	0.02	 	
 	Diluted	 	$	0.13	 	 	$	0.11	 	 	$	0.08	 	 	$	0.02	 	
F-36 

 
AMERICAN REPROGRAPHICS HOLDINGS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in thousands, except dollars per unit)

11.	Quarterly Financial Data (Unaudited) — Continued	

		Quarter Ended	
			
		March 31,		June 30,		September 30,		December 31,	
		2003		2003		2003		2003	
									
Net sales	 	$	105,272	 	 	$	108,882	 	 	$	102,184	 	 	$	99,622	 	
Gross profit	 	$	42,292	 	 	$	44,551	 	 	$	39,229	 	 	$	37,860	 	
Net income (loss)	 	$	5,469	 	 	$	9,237	 	 	$	2,845	 	 	$	(12,610	)	
Net income (loss) attributable to common members	 	$	4,633	 	 	$	8,343	 	 	$	2,845	 	 	$	(12,610	)	
Unaudited pro forma net income (loss) attributable to common members	 	$	3,606	 	 	$	5,065	 	 	$	1,582	 	 	$	(8,449	)	
Unaudited pro forma net income (loss) attributable to common members per unit:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Basic	 	$	0.10	 	 	$	0.14	 	 	$	0.04	 	 	$	(0.23	)	
 	Diluted	 	$	0.10	 	 	$	0.14	 	 	$	0.04	 	 	$	(0.23	)	

		Quarter Ended					
							
		March 31,		June 30,					
		2004		2004					
									
Net sales	 	$	110,518	 	 	$	115,615	 	 	 	 	 	 	 	 	 	
Gross profit	 	$	45,919	 	 	$	49,424	 	 	 	 	 	 	 	 	 	
Net income	 	$	8,729	 	 	$	10,441	 	 	 	 	 	 	 	 	 	
Net income attributable to common members	 	$	8,729	 	 	$	10,441	 	 	 	 	 	 	 	 	 	
Unaudited pro forma net income attributable to common members	 	$	6,165	 	 	$	7,068	 	 	 	 	 	 	 	 	 	
Unaudited pro forma net income attributable to common members per unit:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Basic	 	$	0.17	 	 	$	0.20	 	 	 	 	 	 	 	 	 	
 	Diluted	 	$	0.16	 	 	$	0.19	 	 	 	 	 	 	 	 	 	

12.	Subsequent Events (Unaudited)	
Debt Prepayment
       In July 2004, the Company made a mandatory principal prepayment on its Second Priority Credit Facility in the amount of $11,636 based on 75% of its Consolidated Excess Cash Flow, as defined in its debt agreement, during the six months ended June 30, 2004.
F-37 

 

AMERICAN REPROGRAPHICS HOLDINGS, L.L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(Dollars in thousands, except dollars per unit)

		
12.	Subsequent Events (Unaudited) — (Continued)	
Equity Options
       In September 2004, the Company granted options to purchase common membership units to employees with an exercise price of $6.14 per unit. In connection with the issuance, the Company recorded a deferred compensation charge of $773 as the exercise price of the units was less than the anticipated fair market value of the Company’s membership units as of the date of grant after giving consideration to the value of the membership units during the one year period preceding the proposed initial public offering. The Company will amortize the deferred compensation charge over the vesting period of the options, which is generally five years.
Initial Public Offering
       The Company plans to file a registration statement with the SEC in October 2004 to sell a certain amount of its common equity in an initial public offering (the IPO). Prior to the consummation of the planned IPO, the Company will convert from a California limited liability company (American Reprographics Holdings, L.L.C.) to a Delaware corporation (American Reprographics Company or ARC). In this reorganization, the Company’s common members will exchange their common member units for common stock of ARC. Each option and warrant issued to purchase the Company’s common member units will be exchanged for an option and warrant exercisable for shares of ARC’s common stock with the same exercise prices and vesting terms as the original grants. As required by the Company’s operating agreement, ARC will repurchase all of the mandatorily redeemable preferred membership units of the Company upon closing of the IPO with a portion of the net proceeds of the offering.
       In connection with the planned IPO, the Company will adopt the 2005 Stock Plan (the Stock Plan) which will provide for discretionary grants of incentive stock options to employees, including officers and employee directors, and for the discretionary grant of nonstatutory stock options, restricted stock, restricted stock units, and stock appreciation rights to employees, directors and consultants. The Stock Plan will also provide for the periodic automatic grant of non statutory stock options to non-employee directors. The Stock Plan authorizes the Company to grant options to purchase up to 5,000,000 shares of common stock. The Company will also adopt an Employee Stock Purchase Plan (“ESPP”) to provide an incentive to attract, retain and reward eligible employees of the Company. The ESPP authorizes the Company to grant options to purchase 750,000 shares of common stock.
       In connection with the Company’s operating agreement, cash distributions are to be made to members of the Company to pay taxes that the members will owe for their share of the Company’s profits as a limited liability company through the date of the effective date of the IPO. The cash distributions will be calculated at the highest combined federal and state income tax rates applicable for tax withholding purposes, currently 43%. Accordingly, the Company estimates that it will make a cash distribution to all of its common members in the amount of approximately $596 upon the consummation of the IPO. In addition, certain members in the past have received less than their proportionate share of distributions for such taxes as a result of a difference in the tax basis of their equity interest in the Company. In accordance with the terms of the Company’s operating agreement, an additional distribution of approximately $10,500 will be made to such members in connection with the consummation of the IPO to bring their proportionate share of tax distributions equal to the rest of the Company’s common members.
F-38 

 

      No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus. You must not rely on any unauthorized information or representations. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date.

TABLE OF CONTENTS

		Page	
			
Trademarks and Trade Names	 	 	i	 	
Market Data	 	 	i	 	
Prospectus Summary	 	 	1	 	
Risk Factors	 	 	13	 	
Forward-Looking Statements	 	 	22	 	
Use of Proceeds	 	 	24	 	
Dividend Policy	 	 	24	 	
Reorganization	 	 	24	 	
Change in Independent Registered Public Accounting Firm	 	 	25	 	
Capitalization	 	 	26	 	
Dilution	 	 	28	 	
Selected Historical and Unaudited Pro Forma Financial Data	 	 	29	 	
Management’s Discussion and Analysis of Financial Condition and Results of Operations	 	 	32	 	
Business	 	 	50	 	
Management	 	 	69	 	
Certain Relationships and Related Transactions	 	 	80	 	
Principal and Selling Stockholders	 	 	82	 	
Description of Capital Stock	 	 	85	 	
Shares Eligible for Future Sale	 	 	89	 	
Description of Certain Indebtedness	 	 	91	 	
Underwriting	 	 	94	 	
Validity of Common Stock	 	 	97	 	
Experts	 	 	97	 	
Where You Can Find More Information	 	 	97	 	
Index to Consolidated Financial Statements	 	 	F-1	 	

      Through and including                     , 2005 (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to an unsold allotment or subscription.

                     Shares
American Reprographics Company
Common Stock

Goldman, Sachs & Co.
JPMorgan
Credit Suisse First Boston
Robert W. Baird & Co.
CIBC World Markets
Representatives of the Underwriters

 
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13.	Other Expenses of Issuance and Distribution	
       The following table sets forth the costs and expenses, other than underwriting discounts and commissions, payable by the registrant in connection with the sale of common stock being registered. All amounts are estimates except the SEC registration fee and the New York Stock Exchange listing fee. 

		Amount	
		to be Paid	
			
SEC registration fee	 	$	29,141	 	
New York Stock Exchange listing fee	 	 	*	 	
Printing and engraving expenses	 	 	175,000	 	
Legal fees and expenses	 	 	950,000	 	
Accounting fees and expenses	 	 	970,000	 	
Blue Sky qualification and NASD fees and expenses	 	 	35,000	 	
Transfer Agent and Registrar fees	 	 	20,000	 	
Miscellaneous fees and expenses	 	 	230,859	 	
 	 	 		 	
 	Total	 	$	2,410,000	 	

		
* 	To be filed by amendment.	

Item 14.	Indemnification of Directors and Officers	
       Section 102 of the Delaware General Corporation Law, as amended, allows a corporation to eliminate the personal liability of a director of a corporation to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except where the director breached his or her duty of loyalty to the corporation or its stockholders, failed to act in good faith, engaged in intentional misconduct or knowingly violated a law, authorized the payment of a dividend or approved a stock purchase or redemption in violation of Delaware corporate law or obtained an improper personal benefit.
       Section 145 of the Delaware General Corporation Law provides, among other things, that a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding (other than an action by or in the right of the corporation) by reason of the fact that the person is or was a director, officer, employee or agent of the corporation, or is or was serving at the corporation’s request as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses, including attorneys’ fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by the person in connection with the action, suit or proceeding. The power to indemnify applies (i) if such person is successful on the merits or otherwise in defense of any action, suit or proceeding or (ii) if such person acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The power to indemnify applies to actions brought by or in the right of the corporation as well, but only to the extent of defense expenses (including attorneys’ fees but excluding amounts paid in settlement) actually and reasonably incurred by the indemnified person and not to any satisfaction of judgment or settlement of the claim itself, and with the further limitation that in such actions no indemnification shall be made in the event such person is adjudged liable to the corporation unless a court believes that in light of all the circumstances indemnification should apply.
II-1 

 

       Section 174 of the Delaware General Corporation Law provides, among other things, that a director who willfully and negligently approves an unlawful payment of dividends or an unlawful stock purchase or redemption may be held liable for such actions. A director who was either absent when the unlawful actions were approved or dissented at the time may avoid liability by causing his or her dissent to such actions to be entered in the books containing the minutes of the meetings of the board of directors at the time the action occurred or immediately after the absent director receives notice of the unlawful acts.
       Article VI of the registrant’s Amended and Restated Certificate of Incorporation will provide that the liability of the directors for monetary damages shall be eliminated to the fullest extent under applicable law.
       The registrant’s Bylaws provide that it may indemnify any person who is or was a director, officer or employee of the registrant to the fullest extent permitted by Delaware law. The indemnification provisions contained in the registrant’s Bylaws are not exclusive of any other rights to which a person may be entitled by law, agreement or vote of stockholders or disinterested directors or otherwise.
       The registrant has entered, and will enter, into indemnification agreements with each officer and director which provide indemnification under certain circumstances for acts and omissions which may not be covered by any directors’ and officers’ liability insurance. The indemnification agreements may require the registrant, among other things, to indemnify its officers and directors against certain liabilities that may arise by reason of their status or service as officers and directors (other than liabilities arising from willful misconduct of a culpable nature), to advance their expenses incurred as a result of any proceeding against them as to which they could be indemnified, and to obtain officers’ and directors’ insurance if available on reasonable terms.
       The form of Underwriting Agreement, filed as Exhibit 1.1 to the Registration Statement, provides for indemnification of the registrant and its controlling persons against certain liabilities under the Securities Act of 1933, as amended (the “Securities Act”).

Item 15.	Recent Sales of Unregistered Securities	
       Since October 1, 2001, the registrant’s predecessor, American Reprographics Holdings, L.L.C. (“Holdings”), has sold and issued the following unregistered securities:

			
 	• 	Holdings issued 20,000 common units to a consultant for cash consideration of $110,712 on May 22, 2003; and	
 		
 	• 	Holdings has issued options to purchase an aggregate of 1,735,415 common units under Holdings’ unit option plan, 22,500 of which have been exercised at a purchase price of $5.25 per unit.	
       The issuances of the above securities were deemed to be exempt from registration under the Securities Act in reliance on:

			
 	• 	Rule 701 promulgated under the Securities Act; or	
 		
 	• 	Section 4(2) of the Securities Act as transactions by an issuer not involving any public offering.	
       The recipients of securities in each such transaction represented their intentions to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof. All recipients had adequate access, through their relationships with the registrant, to information about the registrant.
II-2 

 

		
Item 16.	Exhibits and Financial Statement Schedules	
       (a) Exhibits 

Number		Description	
			
 	1	.1	 	Form of Underwriting Agreement.*	
 	3	.1	 	Certificate of Incorporation of American Reprographics Company.	
 	3	.2	 	Bylaws of American Reprographics Company.	
 	3	.3	 	Form of Amended and Restated Certificate of Incorporation to be effective upon closing.*	
 	3	.4	 	Form of Amended and Restated Bylaws to be effective upon closing.*	
 	4	.1	 	Specimen Stock Certificate.*	
 	5	.1	 	Opinion of Hanson, Bridgett, Marcus, Vlahos & Rudy, LLP regarding the legality of the common stock being registered.*	
 	10	.1	 	Credit and Guaranty Agreement, dated as of December 18, 2003, among American Reprographics Company, L.L.C., American Reprographics Holdings, L.L.C., certain subsidiaries of American Reprographics Company, as guarantors, and the lenders named therein.	
 	10	.2	 	Second Lien Credit and Guaranty Agreement, dated as of December 18, 2003, among American Reprographics Company, L.L.C., American Reprographics Holdings, L.L.C., certain subsidiaries of American Reprographics Company, as guarantors, and the lenders named therein.	
 	10	.3	 	Intercreditor Agreement, dated as of December 18, 2003, between American Reprographics Company, L.L.C. and General Electric Capital Corporation and Goldman Sachs Credit Partners L.P., as collateral agents.	
 	10	.4	 	2004 Bonus Plan, dated March 24, 2004, between American Reprographics Company and Mr. Legg.	
 	10	.5	 	American Reprographics Holdings, L.L.C. Unit Option Plan II, adopted effective as of January 1, 2001.	
 	10	.6	 	Amendment No. 1 dated as of July 1, 2003 to American Reprographics Holdings, L.L.C. Unit Option Plan II.	
 	10	.7	 	American Reprographics Company 2005 Stock Plan.	
 	10	.8	 	Forms of Stock Option Agreements under the 2005 Stock Plan.	
 	10	.9	 	American Reprographics Company 2005 Employee Stock Purchase Plan.	
 	10	.10	 	Lease Agreement, dated November 19, 1997, between American Reprographics Company, L.L.C. (formerly Ford Graphics Group, L.L.C.) and Sumo Holdings LA, LLC.	
 	10	.11	 	Lease Agreement between American Reprographics Company, L.L.C. and Sumo Holdings San Jose, LLC.	
 	10	.12	 	Lease Agreement between American Reprographics Company, L.L.C. and Sumo Holdings Irvine, LLC.	
 	10	.13	 	Lease Agreement, dated December 1, 1997, between American Reprographics Company, L.L.C. and Sumo Holdings Sacramento, LLC (Oakland Property).	
 	10	.14	 	Lease Agreement between American Reprographics Company, L.L.C. (formerly Ford Graphics Group, L.L.C.) and Sumo Holdings Sacramento, LLC (Sacramento Property).	
 	10	.15	 	Lease Agreement, dated December 7, 1995, between Leet-Melbrook, Inc. and Sumo Holdings Maryland, LLC (as successor lessor).	
 	10	.16	 	Lease Agreement, dated September 23, 2003, between American Reprographics Company (dba Consolidated Reprographics) and Sumo Holdings Costa Mesa, LLC.	
II-3 

 

 	 	 	 	 	
Number		Description	
			
 	10	.17	 	Management Agreement, dated April 10, 2000, between American Reprographics Company, L.L.C. and CHS Management IV, L.P.	
 	10	.18	 	Termination Agreement to Management Agreement, between American Reprographics Company, L.L.C. and CHS Management IV, L.P.*	
 	10	.19	 	Indemnification Agreement, dated April 10, 2000, among American Reprographics Company, L.L.C., American Reprographics Holdings, L.L.C., ARC Acquisition Co., L.L.C., Mr. Chandramohan, Mr. Suriyakumar, Micro Device, Inc., Dietrich-Post Company, ZS Ford L.P., and ZS Ford L.L.C.	
 	10	.20	 	Investor Registration Rights Agreement, dated April 10, 2000, among American Reprographics Holdings, L.L.C., ARC Acquisition Co., L.L.C., Mr. Chandramohan, Mr. Suriyakumar, GS Mezzanine Partners II, L.P. and GS Mezzanine Partners II Offshore, L.P.	
 	10	.21	 	First Amendment to Investor Registration Rights Agreement, among American Reprographics Holdings, L.L.C., ARC Acquisition Co., L.L.C., Mr. Chandramohan, Mr. Suriyakumar, GS Mezzanine Partners II, L.P., GS Mezzanine Partners II Offshore, L.P., Stone Street Fund 2000, L.P. and Bridge Street Special Opportunities Fund, 2000, L.P.*	
 	10	.22	 	Warrant Agreement, dated April 10, 2000, between American Reprographics Holdings, L.L.C. and each of GS Mezzanine Partners II, L.P. and GS Mezzanine Partners II Offshore, L.P.	
 	10	.23	 	First Amendment to Warrant Agreement, dated September 8, 2000, between American Reprographics Holdings, L.L.C. and each of GS Mezzanine Partners II, L.P. and GS Mezzanine Partners II Offshore, L.P.	
 	10	.24	 	Investor Unitholders Agreement, dated April 10, 2000, among American Reprographics Holdings, L.L.C., ARC Acquisition Co., L.L.C., GS Mezzanine Partners II, L.P. and GS Mezzanine Partners II Offshore, L.P.	
 	10	.25	 	Termination Agreement of Investor Unitholders Agreement, among American Reprographics Holdings, L.L.C., ARC Acquisition Co., L.L.C., GS Mezzanine Partners II, L.P., GS Mezzanine Partners II Offshore, L.P., Stone Street Fund 2000, L.P. and Bridge Street Special Opportunities Fund, 2000, L.P.*	
 	10	.26	 	Form of Indemnification Agreement between American Reprographics Company and each of its Officers and Directors.	
 	16	.1	 	Letter from Ernst & Young LLP Regarding Change in Independent Registered Public Accounting Firm dated October 15, 2004.	
 	21	.1	 	List of Subsidiaries.	
 	23	.1	 	Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm.	
 	23	.2	 	Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm.	
 	23	.3	 	Consent of Hanson, Bridgett, Marcus, Vlahos & Rudy, LLP.*	
 	24	.1	 	Power of Attorney (included on page II-6).	

		
* 	To be filed by amendment.	
       (b) Financial Statement Schedules
Schedule II — Valuation and Qualifying Accounts for the years ended December 31, 2001, 2002 and 2003, and for the six months ended June 30, 2004 appears on page II-7. All other schedules have been omitted because the information required to be set forth therein is not applicable or is shown on the financial statements or notes thereto.
II-4 

 

		
Item 17.	Undertakings	
       The undersigned registrant hereby undertakes to provide to the underwriters, at the closing specified in the underwriting agreement, certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.
       Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer, or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
       The undersigned registrant hereby undertakes that:

		
 	       (1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.	
 		
 	       (2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.	
II-5 

 
SIGNATURES
       Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Glendale, State of California on October 15, 2004.

		
 	AMERICAN REPROGRAPHICS COMPANY	

			
 	By: 	/s/ SATHIYAMURTHY CHANDRAMOHAN	

 	Sathiyamurthy Chandramohan	
 	Chief Executive Officer	
POWER OF ATTORNEY
       KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints, jointly and severally, Sathiyamurthy Chandramohan, Kumarakulasingam Suriyakuma, and Mark W. Legg, and each of them, as his attorney-in-fact, with full power of substitution, for him in any and all capacities, to sign any and all amendments to this Registration Statement (including post-effective amendments), and any and all Registration Statements filed pursuant to Rule 462 under the Securities Act of 1933, as amended, in connection with or related to the offering contemplated by this Registration Statement and its amendments, if any, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming his signatures as they may be signed by said attorney to any and all amendments to said Registration Statement.
       Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated:

					
Signature		Title		Date	

/s/ SATHIYAMURTHY CHANDRAMOHAN

Sathiyamurthy Chandramohan	 	Chief Executive Officer; Chairman of the Board of Directors (Principal Executive Officer)	 	October 15, 2004	
 	
/s/ KUMARAKULASINGAM SURIYAKUMAR

Kumarakulasingam Suriyakumar	 	President;
Chief Operating Officer; Director	 	October 15, 2004	
 	
/s/ MARK W. LEGG

Mark W. Legg	 	Chief Financial Officer; Secretary (Principal Financial Officer and Principal Accounting Officer)	 	October 15, 2004	
 	
/s/ ANDREW W. CODE

Andrew W. Code	 	Director	 	October 15, 2004	
 	
/s/ THOMAS J. FORMOLO

Thomas J. Formolo	 	Director	 	October 15, 2004	
 	
/s/ MANUEL PEREZ DE LA MESA

Manuel Perez de la Mesa	 	Director	 	October 15, 2004	
II-6 

 
Schedule II
AMERICAN REPROGRAPHICS HOLDINGS, LLC
VALUATION AND QUALIFYING ACCOUNTS
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
		Balance at		Charges to				Balance at	
		Beginning of		Cost and				End of	
		Period		Expenses		Deductions		Period	

		(Dollars in thousands)	
Year ended December 31, 2001:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Allowance for doubtful accounts	 	$	1,974	 	 	$	682	 	 	$	(781	)	 	$	1,875	 	
 	Allowance for inventory obsolescence	 	 	247	 	 	 	68	 	 	 	(18	)	 	 	297	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	
 	 	$	2,221	 	 	$	750	 	 	$	(799	)	 	$	2,172	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	
Year ended December 31, 2002:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Allowance for doubtful accounts	 	$	1,875	 	 	$	816	 	 	$	(543	)	 	$	2,148	 	
 	Allowance for inventory obsolescence	 	 	297	 	 	 	135	 	 	 	(159	)	 	 	273	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	
 	 	$	2,172	 	 	$	951	 	 	$	(702	)	 	$	2,421	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	
Year ended December 31, 2003:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Allowance for doubtful accounts	 	$	2,148	 	 	$	1,698	 	 	$	(1,056	)	 	$	2,790	 	
 	Allowance for inventory obsolescence	 	 	273	 	 	 	248	 	 	 	(243	)	 	 	278	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	
 	 	$	2,421	 	 	$	1,946	 	 	$	(1,299	)	 	$	3,068	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	
Six months ended June 30, 2004: (unaudited)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
 	Allowance for doubtful accounts	 	$	2,790	 	 	$	820	 	 	$	(591	)	 	$	3,019	 	
 	Allowance for inventory obsolescence	 	 	278	 	 	 	30	 	 	 	(26	)	 	 	282	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	
 	 	$	3,068	 	 	$	850	 	 	$	(617	)	 	$	3,301	 	
 	 	 		 	 	 		 	 	 		 	 	 		 	
II-7 

 
EXHIBIT INDEX
       The following exhibits are filed as part of this Form S-1 Registration Statement.

Number		Description	
			
 	1	.1	 	Form of Underwriting Agreement.*	
 	3	.1	 	Certificate of Incorporation of American Reprographics Company.	
 	3	.2	 	Bylaws of American Reprographics Company.	
 	3	.3	 	Form of Amended and Restated Certificate of Incorporation to be effective upon closing.*	
 	3	.4	 	Form of Amended and Restated Bylaws to be effective upon closing.*	
 	4	.1	 	Specimen Stock Certificate.*	
 	5	.1	 	Opinion of Hanson, Bridgett, Marcus, Vlahos & Rudy, LLP regarding the legality of the common stock being registered.*	
 	10	.1	 	Credit and Guaranty Agreement, dated as of December 18, 2003, among American Reprographics Company, L.L.C., American Reprographics Holdings, L.L.C., certain subsidiaries of American Reprographics Company, as guarantors, and the lenders named therein.	
 	10	.2	 	Second Lien Credit and Guaranty Agreement, dated as of December 18, 2003, among American Reprographics Company, L.L.C., American Reprographics Holdings, L.L.C., certain subsidiaries of American Reprographics Company, as guarantors, and the lenders named therein.	
 	10	.3	 	Intercreditor Agreement, dated as of December 18, 2003, between American Reprographics Company, L.L.C. and General Electric Capital Corporation and Goldman Sachs Credit Partners L.P., as collateral agents.	
 	10	.4	 	2004 Bonus Plan, dated March 24, 2004, between American Reprographics Company and Mr. Legg.	
 	10	.5	 	American Reprographics Holdings, L.L.C. Unit Option Plan II, adopted effective as of January 1, 2001.	
 	10	.6	 	Amendment No. 1, dated as of July 1, 2003, to American Reprographics Holdings, L.L.C. Unit Option Plan II.	
 	10	.7	 	American Reprographics Company 2005 Stock Plan.	
 	10	.8	 	Forms of Stock Option Agreements under the 2005 Stock Plan.	
 	10	.9	 	American Reprographics Company 2005 Employee Stock Purchase Plan.	
 	10	.10	 	Lease Agreement, dated November 19, 1997, between American Reprographics Company, L.L.C. (formerly Ford Graphics Group, L.L.C.) and Sumo Holdings LA, LLC.	
 	10	.11	 	Lease Agreement between American Reprographics Company, L.L.C. and Sumo Holdings San Jose, LLC.	
 	10	.12	 	Lease Agreement between American Reprographics Company, L.L.C. and Sumo Holdings Irvine, LLC.	
 	10	.13	 	Lease Agreement, dated December 1, 1997, between American Reprographics Company, L.L.C. and Sumo Holdings Sacramento, LLC (Oakland Property).	
 	10	.14	 	Lease Agreement between American Reprographics Company, L.L.C. (formerly Ford Graphics Group, L.L.C.) and Sumo Holdings Sacramento, LLC (Sacramento Property).	
 	10	.15	 	Lease Agreement, dated December 7, 1995, between Leet-Melbrook, Inc. and Sumo Holdings Maryland, LLC (as successor lessor).	
 	10	.16	 	Lease Agreement, dated September 23, 2003, between American Reprographics Company (dba Consolidated Reprographics) and Sumo Holdings Costa Mesa, LLC.	
 	10	.17	 	Management Agreement, dated April 10, 2000, between American Reprographics Company, L.L.C. and CHS Management IV, L.P.	
 	10	.18	 	Termination Agreement to Management Agreement, between American Reprographics Company, L.L.C. and CHS Management IV, L.P.*	

 

Number		Description	
			
 	10	.19	 	Indemnification Agreement, dated April 10, 2000, among American Reprographics Company, L.L.C., American Reprographics Holdings, L.L.C., ARC Acquisition Co., L.L.C., Mr. Chandramohan, Mr. Suriyakumar, Micro Device, Inc., Dietrich-Post Company, ZS Ford L.P., and ZS Ford L.L.C.	
 	10	.20	 	Investor Registration Rights Agreement, dated April 10, 2000, among American Reprographics Holdings, L.L.C., ARC Acquisition Co., L.L.C., Mr. Chandramohan, Mr. Suriyakumar, GS Mezzanine Partners II, L.P. and GS Mezzanine Partners II Offshore, L.P.	
 	10	.21	 	First Amendment to Investor Registration Rights Agreement, among American Reprographics Holdings, L.L.C., ARC Acquisition Co., L.L.C., Mr. Chandramohan, Mr. Suriyakumar, GS Mezzanine Partners II, L.P., GS Mezzanine Partners II Offshore, L.P., Stone Street Fund 2000, L.P. and Bridge Street Special Opportunities Fund 2000, L.P.*	
 	10	.22	 	Warrant Agreement, dated April 10, 2000, between American Reprographics Holdings, L.L.C. and each of GS Mezzanine Partners II, L.P. and GS Mezzanine Partners II Offshore, L.P.	
 	10	.23	 	First Amendment to Warrant Agreement, dated September 8, 2000, between American Reprographics Holdings, L.L.C. and each of GS Mezzanine Partners II, L.P. and GS Mezzanine Partners II Offshore, L.P.	
 	10	.24	 	Investor Unitholders Agreement, dated April 10, 2000, among American Reprographics Holdings, L.L.C., ARC Acquisition Co., L.L.C., GS Mezzanine Partners II, L.P. and GS Mezzanine Partners II Offshore, L.P.	
 	10	.25	 	Termination Agreement of Investor Unitholders Agreement, among American Reprographics Holdings, L.L.C., ARC Acquisition Co., L.L.C., GS Mezzanine Partners II, L.P., GS Mezzanine Partners II Offshore, L.P., Stone Street Fund 2000, L.P. and Bridge Street Special Opportunities Fund 2000, L.P.*	
 	10	.26	 	Form of Indemnification Agreement between American Reprographics Company and each of its Officers and Directors.	
 	16	.1 	 	Letter from Ernst & Young LLP Regarding Change in Independent Registered Public Accounting Firm dated October 15, 2004.	
 	21	.1 	 	List of Subsidiaries.	
 	23	.1 	 	Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm.	
 	23	.2 	 	Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm.	
 	23	.3 	 	Consent of Hanson, Bridgett, Marcus, Vlahos & Rudy, LLP.*	
 	24	.1 	 	Power of Attorney (included on page II-6)	

		
* 	To be filed by amendment.	
 
EXHIBIT 3.1
[DELAWARE LOGO] PAGE 1
The First State
I, HARRIET SMITH WINDSOR, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF INCORPORATION OF "AMERICAN REPROGRAPHICS COMPANY", FILED IN THIS OFFICE ON THE THIRTIETH DAY OF SEPTEMBER, A.D. 2004, AT 9:14 O'CLOCK P.M.
A FILED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS.

                          [LOGO]   /s/ Harriet Smith Windsor
                                   ---------------------------------------------
                                   Harriet Smith Windsor, Secretary of State

3860502 8100                                             AUTHENTICATION: 3385956

040710146                                                         DATE: 10-01-04	

State of Delaware
Secretary of State
Division of Corporations
Delivered 10:16 PM 09/30/2004
FILED 09:14 PM 09/30/2004
SRV 040710146 - 3860502 FILE
CERTIFICATE OF INCORPORATION
OF
AMERICAN REPROGRAPHICS COMPANY
ARTICLE I
The name of this corporation is AMERICAN REPROGRAPHICS COMPANY (the "Corporation").
ARTICLE II
The address of the registered office of the Corporation in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of its registered agent at such address is The Corporation Trust Company.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of Delaware.
ARTICLE IV
A. This Corporation is authorized to issue two classes of stock to be designated, respectively, common stock ("Common Stock") and preferred stock ("Preferred Stock"). The total number of shares which the Corporation is authorized to issue is One Hundred Seventy-Five Million (175,000,000) shares. One Hundred Fifty Million (150,000,000) shares shall be Common Stock, each having a par value of one-tenth of one cent ($0.001). Twenty-Five Million (25,000,000) shares shall be Preferred Stock, each having a par value of one-tenth of one cent ($0.001).
B. The Preferred Stock may be issued from time to time in one or more series, without further stockholder approval. The Board of Directors is hereby expressly authorized to provide for the issue of any or all of the shares of the Preferred Stock in one or more series, and to fix the number of shares and to determine or alter for each such series, such voting powers, full or limited, or no voting powers, and such designation, preferences, and relative, participating, optional, or other rights and such qualifications, limitations, or restrictions thereof, including, without limitation, to fix or alter the dividend rights, dividend rate, conversion rights, voting rights, rights and terms of redemption (including sinking fund provisions), the redemption price or prices, and the liquidation preferences of any wholly unissued series of Preferred Stock, as shall be stated and expressed in the resolution or resolutions adopted by the Board of Directors
providing for the issuance of such shares and as may be permitted by the General Corporation Law of Delaware. The Board of Directors is also expressly authorized to increase or decrease the number of shares of any series subsequent to the issuance of shares of that series, but not below the number of shares of such series then outstanding. In case the number of shares of any series shall be decreased in accordance with the foregoing sentence, the shares constituting such decrease shall resume the status that they had prior to the adoption of the resolution originally fixing the number of shares of such series.
ARTICLE V
Except as otherwise provided in this Certificate of Incorporation, in furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, repeal, alter, amend, and rescind any or all of the Bylaws of the Corporation.
ARTICLE VI
The authorized number of directors which shall constitute the Board of Directors shall be fixed exclusively by resolutions adopted by a majority of the then authorized number of directors constituting the Board of Directors.
ARTICLE VII
Elections of directors need not be by written ballot unless the Bylaws of the Corporation so provide.
ARTICLE VIII
Meetings of stockholders may be held within or without the State of Delaware, as the bylaws may provide. The books of the Corporation may be kept, subject to any provision contained in the statutes, outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the Bylaws of the Corporation.
ARTICLE IX
A director of this Corporation shall, to the fullest extent permitted by the General Corporation Law of Delaware as it now exists or as it may hereafter be amended, not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of the law, (iii) under Section 174 of the General Corporation Law of Delaware, or (iv) for any transaction from which the director derived any improper personal benefit. If the General Corporation Law of Delaware is amended, after the filing of the Certificate of Incorporation, to authorize action by the Corporation further eliminating the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the General Corporation Law of Delaware, as amended.
Any amendment, repeal, or modification of this Article IX, or the adoption of any
2
provision of this Certificate of Incorporation inconsistent with this Article IX, by the stockholders of the Corporation shall not apply to or adversely affect any right or protection of a director of the Corporation existing at the time of such amendment, repeal, modification, or adoption.
ARTICLE X
The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation.
ARTICLE XI
The Corporation shall indemnify its directors and officers to the fullest extent authorized or permitted by law, as now or hereafter in effect, and such right to indemnification shall continue as to a person who has ceased to be a director or officer of the Corporation and shall inure to the benefit of his or her heirs, executors and personal and legal representatives; provided, however, that, except for proceedings to enforce rights to indemnification, the Corporation shall not be obligated to indemnify any director or officer (or his or her heirs, executors, or personal or legal representatives) in connection with a proceeding (or part thereof) initiated by such person unless such proceeding (or part thereof) was authorized or consented to by the Board of Directors. The right to indemnification conferred by this Article XI shall include the right to be paid by the Corporation the expenses incurred in defending or otherwise participating in any proceeding in advance of its final disposition.
At any time or times the Corporation is subject to Section 2115(b) of the California General Corporation Law ("CGCL"), this Corporation is authorized to provide indemnification of agents (as defined in Section 317 of the CGCL) for breach of duty to the Corporation and its shareholders through Bylaw provisions or through agreements with the agents, or through shareholder resolutions, or otherwise, in excess of the indemnification otherwise permitted by Section 317 of the CGCL, subject, to the limits on such excess indemnification set forth in
Section 204 of the CGCL.
The Corporation may, to the extent authorized from time to time by the Board of Directors, provide rights to indemnification and to the advancement of expenses to employees and agents of the Corporation similar to those conferred in this Article XI to directors and officers of the Corporation.
The rights to indemnification and to the advance of expenses conferred in this Article XI shall not be exclusive of any other right which any person may have or hereafter acquire under this Certificate of Incorporation, the Bylaws of the Corporation, any statute, agreement, vote of stockholders or disinterested directors or otherwise.
Any amendment, repeal, or modification of this Article XI, or the adoption of any provision of this Certificate of Incorporation inconsistent with this Article XI, by the stockholders of the Corporation shall not apply to or adversely affect any right or protection of a director, officer, agent, or other person existing at the time of, or increase the liability of any such persons with respect to any acts or omissions occurring prior to such amendment, repeal,
3
modification, or adoption.
ARTICLE XII
The name and mailing address of the incorporator is Jonathan S. Storper, Esq., Hanson, Bridgett, Marcus, Vlahos & Rudy, LLP, 333 Market Street, Suite 2300, San Francisco, CA 94105.
I, the undersigned, for the purpose of forming a corporation under the laws of the State of Delaware, do make, file and record this Certificate, and do certify that the facts herein stated are true, and I have accordingly hereunto set my hand this 30th day of September, 2004.

/s/ Jonathan Storper
-----------------------------------------
  Jonathan S. Storper, Esq., Incorporator	

4
 
EXHIBIT 3.2
BYLAWS
OF
AMERICAN REPROGRAPHICS COMPANY,
A DELAWARE CORPORATION

ARTICLE I. OFFICES...........................................................................................       1
     Section 1. Registered Office............................................................................       1
     Section 2. Other Offices................................................................................       1
ARTICLE II. CORPORATE SEAL...................................................................................       1
     Section 3. Corporate Seal...............................................................................       1
ARTICLE III. STOCKHOLDERS' MEETINGS..........................................................................       1
     Section 4. Place Of Meetings............................................................................       1
     Section 5. Annual Meetings..............................................................................       1
     Section 6. Special Meetings.............................................................................       4
     Section 7. Notice Of Meetings...........................................................................       5
     Section 8. Quorum ......................................................................................       5
     Section 9. Adjournment And Notice Of Adjourned Meetings.................................................       5
     Section 10. Voting Rights...............................................................................       6
     Section 11. Joint Owners Of Stock.......................................................................       6
     Section 12. List Of Stockholders........................................................................       6
     Section 13. Action Without Meeting......................................................................       6
     Section 14. Organization................................................................................       8
ARTICLE IV. DIRECTORS........................................................................................       9
     Section 15. Number And Term Of Office...................................................................       9
     Section 16. Powers .....................................................................................       9
     Section 17. Classes of Directors........................................................................       9
     Section 18. Vacancies...................................................................................      10
     Section 19. Resignation.................................................................................      10
     Section 20. Removal ....................................................................................      11
     Section 21. Meetings....................................................................................      11
     Section 22. Quorum And Voting...........................................................................      12
     Section 23. Action Without Meeting......................................................................      12
     Section 24. Fees And Compensation.......................................................................      12
     Section 25. Committees..................................................................................      13
     Section 26. Organization................................................................................      14
ARTICLE V. OFFICERS..........................................................................................      14
     Section 27. Officers Designated.........................................................................      14
     Section 28. Tenure And Duties Of Officers...............................................................      14	

1

     Section 29. Delegation Of Authority.....................................................................      15
     Section 30. Resignations................................................................................      15
     Section 31. Removal ....................................................................................      16
ARTICLE VI. EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES OWNED BY THE CORPORATION.............      16
     Section 32. Execution Of Corporate Instruments..........................................................      16
     Section 33. Voting Of Securities Owned By The Corporation...............................................      16
ARTICLE VII. SHARES OF STOCK.................................................................................      16
     Section 34. Form And Execution Of Certificates..........................................................      16
     Section 35. Lost Certificates...........................................................................      17
     Section 36. Transfers...................................................................................      17
     Section 37. Fixing Record Dates.........................................................................      17
     Section 38. Registered Stockholders.....................................................................      18
ARTICLE VIII. OTHER SECURITIES OF THE CORPORATION............................................................      19
     Section 39. Execution Of Other Securities...............................................................      19
ARTICLE IX. DIVIDENDS........................................................................................      19
     Section 40. Declaration Of Dividends....................................................................      19
     Section 41. Dividend Reserve............................................................................      19
ARTICLE X. FISCAL YEAR.......................................................................................      20
     Section 42. Fiscal Year.................................................................................      20
ARTICLE XI. INDEMNIFICATION..................................................................................      20
     Section 43. Indemnification of Directors, Executive Officers, Other Officers,
              Employees And Other Agents ....................................................................      20
ARTICLE XII. NOTICES.........................................................................................      23
     Section 44. Notices                                                                                           23
ARTICLE XIII. AMENDMENTS.....................................................................................      24
     Section 45. Amendments..................................................................................      24
ARTICLE XIV. LOANS TO OFFICERS...............................................................................      25
     Section 46. Loans To Officers...........................................................................      25	

ii
BYLAWS
OF
AMERICAN REPROGRAPHICS COMPANY,
A DELAWARE CORPORATION
ARTICLE I.
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the corporation in the State of Delaware shall be in the City of Wilmington, County of New Castle.
SECTION 2. OTHER OFFICES. The corporation shall also have and maintain an office or principal place of business at such place as may be fixed by the Board of Directors, and may also have offices at such other places, both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the corporation may require.
ARTICLE II.
CORPORATE SEAL
SECTION 3. CORPORATE SEAL. The Board of Directors may adopt a corporate seal. The corporate seal shall consist of a die bearing the name of the corporation and the inscription, "Corporate Seal-Delaware." Said seal may be used by causing it or a facsimile to be impressed or affixed or reproduced or otherwise.
ARTICLE III.
STOCKHOLDERS' MEETINGS
SECTION 4. PLACE OF MEETINGS. Meetings of the stockholders of the corporation may be held at such place, either within or without the State of Delaware, as may be determined from time to time by the Board of Directors, or, if not so designated, then at the office of the corporation required to be maintained pursuant to Section 2 hereof. The Board of Directors may, in its sole discretion, determine that the meeting shall not be held at any place, but may instead be held solely by means of remote communication as provided under the Delaware General Corporation Law ("DGCL").
SECTION 5. ANNUAL MEETINGS.
(a) The annual meeting of the stockholders of the corporation, for the purpose of election of directors and for such other business as may lawfully come before it, shall be held
1
on such date and at such time as may be designated from time to time by the Board of Directors. Nominations of persons for election to the Board of Directors of the corporation and the proposal of business to be considered by the stockholders may be made at an annual meeting of stockholders: (i) pursuant to the corporation's notice of meeting of stockholders; (ii) by or at the direction of the Board of Directors; or (iii) by any stockholder of the corporation who was a stockholder of record at the time of giving the stockholder's notice provided for in the following paragraph, who is entitled to vote at the meeting and who complied with the notice procedures set forth in
Section 5.
(b) At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. For nominations or other business to be properly brought before an annual meeting by a stockholder pursuant to clause (iii) of Section 5(a) of these Bylaws, (i) the stockholder must have given timely notice thereof in writing to the Secretary of the corporation, (ii) such other business must be a proper matter for stockholder action under DGCL, (iii) if the stockholder, or the beneficial owner on whose behalf any such proposal or nomination is made, has provided the corporation with a Solicitation Notice (as defined in clause (iii) of the last sentence of this Section 5(b)), such stockholder or beneficial owner must, in the case of a proposal, have delivered a proxy statement and form of proxy to holders of at least the percentage of the corporation's voting shares required under applicable law to carry any such proposal, or, in the case of a nomination or nominations, have delivered a proxy statement and form of proxy to holders of a percentage of the corporation's voting shares reasonably believed by such stockholder or beneficial owner to be sufficient to elect the nominee or nominees proposed to be nominated by such stockholder, and must, in either case, have included in such materials the Solicitation Notice, and (iv) if no Solicitation Notice relating thereto has been timely provided pursuant to this section, the stockholder or beneficial owner proposing such business or nomination must not have solicited a number of proxies sufficient to have required the delivery of such a Solicitation Notice under this Section 5. To be timely, a stockholder's notice shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the ninetieth (90th) day nor earlier than the close of business on the one hundred twentieth (120th) day prior to the first anniversary of the preceding year's annual meeting; provided, however, that in the event that the date of the annual meeting is advanced more than thirty (30) days prior to or delayed by more than thirty (30) days after the anniversary of the preceding year's annual meeting, notice by the stockholder to be timely must be so delivered not earlier than the close of business on the one hundred twentieth
(120th) day prior to such annual meeting and not later than the close of business on the later of the ninetieth (90th) day prior to such annual meeting or the tenth (10th) day following the day on which public announcement of the date of such meeting is first made. In no event shall the public announcement of an adjournment of an annual meeting commence a new time period for the giving of a stockholder's notice as described above. Such stockholder's notice shall set forth: (A) as to each person whom the stockholder proposed to nominate for election or reelection as a director all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors in an election contest, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "1934 ACT") and Rule 14a-4(d) thereunder (including such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected); (B) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at
2
the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made; and (C) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (i) the name and address of such stockholder, as they appear on the corporation's books, and of such beneficial owner, (ii) the class and number of shares of the corporation which are owned beneficially and of record by such stockholder and such beneficial owner, and
(iii) whether either such stockholder or beneficial owner intends to deliver a proxy statement and form of proxy to holders of, in the case of the proposal, at least the percentage of the corporation's voting shares required under applicable law to carry the proposal or, in the case of a nomination or nominations, a sufficient number of holders of the corporation's voting shares to elect such nominee or nominees (an affirmative statement of such intent, a "SOLICITATION NOTICE").
(c) Notwithstanding anything in the third sentence of Section 5(b) of these Bylaws to the contrary, in the event that the number of directors to be elected to the Board of Directors of the Corporation is increased and there is no public announcement naming all of the nominees for director or specifying the size of the increased Board of Directors made by the corporation at least one hundred (100) days prior to the first anniversary of the preceding year's annual meeting, a stockholder's notice required by this Section 5 shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the principal executive offices of the corporation not later than the close of business on the tenth (10th) day following the day on which such public announcement is first made by the corporation.
(d) Only such persons who are nominated in accordance with the procedures set forth in this Section 5 shall be eligible to serve as directors and only such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this Section 5. Except as otherwise provided by law, the Chairman of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made, or proposed, as the case may be, in accordance with the procedures set forth in these Bylaws and, if any proposed nomination or business is not in compliance with these Bylaws, to declare that such defective proposal or nomination shall not be presented for stockholder action at the meeting and shall be disregarded.
(e) Notwithstanding the foregoing provisions of this Section 5, in order to include information with respect to a stockholder proposal in the proxy statement and form of proxy for a stockholders' meeting, stockholders must provide notice as required by the regulations promulgated under the 1934 Act. Nothing in these Bylaws shall be deemed to affect any rights of stockholders to request inclusion of proposals in the corporation proxy statement pursuant to Rule 14a-8 under the 1934 Act.
(f) For purposes of this Section 5, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the corporation with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the 1934 Act.
3
SECTION 6. SPECIAL MEETINGS.
(a) Special meetings of the stockholders of the corporation may be called, for any purpose or purposes, by (i) the Chairman of the Board of Directors, (ii)Chief Executive Officer, (iii) the President, or (iv) the Board of Directors pursuant to a resolution adopted by a majority of the total number of authorized directors (whether or not there exist any vacancies in previously authorized directorships at the time any such resolution is presented to the Board of Directors for adoption).
At any time or times that the corporation is subject to Section 2115(b) of the California General Corporation Law ("CGCL"), stockholders holding five percent (5%) or more of the outstanding shares shall have the right to call a special meeting of stockholders only as set forth in Section 18(b) herein.
(b) If a special meeting is properly called by any person or persons other than the Board of Directors, the request shall be in writing, specifying the general nature of the business proposed to be transacted, and shall be delivered personally or sent by certified or registered mail, return receipt requested, to the Chairman of the Board of Directors, the Chief Executive Officer, or the Secretary of the corporation. No business may be transacted at such special meeting otherwise than specified in such notice. The Board of Directors shall determine the time and place of such special meeting, which shall be held not less than thirty-five (35) nor more than one hundred twenty (120) days after the date of the receipt of the request. Upon determination of the time and place of the meeting, the officer receiving the request shall cause notice to be given to the stockholders entitled to vote, in accordance with the provisions of Section 7 of these Bylaws. Nothing contained in this paragraph (b) shall be construed as limiting, fixing, or affecting the time when a meeting of stockholders called by action of the Board of Directors may be held.
(c) Nominations of persons for election to the Board of Directors may be made at a special meeting of stockholders at which directors are to be elected pursuant to the corporation's notice of meeting (i) by or at the direction of the Board of Directors or (ii) by any stockholder of the corporation who is a stockholder of record at the time of giving notice provided for in these Bylaws who shall be entitled to vote at the meeting and who complies with the notice procedures set forth in this Section 6(c). In the event the corporation calls a special meeting of stockholders for the purpose of electing one or more directors to the Board of Directors, any such stockholder may nominate a person or persons (as the case may be), for election to such position(s) as specified in the corporation's notice of meeting, if the stockholder's notice required by Section 5(b) of these Bylaws shall be delivered to the Secretary at the principal executive offices of the corporation not earlier than the close of business on the one hundred twentieth (120th) day prior to such special meeting and not later than the close of business on the later of the ninetieth (90th) day prior to such meeting or the tenth (10th) day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. In no event shall the public announcement of an adjournment of a special meeting commence a new time period for the giving of a stockholder's notice as described above.
4
SECTION 7. NOTICE OF MEETINGS. Except as otherwise provided by law, notice, given in writing or by electronic transmission, of each meeting of stockholders shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder entitled to vote at such meeting, such notice to specify the place, if any, date and hour, in the case of special meetings, the purpose or purposes of the meeting, and the means of remote communications, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at any such meeting. If mailed, notice is given when deposited in the United States mail, postage prepaid, directed to the stockholder at such stockholder's address as it appears on the records of the corporation. Notice of the time, place, if any, and purpose of any meeting of stockholders may be waived in writing, signed by the person entitled to notice thereof, or by electronic transmission by such person, either before or after such meeting, and will be waived by any stockholder by his attendance thereat in person, by remote communication, if applicable, or by proxy, except when the stockholder attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Any stockholder so waiving notice of such meeting shall be bound by the proceedings of any such meeting in all respects as if due notice thereof had been given.
SECTION 8. QUORUM. At all meetings of stockholders, except where otherwise provided by statute or by the Certificate of Incorporation, or by these Bylaws, the presence, in person, by remote communication, if applicable, or by proxy duly authorized, of the holders of a majority of the outstanding shares of stock entitled to vote shall constitute a quorum for the transaction of business. In the absence of a quorum, any meeting of stockholders may be adjourned, from time to time, either by the chairman of the meeting or by vote of the holders of a majority of the shares represented thereat, but no other business shall be transacted at such meeting. The stockholders present at a duly called or convened meeting, at which a quorum is present, may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. Except as otherwise provided by statute or by applicable stock exchange or Nasdaq rules, or by the Certificate of Incorporation or these Bylaws, in all matters other than the election of directors, the affirmative vote of the majority of shares present in person, by remote communication, if applicable, or represented by proxy at the meeting and entitled to vote generally on the subject matter shall be the act of the stockholders. Except as otherwise provided by statute, the Certificate of Incorporation or these Bylaws, directors shall be elected by a plurality of the votes of the shares present in person, by remote communication, if applicable, or represented by proxy at the meeting and entitled to vote generally on the election of directors. Where a separate vote by a class or classes or series is required, except where otherwise provided by the statute or by the Certificate of Incorporation or these Bylaws, a majority of the outstanding shares of such class or classes or series, present in person, by remote communication, if applicable, or represented by proxy duly authorized, shall constitute a quorum entitled to take action with respect to that vote on that matter. Except where otherwise provided by statute or by the Certificate of Incorporation or these Bylaws, the affirmative vote of the majority (plurality, in the case of the election of directors) of shares of such class or classes or series present in person, by remote communication, if applicable, or represented by proxy at the meeting shall be the act of such class or classes or series.
SECTION 9. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. Any meeting of stockholders, whether annual or special, may be adjourned from time to time either by the
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chairman of the meeting or by the vote of a majority of the shares present in person, by remote communication, if applicable, or represented by proxy at the meeting. When a meeting is adjourned to another time or place, if any, notice need not be given of the adjourned meeting if the time and place, if any, thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.
SECTION 10. VOTING RIGHTS. For the purpose of determining those stockholders entitled to vote at any meeting of the stockholders, except as otherwise provided by law, only persons in whose names shares stand on the stock records of the corporation on the record date, as provided in Section 12 of these Bylaws, shall be entitled to vote at any meeting of stockholders. Every person entitled to vote (or execute consents, if permitted by these Bylaws) shall have the right to do so either in person, by remote communication, if applicable, or by an agent or agents authorized by a proxy granted in accordance with Delaware law. An agent so appointed need not be a stockholder. No proxy shall be voted after three (3) years from its date of creation unless the proxy provides for a longer period.
SECTION 11. JOINT OWNERS OF STOCK. If shares or other securities having voting power stand of record in the names of two (2) or more persons, whether fiduciaries, members of a partnership, joint tenants, tenants in common, tenants by the entirety, or otherwise, or if two (2) or more persons have the same fiduciary relationship respecting the same shares, unless the Secretary is given written notice to the contrary and is furnished with a copy of the instrument or order appointing them or creating the relationship wherein it is so provided, their acts with respect to voting shall have the following effect: (a) if only one (1) votes, his act binds all; (b) if more than one (1) votes, the act of the majority so voting binds all; (c) if more than one (1) votes, but the vote is evenly split on any particular matter, each faction may vote the securities in question proportionally, or may apply to the Delaware Court of Chancery for relief as provided in the DGCL, Section 217(b). If the instrument filed with the Secretary shows that any such tenancy is held in unequal interests, a majority or even-split for the purpose of subsection (c) shall be a majority or even-split in interest.
SECTION 12. LIST OF STOCKHOLDERS. The Secretary shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at said meeting, arranged in alphabetical order, showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, (a) on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of the meeting, or (b) during ordinary business hours, at the principal place of business of the corporation. In the event that the corporation determines to make the list available on an electronic network, the corporation may take reasonable steps to ensure that such information is available only to stockholders of the corporation. The list shall be open to examination of any stockholder during the time of the meeting as provided by law.
SECTION 13. ACTION WITHOUT MEETING.
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(a) Unless otherwise provided in the Certificate of Incorporation, any action required by statute to be taken at any annual or special meeting of the stockholders, or any action which may be taken at any annual or special meeting of the stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, or by electronic transmission setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted.
(b) Every written consent or electronic transmission shall bear the date of signature of each stockholder who signs the consent, and no written consent or electronic transmission shall be effective to take the corporate action referred to therein unless, within sixty (60) days of the earliest dated consent delivered to the corporation in the manner herein required, written consents or electronic transmissions signed by a sufficient number of stockholders to take action are delivered to the corporation by delivery to its registered office in the State of Delaware, its principal place of business or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to a corporation's registered office shall be by hand or by certified or registered mail, return receipt requested.
(c) Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing or by electronic transmission and who, if the action had been taken at a meeting, would have been entitled to notice of the meeting if the record date for such meeting had been the date that written consents signed by a sufficient number of stockholders to take action were delivered to the corporation as provided in Section 228 (c) of the DGCL. If the action which is consented to is such as would have required the filing of a certificate under any section of the DGCL if such action had been voted on by stockholders at a meeting thereof, then the certificate filed under such section shall state, in lieu of any statement required by such section concerning any vote of stockholders, that written consent has been given in accordance with
Section 228 of the DGCL.
(d) A telegram, cablegram or other electronic transmission consent to an action to be taken and transmitted by a stockholder or proxyholder, or by a person or persons authorized to act for a stockholder or proxyholder, shall be deemed to be written, signed and dated for the purposes of this section, provided that any such telegram, cablegram or other electronic transmission sets forth or is delivered with information from which the corporation can determine
(i) that the telegram, cablegram or other electronic transmission was transmitted by the stockholder or proxyholder or by a person or persons authorized to act for the stockholder or proxyholder and (ii) the date on which such stockholder or proxyholder or authorized person or persons transmitted such telegram, cablegram or electronic transmission. The date on which such telegram, cablegram or electronic transmission is transmitted shall be deemed to be the date on which such consent was signed. No consent given by telegram, cablegram or other electronic transmission shall be deemed to have been delivered until such consent is reproduced in paper form and until such paper form shall be delivered to the corporation by delivery to its registered office in the State of Delaware, its principal place of business or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to a corporation's registered office shall be made by hand or by
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certified or registered mail, return receipt requested. Notwithstanding the foregoing limitations on delivery, consents given by telegram, cablegram or other electronic transmission may be otherwise delivered to the principal place of business of the corporation or to an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded if, to the extent and in the manner provided by resolution of the board of directors of the corporation. Any copy, facsimile or other reliable reproduction of a consent in writing may be substituted or used in lieu of the original writing for any and all purposes for which the original writing could be used, provided that such copy, facsimile or other reproduction shall be a complete reproduction of the entire original in writing.
(e) Notwithstanding the foregoing, no such action by written consent or by electronic transmission may be taken following the closing of the initial public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended (the "1933 Act"), covering the offer and sale of Common Stock of the corporation to the public (the "Initial Public Offering").
SECTION 14. ORGANIZATION.
(a) At every meeting of stockholders, the Chairman of the Board of Directors, or, if a Chairman has not been appointed or is absent, the President, or, if the President is absent, a chairman of the meeting chosen by a majority in interest of the stockholders entitled to vote, present in person or by proxy, shall act as chairman. The Secretary, or, in his absence, an Assistant Secretary directed to do so by the President, shall act as secretary of the meeting.
(b) The Board of Directors of the corporation shall be entitled to make such rules or regulations for the conduct of meetings of stockholders as it shall deem necessary, appropriate or convenient. Subject to such rules and regulations of the Board of Directors, if any, the chairman of the meeting shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are necessary, appropriate or convenient for the proper conduct of the meeting, including, without limitation, establishing an agenda or order of business for the meeting, rules and procedures for maintaining order at the meeting and the safety of those present, limitations on participation in such meeting to stockholders of record of the corporation and their duly authorized and constituted proxies and such other persons as the chairman shall permit, restrictions on entry to the meeting after the time fixed for the commencement thereof, limitations on the time allotted to questions or comments by participants and regulation of the opening and closing of the polls for balloting on matters which are to be voted on by ballot. The date and time of the opening and closing of the polls for each matter upon which the stockholders will vote at the meeting shall be announced at the meeting. Unless and to the extent determined by the Board of Directors or the chairman of the meeting, meetings of stockholders shall not be required to be held in accordance with rules of parliamentary procedure.
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ARTICLE IV.
DIRECTORS
SECTION 15. NUMBER AND TERM OF OFFICE. The authorized number of directors which shall constitute the Board of Directors shall be fixed exclusively by resolutions adopted by a majority of the then authorized number of directors constituting the Board of Directors. Directors need not be stockholders unless so required by the Certificate of Incorporation. If for any cause, the directors shall not have been elected at an annual meeting, they may be elected as soon thereafter as convenient at a special meeting of the stockholders called for that purpose in the manner provided in these Bylaws.
SECTION 16. POWERS. The powers of the corporation shall be exercised, its business conducted and its property controlled by the Board of Directors, except as may be otherwise provided by statute or by the Certificate of Incorporation.
SECTION 17. CLASSES OF DIRECTORS.
(a) Subject to the rights of the holders of any series of Preferred Stock to elect additional directors under specified circumstances, following the closing of the Initial Public Offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, covering the offer and sale of Common Stock of the corporation to the public, the directors shall be divided into three classes designated as Class I, Class II and Class III, respectively. At the first annual meeting of stockholders following the closing of the Initial Public Offering, the term of office of the Class I directors shall expire and Class I directors shall be elected for a full term of three years. At the second annual meeting of stockholders following the Initial Public Offering, the term of office of the Class II directors shall expire and Class II directors shall be elected for a full term of three years. At the third annual meeting of stockholders following the Initial Public Offering, the term of office of the Class III directors shall expire and Class III directors shall be elected for a full term of three years. At each succeeding annual meeting of stockholders, directors shall be elected for a full term of three years to succeed the directors of the class whose terms expire at such annual meeting.
(b) During such time or times that the corporation is subject to
Section 2115(b) of the CGCL, Section 17(a) of these Bylaws shall not apply and all directors shall be elected at each annual meeting of stockholders to hold office until the next annual meeting.
(c) No stockholder entitled to vote at an election for directors may cumulate votes to which such stockholder is entitled, unless, at the time of the election, the corporation is subject to Section 2115(b) of the CGCL. During such time or times that the corporation is subject to Section 2115(b) of the CGCL, every stockholder entitled to vote at an election for directors may cumulate such stockholder's votes and give one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which such stockholder's shares are otherwise entitled, or distribute the stockholder's votes on the same principle among as many candidates as such stockholder thinks fit. No stockholder, however, shall be entitled to so cumulate such stockholder's votes unless (i) the names of such candidate or candidates have been placed in nomination prior to the voting and (ii) the stockholder has
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given notice at the meeting, prior to the voting, of such stockholder's intention to cumulate such stockholder's votes. If any stockholder has given proper notice to cumulate votes, all stockholders may cumulate their votes for any candidates who have been properly placed in nomination. Under cumulative voting, the candidates receiving the highest number of votes, up to the number of directors to be elected, are elected.
Notwithstanding the foregoing provisions of this section, each director shall serve until his successor is duly elected and qualified or until his earlier death, resignation or removal. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director.
SECTION 18. VACANCIES.
(a) Unless otherwise provided in the Certificate of Incorporation and subject to the rights of the holders of any series of Preferred Stock, any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other causes and any newly created directorships resulting from any increase in the number of directors shall, unless the Board of Directors determines by resolution that any such vacancies or newly created directorships shall be filled by stockholders, be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum of the Board of Directors. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the director for which the vacancy was created or occurred and until such director's successor shall have been elected and qualified. A vacancy in the Board of Directors shall be deemed to exist under this Section 18 in the case of the death, removal or resignation of any director.
(b) At any time or times that the corporation is subject to
Section 2115(b) of the CGCL, if, after the filling of any vacancy, the directors then in office who have been elected by stockholders shall constitute less than a majority of the directors then in office, then
(1) Any holder or holders of an aggregate of five percent (5%) or more of the total number of shares at the time outstanding having the right to vote for those directors may call a special meeting of stockholders; or
(2) The Superior Court of the proper county shall, upon application of such stockholder or stockholders, summarily order a special meeting of stockholders, to be held to elect the entire board, all in accordance with Section 305(c) of the CGCL. The term of office of any director shall terminate upon that election of a successor.
SECTION 19. RESIGNATION. Any director may resign at any time by delivering his or her notice in writing or by electronic transmission to the Secretary, such resignation to specify whether it will be effective at a particular time, upon receipt by the Secretary or at the pleasure of the Board of Directors. If no such specification is made, it shall be deemed effective at the pleasure of the Board of Directors. When one or more directors shall resign from the Board of Directors, effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each Director so
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chosen shall hold office for the unexpired portion of the term of the Director whose place shall be vacated and until his successor shall have been duly elected and qualified.
SECTION 20. REMOVAL.
(a) During such time or times that the corporation is subject to
Section 2115(b) of the CGCL, the Board of Directors or any individual director may be removed from office at any time without cause by the affirmative vote of the holders of at least a majority of the outstanding shares entitled to vote on such removal; provided, however, that unless the entire Board is removed, no individual director may be removed when the votes cast against such director's removal, or not consenting in writing to such removal, would be sufficient to elect that director if voted cumulatively at an election which the same total number of votes were cast (or, if such action is taken by written consent, all shares entitled to vote were voted) and the entire number of directors authorized at the time of such director's most recent election were then being elected.
(b) At any time or times that the corporation is not subject to
Section 2115(b) of the CGCL and subject to any limitations imposed by law,
Section 20(a) above shall no longer apply and neither the Board of Directors nor any individual director may be removed without cause and any individual director or directors may be removed with cause by the holders of a two thirds of the outstanding shares entitled to vote thereon.
SECTION 21. MEETINGS.
(a) REGULAR MEETINGS. Unless otherwise restricted by the Certificate of Incorporation, regular meetings of the Board of Directors may be held at any time or date and at any place within or without the State of Delaware which has been designated by the Board of Directors and publicized among all directors, either orally or in writing, by telephone, including a voice-messaging system or other system designed to record and communicate messages, facsimile, telegraph or telex, or by electronic mail or other electronic means. No further notice shall be required for regular meetings of the Board of Directors.
(b) SPECIAL MEETINGS. Unless otherwise restricted by the Certificate of Incorporation, special meetings of the Board of Directors may be held at any time and place within or without the State of Delaware whenever called by the Chairman of the Board, the President, or a majority of the authorized number of directors.
(c) MEETINGS BY ELECTRONIC COMMUNICATIONS EQUIPMENT. Any member of the Board of Directors, or of any committee thereof, may participate in a meeting by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting by such means shall constitute presence in person at such meeting.
(d) NOTICE OF SPECIAL MEETINGS. Notice of the time and place of all special meetings of the Board of Directors shall be orally or in writing, by telephone, including a voice messaging system or other system or technology designed to record and communicate messages, facsimile, telegraph or telex, or by electronic mail or other electronic means, during normal business hours, at least twenty-four (24) hours before the date and time of the meeting. If notice
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is sent by US mail, it shall be sent by first class mail, charges prepaid, at least three (3) days before the date of the meeting. Notice of any meeting may be waived in writing, or by electronic transmission, at any time before or after the meeting and will be waived by any director by attendance thereat, except when the director attends the meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened.
(e) WAIVER OF NOTICE. The transaction of all business at any meeting of the Board of Directors, or any committee thereof, however called or noticed, or wherever held, shall be as valid as though had at a meeting duly held after regular call and notice, if a quorum be present and if, either before or after the meeting, each of the directors not present who did not receive notice shall sign a written waiver of notice or shall waive notice by electronic transmission. All such waivers shall be filed with the corporate records or made a part of the minutes of the meeting.
SECTION 22. QUORUM AND VOTING.
(a) Unless the Certificate of Incorporation requires a greater number, a quorum of the Board of Directors shall consist of a majority of the exact number of directors fixed from time to time by the Board of Directors in accordance with the Certificate of Incorporation; provided, however, at any meeting whether a quorum be present or otherwise, a majority of the directors present may adjourn from time to time until the time fixed for the next regular meeting of the Board of Directors, without notice other than by announcement at the meeting.
(b) At each meeting of the Board of Directors at which a quorum is present, all questions and business shall be determined by the affirmative vote of a majority of the directors present, unless a different vote be required by law, the Certificate of Incorporation or these Bylaws.
SECTION 23. ACTION WITHOUT MEETING. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all members of the Board of Directors or committee, as the case may be, consent thereto in writing or by electronic transmission, and such writing or writings or transmission or transmissions are filed with the minutes of proceedings of the Board of Directors or committee. Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form.
SECTION 24. FEES AND COMPENSATION. Directors shall be entitled to such compensation for their services as may be approved by the Board of Directors, including, if so approved, by resolution of the Board of Directors, a fixed sum and expenses of attendance, if any, for attendance at each regular or special meeting of the Board of Directors and at any meeting of a committee of the Board of Directors. Nothing herein contained shall be construed to preclude any director from serving the corporation in any other capacity as an officer, agent, employee, or otherwise and receiving compensation therefor.
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SECTION 25. COMMITTEES.
(a) EXECUTIVE COMMITTEE. The Board of Directors may appoint an Executive Committee to consist of one (1) or more members of the Board of Directors. The Executive Committee, to the extent permitted by law and provided in the resolution of the Board of Directors shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to (i) approving or adopting, or recommending to the stockholders, any action or matter expressly required by the DGCL to be submitted to stockholders for approval, or (ii) adopting, amending or repealing any bylaw of the corporation.
(b) OTHER COMMITTEES. The Board of Directors may, from time to time, appoint such other committees as may be permitted by law. Such other committees appointed by the Board of Directors shall consist of one (1) or more members of the Board of Directors and shall have such powers and perform such duties as may be prescribed by the resolution or resolutions creating such committees, but in no event shall any such committee have the powers denied to the Executive Committee in these Bylaws.
(c) TERM. The Board of Directors, subject to any requirements of any outstanding series of Preferred Stock and the provisions of subsections (a) or (b) of this Bylaw, may at any time increase or decrease the number of members of a committee or terminate the existence of a committee. The membership of a committee member shall terminate on the date of his death or voluntary resignation from the committee or from the Board of Directors. The Board of Directors may at any time for any reason remove any individual committee member and the Board of Directors may fill any committee vacancy created by death, resignation, removal or increase in the number of members of the committee. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee, and, in addition, in the absence or disqualification of any member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member.
(d) MEETINGS. Unless the Board of Directors shall otherwise provide, regular meetings of the Executive Committee or any other committee appointed pursuant to this Section 25 shall be held at such times and places as are determined by the Board of Directors, or by any such committee, and when notice thereof has been given to each member of such committee, no further notice of such regular meetings need be given thereafter. Special meetings of any such committee may be held at any place which has been determined from time to time by such committee, and may be called by any director who is a member of such committee, upon notice to the members of such committee of the time and place of such special meeting given in the manner provided for the giving of notice to members of the Board of Directors of the time and place of special meetings of the Board of Directors. Notice of any special meeting of any committee may be waived in writing at any time before or after the meeting and will be waived by any director by attendance thereat, except when the director attends such special meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any
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business because the meeting is not lawfully called or convened. Unless otherwise provided by the Board of Directors in the resolutions authorizing the creation of the committee, a majority of the authorized number of members of any such committee shall constitute a quorum for the transaction of business, and the act of a majority of those present at any meeting at which a quorum is present shall be the act of such committee.
SECTION 26. ORGANIZATION. At every meeting of the directors, the Chairman of the Board of Directors, or, if a Chairman has not been appointed or is absent, the President (if a director), or if the President is absent, the most senior Vice President (if a director), or, in the absence of any such person, a chairman of the meeting chosen by a majority of the directors present, shall preside over the meeting. The Secretary, or in his absence, any Assistant Secretary directed to do so by the President, shall act as secretary of the meeting.
ARTICLE V.
OFFICERS
SECTION 27. OFFICERS DESIGNATED. The officers of the corporation shall include, if and when designated by the Board of Directors, the Chairman of the Board of Directors, the Chief Executive Officer, the President, one or more Vice Presidents, the Secretary, the Chief Financial Officer, the Treasurer and the Controller, all of whom shall be elected at the annual organizational meeting of the Board of Directors. The Board of Directors may also appoint one or more Assistant Secretaries, Assistant Treasurers, Assistant Controllers and such other officers and agents with such powers and duties as it shall deem necessary. The Board of Directors may assign such additional titles to one or more of the officers as it shall deem appropriate. Any one person may hold any number of offices of the corporation at any one time unless specifically prohibited therefrom by law. The salaries and other compensation of the officers of the corporation shall be fixed by or in the manner designated by the Board of Directors.
SECTION 28. TENURE AND DUTIES OF OFFICERS.
(a) GENERAL. All officers shall hold office at the pleasure of the Board of Directors and until their successors shall have been duly elected and qualified, unless sooner removed. Any officer elected or appointed by the Board of Directors may be removed at any time by the Board of Directors. If the office of any officer becomes vacant for any reason, the vacancy may be filled by the Board of Directors.
(b) DUTIES OF CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of the Board of Directors, when present, shall preside at all meetings of the stockholders and the Board of Directors. The Chairman of the Board of Directors shall perform other duties commonly incident to the office and shall also perform such other duties and have such other powers, as the Board of Directors shall designate from time to time. If there is no President, then the Chairman of the Board of Directors shall also serve as the Chief Executive Officer of the corporation and shall have the powers and duties prescribed in paragraph (c) of this Section 28.
(c) DUTIES OF PRESIDENT. The President shall preside at all meetings of the stockholders and at all meetings of the Board of Directors, unless the Chairman of the Board of
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Directors has been appointed and is present. Unless some other officer has been elected Chief Executive Officer of the corporation, the President shall be the chief executive officer of the corporation and shall, subject to the control of the Board of Directors, have general supervision, direction and control of the business and officers of the corporation. The President shall perform other duties commonly incident to the office and shall also perform such other duties and have such other powers, as the Board of Directors shall designate from time to time.
(d) DUTIES OF VICE PRESIDENTS. The Vice Presidents may assume and perform the duties of the President in the absence or disability of the President or whenever the office of President is vacant. The Vice Presidents shall perform other duties commonly incident to their office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time.
(e) DUTIES OF SECRETARY. The Secretary shall attend all meetings of the stockholders and of the Board of Directors and shall record all acts and proceedings thereof in the minute book of the corporation. The Secretary shall give notice in conformity with these Bylaws of all meetings of the stockholders and of all meetings of the Board of Directors and any committee thereof requiring notice. The Secretary shall perform all other duties provided for in these Bylaws and other duties commonly incident to the office and shall also perform such other duties and have such other powers, as the Board of Directors shall designate from time to time. The President may direct any Assistant Secretary to assume and perform the duties of the Secretary in the absence or disability of the Secretary, and each Assistant Secretary shall perform other duties commonly incident to the office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time.
(f) DUTIES OF CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall keep or cause to be kept the books of account of the corporation in a thorough and proper manner and shall render statements of the financial affairs of the corporation in such form and as often as required by the Board of Directors or the President. The Chief Financial Officer, subject to the order of the Board of Directors, shall have the custody of all funds and securities of the corporation. The Chief Financial Officer shall perform other duties commonly incident to the office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time. The President may direct the Treasurer or any Assistant Treasurer, or the Controller or any Assistant Controller to assume and perform the duties of the Chief Financial Officer in the absence or disability of the Chief Financial Officer, and each Treasurer and Assistant Treasurer and each Controller and Assistant Controller shall perform other duties commonly incident to the office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time.
SECTION 29. DELEGATION OF AUTHORITY. The Board of Directors may from time to time delegate the powers or duties of any officer to any other officer or agent, notwithstanding any provision hereof.
SECTION 30. RESIGNATIONS. Any officer may resign at any time by giving notice in writing or by electronic transmission to the Board of Directors or to the President or to the Secretary. Any such resignation shall be effective when received by the person or persons to
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whom such notice is given, unless a later time is specified therein, in which event the resignation shall become effective at such later time. Unless otherwise specified in such notice, the acceptance of any such resignation shall not be necessary to make it effective. Any resignation shall be without prejudice to the rights, if any, of the corporation under any contract with the resigning officer.
SECTION 31. REMOVAL. Any officer may be removed from office at any time, either with or without cause, by the affirmative vote of a majority of the directors in office at the time, or by the unanimous written consent of the directors in office at the time, or by any committee or superior officers upon whom such power of removal may have been conferred by the Board of Directors.
ARTICLE VI.
EXECUTION OF CORPORATE INSTRUMENTS AND
VOTING OF SECURITIES OWNED BY THE CORPORATION
SECTION 32. EXECUTION OF CORPORATE INSTRUMENTS. The Board of Directors may, in its discretion, determine the method and designate the signatory officer or officers, or other person or persons, to execute on behalf of the corporation any corporate instrument or document, or to sign on behalf of the corporation the corporate name without limitation, or to enter into contracts on behalf of the corporation, except where otherwise provided by law or these Bylaws, and such execution or signature shall be binding upon the corporation.
All checks and drafts drawn on banks or other depositaries on funds to the credit of the corporation or in special accounts of the corporation shall be signed by such person or persons as the Board of Directors shall authorize so to do.
Unless authorized or ratified by the Board of Directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount.
SECTION 33. VOTING OF SECURITIES OWNED BY THE CORPORATION. All stock and other securities of other corporations owned or held by the corporation for itself, or for other parties in any capacity, shall be voted, and all proxies with respect thereto shall be executed, by the person authorized so to do by resolution of the Board of Directors, or, in the absence of such authorization, by the Chairman of the Board of Directors, the Chief Executive Officer, the President, or any Vice President.
ARTICLE VII.
SHARES OF STOCK
SECTION 34. FORM AND EXECUTION OF CERTIFICATES. Certificates for the shares of stock of the corporation shall be in such form as is consistent with the Certificate of Incorporation and applicable law. Every holder of stock in the corporation shall be entitled to have a certificate signed by or in the name of the corporation by the Chairman of the Board of Directors, or the
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President or any Vice President and by the Treasurer or Assistant Treasurer or the Secretary or Assistant Secretary, certifying the number of shares owned by him in the corporation. Any or all of the signatures on the certificate may be facsimiles. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued with the same effect as if he were such officer, transfer agent, or registrar at the date of issue. Each certificate shall state upon the face or back thereof, in full or in summary, all of the powers, designations, preferences, and rights, and the limitations or restrictions of the shares authorized to be issued or shall, except as otherwise required by law, set forth on the face or back a statement that the corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional, or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Within a reasonable time after the issuance or transfer of uncertificated stock, the corporation shall send to the registered owner thereof a written notice containing the information required to be set forth or stated on certificates pursuant to this section or otherwise required by law or with respect to this section a statement that the corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights.
SECTION 35. LOST CERTIFICATES. A new certificate or certificates shall be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen, or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen, or destroyed. The corporation may require, as a condition precedent to the issuance of a new certificate or certificates, the owner of such lost, stolen, or destroyed certificate or certificates, or the owner's legal representative, to agree to indemnify the corporation in such manner as it shall require or to give the corporation a surety bond in such form and amount as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost, stolen, or destroyed.
SECTION 36. TRANSFERS.
(a) Transfers of record of shares of stock of the corporation shall be made only upon its books by the holders thereof, in person or by attorney duly authorized, and upon the surrender of a properly endorsed certificate or certificates for a like number of shares.
(b) The corporation shall have power to enter into and perform any agreement with any number of stockholders of any one or more classes of stock of the corporation to restrict the transfer of shares of stock of the corporation of any one or more classes owned by such stockholders in any manner not prohibited by the DGCL.
SECTION 37. FIXING RECORD DATES.
(a) In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board of Directors may fix, in advance, a record date, which record date shall not precede the date upon
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which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall, subject to applicable law, not be more than sixty (60) nor less than ten (10) days before the date of such meeting. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.
(b) Prior to the Initial Public Offering, in order that the corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which date shall not be more than ten (10) days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. Any stockholder of record seeking to have the stockholders authorize or take corporate action by written consent shall, by written notice to the Secretary, request the Board of Directors to fix a record date. The Board of Directors shall promptly, but in all events within ten (10) days after the date on which such a request is received, adopt a resolution fixing the record date. If no record date has been fixed by the Board of Directors within ten (10) days of the date on which such a request is received, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is required by applicable law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the corporation by delivery to its registered office in the State of Delaware, its principal place of business or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the Board of Directors and prior action by the Board of Directors is required by law, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the day on which the Board of Directors adopts the resolution taking such prior action.
(c) In order that the corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty (60) days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.
SECTION 38. REGISTERED STOCKHOLDERS. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and shall not be bound to recognize any equitable or other
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claim to or interest in such share or shares on the part of any other person whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware.
ARTICLE VIII.
OTHER SECURITIES OF THE CORPORATION
SECTION 39. EXECUTION OF OTHER SECURITIES. All bonds, debentures and other corporate securities of the corporation, other than stock certificates (covered in Section 34), may be signed by the Chairman of the Board of Directors, the President or any Vice President, or such other person as may be authorized by the Board of Directors, and the corporate seal impressed thereon or a facsimile of such seal imprinted thereon and attested by the signature of the Secretary or an Assistant Secretary, or the Chief Financial Officer or Treasurer or an Assistant Treasurer; provided, however, that where any such bond, debenture or other corporate security shall be authenticated by the manual signature, or where permissible facsimile signature, of a trustee under an indenture pursuant to which such bond, debenture or other corporate security shall be issued, the signatures of the persons signing and attesting the corporate seal on such bond, debenture or other corporate security may be the imprinted facsimile of the signatures of such persons. Interest coupons appertaining to any such bond, debenture or other corporate security, authenticated by a trustee as aforesaid, shall be signed by the Treasurer or an Assistant Treasurer of the corporation or such other person as may be authorized by the Board of Directors, or bear imprinted thereon the facsimile signature of such person. In case any officer who shall have signed or attested any bond, debenture or other corporate security, or whose facsimile signature shall appear thereon or on any such interest coupon, shall have ceased to be such officer before the bond, debenture or other corporate security so signed or attested shall have been delivered, such bond, debenture or other corporate security nevertheless may be adopted by the corporation and issued and delivered as though the person who signed the same or whose facsimile signature shall have been used thereon had not ceased to be such officer of the corporation.
ARTICLE IX.
DIVIDENDS
SECTION 40. DECLARATION OF DIVIDENDS. Dividends upon the capital stock of the corporation, subject to the provisions of the Certificate of Incorporation and applicable law, if any, may be declared by the Board of Directors pursuant to law at any regular or special meeting. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the Certificate of Incorporation and applicable law.
SECTION 41. DIVIDEND RESERVE. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the Board of Directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the Board of Directors shall think conducive to the interests of the corporation, and the Board of Directors may modify or abolish any such reserve in the manner in which it was created.
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ARTICLE X.
FISCAL YEAR
SECTION 42. FISCAL YEAR. The fiscal year of the corporation shall be fixed by resolution of the Board of Directors.
ARTICLE XI.
INDEMNIFICATION
SECTION 43. INDEMNIFICATION OF DIRECTORS, EXECUTIVE OFFICERS, OTHER OFFICERS, EMPLOYEES AND OTHER AGENTS.
(a) DIRECTORS AND OFFICERS. The corporation shall indemnify its directors and officers to the fullest extent not prohibited by the DGCL or any other applicable law; provided, however, that the corporation may modify the extent of such indemnification by individual contracts with its directors and officers; and, provided, further, that the corporation shall not be required to indemnify any director or officer in connection with any proceeding (or part thereof) initiated by such person unless (i) such indemnification is expressly required to be made by law, (ii) the proceeding was authorized by the Board of Directors of the corporation, (iii) such indemnification is provided by the corporation, [IN ITS SOLE DISCRETION], pursuant to the powers vested in the corporation under the DGCL or any other applicable law or (iv) such indemnification is required to be made under subsection (d).
(b) EMPLOYEES AND OTHER AGENTS. The corporation shall have power to indemnify its employees and other agents as set forth in the DGCL or any other applicable law. The Board of Directors shall have the power to delegate the determination of whether indemnification shall be given to any such person to such officers or other persons as the Board of Directors shall determine.
(c) EXPENSES. The corporation shall advance to any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was a director or officer, of the corporation, or is or was serving at the request of the corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, prior to the final disposition of the proceeding, promptly following request therefor, all expenses incurred by any director or officer in connection with such proceeding provided, however, that if the DGCL requires, an advancement of expenses incurred by a director or officer in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such indemnitee, including, without limitation, service to an employee benefit plan) shall be made only upon delivery to the corporation of an undertaking (hereinafter an "UNDERTAKING"), by or on behalf of such indemnitee, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal (hereinafter a "FINAL ADJUDICATION") that such indemnitee is not entitled to be indemnified for such expenses under this Section 43 or otherwise.
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Notwithstanding the foregoing, unless otherwise determined pursuant to paragraph (e) of this Section 43, no advance shall be made by the corporation to an officer of the corporation (except by reason of the fact that such officer is or was a director of the corporation in which event this paragraph shall not apply) in any action, suit or proceeding, whether civil, criminal, administrative or investigative, if a determination is reasonably and promptly made (i) by a majority vote of directors who were not parties to the proceeding, even if not a quorum, or (ii) by a committee of such directors designated by a majority vote of such directors, even though less than a quorum, or (iii) if there are no such directors, or such directors so direct, by independent legal counsel in a written opinion, that the facts known to the decision-making party at the time such determination is made demonstrate clearly and convincingly that such person acted in bad faith or in a manner that such person did not believe to be in or not opposed to the best interests of the corporation.
(d) ENFORCEMENT. Without the necessity of entering into an express contract, all rights to indemnification and advances to directors and officers under this Bylaw shall be deemed to be contractual rights and be effective to the same extent and as if provided for in a contract between the corporation and the director or officer. Any right to indemnification or advances granted by this Section 43 to a director or officer shall be enforceable by or on behalf of the person holding such right in any court of competent jurisdiction if (i) the claim for indemnification or advances is denied, in whole or in part, or (ii) no disposition of such claim is made within ninety (90) days of request therefor. The claimant in such enforcement action, if successful in whole or in part, shall be entitled to be paid also the expense of prosecuting the claim. In connection with any claim for indemnification, the corporation shall be entitled to raise as a defense to any such action that the claimant has not met the standards of conduct that make it permissible under the DGCL or any other applicable law for the corporation to indemnify the claimant for the amount claimed. In connection with any claim by an officer of the corporation (except in any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that such officer is or was a director of the corporation) for advances, the corporation shall be entitled to raise a defense as to any such action by clear and convincing evidence that such person acted in bad faith or in a manner that such person did not believe to be in or not opposed to the best interests of the corporation, or with respect to any criminal action or proceeding that such person acted without reasonable cause to believe that his conduct was lawful. Neither the failure of the corporation (including its Board of Directors, independent legal counsel or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he has met the applicable standard of conduct set forth in the DGCL or any other applicable law, nor an actual determination by the corporation (including its Board of Directors, independent legal counsel or its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that claimant has not met the applicable standard of conduct. In any suit brought by a director or officer to enforce a right to indemnification or to an advancement of expenses hereunder, the burden of proving that the director or officer is not entitled to be indemnified, or to such advancement of expenses, under this Section 43 or otherwise shall be on the corporation.
(e) NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any person by this Bylaw shall not be exclusive of any other right which such person may have or hereafter acquire under any applicable statute, provision of the Certificate of Incorporation, Bylaws, agreement,
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vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding office. The corporation is specifically authorized to enter into individual contracts with any or all of its directors, officers, employees or agents respecting indemnification and advances, to the fullest extent not prohibited by the DGCL, or by any other applicable law.
(f) SURVIVAL OF RIGHTS. The rights conferred on any person by this Bylaw shall continue as to a person who has ceased to be a director or officer, employee or other agent and shall inure to the benefit of the heirs, executors and administrators of such a person.
(g) INSURANCE. To the fullest extent permitted by the DGCL or any other applicable law, the corporation, upon approval by the Board of Directors, may purchase insurance on behalf of any person required or permitted to be indemnified pursuant to this Section 43.
(h) AMENDMENTS. Any repeal or modification of this Section 43 shall only be prospective and shall not affect the rights under this Bylaw in effect at the time of the alleged occurrence of any action or omission to act that is the cause of any proceeding against any agent of the corporation.
(i) SAVING CLAUSE. If this Bylaw or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the corporation shall nevertheless indemnify each director and officer to the full extent not prohibited by any applicable portion of this Section 43 that shall not have been invalidated, or by any other applicable law. If this Section 43 shall be invalid due to the application of the indemnification provisions of another jurisdiction, then the corporation shall indemnify each director and officer to the full extent under any other applicable law.
(j) CERTAIN DEFINITIONS. For the purposes of this Bylaw, the following definitions shall apply:
(1) The term "PROCEEDING" shall be broadly construed and shall include, without limitation, the investigation, preparation, prosecution, defense, settlement, arbitration and appeal of, and the giving of testimony in, any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative.
(2) The term "EXPENSES" shall be broadly construed and shall include, without limitation, court costs, attorneys' fees, witness fees, fines, amounts paid in settlement or judgment and any other costs and expenses of any nature or kind incurred in connection with any proceeding.
(3) The term the "CORPORATION" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in
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the same position under the provisions of this Section 43 with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued.
(4) References to a "DIRECTOR," "EXECUTIVE OFFICER," "OFFICER," "EMPLOYEE," or "AGENT" of the corporation shall include, without limitation, situations where such person is serving at the request of the corporation as, respectively, a director, executive officer, officer, employee, trustee or agent of another corporation, partnership, joint venture, trust or other enterprise.
(5) References to "OTHER ENTERPRISES" shall include employee benefit plans; references to "FINES" shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to "SERVING AT THE REQUEST OF THE CORPORATION" shall include any service as a director, officer, employee or agent of the corporation which imposes duties on, or involves services by, such director, officer, employee, or agent with respect to an employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "NOT OPPOSED TO THE BEST INTERESTS OF THE CORPORATION" as referred to in this Section 43.
ARTICLE XII.
NOTICES
SECTION 44. NOTICES.
(a) NOTICE TO STOCKHOLDERS. Written notice to stockholders of stockholder meetings shall be given as provided in Section 7 herein. Without limiting the manner by which notice may otherwise be given effectively to stockholders under any agreement or contract with such stockholder, and except as otherwise required by law, written notice to stockholders for purposes other than stockholder meetings may be sent by US mail or nationally recognized overnight courier, or by facsimile, telegraph or telex or by electronic mail or other electronic means.
(b) NOTICE TO DIRECTORS. Any notice required to be given to any director may be given by the method stated in subsection (a), as otherwise provided in these Bylaws, or by overnight delivery service, facsimile, telex or telegram, except that such notice other than one which is delivered personally shall be sent to such address as such director shall have filed in writing with the Secretary, or, in the absence of such filing, to the last known post office address of such director.
(c) AFFIDAVIT OF MAILING. An affidavit of mailing, executed by a duly authorized and competent employee of the corporation or its transfer agent appointed with respect to the class of stock affected, or other agent, specifying the name and address or the names and addresses of the stockholder or stockholders, or director or directors, to whom any such notice or notices was or were given, and the time and method of giving the same, shall in the absence of fraud, be prima facie evidence of the facts therein contained.
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(d) METHODS OF NOTICE. It shall not be necessary that the same method of giving notice be employed in respect of all recipients of notice, but one permissible method may be employed in respect of any one or more, and any other permissible method or methods may be employed in respect of any other or others.
(e) NOTICE TO PERSON WITH WHOM COMMUNICATION IS UNLAWFUL. Whenever notice is required to be given, under any provision of law or of the Certificate of Incorporation or Bylaws of the corporation, to any person with whom communication is unlawful, the giving of such notice to such person shall not be required and there shall be no duty to apply to any governmental authority or agency for a license or permit to give such notice to such person. Any action or meeting which shall be taken or held without notice to any such person with whom communication is unlawful shall have the same force and effect as if such notice had been duly given. In the event that the action taken by the corporation is such as to require the filing of a certificate under any provision of the DGCL, the certificate shall state, if such is the fact and if notice is required, that notice was given to all persons entitled to receive notice except such persons with whom communication is unlawful.
(f) NOTICE TO STOCKHOLDERS SHARING AN ADDRESS. Except as otherwise prohibited under DGCL, any notice given under the provisions of DGCL, the Certificate of Incorporation or the Bylaws shall be effective if given by a single written notice to stockholders who share an address if consented to by the stockholders at that address to whom such notice is given. Such consent shall have been deemed to have been given if such stockholder fails to object in writing to the corporation within 60 days of having been given notice by the corporation of its intention to send the single notice. Any consent shall be revocable by the stockholder by written notice to the corporation.
ARTICLE XIII.
AMENDMENTS
SECTION 45. AMENDMENTS. The Board of Directors is expressly empowered to adopt, amend or repeal the Bylaws of the corporation. Any adoption, amendment or repeal of the Bylaws of the corporation by the Board of Directors shall require the approval of a majority of the authorized number of directors. The stockholders shall also have power to adopt, amend or repeal the Bylaws of the corporation; provided, however, that, in addition to any vote of the holders of any class or series of stock of the corporation required by law or by the Certificate of Incorporation, the affirmative vote of the holders of at least two-thirds of the voting power of all of the then-outstanding shares of the capital stock of the corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to adopt, amend or repeal any provision of the Bylaws of the corporation.
ARTICLE XIV.
LOANS TO OFFICERS
SECTION 46. LOANS TO OFFICERS. Except as otherwise prohibited by applicable law including the Sarbanes- Oxley Act of 2002, the corporation may lend money to, or guarantee any
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obligation of, or otherwise assist any officer or other employee of the corporation or of its subsidiaries, including any officer or employee who is a Director of the corporation or its subsidiaries, whenever, in the judgment of the Board of Directors, such loan, guarantee or assistance may reasonably be expected to benefit the corporation. The loan, guarantee or other assistance may be with or without interest and may be unsecured, or secured in such manner as the Board of Directors shall approve, including, without limitation, a pledge of shares of stock of the corporation. Nothing in these Bylaws shall be deemed to deny, limit or restrict the powers of guaranty or warranty of the corporation at common law or under any statute.
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EXHIBIT 10.1
CREDIT AND GUARANTY AGREEMENT
DATED AS OF DECEMBER 18, 2003
AMONG
AMERICAN REPROGRAPHICS COMPANY, L.L.C.,
AMERICAN REPROGRAPHICS HOLDINGS, L.L.C.,
CERTAIN SUBSIDIARIES OF AMERICAN REPROGRAPHICS COMPANY, L.L.C.,
AS GUARANTORS,
VARIOUS LENDERS,
GOLDMAN SACHS CREDIT PARTNERS L.P.,
AS LEAD ARRANGER, SOLE BOOKRUNNER AND SYNDICATION AGENT,
AND
GENERAL ELECTRIC CAPITAL CORPORATION,
AS ADMINISTRATIVE AGENT AND COLLATERAL AGENT
$130,000,000 SENIOR SECURED CREDIT FACILITIES
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SECTION 1. DEFINITIONS AND INTERPRETATION........................................................................    2

           1.1. Definitions......................................................................................    2
           1.2. Accounting Terms.................................................................................   32
           1.3. Interpretation, etc..............................................................................   32

SECTION 2. LOANS AND LETTERS OF CREDIT...........................................................................   32

           2.1. Term Loans.......................................................................................   32
           2.2. Revolving Loans..................................................................................   33
           2.3. Swing Line Loans.................................................................................   34
           2.4. Issuance of Letters of Credit and Purchase of Participations Therein.............................   37
           2.5. Pro Rata Shares; Availability of Funds...........................................................   40
           2.6. Use of Proceeds..................................................................................   41
           2.7. Evidence of Debt; Register; Lenders' Books and Records; Notes....................................   41
           2.8. Interest on Loans................................................................................   42
           2.9. Conversion/Continuation..........................................................................   44
           2.10. Default Interest................................................................................   45
           2.11. Fees............................................................................................   45
           2.12. Scheduled Payments/Commitment Reductions........................................................   46
           2.13. Voluntary Prepayments/Commitment Reductions.....................................................   47
           2.14. Mandatory Prepayments/Commitment Reductions.....................................................   50
           2.15. Application of Prepayments/Reductions...........................................................   52
           2.16. General Provisions Regarding Payments...........................................................   53
           2.17. Ratable Sharing.................................................................................   55
           2.18. Making or Maintaining Eurodollar Rate Loans.....................................................   55
           2.19. Increased Costs; Capital Adequacy...............................................................   57
           2.20. Taxes; Withholding, etc.........................................................................   58
           2.21. Obligation to Mitigate..........................................................................   60
           2.22. Defaulting Lenders..............................................................................   61
           2.23. Removal or Replacement of a Lender..............................................................   61

SECTION 3. CONDITIONS PRECEDENT..................................................................................   62

           3.1. Closing Date.....................................................................................   62
           3.2. Conditions to Each Credit Extension..............................................................   67

SECTION 4. REPRESENTATIONS AND WARRANTIES........................................................................   68

           4.1. Organization; Requisite Power and Authority; Qualification.......................................   69
           4.2. Capital Stock and Ownership......................................................................   69
           4.3. Due Authorization................................................................................   69
           4.4. No Conflict......................................................................................   69
           4.5. Governmental Consents............................................................................   70	

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           4.6. Binding Obligation...............................................................................   70
           4.7. Historical Financial Statements..................................................................   70
           4.8. Projections......................................................................................   70
           4.9. No Material Adverse Change.......................................................................   70
           4.10. No Restricted Junior Payments...................................................................   70
           4.11. Adverse Proceedings, etc........................................................................   70
           4.12. Payment of Taxes................................................................................   71
           4.13. Properties......................................................................................   71
           4.14. Environmental Matters...........................................................................   71
           4.15. No Defaults.....................................................................................   72
           4.16. Material Contracts..............................................................................   72
           4.17. Governmental Regulation.........................................................................   72
           4.18. Margin Stock....................................................................................   72
           4.19. Employee Matters................................................................................   73
           4.20. Employee Benefit Plans..........................................................................   73
           4.21. Certain Fees....................................................................................   74
           4.22. Solvency........................................................................................   74
           4.23. Related Agreements..............................................................................   74
           4.24. Compliance with Statutes, etc...................................................................   74
           4.25. Disclosure......................................................................................   75
           4.26. Existing Seller Subordinated Notes and Existing Earn-Out Obligations............................   75

SECTION 5. AFFIRMATIVE COVENANTS.................................................................................   75

           5.1. Financial Statements and Other Reports...........................................................   75
           5.2. Existence........................................................................................   79
           5.3. Payment of Taxes and Claims......................................................................   79
           5.4. Maintenance of Properties........................................................................   80
           5.5. Insurance........................................................................................   80
           5.6. Inspections......................................................................................   80
           5.7. Lenders Meetings.................................................................................   80
           5.8. Compliance with Laws.............................................................................   81
           5.9. Environmental....................................................................................   81
           5.10. Subsidiaries....................................................................................   82
           5.11. Additional Material Real Estate Assets..........................................................   82
           5.12. Interest Rate Protection........................................................................   83
           5.13. Further Assurances..............................................................................   83
           5.14. Miscellaneous Business Covenants................................................................   83

SECTION 6. NEGATIVE COVENANTS....................................................................................   84

           6.1. Indebtedness.....................................................................................   84
           6.2. Liens............................................................................................   86
           6.3. Equitable Lien...................................................................................   87
           6.4. No Further Negative Pledges......................................................................   87
           6.5. Restricted Junior Payments.......................................................................   88
           6.6. Restrictions on Subsidiary Distributions.........................................................   89
           6.7. Investments......................................................................................   89	

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           6.8. Financial Covenants.............................................................................    90
           6.9. Fundamental Changes; Disposition of Assets; Acquisitions........................................    93
           6.10. Disposal of Subsidiary Interests...............................................................    95
           6.11. Sales and Lease-Backs..........................................................................    95
           6.12. Transactions with Shareholders and Affiliates..................................................    95
           6.13. Conduct of Business............................................................................    95
           6.14. Permitted Activities of Holdings...............................................................    95
           6.15. Amendments or Waivers of Certain Related Agreements............................................    96
           6.16. Amendments or Waivers with Respect to Subordinated Indebtedness
                 and Second Lien Credit Agreement...............................................................    96
           6.17. Fiscal Year....................................................................................    97

SECTION 7. GUARANTY.............................................................................................    97

           7.1. Guaranty of the Obligations.....................................................................    97
           7.2. Contribution by Guarantors......................................................................    97
           7.3. Payment by Guarantors...........................................................................    98
           7.4. Liability of Guarantors Absolute................................................................    98
           7.5. Waivers by Guarantors...........................................................................   100
           7.6. Guarantors' Rights of Subrogation, Contribution, etc............................................   101
           7.7. Subordination of Other Obligations..............................................................   101
           7.8. Continuing Guaranty.............................................................................   102
           7.9. Authority of Guarantors or Company..............................................................   102
           7.10. Financial Condition of Company.................................................................   102
           7.11. Bankruptcy, etc................................................................................   102
           7.12. Discharge of Guaranty Upon Sale of Guarantor...................................................   103

SECTION 8. EVENTS OF DEFAULT....................................................................................   103

           8.1. Events of Default...............................................................................   103

SECTION 9. AGENTS ..............................................................................................   106

           9.1. Appointment of Agents...........................................................................   106
           9.2. Powers and Duties...............................................................................   106
           9.3. General Immunity................................................................................   106
           9.4. Agents Entitled to Act as Lender................................................................   107
           9.5. Lenders' Representations, Warranties and Acknowledgment.........................................   108
           9.6. Right to Indemnity..............................................................................   108
           9.7. Successor Administrative Agent and/or Collateral Agent and Swing Line
                  Lender........................................................................................   109
           9.8. Collateral Documents and Guaranty...............................................................   109

SECTION 10. MISCELLANEOUS.......................................................................................   110

           10.1. Notices........................................................................................   110
           10.2. Expenses.......................................................................................   111
           10.3. Indemnity......................................................................................   111
           10.4. Set-Off........................................................................................   112
           10.5. Amendments and Waivers.........................................................................   112	

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10.6. Successors and Assigns; Participations.........................................................   114
10.7. Independence of Covenants......................................................................   117
10.8. Survival of Representations, Warranties and Agreements.........................................   117
10.9. No Waiver; Remedies Cumulative.................................................................   118
10.10. Marshalling; Payments Set Aside...............................................................   118
10.11. Severability..................................................................................   118
10.12. Obligations Several; Independent Nature of Lenders' Rights....................................   118
10.13. Headings......................................................................................   118
10.14. APPLICABLE LAW................................................................................   119
10.15. CONSENT TO JURISDICTION.......................................................................   119
10.16. WAIVER OF JURY TRIAL..........................................................................   119
10.17. Confidentiality...............................................................................   120
10.18. Press Releases and Related Matters............................................................   121
10.19. Usury Savings Clause..........................................................................   121
10.20. Counterparts..................................................................................   121
10.21. USA PATRIOT Act...............................................................................   121
10.22. Effectiveness.................................................................................   122	

APPENDICES:                A-1      Term Loan Commitments
                           A-2      Revolving Commitments
                           B        Notice Addresses

SCHEDULES:                 1.1(a)   Existing Earn-Out Agreements
                           1.1(b)   Existing Seller Subordinated Notes
                           3.1(i)   Closing Date Mortgaged Properties
                           3.1(n)   Counsel Opinions
                           4.1      Jurisdictions of Organization and Qualification
                           4.2      Capital Stock and Ownership
                           4.13     Real Estate Assets
                           4.16     Material Contracts
                           4.20     Retiree Benefits
                           6.1      Certain Indebtedness
                           6.2      Certain Liens
                           6.5(g)   Permitted Cash Payments of Additional Earn-Out Obligations
                           6.7      Certain Investments
                           6.12     Certain Affiliate Transactions

EXHIBITS:                  A-1      Funding Notice
                           A-2      Conversion/Continuation Notice
                           A-3      Issuance Notice
                           B-1      Term Loan Note
                           B-2      Revolving Loan Note
                           B-3      Swing Line Note
                           C        Compliance Certificate	

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D        Opinions of Counsel
E        Assignment Agreement
F        Certificate Re Non-bank Status
G        Closing Date Certificate
H        Counterpart Agreement
I        Pledge and Security Agreement
J        Mortgage
K        Landlord Waiver and Consent Agreement
L        Intercreditor Agreement
M        Seller Subordination Agreement	

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CREDIT AND GUARANTY AGREEMENT
This CREDIT AND GUARANTY AGREEMENT, dated as of December 18, 2003, is entered into by and among AMERICAN REPROGRAPHICS COMPANY, L.L.C., a California limited liability company ("COMPANY"), AMERICAN REPROGRAPHICS HOLDINGS, L.L.C., (f/k/a Ford Graphics Holdings, L.L.C.) a California limited liability company ("HOLDINGS"), CERTAIN SUBSIDIARIES OF COMPANY, as Guarantors, the Lenders party hereto from time to time, GOLDMAN SACHS CREDIT PARTNERS L.P. ("GSCP"), as Lead Arranger, Sole Bookrunner, and as Syndication Agent (in such capacities, "SYNDICATION AGENT"), and GENERAL ELECTRIC CAPITAL CORPORATION ("GECC"), as Administrative Agent (together with its permitted successors in such capacity, "ADMINISTRATIVE AGENT") and as Collateral Agent (together with its permitted successor in such capacity, "COLLATERAL AGENT").
RECITALS:
WHEREAS, capitalized terms used in these Recitals shall have the respective meanings set forth for such terms in Section 1.1 hereof;
WHEREAS, Lenders have agreed to extend certain credit facilities to Company, in an aggregate amount not to exceed $130,000,000, consisting of $100,000,000 aggregate principal amount of Term Loans, and up to $30,000,000 aggregate principal amount of Revolving Commitments, the proceeds of which will be used, together with the proceeds of a senior second priority secured term loan facility of the Company in an amount of not less than $225,000,000, to (i) refinance the Company's Existing Indebtedness (the "REFINANCING"), (ii) to pay related transaction costs, fees and expenses (including a redemption premium, if any, of up to $4,500,000) and (iii) to provide financing for working capital, certain permitted acquisitions to be agreed upon and general corporate purposes of the Company and its Subsidiaries;
WHEREAS, Company has agreed to secure all of its Obligations by granting to Collateral Agent, for the benefit of Secured Parties, a First Priority Lien on substantially all of its assets, including a pledge of all of the Capital Stock of each of its Domestic Subsidiaries and 65% of all the Capital Stock of each of its Foreign Subsidiaries; and
WHEREAS, Guarantors have agreed to guarantee the obligations of Company hereunder and to secure their respective Obligations by granting to Collateral Agent, for the benefit of Secured Parties, a First Priority Lien on substantially all of their respective assets, including a pledge of all of the Capital Stock of each of their respective Domestic Subsidiaries (including Company) and 65% of all the Capital Stock of each of their respective Foreign Subsidiaries.
NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein contained, the parties hereto agree as follows:
SECTION 1. DEFINITIONS AND INTERPRETATION
1.1. DEFINITIONS. The following terms used herein, including in the preamble, recitals, exhibits and schedules hereto, shall have the following meanings:
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"ADDITIONAL EARN-OUT OBLIGATION" means any unsecured contingent liability of Company owed to any seller in connection with any Permitted Acquisition that (a) constitutes a portion of the purchase price for such Permitted Acquisition but is not an amount certain on the date of incurrence thereof and is not subject to any right of acceleration by such seller, (b) is only payable upon the achievement of performance standards by the Person or other property acquired in such Permitted Acquisition and in an amount based upon such achievement provided that the maximum aggregate amount of such liability shall be fixed at a specified amount on the date of such Permitted Acquisition, and (c) is expressly subordinate and made junior to the payment and performance in full of all the Obligations in accordance with a subordination agreement substantially in the form of Exhibit M or an agreement containing substantially similar terms, in each case with such modifications thereto as may be consented to by Administrative Agent.
"ADDITIONAL SELLER SUBORDINATED NOTES" means, collectively, the unsecured promissory notes issued by Company to any seller in connection with a Permitted Acquisition which are expressly subordinated and made junior to the payment and performance in full of all the Obligations in accordance with a subordination agreement substantially in the form of Exhibit M with such modifications thereto as may be consented to by Administrative Agent.
"ADJUSTED EURODOLLAR RATE" means for each Interest Period, a rate of interest determined by Administrative Agent equal to:
(a) the offered rate for deposits in United States Dollars for the applicable Interest Period that appears on Telerate Page 3750 as of 11:00
a.m. (London time), on the second full LIBOR Business Day next preceding the first day of such Interest Period (unless such date is not a Business Day, in which event the next succeeding Business Day will be used); divided by
(b) a number equal to 1.0 minus the aggregate (but without duplication) of the rates (expressed as a decimal fraction) of reserve requirements in effect on the day that is two (2) LIBOR Business Days prior to the beginning of such Interest Period (including basic, supplemental, marginal and emergency reserves under any regulations of the Federal Reserve Board or other Governmental Authority having jurisdiction with respect thereto, as now and from time to time in effect) for Eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in Regulation D of the Federal Reserve Board that are required to be maintained by a member bank of the Federal Reserve System.
If such interest rates shall cease to be available from Telerate News Service, the Adjusted Eurodollar Rate shall be determined from such financial reporting service or other information as shall be available to Administrative Agent.
"ADMINISTRATIVE AGENT" as defined in the preamble hereto.
"ADVERSE PROCEEDING" means any action, suit, proceeding (whether administrative, judicial or otherwise), governmental investigation or arbitration (whether or not
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purportedly on behalf of Holdings or any of its Subsidiaries) at law or in equity, or before or by any Governmental Authority, domestic or foreign (including any Environmental Claims), whether pending or, to the knowledge of Holdings or any of its Subsidiaries, threatened against or affecting Holdings or any of its Subsidiaries or any property of Holdings or any of its Subsidiaries.
"AFFECTED LENDER" as defined in Section 2.18(b).
"AFFECTED LOANS" as defined in Section 2.18(b).
"AFFILIATE" means, as applied to any Person, any other Person directly or indirectly controlling, controlled by, or under common control with, that Person. For the purposes of this definition, "control" (including, with correlative meanings, the terms "controlling", "controlled by" and "under common control with"), as applied to any Person, means the possession, directly or indirectly, of the power (i) to vote 5% or more of the Securities having ordinary voting power for the election of directors of such Person or (ii) to direct or cause the direction of the management and policies of that Person, whether through the ownership of voting securities or by contract or otherwise.
"AGENT" means each of Syndication Agent, Administrative Agent and Collateral Agent.
"AGGREGATE AMOUNTS DUE" as defined in Section 2.17.
"AGGREGATE PAYMENTS" as defined in Section 7.2.
"AGREEMENT" means this Credit and Guaranty Agreement, dated as of December 18, 2003, as it may be amended, supplemented or otherwise modified from time to time.
"APPLICABLE MARGIN" means (i) with respect to Revolving Loans that are Eurodollar Rate Loans, (a) from the Closing Date until the date of delivery of the Compliance Certificate and the financial statements for the period ending December 31, 2003, a percentage, per annum, determined by reference to the following table as if the Leverage Ratio then in effect were 4.0:1.0; and (b) thereafter, a percentage, per annum, determined by reference to the Leverage Ratio in effect from time to time as set forth below:

   LEVERAGE                   APPLICABLE MARGIN
    RATIO                    FOR REVOLVING LOANS
    -----                    -------------------
> or = 4.0:100                       2.75%

< 4.0:1.0                            2.50%
> or = 3.5:1.0

< 3.5:1.0                            2.25%
> or = 3.0:1.0	

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LEVERAGE                      APPLICABLE MARGIN
 RATIO                       FOR REVOLVING LOANS
 -----                       -------------------
< 3.0:1.0                            2.00%	

and (ii) with respect to Swing Line Loans and Revolving Loans that are Index Rate Loans, an amount equal to (a) the Applicable Margin for Eurodollar Rate Loans as set forth in clause (i)(a) or (i)(b) above, as applicable, minus (b) 1.00% per annum. No change in the Applicable Margin shall be effective until three Business Days after the date on which Administrative Agent shall have received the applicable financial statements and a Compliance Certificate pursuant to Section 5.1(d) calculating the Leverage Ratio. At any time Company has not submitted to Administrative Agent the applicable information as and when required under Section 5.1(d), the Applicable Margin shall be determined as if the Leverage Ratio were in excess of 4.0:1.00. Within one Business Day of receipt of the applicable information under Section 5.1(d), Administrative Agent shall give each Lender telefacsimile or telephonic notice (confirmed in writing) of the Applicable Margin in effect from such date.
"ASSET SALE" means a sale, lease or sub-lease (as lessor or sublessor), sale and leaseback, assignment, conveyance, transfer or other disposition to, or any exchange of property with, any Person (other than Holdings, Company or any Guarantor Subsidiary), in one transaction or a series of transactions, of all or any part of Holdings' or any of its Subsidiaries' businesses, assets or properties of any kind, whether real, personal, or mixed and whether tangible or intangible, whether now owned or hereafter acquired, including, without limitation, the Capital Stock of any of Holdings' Subsidiaries, other than (i) inventory (or other assets) sold or leased in the ordinary course of business (excluding any such sales by operations or divisions discontinued or to be discontinued), (ii) Permitted Sale-Leasebacks and (iii) sales of other assets for aggregate consideration of less than $500,000 in the aggregate during any Fiscal Year and less than $2,000,000 in the aggregate from and after the Closing Date so long as this Agreement shall remain in effect.
"ASSIGNMENT AGREEMENT" means an Assignment and Assumption Agreement substantially in the form of Exhibit E, with such amendments or modifications as may be approved by Administrative Agent.
"AUTHORIZED OFFICER" means, as applied to any Person, any individual holding the position of chairman of the board (if an officer), chief executive officer, president or one of its vice presidents (or the equivalent thereof), and such Person's chief financial officer or treasurer.
"BANKRUPTCY CODE" means Title 11 of the United States Code entitled "Bankruptcy," as now and hereafter in effect, or any successor statute.
"BENEFICIARY" means each Agent, Issuing Bank, Lender and Lender Counterparty.
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"BUSINESS DAY" means (i) any day excluding Saturday, Sunday and any day which is a legal holiday under the laws of the State of New York or is a day on which banking institutions located in such state are authorized or required by law or other governmental action to close and (ii) with respect to all notices, determinations, fundings and payments in connection with the Adjusted Eurodollar Rate or any Eurodollar Rate Loans, the term "BUSINESS DAY" shall mean any day which is a Business Day described in clause (i) and which is also a day for trading by and between banks in Dollar deposits in the London interbank market.
"CAPITAL LEASE" means, as applied to any Person, any lease of any property (whether real, personal or mixed) by that Person as lessee that, in conformity with GAAP, is or should be accounted for as a capital lease on the balance sheet of that Person.
"CAPITAL STOCK" means any and all shares, interests, participations or other equivalents (however designated) of capital stock of a corporation, any and all equivalent ownership interests in a Person (other than a corporation), including, without limitation, partnership interests and membership interests, and any and all warrants, rights or options to purchase or other arrangements or rights to acquire any of the foregoing.
"CASH" means money, currency or a credit balance in any demand or Deposit Account.
"CASH EQUIVALENTS" means, as at any date of determination, (i) marketable securities (a) issued or directly and unconditionally guaranteed as to interest and principal by the United States Government or (b) issued by any agency of the United States the obligations of which are backed by the full faith and credit of the United States, in each case maturing within one year after such date; (ii) marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof, in each case maturing within one year after such date and having, at the time of the acquisition thereof, a rating of at least A-1 from S&P or at least P-1 from Moody's; (iii) commercial paper maturing no more than one year from the date of creation thereof and having, at the time of the acquisition thereof, a rating of at least A-1 from S&P or at least P-1 from Moody's; (iv) certificates of deposit or bankers' acceptances maturing within one year after such date and issued or accepted by any Lender or by any commercial bank organized under the laws of the United States of America or any state thereof or the District of Columbia that (a) is at least "adequately capitalized" (as defined in the regulations of its primary Federal banking regulator) and (b) has Tier 1 capital (as defined in such regulations) of not less than $100,000,000; and (v) shares of any money market mutual fund that (a) has substantially all of its assets invested continuously in the types of investments referred to in clauses (i) and (ii) above, (b) has net assets of not less than $500,000,000, and (c) has the highest rating obtainable from either S&P or Moody's.
"CERTIFICATE RE NON-BANK STATUS" means a certificate substantially in the form of Exhibit F.
"CHANGE OF CONTROL" means, at any time, (i) Sponsor, Sathiyamurthy Chandramohan or Kumarakulasingam Suriyakumar shall collectively cease to beneficially own
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and control at least 75% on a fully diluted basis of the economic and voting interests in the Capital Stock of Holdings; (ii) any Person or "group" (within the meaning of Rules 13d-3 and 13d-5 under the Exchange Act) other than Sponsor, Sathiyamurthy Chandramohan or Kumarakulasingam Suriyakumar (a) shall have acquired beneficial ownership of 25% or more on a fully diluted basis of the voting and/or economic interest in the Capital Stock of Holdings or (b) shall have obtained the power (whether or not exercised) to elect a majority of the members of the board of directors (or similar governing body) of Holdings; (iii) Holdings shall cease to beneficially own and control 100% on a fully diluted basis of the economic and voting interest in the Capital Stock of Company; or
(iv) the majority of the seats (other than vacant seats) on the board of advisors (or similar governing body) of Holdings cease to be occupied by Persons who either (a) were members of the board of advisors of Holdings on the Closing Date or (b) were appointed to the board of advisors in accordance with the provisions of the Holdings Operating Agreement.
"CLASS" means (i) with respect to Lenders, each of the following classes of Lenders: (a) Lenders having Term Loan Exposure and (b) Lenders having Revolving Exposure (including Swing Line Lender), and (ii) with respect to Loans, each of the following classes of Loans: (a) Term Loans and (b) Revolving Loans (including Swing Line Loans).
"CLOSING DATE" means the date on or before January 31, 2004 on which the Term Loans are made.
"CLOSING DATE CERTIFICATE" means a Closing Date Certificate substantially in the form of Exhibit G-1.
"CLOSING DATE MORTGAGED PROPERTY" as defined in Section 3.1(i).
"COLLATERAL" means, collectively, all of the real, personal and mixed property (including Capital Stock) in which Liens are purported to be granted pursuant to the Collateral Documents as security for the Obligations.
"COLLATERAL AGENT" as defined in the preamble hereto.
"COLLATERAL DOCUMENTS" means the Pledge and Security Agreement, the Intercreditor Agreement, the Mortgages, the Landlord Personal Property Collateral Access Agreements, if any, and all other instruments, documents and agreements delivered by any Credit Party pursuant to this Agreement or any of the other Credit Documents in order to grant to Collateral Agent, for the benefit of Lenders, a Lien on any real, personal or mixed property of that Credit Party as security for the Obligations.
"COLLATERAL QUESTIONNAIRE" means a certificate in form satisfactory to Collateral Agent that provides information with respect to the personal or mixed property of each Credit Party.
"COMMITMENT" means any Revolving Commitment or Term Loan Commitment.
"COMPANY" as defined in the preamble hereto.
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"COMPANY OPERATING AGREEMENT" means the Amended and Restated Operating Agreement of Company dated as of April 10, 2000 as in effect on the Closing Date and as such agreement may thereafter be amended, restated, supplemented or otherwise modified from time to time to the extent permitted under Section 6.15.
"COMPLIANCE CERTIFICATE" means a Compliance Certificate substantially in the form of Exhibit C.
"CONSOLIDATED ADJUSTED EBITDA" means, for any period, an amount determined for Holdings and its Subsidiaries on a consolidated basis equal to
(i) the sum, without duplication, of the amounts for such period of (a) Consolidated Net Income, and to the extent already deducted in arriving at Consolidated Net Income: (b) Consolidated Interest Expense, (c) provisions for taxes based on income, (d) total depreciation expense, (e) total amortization expense, (f) Transaction Costs and (g) other non-Cash items reducing Consolidated Net Income (excluding any such non-Cash item to the extent that it represents an accrual or reserve for potential Cash items in any future period or amortization of a prepaid Cash item that were paid in a prior period), minus
(ii) other non-Cash items increasing Consolidated Net Income for such period (excluding any such non-Cash item to the extent it represents the reversal of an accrual or reserve for potential Cash item in any prior period).
"CONSOLIDATED ADJUSTED EBITDAR" means, for any period, the sum of the amounts for such period of (i) Consolidated Adjusted EBITDA plus (ii) Consolidated Rental Payments, each of the foregoing as determined on a consolidated basis for Company and its Subsidiaries in conformity with GAAP.
"CONSOLIDATED CAPITAL EXPENDITURES" means, for any period, the aggregate of all expenditures (whether paid in cash or other consideration or accrued as a liability and including that portion of Capital Leases which is capitalized on the consolidated balance sheet of Company and its Subsidiaries) of Holdings and its Subsidiaries during such period determined on a consolidated basis that, in accordance with GAAP, are or should be included in "purchase of property and equipment" or similar items reflected in the consolidated statement of cash flows of Holdings and its Subsidiaries; provided, however, that Consolidated Capital Expenditures shall not include any expenditures by Holdings or any of its Subsidiaries during that period in connection with a Permitted Acquisition, including any payment of any Earn-Out Obligation during that period.
"CONSOLIDATED CASH INTEREST EXPENSE" means, for any period, Consolidated Interest Expense for such period, excluding any amount not payable in Cash (for the avoidance of doubt, "Consolidated Interest Expense" does not include any pay-in-kind interest on the notes issued pursuant to the Senior Note Indenture which is being retired in connection with the Refinancing).
"CONSOLIDATED CURRENT ASSETS" means, as at any date of determination, the total assets of Holdings and its Subsidiaries on a consolidated basis that may properly be classified as current assets in conformity with GAAP, excluding Cash and Cash Equivalents.
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"CONSOLIDATED CURRENT LIABILITIES" means, as at any date of determination, the total liabilities of Holdings and its Subsidiaries on a consolidated basis that may properly be classified as current liabilities in conformity with GAAP, excluding the current portion of long term debt.
"CONSOLIDATED EXCESS CASH FLOW" means, for any period, an amount (if positive) equal to: (i) the sum, without duplication, of the amounts for such period of (a) Consolidated Adjusted EBITDA, plus (b) the Consolidated Working Capital Adjustment, minus (ii) the sum, without duplication, of the amounts for such period of (a) voluntary and scheduled repayments of Consolidated Total Debt (excluding (i) repayments of Revolving Loans or Swing Line Loans except to the extent (x) such Revolving Loans were made on the Closing Date and are repaid prior to the end of Fiscal Year 2004 and such repayment amount does not exceed 75% of the aggregate amount of Revolving Loans made on the Closing Date or (y) the Revolving Commitments are permanently reduced in connection with such repayments and (ii) repurchases of Term Loans made pursuant to Section 2.13(c)),
(b) Consolidated Capital Expenditures (net of any proceeds of (y) any related financings with respect to such expenditures and (z) any sales of assets used to finance such expenditures), (c) Consolidated Cash Interest Expense, (d) the provision for current taxes based on income of Holdings and its Subsidiaries and payable in cash with respect to such period, and any Permitted Tax Distributions payable in cash with respect to such period, (e) the cash portion of any payment of any Earn-Out Obligation made by Company during such period, (f) any scheduled repayments under any Seller Subordinated Notes made by Company made in Cash during such period, (g) the cash portion of any payment made with respect to a Permitted Acquisition completed during such period, and (h) the cash portion of any payments made during such period in connection with any repurchases of Holdings' Capital Stock from deceased, disabled, terminated or retired employees permitted under Section 6.5(f).
"CONSOLIDATED FIRST PRIORITY SENIOR DEBT" means, as at any date of determination, Consolidated Total Debt less the sum of (i) Subordinated Indebtedness of Company and its Subsidiaries, determined on a consolidated basis in accordance with GAAP and (ii) any Indebtedness incurred under the Second Lien Credit Agreement.
"CONSOLIDATED FIXED CHARGES" means, for any period, the sum, without duplication, of the amounts determined for Holdings and its Subsidiaries on a consolidated basis equal to (i) Consolidated Cash Interest Expense, (ii) scheduled payments of principal on Consolidated Total Debt, (iii) Consolidated Rental Payments, (iv) payments of Earn-Out Obligations required to be made by Company or any of its Subsidiaries for such period, and (v) scheduled debt repayments required to be made by Company or any of its Subsidiaries under the Seller Subordinated Notes for such period; provided, however, for the purposes of clarification only, scheduled payments of principal on Consolidated Total Debt shall not include any such payments with respect to Existing Indebtedness made up to and including the Closing Date.
"CONSOLIDATED INTEREST EXPENSE" means, for any period, total interest expense (including that portion attributable to Capital Leases in accordance with GAAP and capitalized interest) of Holdings and its Subsidiaries on a consolidated basis with respect to all outstanding Indebtedness of Holdings and its Subsidiaries, including all commissions, discounts and other fees and charges owed with respect to letters of credit and net costs under Interest Rate
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Agreements, but excluding, however, any amounts referred to in Section 2.11(d) payable on or before the Closing Date.
"CONSOLIDATED NET INCOME" means, for any period, (i) the net income (or loss) of Holdings and its Subsidiaries on a consolidated basis for such period taken as a single accounting period determined in conformity with GAAP, minus (ii) (a) the income (or loss) of any Person (other than a Subsidiary of Holdings) in which any other Person (other than Holdings or any of its Subsidiaries) has a joint interest, except to the extent of the amount of dividends or other distributions actually paid to Holdings or any of its Subsidiaries by such Person during such period, (b) the income (or loss) of any Person accrued prior to the date it becomes a Subsidiary of Holdings or is merged into or consolidated with Holdings or any of its Subsidiaries or that Person's assets are acquired by Holdings or any of its Subsidiaries, (c) the income of any Subsidiary of Holdings to the extent that the declaration or payment of dividends or similar distributions by that Subsidiary of that income is not at the time permitted by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary, (d) any after-tax gains or losses attributable to Asset Sales or returned surplus assets of any Pension Plan, and
(e) (to the extent not included in clauses (a) through (d) above) any net extraordinary gains or net extraordinary losses.
"CONSOLIDATED RENTAL PAYMENTS" means, for any period, the total rent expense (including, without limitation, under any agreement to rent or lease any real or personal property (exclusive of obligations under Capital Leases)) of Company and its Subsidiaries, determined on a consolidated basis for Company and its Subsidiaries in accordance with GAAP.
"CONSOLIDATED TOTAL DEBT" means, as at any date of determination, the aggregate stated balance sheet amount of all Indebtedness of Holdings and its Subsidiaries determined on a consolidated basis in accordance with GAAP.
"CONSOLIDATED WORKING CAPITAL" means, as at any date of determination, the excess of Consolidated Current Assets over Consolidated Current Liabilities.
"CONSOLIDATED WORKING CAPITAL ADJUSTMENT" means, for any period on a consolidated basis, the amount (which may be a negative number) by which Consolidated Working Capital as of the beginning of such period exceeds (or is less than) Consolidated Working Capital as of the end of such period.
"CONTRACTUAL OBLIGATION" means, as applied to any Person, any provision of any Security issued by that Person or of any indenture, mortgage, deed of trust, contract, undertaking, agreement or other instrument to which that Person is a party or by which it or any of its properties is bound or to which it or any of its properties is subject.
"CONTRIBUTING GUARANTORS" as defined in Section 7.2.
"CONVERSION/CONTINUATION DATE" means the effective date of a continuation or conversion, as the case may be, as set forth in the applicable Conversion/Continuation Notice.
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"CONVERSION/CONTINUATION NOTICE" means a Conversion/Continuation Notice substantially in the form of Exhibit A-2.
"COUNTERPART AGREEMENT" means a Counterpart Agreement substantially in the form of Exhibit H delivered by a Credit Party pursuant to Section 5.10.
"CREDIT DATE" means the date of a Credit Extension.
"CREDIT DOCUMENT" means any of this Agreement, the Notes, if any, the Collateral Documents, any documents or certificates executed by Company in favor of Issuing Bank relating to Letters of Credit, and all other documents, instruments or agreements executed and delivered by a Credit Party for the benefit of any Agent, Issuing Bank or any Lender in connection with this Agreement.
"CREDIT EXTENSION" means the making of a Loan or the issuing of a Letter of Credit.
"CREDIT PARTY" means each Person (other than any Agent, Issuing Bank or any Lender or any other representative thereof) from time to time party to a Credit Document.
"CURRENCY AGREEMENT" means any foreign exchange contract, currency swap agreement, futures contract, option contract, synthetic cap or other similar agreement or arrangement, each of which is for the purpose of hedging the foreign currency risk associated with Holdings' and its Subsidiaries' operations and not for speculative purposes.
"DEFAULT" means a condition or event that, after notice or lapse of time or both, would constitute an Event of Default.
"DEFAULT EXCESS" means, with respect to any Defaulting Lender, the excess, if any, of such Defaulting Lender's Pro Rata Share of the aggregate outstanding principal amount of Loans of all Lenders (calculated as if all Defaulting Lenders (other than such Defaulting Lender) had funded all of their respective Defaulted Loans) over the aggregate outstanding principal amount of all Loans of such Defaulting Lender.
"DEFAULT PERIOD" means, with respect to any Defaulting Lender, the period commencing on the date of the applicable Funding Default and ending on the earliest of the following dates: (i) the date on which all Commitments are cancelled or terminated and/or the Obligations are declared or become immediately due and payable, (ii) the date on which (a) the Default Excess with respect to such Defaulting Lender shall have been reduced to zero (whether by the funding by such Defaulting Lender of any Defaulted Loans of such Defaulting Lender or by the non-pro rata application of any voluntary or mandatory prepayments of the Loans in accordance with the terms of Section 2.13 or Section 2.14 or by a combination thereof) and (b) such Defaulting Lender shall have delivered to Company and Administrative Agent a written reaffirmation of its intention to honor its obligations hereunder with respect to its Commitments, and (iii) the date on which Company, Administrative Agent and Requisite Lenders waive all Funding Defaults of such Defaulting Lender in writing.
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"DEFAULTED LOAN" as defined in Section 2.22.
"DEFAULTING LENDER" as defined in Section 2.22.
"DEPOSIT ACCOUNT" means a demand, time, savings, passbook or like account with a bank, savings and loan association, credit union or like organization, other than an account evidenced by a negotiable certificate of deposit.
"DOLLARS" and the sign "$" mean the lawful money of the United States of America.
"DOMESTIC SUBSIDIARY" means any Subsidiary organized under the laws of the United States of America, any State thereof or the District of Columbia.
"EARN-OUT OBLIGATION" means, collectively, the Existing Earn-Out Obligations and any Additional Earn-Out Obligations.
"ELIGIBLE ASSIGNEE" means (i) any Lender, any Affiliate of any Lender and any Related Fund (any two or more Related Funds being treated as a single Eligible Assignee for all purposes hereof), and (ii) any commercial bank, insurance company, investment or mutual fund or other entity that is an "accredited investor" (as defined in Regulation D under the Securities Act) and which extends credit or buys loans as one of its businesses; provided, no Affiliate of Holdings or Sponsor shall be an Eligible Assignee.
"EMPLOYEE BENEFIT PLAN" means any "employee benefit plan" as defined in Section 3(3) of ERISA which is or was sponsored, maintained or contributed to by, or required to be contributed by, Holdings, any of its Subsidiaries or any of their respective ERISA Affiliates.
"ENVIRONMENTAL CLAIM" means any investigation, notice, notice of violation, claim, action, suit, proceeding, demand, abatement order or other order or directive (conditional or otherwise), by any Governmental Authority or any other Person, arising (i) pursuant to or in connection with any actual or alleged violation of any Environmental Law; (ii) in connection with any Hazardous Material or any actual or alleged Hazardous Materials Activity; or
(iii) in connection with any actual or alleged damage, injury, threat or harm to health, safety, natural resources or the environment.
"ENVIRONMENTAL LAWS" means any and all current or future foreign or domestic, federal or state (or any subdivision of either of them), statutes, ordinances, orders, rules, regulations, judgments, Governmental Authorizations, or any other requirements of Governmental Authorities relating to (i) environmental matters, including those relating to any Hazardous Materials Activity; (ii) the generation, use, storage, transportation or disposal of Hazardous Materials; or (iii) occupational safety and health, industrial hygiene, land use or the protection of human, plant or animal health or welfare, in any manner applicable to Holdings or any of its Subsidiaries or any Facility.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and any successor thereto.
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"ERISA AFFILIATE" means, as applied to any Person, (i) any corporation which is a member of a controlled group of corporations within the meaning of Section 414(b) of the Internal Revenue Code of which that Person is a member; (ii) any trade or business (whether or not incorporated) which is a member of a group of trades or businesses under common control within the meaning of Section 414(c) of the Internal Revenue Code of which that Person is a member; and (iii) any member of an affiliated service group within the meaning of Section 414(m) or (o) of the Internal Revenue Code of which that Person, any corporation described in clause (i) above or any trade or business described in clause (ii) above is a member. Any former ERISA Affiliate of Holdings or any of its Subsidiaries shall continue to be considered an ERISA Affiliate of Holdings or any such Subsidiary within the meaning of this definition with respect to the period such entity was an ERISA Affiliate of Holdings or such Subsidiary and with respect to liabilities arising after such period for which Holdings or such Subsidiary could reasonably be expected to be liable under the Internal Revenue Code or ERISA.
"ERISA EVENT" means (i) a "reportable event" within the meaning of
Section 4043 of ERISA and the regulations issued thereunder with respect to any Pension Plan (excluding those for which the provision for 30-day notice to the PBGC has been waived by regulation); (ii) the failure to meet the minimum funding standard of Section 412 of the Internal Revenue Code with respect to any Pension Plan (whether or not waived in accordance with Section 412(d) of the Internal Revenue Code) or the failure to make by its due date a required installment under Section 412(m) of the Internal Revenue Code with respect to any Pension Plan or the failure to make any required contribution to a Multiemployer Plan; (iii) the provision by the administrator of any Pension Plan pursuant to Section 4041(a)(2) of ERISA of a notice of intent to terminate such plan in a distress termination described in Section 4041(c) of ERISA; (iv) the withdrawal by Holdings, any of its Subsidiaries or any of their respective ERISA Affiliates from any Pension Plan with two or more contributing sponsors or the termination of any such Pension Plan resulting in liability to Holdings, any of its Subsidiaries or any of their respective Affiliates pursuant to Section 4063 or 4064 of ERISA; (v) the institution by the PBGC of proceedings to terminate any Pension Plan, or the occurrence of any event or condition which could reasonably be expected to constitute grounds under ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan; (vi) the imposition of liability on Holdings, any of its Subsidiaries or any of their respective ERISA Affiliates pursuant to Section 4062(e) or 4069 of ERISA or by reason of the application of Section 4212(c) of ERISA; (vii) the withdrawal of Holdings, any of its Subsidiaries or any of their respective ERISA Affiliates in a complete or partial withdrawal (within the meaning of Sections 4203 and 4205 of ERISA) from any Multiemployer Plan if there is any potential liability therefore, or the receipt by Holdings, any of its Subsidiaries or any of their respective ERISA Affiliates of notice from any Multiemployer Plan that it is in reorganization or insolvency pursuant to Section 4241 or 4245 of ERISA, or that it intends to terminate or has terminated under Section 4041A or 4042 of ERISA;
(viii) the occurrence of an act or omission which could reasonable be expected to give rise to the imposition on Holdings, any of its Subsidiaries or any of their respective ERISA Affiliates of fines, penalties, taxes or related charges under Chapter 43 of the Internal Revenue Code or under Section 409, Section
502(c), (i) or (l), or Section 4071 of ERISA in respect of any Employee Benefit Plan; (ix) the assertion of a material claim (other than routine claims for benefits) against any Employee Benefit Plan other than a Multiemployer Plan or the assets thereof, or against Holdings, any of its Subsidiaries or any of their respective ERISA Affiliates in connection with
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any Employee Benefit Plan; (x) receipt from the Internal Revenue Service of notice of the failure of any Pension Plan (or any other Employee Benefit Plan intended to be qualified under Section 401(a) of the Internal Revenue Code) to qualify under Section 401(a) of the Internal Revenue Code, or the failure of any trust forming part of any Pension Plan to qualify for exemption from taxation under Section 501(a) of the Internal Revenue Code; or (xi) the imposition of a Lien pursuant to Section 401(a)(29) or 412(n) of the Internal Revenue Code or pursuant to ERISA with respect to any Pension Plan.
"EURODOLLAR RATE LOAN" means a Loan bearing interest at a rate determined by reference to the Adjusted Eurodollar Rate.
"EVENT OF DEFAULT" means each of the conditions or events set forth in Section 8.1.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended from time to time, and any successor statute.
"EXISTING EARN-OUT OBLIGATION" means the unsecured contingent liability of Company or ARC Acquisition Corporation, as the case may be, owed to a seller as a portion of the purchase price under, and as set forth in, the acquisition agreements which are identified on Schedule 1.1(a) annexed hereto, as in effect on the Closing Date and as such agreements may thereafter be amended, restated, supplemented or otherwise modified from time to time to the extent permitted under Section 6.16.
"EXISTING INDEBTEDNESS" means (i) Indebtedness and other obligations outstanding under that certain Amended and Restated Credit and Guaranty Agreement dated as of September 8, 2000 between Company, Syndication Agent and Fleet National Bank, as amended prior to the Closing Date and (ii) all outstanding notes of Holdings and the Company issued pursuant to the Senior Note Indentures.
"EXISTING SELLER SUBORDINATED NOTES" means, collectively, the unsecured promissory notes identified on Schedule 1.1(b) annexed hereto, which promissory notes were issued by Company to a seller as a portion of the purchase price in connection with an acquisition consummated prior to the Closing Date, as such notes are in effect on the Closing Date and as such promissory notes may thereafter be amended, restated, supplemented or otherwise modified from time to time to the extent permitted under Section 6.16.
"FACILITY" means any real property (including all buildings, fixtures or other improvements located thereon) now, hereafter or heretofore owned, leased, operated or used by Holdings or any of its Subsidiaries or any of their respective predecessors or Affiliates.
"FAIR SHARE" as defined in Section 7.2.
"FAIR SHARE CONTRIBUTION AMOUNT" as defined in Section 7.2.
"FEDERAL FUNDS EFFECTIVE RATE" means, for any day, a floating rate equal to the weighted average of the rates on overnight federal funds transactions among members of the
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Federal Reserve System, as determined by Administrative Agent in its sole discretion, which determination shall be final, binding and conclusive (absent demonstrable error).
"FINANCIAL OFFICER CERTIFICATION" means, with respect to the financial statements for which such certification is required, the certification of the chief financial officer of Holdings that such financial statements fairly present, in all material respects, the financial condition of Holdings and its Subsidiaries as at the dates indicated and the results of their operations and their cash flows for the periods indicated, subject to changes resulting from audit and normal year-end adjustments.
"FINANCIAL PLAN" as defined in Section 5.1(i).
"FIRST PRIORITY" means, with respect to any Lien purported to be created in any Collateral pursuant to any Collateral Document, that such Lien is the only Lien to which such Collateral is subject, other than any Permitted Lien.
"FIRST PRIORITY SENIOR DEBT LEVERAGE RATIO" means the ratio as of the last day of any Fiscal Quarter of (i) Consolidated First Priority Senior Debt as of such day to (ii) Consolidated Adjusted EBITDA for the four-Fiscal Quarter period ending on such date.
"FISCAL QUARTER" means a fiscal quarter of any Fiscal Year.
"FISCAL YEAR" means the fiscal year of Holdings and its Subsidiaries ending on December 31st of each calendar year.
"FIXED CHARGE COVERAGE RATIO" means the ratio as of the last day of any Fiscal Quarter of (i) Consolidated Adjusted EBITDAR for the four-Fiscal Quarter Period then ending minus the sum, without duplication, of the amounts for such period of (a) cash payments made in respect of Consolidated Capital Expenditures (net of any proceeds of any related financings with respect to such expenditures), (b) the provision for current taxes based on income of Company and its Subsidiaries and payable in cash with respect to such period, and any Permitted Tax Distributions payable in cash with respect to such period, and (c) any Permitted Investor Note Tax Distribution Amount payable in cash with respect to such period, to (ii) Consolidated Fixed Charges for such four-Fiscal Quarter Period.
"FLOOD HAZARD PROPERTY" means any Real Estate Asset subject to a mortgage in favor of Collateral Agent, for the benefit of the Lenders, and located in an area designated by the Federal Emergency Management Agency as having special flood or mud slide hazards.
"FOREIGN SUBSIDIARY" means any Subsidiary that is not a Domestic Subsidiary.
"FUNDING DEFAULT" as defined in Section 2.22.
"FUNDING GUARANTOR" as defined in Section 7.2.
"FUNDING NOTICE" means a notice substantially in the form of Exhibit A-1.
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"GAAP" means, subject to the limitations on the application thereof set forth in Section 1.2, United States generally accepted accounting principles in effect as of the date of determination thereof.
"GOVERNMENTAL ACTS" means any act or omission, whether rightful or wrongful, of any present or future de jure or de facto government or Governmental Authority.
"GOVERNMENTAL AUTHORITY" means any federal, state, municipal, national or other government, governmental department, commission, board, bureau, court, agency or instrumentality or political subdivision thereof or any entity or officer exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to any government or any court, in each case whether associated with a state of the United States, the United States, or a foreign entity or government.
"GOVERNMENTAL AUTHORIZATION" means any permit, license, authorization, plan, directive, consent order or consent decree of or from any Governmental Authority.
"GRANTOR" as defined in the Pledge and Security Agreement.
"GUARANTEED OBLIGATIONS" as defined in Section 7.1.
"GUARANTOR" means each of Holdings and each Domestic Subsidiary of Holdings (other than Company).
"GUARANTOR SUBSIDIARY" means each Guarantor other than Holdings.
"GUARANTY" means the guaranty of each Guarantor set forth in Section 7.
"HAZARDOUS MATERIALS" means any chemical, material or substance, exposure to which is prohibited, limited or regulated by any Governmental Authority or which may or could pose a hazard to the health and safety of the owners, occupants or any Persons in the vicinity of any Facility or to the indoor or outdoor environment.
"HAZARDOUS MATERIALS ACTIVITY" means any past, current or proposed activity, event or occurrence involving any Hazardous Materials, including the use, manufacture, possession, storage, holding, presence, existence, location, Release, threatened Release, discharge, placement, generation, transportation, processing, treatment, abatement, removal, remediation, disposal, disposition or handling of any Hazardous Materials, and any corrective action or response action with respect to any of the foregoing.
"HEDGE AGREEMENT" means an Interest Rate Agreement or a Currency Agreement entered into with a Lender Counterparty in order to satisfy the requirements of this Agreement or otherwise in the ordinary course of Holdings' or any of its Subsidiaries' businesses and not for speculative purposes.
"HIGHEST LAWFUL RATE" means the maximum lawful interest rate, if any, that at any time or from time to time may be contracted for, charged, or received under the laws
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applicable to any Lender which are presently in effect or, to the extent allowed by law, under such applicable laws which may hereafter be in effect and which allow a higher maximum nonusurious interest rate than applicable laws now allow.
"HISTORICAL FINANCIAL STATEMENTS" means as of the Closing Date, (i) the audited financial statements of Holdings and its Subsidiaries, for the immediately preceding three (3) Fiscal Years, consisting of balance sheets and the related consolidated statements of income, members' equity and cash flows for such Fiscal Years, and (ii) the unaudited financial statements of Holdings and its Subsidiaries as at the most recently ended Fiscal Quarter and month, consisting of a balance sheet and the related consolidated statements of income, members' equity and cash flows for the three-, six-or nine-month period, as applicable, ending on such date, and, in the case of clauses (i) and (ii), certified by the chief financial officer of Company that they fairly present, in all material respects, the financial condition of Holdings and its Subsidiaries as at the dates indicated and the results of their operations and their cash flows for the periods indicated, subject to changes resulting from audit and normal year-end adjustments.
"HOLDINGS" as defined in the preamble hereto.
"HOLDINGS OPERATING AGREEMENT" means the Amended and Restated Operating Agreement of Holdings dated as of April 10, 2000, as amended through the Closing Date and as such agreement may be further amended, restated, supplemented or otherwise modified from time to time to the extent permitted under Section 6.15.
"INCREASED-COST LENDER" as defined in Section 2.23.
"INDEBTEDNESS", as applied to any Person, means, without duplication, (i) all indebtedness for borrowed money; (ii) that portion of obligations with respect to Capital Leases that is properly classified as a liability on a balance sheet in conformity with GAAP; (iii) notes payable and drafts accepted representing extensions of credit whether or not representing obligations for borrowed money; (iv) any obligation owed for all or any part of the deferred purchase price of property or services (excluding any such obligations incurred under ERISA and ordinary course trade payables), which purchase price is (a) due more than six months from the date of incurrence of the obligation in respect thereof or (b) evidenced by a note or similar written instrument; (v) all indebtedness secured by any Lien on any property or asset owned or held by that Person regardless of whether the indebtedness secured thereby shall have been assumed by that Person or is nonrecourse to the credit of that Person; (vi) the face amount of any letter of credit issued for the account of that Person or as to which that Person is otherwise liable for reimbursement of drawings; (vii) the direct or indirect guaranty, endorsement (otherwise than for collection or deposit in the ordinary course of business), co-making, discounting with recourse or sale with recourse by such Person of the obligation of another; (viii) any obligation of such Person the primary purpose or intent of which is to provide assurance to an obligee that the obligation of the obligor thereof will be paid or discharged, or any agreement relating thereto will be complied with, or the holders thereof will be protected (in whole or in part) against loss in respect thereof (excluding ordinary course trade payables); (ix) any liability of such Person for an obligation of another through any agreement (contingent or otherwise) (a) to purchase, repurchase or otherwise acquire such obligation or any security therefor, or to provide funds for
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the payment or discharge of such obligation (whether in the form of loans, advances, stock purchases, capital contributions or otherwise) or (b) to maintain the solvency or any balance sheet item, level of income or financial condition of another if, in the case of any agreement described under subclauses
(a) or (b) of this clause (ix), the primary purpose or intent thereof is as described in clause (viii) above; and (x) all obligations of such Person in respect of any exchange traded or over the counter derivative transaction, including, without limitation, any Interest Rate Agreement and Currency Agreement, whether entered into for hedging or speculative purposes; provided, in no event shall obligations under any Interest Rate Agreement and any Currency Agreement be deemed "Indebtedness" for any purpose under Section 6.8.
"INDEMNIFIED LIABILITIES" means, collectively, any and all liabilities, obligations, losses, damages (including natural resource damages), penalties, claims (including Environmental Claims), costs (including the costs of any investigation, study, sampling, testing, abatement, cleanup, removal, remediation or other response action necessary to remove, remediate, clean up or abate any Hazardous Materials Activity), expenses and disbursements of any kind or nature whatsoever (including the reasonable fees and disbursements of counsel for Indemnitees in connection with any investigative, administrative or judicial proceeding commenced or threatened by any Person, whether or not any such Indemnitee shall be designated as a party or a potential party thereto, and any fees or expenses incurred by Indemnitees in enforcing this indemnity), whether direct, indirect or consequential and whether based on any federal, state or foreign laws, statutes, rules or regulations (including securities and commercial laws, statutes, rules or regulations and Environmental Laws), on common law or equitable cause or on contract or otherwise, that may be imposed on, incurred by, or asserted against any such Indemnitee, in any manner relating to or arising out of (i) this Agreement or the other Credit Documents or the transactions contemplated hereby or thereby (including the Lenders' agreement to make Credit Extensions or the use or intended use of the proceeds thereof, or any enforcement of any of the Credit Documents (including any sale of, collection from, or other realization upon any of the Collateral or the enforcement of the Guaranty)); (ii) the statements contained in the commitment letter delivered by any Lender to Company or Sponsor with respect to the transactions contemplated by this Agreement; or (iii) any Environmental Claim or any Hazardous Materials Activity relating to or arising from, directly or indirectly, any past or present activity, operation, land ownership, or practice of Holdings or any of its Subsidiaries.
"INDEMNITEE" as defined in Section 10.3.
"INDEX RATE" means, for any day, a floating rate equal to the higher of (i) the rate publicly quoted from time to time by The Wall Street Journal as the "base rate on corporate loans posted by at least 75% of the nation's 30 largest banks" (or, if The Wall Street Journal ceases quoting a base rate of the type described, the highest per annum rate of interest published by the Federal Reserve Board in Federal Reserve statistical release H.15 (519) entitled "Selected Interest Rates" as the Bank prime loan rate or its equivalent), and
(ii) the Federal Funds Effective Rate plus 50 basis points per annum. Each change in any interest rate provided for in the Agreement based upon the Index Rate shall take effect at the time of such change in the Index Rate.
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"INDEX RATE LOAN" means a Loan bearing interest at a rate determined by reference to the Index Rate.
"INSTALLMENT" as defined in Section 2.12(a).
"INTERCREDITOR AGREEMENT" means an Intercreditor Agreement substantially in the form of Exhibit L, as it may be amended, supplemented or otherwise modified from time to time.
"INTEREST COVERAGE RATIO" means the ratio as of the last day of any Fiscal Quarter of (i) Consolidated Adjusted EBITDAR for the four-Fiscal Quarter Period then ended, to (ii) the sum of the amounts for such period of (a) Consolidated Cash Interest Expense and (b) Consolidated Rental Payments.
"INTEREST PAYMENT DATE" means with respect to (i) any Index Rate Loan, each March 31, June 30, September 30 and December 31 of each year, commencing on the first such date to occur after the Closing Date and the final maturity date of such Loan; and (ii) any Eurodollar Rate Loan, the last day of each Interest Period applicable to such Loan; provided, in the case of each Interest Period of longer than three months "Interest Payment Date" shall also include each date that is three months, or an integral multiple thereof, after the commencement of such Interest Period.
"INTEREST PERIOD" means, with respect to any Eurodollar Rate Loan, each period commencing on a LIBOR Business Day selected by Company pursuant to the Agreement and ending one, two, three, six or, with the consent of each affected Lender, twelve months thereafter, as selected by Company in the applicable Funding Notice; provided, that the foregoing provision relating to Interest Periods is subject to the following:
(a) if any Interest Period would otherwise end on a day that is not a LIBOR Business Day, such Interest Period shall be extended to the next succeeding LIBOR Business Day unless the result of such extension would be to carry such Interest Period into another calendar month in which event such Interest Period shall end on the immediately preceding LIBOR Business Day;
(b) any Interest Period that would otherwise extend beyond the date set forth in clause (i) of the definition of "Revolving Commitment Termination Date" shall end two (2) LIBOR Business Days prior to such date;
(c) any Interest Period that begins on the last LIBOR 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 LIBOR Business Day of a calendar month;
(d) Company shall select Interest Periods so as not to require a payment or prepayment of any Eurodollar Rate Loan during an Interest Period for such Loan;
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(e) Company shall select Interest Periods so that there shall be no more than 8 separate Eurodollar Rate Loans in existence at any one time; and
(f) no Interest Period may be selected for any portion of the Term Loans if an Installment for such Term Loan is payable during such Interest Period and the portion of such Term Loan which constitutes an Index Rate Loan does not equal or exceed the amount of such Installment.
"INTEREST RATE AGREEMENT" means any interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, interest rate hedging agreement or other similar agreement or arrangement, each of which is for the purpose of hedging the interest rate exposure associated with Holdings' and its Subsidiaries' operations and not for speculative purposes.
"INTEREST RATE DETERMINATION DATE" means, with respect to any Interest Period, the date that is two Business Days prior to the first day of such Interest Period.
"INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as amended to the date hereof and from time to time hereafter, and any successor statute.
"INVESTMENT" means (i) any direct or indirect purchase or other acquisition by Holdings or any of its Subsidiaries of, or of a beneficial interest in, any of the Securities of any other Person (other than a Guarantor Subsidiary); (ii) any direct or indirect redemption, retirement, purchase or other acquisition for value, by any Subsidiary of Holdings from any Person (other than Holdings or any Guarantor Subsidiary), of any Capital Stock of such Person; and (iii) any direct or indirect loan, advance (other than advances to employees for moving, entertainment and travel expenses, drawing accounts and similar expenditures in the ordinary course of business) or capital contribution by Holdings or any of its Subsidiaries to any other Person (other than Holdings or any Guarantor Subsidiary), including all indebtedness and accounts receivable from that other Person that are not current assets or did not arise from sales to that other Person in the ordinary course of business. The amount of any Investment shall be the original cost of such Investment plus the cost of all additions thereto, without any adjustments for increases or decreases in value, or write-ups, write-downs or write-offs with respect to such Investment.
"INVESTOR NOTES" means, collectively, any unsecured promissory notes issued by Holdings to ARC Acquisition Co., L.L.C., in accordance with Section 6.1(c) of the Holdings Operating Agreement, which notes are expressly subordinated and made junior to the payment and performance in full of all the Obligations, each of which shall be substantially in the form of Exhibit B to the Holdings Operating Agreement, as such notes may be amended, restated, supplemented or otherwise modified from time to time to the extent permitted under Section 6.16.
"INVESTOR NOTE TAX BENEFIT AMOUNT" means with respect to the applicable period with respect to which a Permitted Tax Distribution is determined, the excess, if any, of (i) the amount that such Permitted Tax Distribution would be for such period had there never been
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any Investor Notes outstanding at any time over (ii) the actual Permitted Tax Distribution for such period.
"INVESTOR REGISTRATION RIGHTS AGREEMENT" means the Investor
Registration Rights Agreement, dated April 10, 2000 by and among Holdings, ARC Acquisition Co., L.L.C., GS Mezzanine Partners II, L.P., and GS Mezzanine Partners II Offshore, L.P. and certain other parties signatory thereto as in effect on the Closing Date and as such agreement may thereafter be amended, restated, supplemented or otherwise modified from time to time to the extent permitted under Section 6.15.
"INVESTOR UNITHOLDERS AGREEMENT" means the Investor Unitholders Agreement dated April 10, 2000 by and among Holdings, ARC Acquisition Co., L.L.C., GS Mezzanine Partners II, L.P., and GS Mezzanine Partners II Offshore, L.P. as in effect on the Closing Date and as such agreement may thereafter be amended, restated, supplemented or otherwise modified from time to time to the extent permitted under Section 6.15.
"ISSUANCE NOTICE" means an Issuance Notice substantially in the form of Exhibit A-3.
"ISSUING BANK" means GECC as Issuing Bank hereunder, together with its permitted successors and assigns in such capacity.
"JOINT VENTURE" means a joint venture, partnership or other similar arrangement, whether in corporate, partnership or other legal form; provided, in no event shall any corporate Subsidiary of any Person be considered to be a Joint Venture to which such Person is a party.
"LANDLORD CONSENT AND ESTOPPEL" means, with respect to any Leasehold Property, a letter, certificate or other instrument in writing from the lessor under the related lease, pursuant to which, among other things, the landlord consents to the granting of a Mortgage on such Leasehold Property by the Credit Party tenant, such Landlord Consent and Estoppel to be in form and substance acceptable to Collateral Agent in its reasonable discretion, but in any event sufficient for Collateral Agent to obtain a Title Policy with respect to such Mortgage.
"LANDLORD PERSONAL PROPERTY COLLATERAL ACCESS AGREEMENT" means a Landlord Waiver and Consent Agreement substantially in the form of Exhibit K with such amendments or modifications as may be approved by Collateral Agent.
"LEAD ARRANGER" as defined in the preamble hereto.
"LEASEHOLD PROPERTY" means any leasehold interest of any Credit Party as lessee under any lease of real property, other than any such leasehold interest designated from time to time by Collateral Agent in its sole discretion as not being required to be included in the Collateral.
"LENDER" means each financial institution listed on the signature pages hereto as a Lender, and any other Person that becomes a party hereto pursuant to an Assignment Agreement.
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"LENDER COUNTERPARTY" means each Lender or any Affiliate of a Lender counterparty to a Hedge Agreement (including any Person who is a Lender (and any Affiliate thereof) as of the Closing Date but subsequently, whether before or after entering into a Hedge Agreement, ceases to be a Lender) including, without limitation, each such Affiliate that enters into a joinder agreement with Collateral Agent.
"LETTER OF CREDIT" means a commercial or standby letter of credit issued or to be issued by Issuing Bank pursuant to this Agreement.
"LETTER OF CREDIT SUBLIMIT" means the lesser of (i) $10,000,000 and
(ii) the aggregate unused amount of the Revolving Commitments then in effect.
"LETTER OF CREDIT USAGE" means, as at any date of determination, the sum of (i) the maximum aggregate amount which is, or at any time thereafter may become, available for drawing under all Letters of Credit then outstanding, and
(ii) the aggregate amount of all drawings under Letters of Credit honored by Issuing Bank and not theretofore reimbursed by or on behalf of Company.
"LEVERAGE RATIO" means the ratio as of the last day of any Fiscal Quarter of (i) Consolidated Total Debt as of such day to (ii) Consolidated Adjusted EBITDA for the four-Fiscal Quarter period ending on such date.
"LIBOR BUSINESS DAY" means a Business Day on which banks in the City of London are generally open for interbank or foreign exchange transactions.
"LIEN" means (i) any lien, mortgage, pledge, assignment, security interest, charge or encumbrance of any kind (including any agreement to give any of the foregoing, any conditional sale or other title retention agreement, and any lease in the nature thereof) and any option, trust or other preferential arrangement having the practical effect of any of the foregoing and (ii) in the case of Securities, any purchase option, call or similar right of a third party with respect to such Securities.
"LOAN" means a Term Loan, a Revolving Loan, and a Swing Line Loan.
"MANAGEMENT AGREEMENT" means that certain Financial Advisory Services Agreement dated as of April 10, 2000 between CHS Management IV, L.P. and Holdings as in effect on the Closing Date and as such agreement may thereafter be amended, restated, supplemented or otherwise modified from time to time to the extent permitted under Section 6.15.
"MANAGEMENT FEES" means with respect to any fees payable by Holdings pursuant to the Management Agreement, an amount for any Fiscal Year not to exceed $1,000,000 plus the reasonable out-of-pocket expenses of Sponsor reimbursable thereunder.
"MARGIN STOCK" as defined in Regulation U of the Board of Governors of the Federal Reserve System as in effect from time to time.
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"MATERIAL ADVERSE EFFECT" means a material adverse effect on (i) the business, operations, properties, assets, condition (financial or otherwise) or prospects of Holdings and its Subsidiaries taken as a whole; (ii) the ability of any Credit Party to fully and timely perform its Obligations; (iii) the legality, validity, binding effect or enforceability against a Credit Party of a Credit Document to which it is a party; or (iv) the rights, remedies and benefits available to, or conferred upon, any Agent and any Lender or any Secured Party under any Credit Document.
"MATERIAL CONTRACT" means any contract or other arrangement to which Holdings or any of its Subsidiaries is a party (other than the Credit Documents) for which breach, nonperformance, cancellation or failure to renew could reasonably be expected to have a Material Adverse Effect.
"MATERIAL REAL ESTATE ASSET" means (i) (a) any fee-owned Real Estate Asset having a fair market value in excess of $500,000 as of the date of the acquisition thereof and (b) all Leasehold Properties other than those with respect to which the aggregate payments under the term of the lease are less than $250,000 per annum or (ii) any Real Estate Asset that the Requisite Lenders have determined is material to the business, operations, properties, assets, condition (financial or otherwise) or prospects of Holdings or any Subsidiary thereof, including Company.
"MOODY'S" means Moody's Investor Services, Inc.
"MORTGAGE" means a Mortgage substantially in the form of Exhibit J, as it may be amended, supplemented or otherwise modified from time to time.
"MULTIEMPLOYER PLAN" means any Employee Benefit Plan which is a "multiemployer plan" as defined in Section 3(37) of ERISA.
"NAIC" means The National Association of Insurance Commissioners, and any successor thereto.
"NARRATIVE REPORT" means, with respect to the financial statements for which such narrative report is required, a narrative report describing the operations of Holdings and its Subsidiaries in the form prepared for presentation to senior management thereof for the applicable month, Fiscal Quarter or Fiscal Year and for the period from the beginning of the then current Fiscal Year to the end of such period to which such financial statements relate.
"NET ASSET SALE PROCEEDS" means, with respect to any Asset Sale, an amount equal to: (i) Cash payments (including any Cash received by way of deferred payment pursuant to, or by monetization of, a note receivable or otherwise, but only as and when so received) received by Holdings or any of its Subsidiaries from such Asset Sale, minus (ii) any bona fide direct costs incurred in connection with such Asset Sale, including (a) income or gains taxes payable by the seller as a result of any gain recognized in connection with such Asset Sale, (b) payment of the outstanding principal amount of, premium or penalty, if any, and interest on any Indebtedness (other than the Loans) that is secured by a Lien on the stock or assets in question and that is required to be repaid under the terms thereof as a result of such Asset Sale and (c) a reasonable reserve for any indemnification payments (fixed or contingent) attributable to seller's
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indemnities and representations and warranties to purchaser in respect of such Asset Sale undertaken by Holdings or any of its Subsidiaries in connection with such Asset Sale.
"NET INSURANCE/CONDEMNATION PROCEEDS" means an amount equal to: (i) any Cash payments or proceeds received by Holdings or any of its Subsidiaries
(a) under any casualty insurance policy in respect of a covered loss thereunder or (b) as a result of the taking of any assets of Holdings or any of its Subsidiaries by any Person pursuant to the power of eminent domain, condemnation or otherwise, or pursuant to a sale of any such assets to a purchaser with such power under threat of such a taking, minus (ii) (a) any actual and reasonable costs incurred by Holdings or any of its Subsidiaries in connection with the adjustment or settlement of any claims of Holdings or such Subsidiary in respect thereof, and (b) any bona fide direct costs incurred in connection with any sale of such assets as referred to in clause (i)(b) of this definition, including income taxes payable as a result of any gain recognized in connection therewith.
"NON-CONSENTING LENDER" as defined in Section 2.23.
"NON-US LENDER" as defined in Section 2.20(c).
"NOTE" means a Term Loan Note, a Revolving Loan Note or a Swing Line Note.
"NOTICE" means a Funding Notice, an Issuance Notice, or a Conversion/Continuation Notice.
"OBLIGATIONS" means all obligations of every nature of each Credit Party from time to time owed to the Agents (including former Agents), the Lenders or any of them and Lender Counterparties), under any Credit Document or Hedge Agreement (including, without limitation, with respect to a Hedge Agreement, obligations owed thereunder to any person who was a Lender or an Affiliate of a Lender at the time such Hedge Agreement was entered into), whether for principal, interest (including interest which, but for the filing of a petition in bankruptcy with respect to such Credit Party, would have accrued on any Obligation, whether or not a claim is allowed against such Credit Party for such interest in the related bankruptcy proceeding), reimbursement of amounts drawn under Letters of Credit, payments for early termination of Hedge Agreements, fees, expenses, indemnification or otherwise.
"OBLIGEE GUARANTOR" as defined in Section 7.7.
"OFFER" as defined in Section 2.13(c).
"OFFER LOANS" as defined in Section 2.13(c).
"ORGANIZATIONAL DOCUMENTS" means (i) with respect to any corporation, its certificate or articles of incorporation or organization, as amended, and its by-laws, as amended, (ii) with respect to any limited partnership, its certificate of limited partnership, as amended, and its partnership agreement, as amended, (iii) with respect to any general partnership, its partnership agreement, as amended, and (iv) with respect to any limited liability company, its articles of organization, as amended, and its operating agreement, as amended. In the event any
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term or condition of this Agreement or any other Credit Document requires any Organizational Document to be certified by a secretary of state or similar governmental official, the reference to any such "Organizational Document" shall only be to a document of a type customarily certified by such governmental official.
"PBGC" means the Pension Benefit Guaranty Corporation or any successor thereto.
"PENSION PLAN" means any Employee Benefit Plan, other than a Multiemployer Plan, which is subject to Section 412 of the Internal Revenue Code or Section 302 of ERISA.
"PERMITTED ACQUISITION" means any acquisition by Company or any of its wholly-owned Subsidiaries, whether by purchase, merger or otherwise, of all or substantially all of the assets of, all of the Capital Stock of, or a business line or unit or a division of, any Person; provided,
(i) immediately prior to, and after giving effect thereto, no Default or Event of Default shall have occurred and be continuing or would result therefrom;
(ii) all transactions in connection therewith shall be consummated, in all material respects, in accordance with all applicable laws and in conformity with all applicable Governmental Authorizations;
(iii) in the case of the acquisition of Capital Stock, all of the Capital Stock (except for any such Securities in the nature of directors' qualifying shares required pursuant to applicable law) acquired or otherwise issued by such Person or any newly formed Subsidiary of Company in connection with such acquisition shall be owned 100% by Company or a Guarantor Subsidiary thereof, and Company shall have taken, or caused to be taken, as of the date such Person becomes a Subsidiary of Company, each of the actions set forth in Sections 5.10 and/or 5.11, as applicable;
(iv) if the consideration to be delivered in connection with the proposed acquisition includes any deferred consideration payable to any seller such as payment under a seller note, Additional Earn-Out Obligations, or extraordinary payments under consulting, employment or lease agreements with such seller or its Affiliates, such deferred consideration shall in all cases be expressly subordinated to payment of the Obligations pursuant to an Additional Seller Subordinated Note or a subordination agreement substantially in the form of Exhibit M (or an agreement containing substantially similar terms, in each case with such modifications thereto as may be consented to by Administrative Agent), as the case may be;
(v) Holdings and its Subsidiaries shall be in compliance with the financial covenants set forth in Section 6.8 on a pro forma basis after giving effect to such acquisition as of the last day of the Fiscal Quarter most recently ended, (as determined in accordance with Section 6.8(f));
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(vi) Company shall have delivered to Administrative Agent at least 10 Business Days prior to such proposed acquisition, (y) a Compliance Certificate evidencing compliance with Section 6.8 as required under clause (v) above, together with all relevant financial information with respect to such acquired assets, including, without limitation, the aggregate consideration for such acquisition and any other information required to demonstrate compliance with Section 6.8 and (z) copies of the definitive documentation relating to such proposed acquisition; and
(vii) any Person or assets or division as acquired in accordance herewith (y) shall be in same business or lines of business in which Company and/or its Subsidiaries are permitted to be engaged pursuant to
Section 6.13 and (z) shall have generated positive Consolidated Adjusted EBITDA (after allowing for pro forma adjustments as may be permitted in
Section 6.8(f)) for the most recently completed four-Fiscal Quarter period prior to the date of such acquisition.
"PERMITTED INVESTOR NOTE TAX DISTRIBUTION AMOUNT" as defined in
Section 6.5(d).
"PERMITTED LIENS" means each of the Liens permitted pursuant to
Section 6.2.
"PERMITTED SALE-LEASEBACKS" as defined in Section 6.11.
"PERMITTED TAX DISTRIBUTIONS" means with respect to each (a) Fiscal Quarter of Holdings or other non-annual taxable period for which taxes are payable by the holders of Holdings' Capital Stock, cash distributions made to any of the holders of Holdings' Capital Stock, made at approximately the same time at which federal income tax installments with respect to income for such Fiscal Quarter or other taxable period are payable, in an amount sufficient to pay such holder's estimated federal, state and local income taxes on such holder's respective share of the taxable income of Holdings for such fiscal quarter or other taxable period, and (b) Fiscal Year of Holdings, cash distributions made to any of the holders of Holdings' Capital Stock, made after the end of such Fiscal Year and prior to the date one hundred (100) days after the end of such Fiscal Year, in an amount sufficient to pay such holder's federal, state and local income taxes on such holder's respective share of the taxable income of Holdings for such fiscal year, provided that (i) any cash distribution made under clause (b) with respect to a Fiscal Year for which quarterly distributions were made as provided in clause (a) shall be reduced by an amount equal to the sum of such quarterly distributions, and (ii) in the case of each of clauses (a) and (b) above distributions shall be made only to the extent such income exceeds the cumulative losses of Holdings allocated for tax purposes to its members in the aggregate for prior Fiscal Years that have not been utilized to reduce taxable income in prior Fiscal Years and that are available for use in the current Fiscal Year. Permitted Tax Distributions shall be made assuming the holders of Holdings' Capital Stock are subject to the higher of (x) federal, New York state, and New York City income taxes at the highest marginal rate, and (y) federal, California state, and any local income taxes to which any of the holders is subject at the highest marginal rate, taking into account any reduction in any one such tax referred to in either clause (x) or (y) on account of amounts paid or owing with respect to any other of such taxes.
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"PERSON" means and includes natural persons, corporations, limited partnerships, general partnerships, limited liability companies, limited liability partnerships, joint stock companies, Joint Ventures, associations, companies, trusts, banks, trust companies, land trusts, business trusts or other organizations, whether or not legal entities, and Governmental Authorities.
"PHASE I REPORT" means, with respect to any Facility, a report that
(i) conforms to the ASTM Standard Practice for Environmental Site Assessments:
Phase I Environmental Site Assessment, E 1527-00 and (ii) was conducted no more than six months prior to the date such report is required to be delivered hereunder, by one or more environmental consulting firms reasonably satisfactory to Administrative Agent.
"PLEDGE AND SECURITY AGREEMENT" means the Pledge and Security Agreement to be executed by Company and each Guarantor substantially in the form of Exhibit I, as it may be amended, supplemented or otherwise modified from time to time.
"PRINCIPAL OFFICE" means, for each of Administrative Agent, Swing Line Lender and Issuing Bank, such Person's "Principal Office" as set forth on Appendix B, or such other office as such Person may from time to time designate in writing to Company, Administrative Agent and each Lender.
"PROJECTIONS" as defined in Section 4.8.
"PRO RATA SHARE" means (i) with respect to all payments, computations and other matters relating to the Term Loan of any Lender, the percentage obtained by dividing (a) the Term Loan Exposure of that Lender by (b) the aggregate Term Loan Exposure of all Lenders; and (ii) with respect to all payments, computations and other matters relating to the Revolving Commitment or Revolving Loans of any Lender or any Letters of Credit issued or participations purchased therein by any Lender or any participations in any Swing Line Loans purchased by any Lender, the percentage obtained by dividing (a) the Revolving Exposure of that Lender by (b) the aggregate Revolving Exposure of all Lenders. For all other purposes with respect to each Lender, "Pro Rata Share" means the percentage obtained by dividing (A) an amount equal to the sum of the Term Loan Exposure and the Revolving Exposure of that Lender, by (B) an amount equal to the sum of the aggregate Term Loan Exposure and the aggregate Revolving Exposure of all Lenders.
"REAL ESTATE ASSET" means, at any time of determination, any interest (fee, leasehold or otherwise) then owned by any Credit Party in any real property.
"RECORD DOCUMENT" means, with respect to any Leasehold Property, (i) the lease evidencing such Leasehold Property or a memorandum thereof, executed and acknowledged by the owner of the affected real property, as lessor, or (ii) if such Leasehold Property was acquired or subleased from the holder of a Recorded Leasehold Interest, the applicable assignment or sublease document, executed and acknowledged by such holder, in each case in form sufficient to give such constructive notice upon recordation and otherwise in form reasonably satisfactory to Collateral Agent.
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"RECORDED LEASEHOLD INTEREST" means a Leasehold Property with respect to which a Record Document has been recorded in all places necessary or desirable, in Administrative Agent's reasonable judgment, to give constructive notice of such Leasehold Property to third-party purchasers and encumbrances of the affected real property.
"REFINANCING" as defined in the second recital hereto.
"REFUNDED SWING LINE LOANS" as defined in Section 2.3(b)(iv).
"REGISTER" as defined in Section 2.7(b).
"REGULATION D" means Regulation D of the Board of Governors of the Federal Reserve System, as in effect from time to time.
"REIMBURSEMENT DATE" as defined in Section 2.4(d).
"RELATED AGREEMENTS" means, collectively, the Management Agreement, the Holdings Operating Agreement, the Investor Notes, the Company Operating Agreement, the Warrant Agreement, the Warrants, the Investor Unitholders Agreement, the Investor Registration Rights Agreement and any other document pursuant to which any other Subordinated Indebtedness is issued or otherwise incurred.
"RELATED FUND" means, with respect to any Lender that is an investment fund, any other investment fund that invests in commercial loans and that is managed or advised by the same investment advisor as such Lender or by an Affiliate of such investment advisor.
"RELEASE" means any release, spill, emission, leaking, pumping, pouring, injection, escaping, deposit, disposal, discharge, dispersal, dumping, leaching or migration of any Hazardous Material into the indoor or outdoor environment (including the abandonment or disposal of any barrels, containers or other closed receptacles containing any Hazardous Material).
"REPLACEMENT LENDER" as defined in Section 2.23.
"REQUISITE CLASS LENDERS" means, at any time of determination, (i) for the Class of Lenders having Term Loan Exposure, Lenders holding more than 50% of the aggregate Term Loan Exposure of all Lenders; and (ii) for the Class of Lenders having Revolving Exposure, Lenders holding more than 50% of the aggregate Revolving Exposure of all Lenders.
"REQUISITE LENDERS" means one or more Lenders having or holding Term Loan Exposure and/or Revolving Exposure and representing more than 50% of the sum of (i) the aggregate Term Loan Exposure of all Lenders, and (ii) the aggregate Revolving Exposure of all Lenders.
"RESTRICTED JUNIOR PAYMENT" means (i) any dividend or other distribution, direct or indirect, on account of any Capital Stock of Holdings or Company now or hereafter outstanding, except a dividend payable solely in shares of that class of Capital Stock to the
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holders of that class; (ii) any redemption, retirement, sinking fund or similar payment, purchase or other acquisition for value, direct or indirect, of any shares of any class of Capital Stock of Holdings or Company now or hereafter outstanding; (iii) any payment made to retire, or to obtain the surrender of, any outstanding warrants, options or other rights to acquire shares of any class of Capital Stock of Holdings or Company now or hereafter outstanding; (iv) management or similar fees payable to Sponsor or any of its Affiliates and (v) any payment or prepayment of principal of, premium, if any, or interest on, or redemption, purchase, retirement, defeasance (including in-substance or legal defeasance), sinking fund or similar payment with respect to, any Subordinated Indebtedness.
"REVOLVING COMMITMENT" means the commitment of a Lender to make or otherwise fund any Revolving Loan and to acquire participations in Letters of Credit and Swingline Loans hereunder and "REVOLVING COMMITMENTS" means such commitments of all Lenders in the aggregate. The amount of each Lender's Revolving Commitment, if any, is set forth on Appendix A-2 or in the applicable Assignment Agreement, subject to any adjustment or reduction pursuant to the terms and conditions hereof. The aggregate amount of the Revolving Commitments as of the Closing Date is $30,000,000.
"REVOLVING COMMITMENT PERIOD" means the period from the Closing Date to but excluding the Revolving Commitment Termination Date.
"REVOLVING COMMITMENT TERMINATION DATE" means the earliest to occur of (i) January 31, 2004, if the Term Loans are not made on or before that date;
(ii) the 5th anniversary of the Closing Date, (iii) the date the Revolving Commitments are permanently reduced to zero pursuant to Section 2.13(b) or 2.14, and (iv) the date of the termination of the Revolving Commitments pursuant to
Section 8.1.
"REVOLVING EXPOSURE" means, with respect to any Lender as of any date of determination, (i) prior to the termination of the Revolving Commitments, that Lender's Revolving Commitment; and (ii) after the termination of the Revolving Commitments, the sum of (a) the aggregate outstanding principal amount of the Revolving Loans of that Lender, (b) in the case of Issuing Bank, the aggregate Letter of Credit Usage in respect of all Letters of Credit issued by that Lender (net of any participations by Lenders in such Letters of Credit),
(c) the aggregate amount of all participations by that Lender in any outstanding Letters of Credit or any unreimbursed drawing under any Letter of Credit, (d) in the case of Swing Line Lender, the aggregate outstanding principal amount of all Swing Line Loans (net of any participations therein by other Lenders), and (e) the aggregate amount of all participations therein by that Lender in any outstanding Swing Line Loans.
"REVOLVING LOAN" means a Loan made by a Lender to Company pursuant to Section 2.2(a) and/or 2.22.
"REVOLVING LOAN NOTE" means a promissory note in the form of Exhibit B-2, as it may be amended, supplemented or otherwise modified from time to time.
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"S&P" means Standard & Poor's Ratings Group, a division of The McGraw Hill Corporation.
"SALE-LEASEBACK" as defined in Section 6.11.
"SECOND LIEN CREDIT AGREEMENT" means the Second Lien Credit Agreement dated as of the Closing Date among the Company as borrower, Holdings, certain subsidiaries of the Company, GSCP as administrative agent and collateral agent and the lenders party thereto, as it may be amended, restated, supplemented, or otherwise modified from time to time in accordance with the provisions of Section 6.16 hereof.
"SECURED PARTIES" has the meaning assigned to that term in the Pledge and Security Agreement.
"SECURITIES" means any stock, shares, partnership interests, membership interests, voting trust certificates, certificates of interest or participation in any profit-sharing agreement or arrangement, options, warrants, bonds, debentures, notes, or other evidences of indebtedness, secured or unsecured, convertible, subordinated or otherwise, or in general any instruments commonly known as "securities" or any certificates of interest, shares or participations in temporary or interim certificates for the purchase or acquisition of, or any right to subscribe to, purchase or acquire, any of the foregoing.
"SECURITIES ACT" means the Securities Act of 1933, as amended from time to time, and any successor statute.
"SELLER SUBORDINATED NOTES" means, collectively, the Existing Seller Subordinated Notes and any Additional Seller Subordinated Notes.
"SENIOR NOTE INDENTURES" means each of (i) that certain Indenture dated as of April 10, 2000 by and among Company, the Subsidiaries of Company party thereto, and Wilmington Trust Company, as trustee and (ii) that certain Indenture dated as of April 10, 2000 by and among Holdings and Wilmington Trust Company, as trustee, in each case as such indentures may have been amended, restated, supplemented or otherwise modified from time to time.
"SOLVENT" means, with respect to any Credit Party, that as of the date of determination, both (i) (a) the sum of such Credit Party's debt (including contingent liabilities) does not exceed the present fair saleable value of such Credit Party's present assets; (b) such Credit Party's capital is not unreasonably small in relation to its business or any transaction contemplated or undertaken after the Closing Date; and (c) such Person has not incurred and does not intend to incur, or believe (nor should it reasonably believe) that it will incur, debts beyond its ability to pay such debts as they become due (whether at maturity or otherwise); and (ii) such Person is "solvent" within the meaning given that term and similar terms under applicable laws relating to fraudulent transfers and conveyances. For purposes of this definition, the amount of any contingent liability at any time shall be computed as the amount that, in light of all of the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability (irrespective of whether such
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contingent liabilities meet the criteria for accrual under Statement of Financial Accounting Standard No.5).
"SPONSOR" means Code Hennessy & Simmons IV, L.P..
"SUBJECT TRANSACTION" as defined in Section 6.8(f).
"SUBORDINATED INDEBTEDNESS" means (i) Indebtedness of Company or any of its Subsidiaries under any Seller Subordinated Notes and under any Earn-Out Obligations, (ii) Indebtedness of Holdings under any Investor Notes, and (iii) other Indebtedness of Holdings or any of its Subsidiaries (excluding Indebtedness incurred under the Second Lien Credit Agreement) subordinated in right of payment to the Obligations pursuant to documentation containing maturities, amortization schedules, covenants, defaults, remedies, subordination provisions and other material terms in form and substance satisfactory to Administrative Agent and Requisite Lenders.
"SUBSIDIARY" means, with respect to any Person, any corporation, partnership, limited liability company, association, joint venture or other business entity of which more than 50% of the total voting power of shares of stock or other ownership interests entitled (without regard to the occurrence of any contingency) to vote in the election of the Person or Persons (whether directors, managers, trustees or other Persons performing similar functions) having the power to direct or cause the direction of the management and policies thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof; provided, in determining the percentage of ownership interests of any Person controlled by another Person, no ownership interest in the nature of a "qualifying share" of the former Person shall be deemed to be outstanding.
"SWING LINE LENDER" means GECC in its capacity as Swing Line Lender hereunder, together with its permitted successors and assigns in such capacity.
"SWING LINE LOAN" means a Loan made by Swing Line Lender to Company pursuant to Section 2.3.
"SWING LINE NOTE" means a promissory note in the form of Exhibit B-3, as it may be amended, supplemented or otherwise modified from time to time.
"SWING LINE SUBLIMIT" means the lesser of (i) $5,000,000, and (ii) the aggregate unused amount of Revolving Commitments then in effect.
"SYNDICATION AGENT" as defined in the preamble hereto.
"TAX" means any present or future tax, levy, impost, duty, assessment, charge, fee, deduction or withholding of any nature and whatever called, by whomsoever, on whomsoever and wherever imposed, levied, collected, withheld or assessed; provided, "Tax on the overall net income" of a Person shall be construed as a reference to a tax imposed by the jurisdiction in which that Person is organized or in which that Person's applicable principal office (and/or, in
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the case of a Lender, its lending office) is located or in which that Person (and/or, in the case of a Lender, its lending office) is deemed to be doing business on all or part of the net income, profits or gains (whether worldwide, or only insofar as such income, profits or gains are considered to arise in or to relate to a particular jurisdiction, or otherwise) of that Person (and/or, in the case of a Lender, its applicable lending office).
"TERM LOAN" means a Term Loan made by a Lender to Company pursuant to Section 2.1(a).
"TERM LOAN COMMITMENT" means the commitment of a Lender to make or otherwise fund a Term Loan and "TERM LOAN COMMITMENTS" means such commitments of all Lenders in the aggregate. The amount of each Lender's Term Loan Commitment, if any, is set forth on Appendix A-1 or in the applicable Assignment Agreement, subject to any adjustment or reduction pursuant to the terms and conditions hereof. The aggregate amount of the Term Loan Commitments as of the Closing Date is $100,000,000.
"TERM LOAN EXPOSURE" means, with respect to any Lender, as of any date of determination, the outstanding principal amount of the Term Loans of such Lender; provided, at any time prior to the making of the Term Loans, the Term Loan Exposure of any Lender shall be equal to such Lender's Term Loan Commitment.
"TERM LOAN MATURITY DATE" means the earlier of (i) June 18, 2009, and (ii) the date that all Term Loans shall become due and payable in full hereunder, whether by acceleration or otherwise.
"TERM LOAN NOTE" means a promissory note in the form of Exhibit B-1, as it may be amended, supplemented or otherwise modified from time to time.
"TERMINATED LENDER" as defined in Section 2.23.
"TITLE POLICY" as defined in Section 3.1(i).
"TOTAL UTILIZATION OF REVOLVING COMMITMENTS" means, as at any date of determination, the sum of (i) the aggregate principal amount of all outstanding Revolving Loans (other than Revolving Loans made for the purpose of repaying any Refunded Swing Line Loans or reimbursing Issuing Bank for any amount drawn under any Letter of Credit, but not yet so applied), (ii) the aggregate principal amount of all outstanding Swing Line Loans, and (iii) the Letter of Credit Usage.
"TRANSACTION COSTS" means the fees, costs and expenses payable by Holdings, Company or any of Company's Subsidiaries on or before the Closing Date in connection with the transactions contemplated by the Credit Documents.
"TYPE OF LOAN" means (i) with respect to either Term Loans or Revolving Loans, an Index Rate Loan or a Eurodollar Rate Loan, and (ii) with respect to Swing Line Loans, an Index Rate Loan.
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"UCC" means the Uniform Commercial Code (or any similar or equivalent legislation) as in effect in any applicable jurisdiction.
"WARRANT AGREEMENT" means the Warrant Agreement dated as of April 10, 2000 among Holdings, GS Mezzanine Partners II, L.P. and GS Mezzanine Partners II Offshore, L.P., as amended on September 8, 2000, and as such agreement may be further amended, restated, supplemented or otherwise modified from time to time to the extent permitted under Section 6.15.
"WARRANTS" means the warrants to acquire 3,896.14 common units of Holdings issued by Company to GS Mezzanine Partners II, L.P., GS Mezzanine Partners II Offshore, L.P., Stone Street Fund 2000, L.P. and Bridge Street Special Opportunities Fund 2000, L.P. and any additional warrants to acquire common units of Holdings pursuant to the Warrant Agreement, as such warrants are in effect on the dates of their respective issuances and as such warrants may thereafter be amended, restated, supplemented or otherwise modified from time to time to the extent permitted under Section 6.15.
1.2. ACCOUNTING TERMS. Except as otherwise expressly provided herein, all accounting terms not otherwise defined herein shall have the meanings assigned to them in conformity with GAAP. Financial statements and other information required to be delivered by Holdings to Lenders pursuant to Section 5.1(a), 5.1(b) and 5.1(c) shall be prepared in accordance with GAAP as in effect at the time of such preparation (and delivered together with the reconciliation statements provided for in Section 5.1(e), if applicable). Subject to the foregoing, calculations in connection with the definitions, covenants and other provisions hereof shall utilize accounting principles and policies in conformity with those used to prepare the Historical Financial Statements.
1.3. INTERPRETATION, ETC. Any of the terms defined herein may, unless the context otherwise requires, be used in the singular or the plural, depending on the reference. References herein to any Section, Appendix, Schedule or Exhibit shall be to a Section, an Appendix, a Schedule or an Exhibit, as the case may be, hereof unless otherwise specifically provided. The use herein of the word "include" or "including", when following any general statement, term or matter, shall not be construed to limit such statement, term or matter to the specific items or matters set forth immediately following such word or to similar items or matters, whether or not no limiting language (such as "without limitation" or "but not limited to" or words of similar import) is used with reference thereto, but rather shall be deemed to refer to all other items or matters that fall within the broadest possible scope of such general statement, term or matter.
SECTION 2. LOANS AND LETTERS OF CREDIT
2.1. TERM LOANS.
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(a) Loan Commitments. Subject to the terms and conditions hereof, each Lender severally agrees to make, on the Closing Date, a Term Loan to the Company in an amount equal to such Lender's Term Loan Commitment. Company may make only one borrowing under the Term Loan Commitment which shall be on the Closing Date. Any amount borrowed under this Section 2.1(a) and subsequently repaid or prepaid may not be reborrowed. Subject to Sections 2.13(a) and 2.14, all amounts owed hereunder with respect to the Term Loans shall be paid in full no later than the Term Loan Maturity Date. Each Lender's Term Loan Commitment shall terminate immediately and without further action on the Closing Date after giving effect to the funding of such Lender's Term Loan Commitment on such date.
(b) Borrowing Mechanics for Term Loans.
(i) Company shall deliver to Administrative Agent a fully executed Funding Notice no later than one (1) day prior to the Closing Date. Promptly upon receipt by Administrative Agent of such Certificate, Administrative Agent shall notify each Lender of the proposed borrowing.
(ii) Each Lender shall make its Term Loan available to Administrative Agent not later than 12:00 p.m. (New York City time) on the Closing Date, by wire transfer of same day funds in Dollars, at Administrative Agent's Principal Office. Upon satisfaction or waiver of the conditions precedent specified herein, Administrative Agent shall make the proceeds of the Term Loans available to Company on the Closing Date by causing an amount of same day funds in Dollars equal to the proceeds of all such Loans received by Administrative Agent from Lenders to be credited to the account of Company at Administrative Agent's Principal Office or to such other account as may be designated in writing to Administrative Agent by Company.
2.2. REVOLVING LOANS.
(a) Revolving Commitments. During the Revolving Commitment Period, subject to the terms and conditions hereof, each Lender severally agrees to make Revolving Loans to Company in an aggregate amount up to but not exceeding such Lender's Revolving Commitment; provided, that after giving effect to the making of any Revolving Loans in no event shall the Total Utilization of Revolving Commitments exceed the Revolving Commitments then in effect. Amounts borrowed pursuant to this Section 2.2(a) may be repaid and reborrowed during the Revolving Commitment Period. Each Lender's Revolving Commitment shall expire on the Revolving Commitment Termination Date and all Revolving Loans and all other amounts owed hereunder with respect to the Revolving Loans and the Revolving Commitments shall be paid in full no later than such date.
(b) Borrowing Mechanics for Revolving Loans.
(i) Except pursuant to 2.4(d), Revolving Loans that are Index Rate Loans shall be made in an aggregate minimum amount of $500,000 and integral multiples of $100,000 in excess of that amount, and Revolving Loans that are Eurodollar Rate Loans
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shall be in an aggregate minimum amount of $1,000,000 and integral multiples of $250,000 in excess of that amount.
(ii) Whenever Company desires that Lenders make Revolving Loans, Company shall deliver to Administrative Agent a fully executed Funding Notice no later than 10:00 a.m. (New York City time) at least three Business Days in advance of the proposed Credit Date in the case of a Eurodollar Rate Loan, and at least one Business Day in advance of the proposed Credit Date in the case of a Revolving Loan that is an Index Rate Loan. Except as otherwise provided herein, a Funding Notice for a Revolving Loan that is a Eurodollar Rate Loan shall be irrevocable on and after the related Interest Rate Determination Date, and Company shall be bound to make a borrowing in accordance therewith.
(iii) Notice of receipt of each Funding Notice in respect of Revolving Loans, together with the amount of each Lender's Pro Rata Share thereof, if any, together with the applicable interest rate, shall be provided by Administrative Agent to each applicable Lender by telefacsimile with reasonable promptness.
(iv) Each Lender shall make the amount of its Revolving Loan available to Administrative Agent not later than 12:00 p.m. (New York City time) on the applicable Credit Date by wire transfer of same day funds in Dollars, at Administrative Agent's Principal Office. Except as provided herein, upon satisfaction or waiver of the conditions precedent specified herein, Administrative Agent shall make the proceeds of such Revolving Loans available to Company on the applicable Credit Date by causing an amount of same day funds in Dollars equal to the proceeds of all such Revolving Loans received by Administrative Agent from Lenders to be credited to the account of Company at Administrative Agent's Principal Office or such other account as may be designated in writing to Administrative Agent by Company.
2.3. SWING LINE LOANS.
(a) Swing Line Loans Commitments. During the Revolving Commitment Period, subject to the terms and conditions hereof, Swing Line Lender hereby agrees to make Swing Line Loans to Company in the aggregate amount up to but not exceeding the Swing Line Sublimit; provided, that after giving effect to the making of any Swing Line Loan, in no event shall the Total Utilization of Revolving Commitments exceed the Revolving Commitments then in effect. Amounts borrowed pursuant to this Section 2.3 may be repaid and reborrowed during the Revolving Commitment Period. Swing Line Lender's Revolving Commitment shall expire on the Revolving Commitment Termination Date and all Swing Line Loans and all other amounts owed hereunder with respect to the Swing Line Loans and the Revolving Commitments shall be paid in full no later than such date.
(b) Borrowing Mechanics for Swing Line Loans.
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(i) Swing Line Loans shall be made in an aggregate minimum amount of $50,000 and integral multiples of $25,000 in excess of that amount.
(ii) Whenever Company desires that Swing Line Lender make a Swing Line Loan, Company shall deliver to Administrative Agent a Funding Notice no later than 12:00 p.m. (New York City time) on the proposed Credit Date.
(iii) Swing Line Lender shall make the amount of its Swing Line Loan available to Administrative Agent not later than 2:00 p.m.(New York City time) on the applicable Credit Date by wire transfer of same day funds in Dollars, at Administrative Agent's Principal Office. Except as provided herein, upon satisfaction or waiver of the conditions precedent specified herein, Administrative Agent shall make the proceeds of such Swing Line Loans available to Company on the applicable Credit Date by causing an amount of same day funds in Dollars equal to the proceeds of all such Swing Line Loans received by Administrative Agent from Swing Line Lender to be credited to the account of Company at Administrative Agent's Principal Office, or to such other account as may be designated in writing to Administrative Agent by Company.
(iv) With respect to any Swing Line Loans which have not been voluntarily prepaid by Company pursuant to Section 2.13, Swing Line Lender may at any time in its sole and absolute discretion, deliver to Administrative Agent (with a copy to Company), no later than 11:00 a.m. (New York City time) at least one Business Day in advance of the proposed Credit Date, a notice (which shall be deemed to be a Funding Notice given by Company) requesting that each Lender holding a Revolving Commitment make Revolving Loans that are Index Rate Loans to Company on such Credit Date in an amount equal to the amount of such Swing Line Loans (the "REFUNDED SWING LINE LOANS") outstanding on the date such notice is given which Swing Line Lender requests Lenders to prepay. Anything contained in this Agreement to the contrary notwithstanding, (1) the proceeds of such Revolving Loans made by the Lenders other than Swing Line Lender shall be immediately delivered by Administrative Agent to Swing Line Lender (and not to Company) and applied to repay a corresponding portion of the Refunded Swing Line Loans and (2) on the day such Revolving Loans are made, Swing Line Lender's Pro Rata Share of the Refunded Swing Line Loans shall be deemed to be paid with the proceeds of a Revolving Loan made by Swing Line Lender to Company, and such portion of the Swing Line Loans deemed to be so paid shall no longer be outstanding as Swing Line Loans and shall no longer be due under the Swing Line Note of Swing Line Lender but shall instead constitute part of Swing Line Lender's outstanding Revolving Loans to Company and shall be due under the Revolving Loan Note issued by Company to Swing Line Lender. Company hereby authorizes Administrative Agent and Swing Line Lender to charge Company's accounts with Administrative Agent and Swing Line Lender (up to the amount available in each such account) in order to immediately pay Swing Line Lender the amount of the Refunded Swing Line Loans to the extent of the proceeds of such Revolving Loans made by Lenders, including the Revolving Loans deemed to be made by Swing Line Lender, are not sufficient to repay in full the Refunded Swing Line Loans. If any portion of any such amount paid (or deemed to be paid) to Swing Line Lender should be recovered by or on
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behalf of Company from Swing Line Lender in bankruptcy, by assignment for the benefit of creditors or otherwise, the loss of the amount so recovered shall be ratably shared among all Lenders in the manner contemplated by
Section 2.17.
(v) If for any reason Revolving Loans are not made pursuant to
Section 2.3(b)(iv) in an amount sufficient to repay any amounts owed to Swing Line Lender in respect of any outstanding Swing Line Loans on or before the third Business Day after demand for payment thereof by Swing Line Lender, each Lender holding a Revolving Commitment shall be deemed to, and hereby agrees to, have purchased a participation in such outstanding Swing Line Loans, and in an amount equal to its Pro Rata Share of the applicable unpaid amount together with accrued interest thereon. Upon one Business Day's notice from Swing Line Lender, each Lender holding a Revolving Commitment shall deliver to Swing Line Lender an amount equal to its respective participation in the applicable unpaid amount in same day funds at the Principal Office of Swing Line Lender. In order to evidence such participation each Lender holding a Revolving Commitment agrees to enter into a participation agreement at the request of Swing Line Lender in form and substance reasonably satisfactory to Swing Line Lender. In the event any Lender holding a Revolving Commitment fails to make available to Swing Line Lender the amount of such Lender's participation as provided in this paragraph, Swing Line Lender shall be entitled to recover such amount on demand from such Lender together with interest thereon for three Business Days at the rate customarily used by Swing Line Lender for the correction of errors among banks and thereafter at the Index Rate.
(vi) Notwithstanding anything contained herein to the contrary, (1) each Lender's obligation to make Revolving Loans for the purpose of repaying any Refunded Swing Line Loans pursuant to the second preceding paragraph and each Lender's obligation to purchase a participation in any unpaid Swing Line Loans pursuant to the immediately preceding paragraph shall be absolute and unconditional and shall not be affected by any circumstance, including without limitation (A) any set-off, counterclaim, recoupment, defense or other right which such Lender may have against Swing Line Lender, any Credit Party or any other Person for any reason whatsoever; (B) the occurrence or continuation of a Default or Event of Default; (C) any adverse change in the business, operations, properties, assets, condition (financial or otherwise) or prospects of any Credit Party; (D) any breach of this Agreement or any other Credit Document by any party thereto; or (E) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing; provided that such obligations of each Lender are subject to the condition that Swing Line Lender believed in good faith that all conditions under Section 3.2 to the making of the applicable Refunded Swing Line Loans or other unpaid Swing Line Loans, were satisfied at the time such Refunded Swing Line Loans or unpaid Swing Line Loans were made, or the satisfaction of any such condition not satisfied had been waived by the Requisite Lenders prior to or at the time such Refunded Swing Line Loans or other unpaid Swing Line Loans were made; and (2) Swing Line Lender shall not be obligated to make any Swing Line Loans (A) if it has elected not to do so after the occurrence and during the continuation of a Default or Event of Default or (B) at a time when a Funding Default exists unless Swing Line Lender has entered into
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arrangements satisfactory to it and Company to eliminate Swing Line Lender's risk with respect to the Defaulting Lender's participation in such Swing Ling Loan, including by cash collateralizing such Defaulting Lender's Pro Rata Share of the outstanding Swing Line Loans.
2.4. ISSUANCE OF LETTERS OF CREDIT AND PURCHASE OF PARTICIPATIONS THEREIN.
(a) Letters of Credit. During the Revolving Commitment Period, subject to the terms and conditions hereof, Issuing Bank agrees to issue Letters of Credit for the account of Company in the aggregate amount up to but not exceeding the Letter of Credit Sublimit; provided, (i) each Letter of Credit shall be denominated in Dollars; (ii) the stated amount of each Letter of Credit shall be an amount acceptable to Issuing Bank; (iii) after giving effect to such issuance, in no event shall the Total Utilization of Revolving Commitments exceed the Revolving Commitments then in effect; (iv) after giving effect to such issuance, in no event shall the Letter of Credit Usage exceed the Letter of Credit Sublimit then in effect; (v) in no event shall any standby Letter of Credit have an expiration date later than the earlier of (1) the thirtieth
(30th) day prior to the date set forth in clause (ii) of the definition of "Revolving Commitment Termination Date" and (2) the date which is one year from the date of issuance of such standby Letter of Credit; and (vi) in no event shall any commercial Letter of Credit (x) have an expiration date later than the earlier of (1) the thirtieth (30th) day prior to the date set forth in clause
(ii) of the definition of the Revolving Commitment Termination Date and (2) the date which is 180 days from the date of issuance of such commercial Letter of Credit or (b) be issued if such commercial Letter of Credit is otherwise unacceptable to Issuing Bank in its reasonable discretion. Subject to the foregoing, Issuing Bank may agree that a standby Letter of Credit will automatically be extended for one or more successive periods not to exceed one year each, unless Issuing Bank elects not to extend for any such additional period; provided, Issuing Bank shall not extend any such Letter of Credit if it has received written notice that an Event of Default has occurred and is continuing at the time Issuing Bank must elect to allow such extension; provided, further, in the event a Funding Default exists, Issuing Bank shall not be required to issue any Letter of Credit unless Issuing Bank has entered into arrangements satisfactory to it and Company to eliminate Issuing Bank's risk with respect to the participation in Letters of Credit of the Defaulting Lender, including by cash collateralizing such Defaulting Lender's Pro Rata Share of the Letter of Credit Usage.
(b) Notice of Issuance. Whenever Company desires the issuance of a Letter of Credit, it shall deliver to Administrative Agent an Issuance Notice no later than 12:00 p.m. (New York City time) at least three Business Days (in the case of standby letters of credit) or five Business Days (in the case of commercial letters of credit), or in each case such shorter period as may be agreed to by Issuing Bank in any particular instance, in advance of the proposed date of issuance. Each such Issuance Notice shall be accompanied by the form of the Letter of Credit and an application for a Letter of Credit, if any, then required by the Issuing Bank, completed in a manner satisfactory to such Issuing Bank. Upon satisfaction or waiver of the conditions set forth in Section 3.2, Issuing Bank shall issue the requested Letter of Credit only in accordance with Issuing Bank's standard operating procedures. Upon the issuance of any Letter of Credit or
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amendment or modification to a Letter of Credit, Issuing Bank shall promptly notify each Lender of such issuance, which notice shall be accompanied by a copy of such Letter of Credit or amendment or modification to a Letter of Credit and the amount of such Lender's respective participation in such Letter of Credit pursuant to Section 2.4(e).
(c) Responsibility of Issuing Bank With Respect to Requests for Drawings and Payments. In determining whether to honor any drawing under any Letter of Credit by the beneficiary thereof, Issuing Bank shall be responsible only to examine the documents delivered under such Letter of Credit with reasonable care so as to ascertain whether they appear on their face to be in accordance with the terms and conditions of such Letter of Credit. As between Company and Issuing Bank, Company assumes all risks of the acts and omissions of, or misuse of the Letters of Credit issued by Issuing Bank, by the respective beneficiaries of such Letters of Credit. In furtherance and not in limitation of the foregoing, Issuing Bank shall not be responsible for: (i) the form, validity, sufficiency, accuracy, genuineness or legal effect of any document submitted by any party in connection with the application for and issuance of any such Letter of Credit, even if it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged; (ii) the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign any such Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason; (iii) failure of the beneficiary of any such Letter of Credit to comply fully with any conditions required in order to draw upon such Letter of Credit; (iv) errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, cable, telegraph, telex or otherwise, whether or not they be in cipher; (v) errors in interpretation of technical terms; (vi) any loss or delay in the transmission or otherwise of any document required in order to make a drawing under any such Letter of Credit or of the proceeds thereof; (vii) the misapplication by the beneficiary of any such Letter of Credit of the proceeds of any drawing under such Letter of Credit; or (viii) any consequences arising from causes beyond the control of Issuing Bank, including any Governmental Acts; none of the above shall affect or impair, or prevent the vesting of, any of Issuing Bank's rights or powers hereunder. Without limiting the foregoing and in furtherance thereof, any action taken or omitted by Issuing Bank under or in connection with the Letters of Credit or any documents and certificates delivered thereunder, if taken or omitted in good faith, shall not give rise to any liability on the part of Issuing Bank to Company. Notwithstanding anything to the contrary contained in this Section 2.4(c), Company shall retain any and all rights it may have against Issuing Bank for any liability arising solely out of the gross negligence or willful misconduct of Issuing Bank.
(d) Reimbursement by Company of Amounts Drawn or Paid Under Letters of Credit. In the event Issuing Bank has determined to honor a drawing under a Letter of Credit, it shall immediately notify Company and Administrative Agent, and Company shall reimburse Issuing Bank on or before the Business Day immediately following the date on which such drawing is honored (the "REIMBURSEMENT DATE") in an amount in Dollars and in same day funds equal to the amount of such honored drawing; provided, anything contained herein to the contrary notwithstanding, (i) unless Company shall have notified Administrative Agent and Issuing Bank prior to 10:00 a.m. (New York City time) on the date such drawing is honored that Company intends to reimburse Issuing Bank for the amount of such honored drawing with funds other than the proceeds of Revolving Loans, Company shall be deemed to have given a timely
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Funding Notice to Administrative Agent requesting Lenders to make Revolving Loans that are Index Rate Loans on the Reimbursement Date in an amount in Dollars equal to the amount of such honored drawing, and (ii) subject to satisfaction or waiver of the conditions specified in Section 3.2, Lenders shall, on the Reimbursement Date, make Revolving Loans that are Index Rate Loans in the amount of such honored drawing, the proceeds of which shall be applied directly by Administrative Agent to reimburse Issuing Bank for the amount of such honored drawing; and provided further, if for any reason proceeds of Revolving Loans are not received by Issuing Bank on the Reimbursement Date in an amount equal to the amount of such honored drawing, Company shall reimburse Issuing Bank, on demand, in an amount in same day funds equal to the excess of the amount of such honored drawing over the aggregate amount of such Revolving Loans, if any, which are so received. Nothing in this Section 2.4(d) shall be deemed to relieve any Lender from its obligation to make Revolving Loans on the terms and conditions set forth herein, and Company shall retain any and all rights it may have against any Lender resulting from the failure of such Lender to make such Revolving Loans under this Section 2.4(d).
(e) Lenders' Purchase of Participations in Letters of Credit. Immediately upon the issuance of each Letter of Credit, each Lender having a Revolving Commitment shall be deemed to have purchased, and hereby agrees to irrevocably purchase, from Issuing Bank a participation in such Letter of Credit and any drawings honored thereunder in an amount equal to such Lender's Pro Rata Share (with respect to the Revolving Commitments) of the maximum amount which is or at any time may become available to be drawn thereunder. In the event that Company shall fail for any reason to reimburse Issuing Bank as provided in
Section 2.4(d), Issuing Bank shall promptly notify each Lender of the unreimbursed amount of such honored drawing and of such Lender's respective participation therein based on such Lender's Pro Rata Share of the Revolving Commitments. Each Lender shall make available to Issuing Bank an amount equal to its respective participation, in Dollars and in same day funds, at the office of Issuing Bank specified in such notice, not later than 12:00 p.m. (New York City time) on the first business day (under the laws of the jurisdiction in which such office of Issuing Bank is located) after the date notified by Issuing Bank. In the event that any Lender fails to make available to Issuing Bank on such business day the amount of such Lender's participation in such Letter of Credit as provided in this Section 2.4(e), Issuing Bank shall be entitled to recover such amount on demand from such Lender together with interest thereon for three Business Days at the rate customarily used by Issuing Bank for the correction of errors among banks and thereafter at the Index Rate. Nothing in this Section 2.4(e) shall be deemed to prejudice the right of any Lender to recover from Issuing Bank any amounts made available by such Lender to Issuing Bank pursuant to this Section in the event that it is determined that the payment with respect to a Letter of Credit in respect of which payment was made by such Lender constituted gross negligence or willful misconduct on the part of Issuing Bank. In the event Issuing Bank shall have been reimbursed by other Lenders pursuant to this Section 2.4(e) for all or any portion of any drawing honored by Issuing Bank under a Letter of Credit, such Issuing Bank shall distribute to each Lender which has paid all amounts payable by it under this Section 2.4(e) with respect to such honored drawing such Lender's Pro Rata Share of all payments subsequently received by Issuing Bank from Company in reimbursement of such honored drawing when such payments are received. Any such distribution shall be made to a Lender at its primary address set forth below its name on Appendix B or at such other address as such Lender may request.
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(f) Obligations Absolute. The obligation of Company to reimburse Issuing Bank for drawings honored under the Letters of Credit issued by it and to repay any Revolving Loans made by Lenders pursuant to Section 2.4(d) and the obligations of Lenders under Section 2.4(e) shall be unconditional and irrevocable and shall be paid strictly in accordance with the terms hereof under all circumstances including any of the following circumstances: (i) any lack of validity or enforceability of any Letter of Credit; (ii) the existence of any claim, set-off, defense or other right which Company or any Lender may have at any time against a beneficiary or any transferee of any Letter of Credit (or any Persons for whom any such transferee may be acting), Issuing Bank, Lender or any other Person or, in the case of a Lender, against Company, whether in connection herewith, the transactions contemplated herein or any unrelated transaction (including any underlying transaction between Company or one of its Subsidiaries and the beneficiary for which any Letter of Credit was procured); (iii) any draft or other document presented under any Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (iv) payment by Issuing Bank under any Letter of Credit against presentation of a draft or other document which does not substantially comply with the terms of such Letter of Credit; (v) any adverse change in the business, operations, properties, assets, condition (financial or otherwise) or prospects of Holdings or any of its Subsidiaries;
(vi) any breach hereof or any other Credit Document by any party thereto; (vii) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing; or (viii) the fact that an Event of Default or a Default shall have occurred and be continuing; provided, in each case, that payment by Issuing Bank under the applicable Letter of Credit shall not have constituted gross negligence or willful misconduct of Issuing Bank under the circumstances in question.
(g) Indemnification. Without duplication of any obligation of Company under Section 10.2 or 10.3, in addition to amounts payable as provided herein, Company hereby agrees to protect, indemnify, pay and save harmless Issuing Bank from and against any and all claims, demands, liabilities, damages, losses, costs, charges and expenses (including reasonable fees, expenses and disbursements of counsel and allocated costs of internal counsel) which Issuing Bank may incur or be subject to as a consequence, direct or indirect, of (i) the issuance of any Letter of Credit by Issuing Bank, other than as a result of (1) the gross negligence or willful misconduct of Issuing Bank or (2) the wrongful dishonor by Issuing Bank of a proper demand for payment made under any Letter of Credit issued by it, or (ii) the failure of Issuing Bank to honor a drawing under any such Letter of Credit as a result of any Governmental Act.
2.5. PRO RATA SHARES; AVAILABILITY OF FUNDS.
(a) Pro Rata Shares. All Loans shall be made, and all participations purchased, by Lenders simultaneously and proportionately to their respective Pro Rata Shares, it being understood that no Lender shall be responsible for any default by any other Lender in such other Lender's obligation to make a Loan requested hereunder or purchase a participation required hereby nor shall any Term Loan Commitment or any Revolving Commitment of any Lender be increased or decreased as a result of a default by any other Lender in such other Lender's obligation to make a Loan requested hereunder or purchase a participation required hereby.
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(b) Availability of Funds. Unless Administrative Agent shall have been notified by any Lender prior to the applicable Credit Date that such Lender does not intend to make available to Administrative Agent the amount of such Lender's Loan requested on such Credit Date, Administrative Agent may assume that such Lender has made such amount available to Administrative Agent on such Credit Date and Administrative Agent may, in its sole discretion, but shall not be obligated to, make available to Company a corresponding amount on such Credit Date. If such corresponding amount is not in fact made available to Administrative Agent by such Lender, Administrative Agent shall be entitled to recover such corresponding amount on demand from such Lender together with interest thereon, for each day from such Credit Date until the date such amount is paid to Administrative Agent, at the customary rate set by Administrative Agent for the correction of errors among banks for three Business Days and thereafter at the Index Rate. If such Lender does not pay such corresponding amount forthwith upon Administrative Agent's demand therefore, Administrative Agent shall promptly notify Company and Company shall immediately pay such corresponding amount to Administrative Agent together with interest thereon, for each day from such Credit Date until the date such amount is paid to Administrative Agent, at the rate payable hereunder for Index Rate Loans for such Class of Loans. Nothing in this Section 2.5(b) shall be deemed to relieve any Lender from its obligation to fulfill its Term Loan Commitments and Revolving Commitments hereunder or to prejudice any rights that Company may have against any Lender as a result of any default by such Lender hereunder.
2.6. USE OF PROCEEDS. The proceeds of the Term Loan and up to $15,000,000 of the Revolving Loans shall be applied by Company to fund the Refinancing and Transaction Costs. The proceeds of the Revolving Loans, Swing Line Loans and Letters of Credit made after the Closing Date shall be applied by Company for working capital, Permitted Acquisitions and general corporate purposes of Holdings and its Subsidiaries; provided, however, that in no event will the proceeds of Revolving Loans be used for the purposes of repurchasing Loans as permitted under Section 2.13(c) hereof. No portion of the proceeds of any Credit Extension shall be used in any manner to purchase or carry any Margin Stock or to extend credit to others for the purpose of purchasing or carrying any Margin Stock or for any purpose that causes or might cause such Credit Extension or the application of such proceeds to violate Regulation T, Regulation U or Regulation X of the Board of Governors of the Federal Reserve System or any other regulation thereof or to violate the Exchange Act.
2.7. EVIDENCE OF DEBT; REGISTER; LENDERS' BOOKS AND RECORDS; NOTES.
(a) Lenders' Evidence of Debt. Each Lender shall maintain on its internal records an account or accounts evidencing the Obligations of Company to such Lender, including the amounts of the Loans made by it and each repayment and prepayment in respect thereof. Any such recordation shall be conclusive and binding on Company, absent demonstrable error; provided, that the failure to make any such recordation, or any error in such recordation, shall not affect any Lender's Revolving Commitments or Company's Obligations in
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respect of any applicable Loans; and provided further, in the event of any inconsistency between the Register and any Lender's records, the recordation in the Register shall govern.
(b) Register. Administrative Agent shall maintain at its Principal Office a register for the recordation of the names and addresses of Lenders and the Revolving Commitments and Loans of each Lender from time to time (the "REGISTER"). The Register shall be available for inspection by Company or any Lender at any reasonable time and from time to time upon reasonable prior notice. Administrative Agent shall record in the Register the Revolving Commitments and the Loans, and each repayment or prepayment in respect of the principal amount of the Loans, and any such recordation shall be conclusive and binding on Company and each Lender, absent demonstrable error; provided, failure to make any such recordation, or any error in such recordation, shall not affect any Lender's Revolving Commitments or Company's Obligations in respect of any Loan. Company hereby designates GECC to serve as Company's agent solely for purposes of maintaining the Register as provided in this Section 2.7, and Company hereby agrees that, to the extent GECC serves in such capacity, GECC and its officers, directors, employees, agents and affiliates shall constitute "Indemnitees." Administrative Agent shall render to Company a monthly accounting of transactions with respect to the Loans setting forth the balance of the Loans for the immediately preceding month. Unless Company notifies Administrative Agent in writing of any objection to any such accounting (specifically describing the basis for such objection) within thirty (30) days thereafter, each and every such accounting shall, absent demonstrable error, be deemed final, binding and conclusive on Company in all respects as to all matters reflected therein.
(c) Notes. If so requested by any Lender by written notice to Company (with a copy to Administrative Agent) at least two Business Days prior to the Closing Date, or at any time thereafter, Company shall execute and deliver to such Lender (and/or, if applicable and if so specified in such notice, to any Person who is an assignee of such Lender pursuant to Section 10.6) on the Closing Date (or, if such notice is delivered after the Closing Date, promptly after Company's receipt of such notice) a Note or Notes to evidence such Lender's Term Loan, Revolving Loan or Swing Line Loan, as the case may be.
2.8. INTEREST ON LOANS.
(a) Except as otherwise set forth herein, each Class of Loan shall bear interest on the unpaid principal amount thereof from the date made through repayment (whether by acceleration or otherwise) thereof as follows:
(i) in the case of Revolving Loans:
(1) if an Index Rate Loan, at the Index Rate plus the Applicable Margin; or
(2) if a Eurodollar Rate Loan, at the Adjusted Eurodollar Rate plus the Applicable Margin;
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(ii) in the case of Swing Line Loans, at the Index Rate plus the Applicable Margin; and
(iii) in the case of Term Loans:
(1) if an Index Rate Loan, at the Index Rate plus 2.00% per annum; or
(2) if a Eurodollar Rate Loan, at the Adjusted Eurodollar Rate plus 3.00% per annum.
(b) The basis for determining the rate of interest with respect to any Loan (except a Swing Line Loan which can be made and maintained as Index Rate Loans only), and the Interest Period with respect to any Eurodollar Rate Loan, shall be selected by Company and notified to Administrative Agent and Lenders pursuant to the applicable Funding Notice or Conversion/Continuation Notice, as the case may be; provided, until the date that Syndication Agent notifies Company that the primary syndication of the Loans and Revolving Commitments has been completed, as determined by Syndication Agent, the Term Loans shall be maintained as either (1) Eurodollar Rate Loans having an Interest Period of no longer than one month or (2) Index Rate Loans. If on any day a Loan is outstanding with respect to which a Funding Notice or Conversion/Continuation Notice has not been delivered to Administrative Agent in accordance with the terms hereof specifying the applicable basis for determining the rate of interest, then for that day such Loan shall be an Index Rate Loan.
(c) In connection with Eurodollar Rate Loans there shall be no more than eight (8) Interest Periods outstanding at any time. In the event Company fails to specify between an Index Rate Loan or a Eurodollar Rate Loan in the applicable Funding Notice or Conversion/Continuation Notice, such Loan (if outstanding as a Eurodollar Rate Loan) will be automatically converted into an Index Rate Loan on the last day of the then-current Interest Period for such Loan (or if outstanding as an Index Rate Loan will remain as, or (if not then outstanding) will be made as, an Index Rate Loan). In the event Company fails to specify an Interest Period for any Eurodollar Rate Loan in the applicable Funding Notice or Conversion/Continuation Notice, Company shall be deemed to have selected an Interest Period of one month. As soon as practicable after 10:00 a.m. (New York City time) on each Interest Rate Determination Date, Administrative Agent shall determine (which determination shall, absent demonstrable error, be final, conclusive and binding upon all parties) the interest rate that shall apply to the Eurodollar Rate Loans for which an interest rate is then being determined for the applicable Interest Period and shall promptly give notice thereof (in writing or by telephone confirmed in writing) to Company and each Lender.
(d) Interest payable pursuant to Section 2.8(a) shall be computed on the basis of a 360-day year, in each case for the actual number of days elapsed in the period during which it accrues. In computing interest on any Loan, the date of the making of such Loan or the first day of an Interest Period applicable to such Loan or, with respect to an Index Rate Loan being converted from a Eurodollar Rate Loan, the date of conversion of such Eurodollar Rate Loan to such Index Rate Loan, as the case may be, shall be included, and the date of payment of such
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Loan or the expiration date of an Interest Period applicable to such Loan or, with respect to an Index Rate Loan being converted to a Eurodollar Rate Loan, the date of conversion of such Index Rate Loan to such Eurodollar Rate Loan, as the case may be, shall be excluded; provided, if a Loan is repaid on the same day on which it is made, one day's interest shall be paid on that Loan.
(e) Except as otherwise set forth herein, interest on each Loan shall be payable in arrears on and to (i) each Interest Payment Date applicable to that Loan; (ii) upon any prepayment of that Loan, whether voluntary or mandatory, to the extent accrued on the amount being prepaid; and (iii) at maturity, including final maturity; provided, however, with respect to any voluntary prepayment of an Index Rate Loan, accrued interest shall instead be payable on the applicable Interest Payment Date.
(f) Company agrees to pay to Issuing Bank, with respect to drawings honored under any Letter of Credit, interest on the amount paid by Issuing Bank in respect of each such honored drawing from the date such drawing is honored to but excluding the date such amount is reimbursed by or on behalf of Company at a rate equal to (i) for the period from the date such drawing is honored to but excluding the applicable Reimbursement Date, the rate of interest otherwise payable hereunder with respect to Revolving Loans that are Index Rate Loans, and
(ii) thereafter, a rate which is 2% per annum in excess of the rate of interest otherwise payable hereunder with respect to Revolving Loans that are Index Rate Loans.
(g) Interest payable pursuant to Section 2.8(f) shall be computed on the basis of a 360-day year, in each case for the actual number of days elapsed in the period during which it accrues, and shall be payable on demand or, if no demand is made, on the date on which the related drawing under a Letter of Credit is reimbursed in full. Promptly upon receipt by Issuing Bank of any payment of interest pursuant to Section 2.8(f), Issuing Bank shall distribute to each Lender, out of the interest received by Issuing Bank in respect of the period from the date such drawing is honored to but excluding the date on which Issuing Bank is reimbursed for the amount of such drawing (including any such reimbursement out of the proceeds of any Revolving Loans), the amount that such Lender would have been entitled to receive in respect of the letter of credit fee that would have been payable in respect of such Letter of Credit for such period if no drawing had been honored under such Letter of Credit. In the event Issuing Bank shall have been reimbursed by Lenders for all or any portion of such honored drawing, Issuing Bank shall distribute to each Lender which has paid all amounts payable by it under Section 2.4(e) with respect to such honored drawing such Lender's Pro Rata Share of any interest received by Issuing Bank in respect of that portion of such honored drawing so reimbursed by Lenders for the period from the date on which Issuing Bank was so reimbursed by Lenders to but excluding the date on which such portion of such honored drawing is reimbursed by Company.
2.9. CONVERSION/CONTINUATION.
(a) Subject to Section 2.18 and so long as no Default or Event of Default shall have occurred and then be continuing, Company shall have the option:
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(i) to convert at any time all or any part of any Term Loan or Revolving Loan equal to $1,000,000 and integral multiples of $250,000 in excess of that amount from one Type of Loan to another Type of Loan; provided, a Eurodollar Rate Loan may only be converted on the expiration of the Interest Period applicable to such Eurodollar Rate Loan unless Company shall pay all amounts due under Section 2.18 in connection with any such conversion; or
(ii) upon the expiration of any Interest Period applicable to any Eurodollar Rate Loan, to continue all or any portion of such Loan equal to $1,000,000 and integral multiples of $250,000 in excess of that amount as a Eurodollar Rate Loan.
(b) Company shall deliver a Conversion/Continuation Notice to Administrative Agent no later than 10:00 a.m. (New York City time) at least one Business Day in advance of the proposed conversion date (in the case of a conversion to an Index Rate Loan) and at least three Business Days in advance of the proposed conversion/continuation date (in the case of a conversion to, or a continuation of, a Eurodollar Rate Loan). Except as otherwise provided herein, a Conversion/Continuation Notice for conversion to, or continuation of, any Eurodollar Rate Loans (or telephonic notice in lieu thereof) shall be irrevocable on and after the related Interest Rate Determination Date, and Company shall be bound to effect a conversion or continuation in accordance therewith.
2.10. DEFAULT INTEREST. Upon the occurrence and during the continuance of an Event of Default, the principal amount of all Loans outstanding and, to the extent permitted by applicable law, any interest payments on the Loans or any fees or other amounts owed hereunder not paid when due, shall thereafter bear interest (including post-petition interest in any proceeding under the Bankruptcy Code or other applicable bankruptcy laws) payable on demand at a rate that is 2% per annum in excess of the interest rate otherwise payable hereunder with respect to the applicable Loans (or, in the case of any such fees and other amounts, at a rate which is 2% per annum in excess of the interest rate otherwise payable hereunder for Index Rate Loans); provided, in the case of Eurodollar Rate Loans, upon the expiration of the Interest Period in effect at the time any such increase in interest rate is effective such Eurodollar Rate Loans shall thereupon become Index Rate Loans and shall thereafter bear interest payable upon demand at a rate which is 2% per annum in excess of the interest rate otherwise payable hereunder for Index Rate Loans. Payment or acceptance of the increased rates of interest provided for in this Section 2.10 is not a permitted alternative to timely payment and shall not constitute a waiver of any Event of Default or otherwise prejudice or limit any rights or remedies of Administrative Agent or any Lender.
2.11. FEES.
(a) Company agrees to pay to Lenders having Revolving Exposure:
(i) commitment fees equal to (1) the average of the daily difference between (a) the Revolving Commitments, and (b) the sum of (x) the aggregate principal
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amount of outstanding Revolving Loans (but not any outstanding Swing Line Loans) plus (y) the Letter of Credit Usage, times (2) 0.50%; and
(ii) letter of credit fees equal to (1) the Applicable Margin for Revolving Loans that are Eurodollar Rate Loans, times (2) the average aggregate daily maximum amount available to be drawn under all such Letters of Credit (regardless of whether any conditions for drawing could then be met and determined as of the close of business on any date of determination).
All fees referred to in this Section 2.11(a) shall be paid to Administrative Agent at its Principal Office and upon receipt, Administrative Agent shall promptly distribute to each Lender its Pro Rata Share thereof.
(b) Company agrees to pay directly to Issuing Bank, for its own account, the following fees:
(i) a fronting fee equal to 0.25%, per annum, times the average aggregate daily amount available to be drawn under all Letters of Credit (determined as of the close of business on any date of determination); and
(ii) such documentary and processing charges for any issuance, amendment, transfer or payment of a Letter of Credit as are in accordance with Issuing Bank's standard schedule for such charges and as in effect at the time of such issuance, amendment, transfer or payment, as the case may be.
(c) All fees referred to in Section 2.11(a) and 2.11(b)(i) shall be calculated on the basis of a 360-day year and the actual number of days elapsed and shall be payable quarterly in arrears on March 31, June 30, September 30 and December 31 of each year during the Revolving Commitment Period, commencing on the first such date to occur after the Closing Date, and on the Revolving Commitment Termination Date.
(d) In addition to any of the foregoing fees, Company agrees to pay to Agents such other fees in the amounts and at the times separately agreed upon.
2.12. SCHEDULED PAYMENTS/COMMITMENT REDUCTIONS.
(a) Scheduled Installments. The principal amounts of the Term Loans shall be repaid in consecutive quarterly installments (each, an "INSTALLMENT") in the aggregate amounts set forth below on the last day of each Fiscal Quarter commencing March 31, 2004:

                               TERM LOAN
FISCAL QUARTER               INSTALLMENTS
--------------               ------------
March 31, 2004                $   250,000	

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                               TERM LOAN
  FISCAL QUARTER             INSTALLMENTS
  --------------             ------------
June 30, 2004                 $   250,000
September 30, 2004            $   250,000
December 31, 2004             $   250,000
March 31, 2005                $   250,000
June 30, 2005                 $   250,000
September 30, 2005            $   250,000
December 31, 2005             $   250,000
March 31, 2006                $   250,000
June 30, 2006                 $   250,000
September 30, 2006            $   250,000
December 31, 2006             $   250,000
March 31, 2007                $   250,000
June 30, 2007                 $   250,000
September 30, 2007            $   250,000
December 31, 2007             $   250,000
March 31, 2008                $   250,000
June 30, 2008                 $   250,000
September 30, 2008            $23,875,000
December 31, 2008             $23,875,000
March 31, 2009                $23,875,000
June 15, 2009                 $23,875,000	

Notwithstanding the foregoing, (x) such Installments shall be reduced in connection with any voluntary or mandatory prepayments of the Term Loans, as the case may be, in accordance with Sections 2.13, 2.14 and 2.15, as applicable; and
(y) Term Loans, together with all other amounts owed hereunder with respect thereto, shall, in any event, be paid in full no later than the Term Loan Maturity Date.
(b) Scheduled Reductions. The Revolving Commitments shall be permanently reduced to zero on the fifth anniversary of the Closing Date
2.13. VOLUNTARY PREPAYMENTS/COMMITMENT REDUCTIONS
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(a) Voluntary Prepayments.
(i) Any time and from time to time:
(1) with respect to Index Rate Loans, Company may prepay, without premium or penalty, any such Loans on any Business Day in whole or in part, in an aggregate minimum amount of $500,000 and integral multiples of $100,000 in excess of that amount;
(2) with respect to Eurodollar Rate Loans, Company may prepay, without premium or penalty (except as may be required pursuant to Section 2.18(c)), any such Loans on any Business Day in whole or in part in an aggregate minimum amount of $1,000,000 and integral multiples of $250,000 in excess of that amount; and
(3) with respect to Swing Line Loans, Company may prepay, without premium or penalty, any such Loans on any Business Day in whole or in part in an aggregate minimum amount of $50,000, and in integral multiples of $25,000 in excess of that amount.
(ii) All such prepayments shall be made:
(1) upon not less than one Business Day's prior written or telephonic notice in the case of Index Rate Loans;
(2) upon not less than three Business Days' prior written or telephonic notice in the case of Eurodollar Rate Loans; and
(3) upon written or telephonic notice on the date of prepayment, in the case of Swing Line Loans;
in each case given to Administrative Agent or Swing Line Lender, as the case may be, by 12:00 p.m. (New York City time) on the date required and, if given by telephone, promptly confirmed in writing to Administrative Agent (and Administrative Agent will promptly transmit such telephonic or original notice for Term Loans or Revolving Loans, as the case may be, by telefacsimile or telephone to each Lender) or Swing Line Lender, as the case may be. Upon the giving of any such notice, the principal amount of the Loans specified in such notice shall become due and payable on the prepayment date specified therein. Any such voluntary prepayment shall be applied as specified in Section 2.15(a).
(b) Voluntary Commitment Reductions.
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(i) Company may, upon not less than three Business Days' prior written or telephonic notice confirmed in writing to Administrative Agent (which original written or telephonic notice Administrative Agent will promptly transmit by telefacsimile or telephone to each applicable Lender), at any time and from time to time terminate in whole or permanently reduce in part, without premium or penalty, the Revolving Commitments in an amount up to the amount by which the Revolving Commitments exceed the Total Utilization of Revolving Commitments at the time of such proposed termination or reduction; provided, any such partial reduction of the Revolving Commitments shall be in an aggregate minimum amount of $1,000,000 and integral multiples of $250,000 in excess of that amount.
(ii) Company's notice to Administrative Agent shall designate the date (which shall be a Business Day) of such termination or reduction and the amount of any partial reduction, and such termination or reduction of the Revolving Commitments shall be effective on the date specified in Company's notice and shall reduce the Revolving Commitment of each Lender proportionately to its Pro Rata Share thereof.
(c) Certain Permitted Term Loan Repurchases.
Notwithstanding anything to the contrary contained in this
Section 2.13 or any other provision of this Agreement, so long as (i) there is no Default, (ii) there is no Event of Default and (iii) no Default or Event of Default would result therefrom, Company may repurchase outstanding Term Loans on the following basis:
(i) Company may repurchase all or any portion of the Term Loans of one or more Lenders pursuant to an Assignment Agreement, between Company and such Lender or Lenders in an aggregate principal amount not to exceed (y) 10% of the initial aggregate principal amount of Term Loans with respect to all such repurchases pursuant to this clause (i) and (z) $10,000,000 in any Fiscal Year; provided that, with respect to such repurchases, Company shall simultaneously provide a copy of such Assignment Agreement and any other agreements between Company and such Lender with respect to such repurchase to Administrative Agent and Syndication Agent;
(ii) In addition, Company may make one or more offers (each, an "OFFER") to repurchase all or any portion of the Term Loans (such Term Loans, the "OFFER LOANS") of Lenders, provided, (A) Company delivers a notice of such Offer to Administrative Agent and all Lenders no later than noon (New York City time) at least five Business Days in advance of a proposed consummation date of such Offer indicating (1) the last date on which such Offer may be accepted, (2) the maximum dollar amount of the Offer, (3) the repurchase price per dollar of principal amount of such Offer Loans at which Company is willing to repurchase the Offer Loans and
(4) the instructions, consistent with this Section 2.13(c) with respect to the Offer (which shall be reasonably acceptable to Company, Administrative Agent and the Syndication Agent), that a Lender must follow in order to have its Offer Loans repurchased; (B) the maximum dollar amount of the Offer shall be no less than an aggregate $1,000,000; (C) Company shall hold the Offer open for a minimum period of two Business Days; (D) a Lender who
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elects to participate in the Offer may choose to tender all or part of such Lender's Offer Loans; and (E) the Offer shall be made to Lenders holding the Offer Loans on a pro rata basis in accordance with their Pro Rata Shares; provided, further that, if any Lender elects not to participate in the Offer, either in whole or in part, the amount of such Lender's Offer Loans not being tendered shall be excluded in calculating the pro rata amount applicable to the balance of such Offer Loans;
(iii) With respect to all repurchases made by Company pursuant to this Section 2.13(c), (A) Company shall pay all accrued and unpaid interest, if any, on the repurchased Term Loans to the date of repurchase of such Term Loans (B) the repurchase of such Term Loans by Company shall not be taken into account in the calculation of Consolidated Excess Cash Flow, (C) Company shall have provided to all Lenders all information that, together with any previously provided information, would satisfy the requirements of Rule 10b-5 of the Exchange Act with respect to an offer by Company to repurchase securities registered under the Securities Act of 1933 (whether or not such securities are outstanding) as if such offer was being made as of the date of such repurchase of Term Loans from a Lender, (D) such repurchases shall not be deemed to be voluntary prepayments pursuant to this Section 2.13, Section 2.15 or 2.16 hereunder except that the amount of the Loans so repurchased shall be applied on a pro rata basis to reduce the scheduled remaining Installments of principal on such Term Loan and (E) immediately following consummation of any such repurchase, Company shall provide notice of such repurchase to Administrative Agent which notice shall include (1) the identity of each Lender party to such repurchase and the amount of each Term Loan being repurchased, (2) the accrued interest thereon, (3) the date of repurchase and (4) any other information Administrative Agent may reasonably request in connection with such repurchase;
(iv) Following repurchase by Company pursuant to this Section 2.13(c), the Term Loans so repurchased shall be deemed cancelled for all purposes and no longer outstanding (and may not be resold by Company), for all purposes of this Agreement and all other Credit Documents, including, but not limited to (A) the making of, or the application of, any payments to the Lenders under this Agreement or any other Credit Document, (B) the making of any request, demand, authorization, direction, notice, consent or waiver under this Agreement or any other Credit Document or (C) the determination of Requisite Lenders, or for any similar or related purpose, under this Agreement or any other Credit Document. Any payment made by Company in connection with a repurchase permitted by this Section 2.13(c) shall not be subject to the provisions of either Section 2.16(a) or
Section 2.17. Failure by Company to make any payment to a Lender required by an agreement permitted by this Section 2.13(c) shall not constitute an Event of Default under Section 8.1(a); and
Notwithstanding any of the provisions set forth in this Agreement to the contrary, Company, the Lenders and Agents hereby agree that nothing in this Agreement shall be understood to mean or suggest that the Term Loans constitute "securities" for purposes of either the Securities Act or the Exchange Act.
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2.14. MANDATORY PREPAYMENTS/COMMITMENT REDUCTIONS.
(a) Asset Sales. No later than three (3) Business Days following the date of receipt by Holdings or any of its Subsidiaries of any Net Asset Sale Proceeds (excluding any Net Asset Sale Proceeds received in connection with the sale or disposition of inventory or used equipment in the ordinary course of business), Company shall prepay the Loans and/or the Revolving Commitments shall be permanently reduced as set forth in Section 2.15(b) in an aggregate amount equal to such Net Asset Sale Proceeds; provided, (i) so long as no Default or Event of Default shall have occurred and be continuing, and (ii) to the extent that aggregate Net Asset Sale Proceeds from the Closing Date through the applicable date of determination do not exceed $5,000,000, Company shall have the option, directly or through one or more of its Subsidiaries, to invest Net Asset Sale Proceeds in long-term productive assets of the general type used in the business of Company and its Subsidiaries that are reinvested or identified for reinvestment within one hundred eighty days of receipt thereof and subsequently reinvested within two hundred seventy days of receipt thereof; provided further, pending any such investment all such Net Asset Sale Proceeds shall be applied to prepay Revolving Loans to the extent outstanding (without a reduction in Revolving Commitments).
(b) Insurance/Condemnation Proceeds. No later than three (3) Business Days following the date of receipt by Holdings or any of its Subsidiaries, or Administrative Agent as loss payee, of any Net Insurance/Condemnation Proceeds, Company shall prepay the Loans and/or the Revolving Commitments shall be permanently reduced as set forth in Section 2.15(b) in an aggregate amount equal to such Net Insurance/Condemnation Proceeds; provided, (i) so long as no Default or Event of Default shall have occurred and be continuing, and (ii) to the extent that aggregate Net Insurance/Condemnation Proceeds from the Closing Date through the applicable date of determination do not exceed $5,000,000, Company shall have the option, directly or through one or more of its Subsidiaries to invest such Net Insurance/Condemnation Proceeds in long-term productive assets of the general type used in the business of Company and its Subsidiaries that are reinvested or identified for reinvestment within one hundred eighty days of receipt thereof and subsequently reinvested within two hundred seventy days of receipt thereof, which investment may include the repair, restoration or replacement of the applicable assets thereof; provided further, pending any such investment all such Net Insurance/Condemnation Proceeds, as the case may be, shall be applied to prepay Revolving Loans to the extent outstanding (without a reduction in Revolving Commitments).
(c) Issuance of Equity Securities. Except for payments required to be made pursuant to Section 2.14(c) of the Second Lien Credit Agreement, together with amounts required to be made pursuant to Section 2.14(e) of the Second Lien Credit Agreement, in an aggregate amount not to exceed $67,500,000, no later than three (3) Business Days following the date of receipt by Holdings of any Cash proceeds from a capital contribution to, or the issuance of any Capital Stock of, Holdings or any of its Subsidiaries (other than pursuant to any employee stock or stock option compensation plan or a Permitted Acquisition or warrants or options in existence as of the Closing Date), Company shall prepay the Loans in an aggregate amount equal to 75% of such net proceeds (net of underwriting discounts and commissions and other
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reasonable costs and expenses associated therewith, including reasonable legal fees and expenses); provided, during any period in which the Leverage Ratio (determined for any such period by reference to the most recent Compliance Certificate delivered pursuant to Section 5.1(d) calculating the Leverage Ratio) shall be 3.0:1.00 or less, Company shall only be required to make the prepayments and/or reductions otherwise required hereby in an amount equal to 50% of such net proceeds.
(d) Issuance of Debt. No later than three (3) Business Days following the date of receipt by Holdings or any of its Subsidiaries of any Cash proceeds from the incurrence of any Indebtedness of Holdings or any of its Subsidiaries (other than with respect to any Indebtedness permitted to be incurred pursuant to Section 6.1), Company shall prepay the Loans and/or the Revolving Commitments shall be permanently reduced as set forth in Section 2.15(b) in an aggregate amount equal to 100% of such proceeds, net of underwriting discounts and commissions and other reasonable costs and expenses associated therewith, including reasonable legal fees and expenses.
(e) Consolidated Excess Cash Flow. Except for payments required to be made pursuant to Section 2.14(e) of the Second Lien Credit Agreement, together with amounts required to be made pursuant to Section 2.14(c) of the Second Lien Credit Agreement, in an aggregate amount not to exceed $67,500,000, in the event that there shall be Consolidated Excess Cash Flow for any Fiscal Year (commencing with Fiscal Year 2004), Company shall, no later than the earlier of (i) one hundred twenty (120) days after the end of such Fiscal Year or (ii) the date of filing of Holding's or the Company's required public filings, prepay the Loans and/or the Revolving Commitments shall be permanently reduced as set forth in Section 2.15(b) in an aggregate amount equal to 75% of such Consolidated Excess Cash Flow; provided, however, that the Company shall be required, no later than sixty (60) days after the end of the Second Fiscal Quarter of Fiscal Year 2004, to make a prepayment pursuant to this Section 2.14(e) with respect to the first two Fiscal Quarters of Fiscal Year 2004. Notwithstanding anything to the contrary set forth above, the Company may make such payments at the end of each Fiscal Quarter prior to the end of such Fiscal Year and, in the event that the aggregate sum of such quarterly payments is less than the required prepayment amount hereunder, the Company shall pay the balance thereof in accordance with the terms hereof. In no event shall any Lender be required to refund any amounts prepaid.
(f) Revolving Loans and Swing Loans. Company shall from time to time prepay first, the Swing Line Loans, and second, the Revolving Loans to the extent necessary so that the Total Utilization of Revolving Commitments shall not at any time exceed the Revolving Commitments then in effect.
(g) Prepayments Under Subordinated Indebtedness. In addition to any of the prepayments required pursuant to the foregoing provisions of this Section 2.14, Company shall prepay the Loans (without permanently reducing the Revolving Credit Commitments unless so required to effect the purposes of this Section 2.14(g)) in amounts and on dates so as to minimize or eliminate any mandatory prepayment (prior to the scheduled maturity of any Subordinated Indebtedness) otherwise required pursuant to the terms of any Subordinated Indebtedness if and
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to the extent such other prepayment can be eliminated or minimized as a result of a prepayment pursuant to this Section 2.14(g)
(h) Prepayment Certificate. Concurrently with any prepayment of the Loans and/or reduction of the Revolving Commitments pursuant to Sections 2.14(a) through 2.14(e), Company shall deliver to Administrative Agent a certificate of an Authorized Officer demonstrating the calculation of the amount of the applicable net proceeds or Consolidated Excess Cash Flow, as the case may be. In the event that Company shall subsequently determine that the actual amount received exceeded the amount set forth in such certificate, Company shall promptly make an additional prepayment of the Loans and/or the Revolving Commitments shall be permanently reduced in an amount equal to such excess, and Company shall concurrently therewith deliver to Administrative Agent a certificate of an Authorized Officer demonstrating the derivation of such excess.
2.15. APPLICATION OF PREPAYMENTS/REDUCTIONS.
(a) Application of Voluntary Prepayments by Type of Loans. Any prepayment of any Loan pursuant to Section 2.13(a) shall be applied as specified by Company in the applicable notice of prepayment; provided, in the event Company fails to specify the Loans to which any such prepayment shall be applied, such prepayment shall be applied as follows:
first, to repay outstanding Swing Line Loans to the full extent thereof;
second, to repay outstanding Revolving Loans to the full extent thereof; and
third, to prepay the Term Loans.
Any prepayment of any Term Loan pursuant to Section 2.13(a) shall be further applied on a pro rata basis to reduce the remaining scheduled Installments of principal on such Term Loan.
(b) Application of Mandatory Prepayments by Type of Loans. Except as may otherwise be set forth in subsections 2.14(c) and (e) above, any amount required to be paid pursuant to Sections 2.14(a) through 2.14(e) and 2.14 (g) shall be applied as follows:
first, to prepay Term Loans pro rata across the remaining scheduled Installments of principal of the Term Loans;
second, to prepay the Swing Line Loans to the full extent thereof and to permanently reduce the Revolving Commitments by the amount of such prepayment;
third, to prepay the Revolving Loans to the full extent thereof and to further permanently reduce the Revolving Commitments by the amount of such prepayment;
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fourth, to prepay outstanding reimbursement obligations with respect to Letters of Credit and to further permanently reduce the Revolving Loan Commitments by the amount of such prepayment;
fifth, to cash collateralize Letters of Credit and to further permanently reduce the Revolving Loan Commitments by the amount of such cash collateralization; and
sixth, to further permanently reduce the Revolving Commitments to the full extent thereof.
(c) Application of Prepayments of Loans to Index Rate Loans and Eurodollar Rate Loans. Considering each Class of Loans being prepaid separately, any prepayment thereof shall be applied first to Index Rate Loans to the full extent thereof before application to Eurodollar Rate Loans, in each case in a manner which minimizes the amount of any payments required to be made by Company pursuant to Section 2.18(c).
2.16. GENERAL PROVISIONS REGARDING PAYMENTS.
(a) All payments by Company of principal, interest, fees and other Obligations shall be made in Dollars in same day funds, without defense, setoff or counterclaim, free of any restriction or condition, and delivered to Administrative Agent not later than 12:00 p.m. (New York City time) on the date due at Administrative Agent's Principal Office for the account of Lenders; funds received by Administrative Agent after that time on such due date shall be deemed to have been paid by Company on the next succeeding Business Day.
(b) All payments in respect of the principal amount of any Loan (other than voluntary prepayments of Revolving Loans) shall be accompanied by payment of accrued interest on the principal amount being repaid or prepaid.
(c) Administrative Agent shall promptly distribute to each Lender at such address as such Lender shall indicate in writing, such Lender's applicable Pro Rata Share of all payments and prepayments of principal and interest due hereunder, together with all other amounts due thereto, including, without limitation, all fees payable with respect thereto, to the extent received by Administrative Agent.
(d) Notwithstanding the foregoing provisions hereof, if any Conversion/Continuation Notice is withdrawn as to any Affected Lender or if any Affected Lender makes Index Rate Loans in lieu of its Pro Rata Share of any Eurodollar Rate Loans, Administrative Agent shall give effect thereto in apportioning payments received thereafter.
(e) Subject to the provisos set forth in the definition of "Interest Period", whenever any payment to be made hereunder shall be stated to be due on a day that is not a Business Day, such payment shall be made on the next succeeding Business Day and such
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extension of time shall be included in the computation of the payment of interest hereunder or of the Revolving Commitment fees hereunder.
(f) Company hereby authorizes Administrative Agent to charge Company's accounts with Administrative Agent in order to cause timely payment to be made to Administrative Agent of all principal, interest, fees and expenses due hereunder (subject to sufficient funds being available in its accounts for that purpose).
(g) Administrative Agent shall deem any payment by or on behalf of Company hereunder that is not made in same day funds prior to 12:00 p.m. (New York City time) to be a non-conforming payment. Any such payment shall not be deemed to have been received by Administrative Agent until the later of (i) the time such funds become available funds, and (ii) the applicable next Business Day. Administrative Agent shall give prompt telephonic notice to Company and each applicable Lender (confirmed in writing) if any payment is non-conforming. Any non-conforming payment may constitute or become a Default or Event of Default in accordance with the terms of Section 8.1(a). Interest shall continue to accrue on any principal as to which a non-conforming payment is made until such funds become available funds (but in no event less than the period from the date of such payment to the next succeeding applicable Business Day) at the rate determined pursuant to Section 2.10 from the date such amount was due and payable until the date such amount is paid in full.
(h) If an Event of Default shall have occurred and not otherwise been waived, and the maturity of the Obligations shall have been accelerated pursuant to Section 8.1, all payments or proceeds received by Agents hereunder in respect of any of the Obligations, shall be applied in accordance with the application arrangements described in Section 7.2 of the Pledge and Security Agreement.
2.17. RATABLE SHARING. Lenders hereby agree among themselves that, except as otherwise provided in the Collateral Documents with respect to amounts realized from the exercise of rights with respect to Liens on the Collateral, if any of them shall, whether by voluntary payment (other than a voluntary prepayment of Loans made and applied in accordance with the terms hereof), through the exercise of any right of set-off or banker's lien, by counterclaim or cross action or by the enforcement of any right under the Credit Documents or otherwise, or as adequate protection of a deposit treated as cash collateral under the Bankruptcy Code, receive payment or reduction of a proportion of the aggregate amount of principal, interest, amounts payable in respect of Letters of Credit, fees and other amounts then due and owing to such Lender hereunder or under the other Credit Documents (collectively, the "AGGREGATE AMOUNTS DUE" to such Lender) which is greater than the proportion received by any other Lender in respect of the Aggregate Amounts Due to such other Lender, then the Lender receiving such proportionately greater payment shall (a) notify Administrative Agent and each other Lender of the receipt of such payment and (b) apply a portion of such payment to purchase participations (which it shall be deemed to have purchased from each seller of a participation simultaneously upon the receipt by such seller of its portion of such payment) in the Aggregate Amounts Due to the other Lenders so that all such recoveries of Aggregate Amounts Due shall be shared by all Lenders in proportion to the
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Aggregate Amounts Due to them; provided, if all or part of such proportionately greater payment received by such purchasing Lender is thereafter recovered from such Lender upon the bankruptcy or reorganization of Company or otherwise, those purchases shall be rescinded and the purchase prices paid for such participations shall be returned to such purchasing Lender ratably to the extent of such recovery, but without interest. Company expressly consents to the foregoing arrangement and agrees that any holder of a participation so purchased may exercise any and all rights of banker's lien, set-off or counterclaim with respect to any and all monies owing by Company to that holder with respect thereto as fully as if that holder were owed the amount of the participation held by that holder.
2.18. MAKING OR MAINTAINING EURODOLLAR RATE LOANS.
(a) Inability to Determine Applicable Interest Rate. In the event that Administrative Agent shall have determined (which determination shall be final and conclusive and binding upon all parties hereto), on any Interest Rate Determination Date with respect to any Eurodollar Rate Loans, that by reason of circumstances affecting the London interbank market adequate and fair means do not exist for ascertaining the interest rate applicable to such Loans on the basis provided for in the definition of Adjusted Eurodollar Rate, Administrative Agent shall on such date give notice (by telefacsimile or by telephone confirmed in writing) to Company and each Lender of such determination, whereupon (i) no Loans may be made as, or converted to, Eurodollar Rate Loans until such time as Administrative Agent notifies Company and Lenders that the circumstances giving rise to such notice no longer exist, and (ii) any Funding Notice or Conversion/Continuation Notice given by Company with respect to the Loans in respect of which such determination was made shall be deemed to be rescinded by Company.
(b) Illegality or Impracticability of Eurodollar Rate Loans. In the event that on any date any Lender shall have determined (which determination shall be final and conclusive and binding upon all parties hereto but shall be made only after consultation with Company and Administrative Agent) that the making, maintaining or continuation of its Eurodollar Rate Loans (i) has become unlawful as a result of compliance by such Lender in good faith with any law, treaty, governmental rule, regulation, guideline or order (or would conflict with any such treaty, governmental rule, regulation, guideline or order not having the force of law even though the failure to comply therewith would not be unlawful), or (ii) has become impracticable, as a result of contingencies occurring after the date hereof which materially and adversely affect the London interbank market or the position of such Lender in that market, then, and in any such event, such Lender shall be an "AFFECTED LENDER" and it shall on that day give notice (by telefacsimile or by telephone confirmed in writing) to Company and Administrative Agent of such determination (which notice Administrative Agent shall promptly transmit to each other Lender). Thereafter (1) the obligation of the Affected Lender to make Loans as, or to convert Loans to, Eurodollar Rate Loans shall be suspended until such notice shall be withdrawn by the Affected Lender, (2) to the extent such determination by the Affected Lender relates to a Eurodollar Rate Loan then being requested by Company pursuant to a Funding Notice or a Conversion/Continuation Notice, the Affected Lender shall make such Loan as (or continue such Loan as or convert such Loan to, as the case may be) an Index Rate Loan, (3) the Affected
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Lender's obligation to maintain its outstanding Eurodollar Rate Loans (the "AFFECTED LOANS") shall be terminated at the earlier to occur of the expiration of the Interest Period then in effect with respect to the Affected Loans or when required by law, and (4) the Affected Loans shall automatically convert into Index Rate Loans on the date of such termination. Notwithstanding the foregoing, to the extent a determination by an Affected Lender as described above relates to a Eurodollar Rate Loan then being requested by Company pursuant to a Funding Notice or a Conversion/Continuation Notice, Company shall have the option, subject to the provisions of Section 2.18(c), to rescind such Funding Notice or Conversion/Continuation Notice as to all Lenders by giving notice (by telefacsimile or by telephone confirmed in writing) to Administrative Agent of such rescission on the date on which the Affected Lender gives notice of its determination as described above (which notice of rescission Administrative Agent shall promptly transmit to each other Lender). Except as provided in the immediately preceding sentence, nothing in this Section 2.18(b) shall affect the obligation of any Lender other than an Affected Lender to make or maintain Loans as, or to convert Loans to, Eurodollar Rate Loans in accordance with the terms hereof.
(c) Compensation for Breakage or Non-Commencement of Interest Periods. Company shall compensate each Lender, upon written request by such Lender (which request shall set forth the basis for requesting such amounts), for all reasonable losses, expenses and liabilities (including any interest paid by such Lender to Lenders of funds borrowed by it to make or carry its Eurodollar Rate Loans and any loss, expense or liability sustained by such Lender in connection with the liquidation or re-employment of such funds but excluding loss of anticipated profits) which such Lender may sustain: (i) if for any reason (other than a default by such Lender) a borrowing of any Eurodollar Rate Loan does not occur on a date specified therefor in a Funding Notice or a telephonic request for borrowing, or a conversion to or continuation of any Eurodollar Rate Loan does not occur on a date specified therefore in a Conversion/Continuation Notice or a telephonic request for conversion or continuation; (ii) if any prepayment or other principal payment of, or any conversion of, any of its Eurodollar Rate Loans occurs on a date prior to the last day of an Interest Period applicable to that Loan (including, without limitation, pursuant to Section 2.13(c) hereof); or (iii) if any prepayment of any of its Eurodollar Rate Loans is not made on any date specified in a notice of prepayment given by Company.
(d) Booking of Eurodollar Rate Loans. Any Lender may make, carry or transfer Eurodollar Rate Loans at, to, or for the account of any of its branch offices or the office of an Affiliate of such Lender.
(e) Assumptions Concerning Funding of Eurodollar Rate Loans. Calculation of all amounts payable to a Lender under this Section 2.18 and under
Section 2.19 shall be made as though such Lender had actually funded each of its relevant Eurodollar Rate Loans through the purchase of a Eurodollar deposit bearing interest at the rate obtained pursuant to clause (i) of the definition of Adjusted Eurodollar Rate in an amount equal to the amount of such Eurodollar Rate Loan and having a maturity comparable to the relevant Interest Period and through the transfer of such Eurodollar deposit from an offshore office of such Lender to a domestic office of such Lender in the United States of America; provided, however, each Lender may fund each of its Eurodollar Rate Loans in any manner it sees fit and the foregoing assumptions shall be utilized
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only for the purposes of calculating amounts payable under this Section 2.18 and under Section 2.19.
2.19. INCREASED COSTS; CAPITAL ADEQUACY.
(a) Compensation For Increased Costs and Taxes. Subject to the provisions of Section 2.20 (which shall be controlling with respect to the matters covered thereby), in the event that any Lender (which term shall include Issuing Bank for purposes of this Section 2.19(a)) shall determine (which determination shall, absent demonstrable error, be final and conclusive and binding upon all parties hereto) that any law, treaty or governmental rule, regulation or order, or any change therein or in the interpretation, administration or application thereof (including the introduction of any new law, treaty or governmental rule, regulation or order), or any determination of a court or governmental authority, in each case that becomes effective after the date hereof, or compliance by such Lender with any guideline, request or directive issued or made after the date hereof by any central bank or other governmental or quasi-governmental authority (whether or not having the force of law): (i) subjects such Lender (or its applicable lending office) to any additional Tax (other than any Tax on the overall net income of such Lender) with respect to this Agreement or any of the other Credit Documents or any of its obligations hereunder or thereunder or any payments to such Lender (or its applicable lending office) of principal, interest, fees or any other amount payable hereunder; (ii) imposes, modifies or holds applicable any reserve (including any marginal, emergency, supplemental, special or other reserve), special deposit, compulsory loan, FDIC insurance or similar requirement against assets held by, or deposits or other liabilities in or for the account of, or advances or loans by, or other credit extended by, or any other acquisition of funds by, any office of such Lender (other than any such reserve or other requirements with respect to Eurodollar Rate Loans that are reflected in the definition of Adjusted Eurodollar Rate); or (iii) imposes any other condition (other than with respect to a Tax matter) on or affecting such Lender (or its applicable lending office) or its obligations hereunder or the London interbank market; and the result of any of the foregoing is to increase the cost to such Lender of agreeing to make, making or maintaining Loans hereunder or to reduce any amount received or receivable by such Lender (or its applicable lending office) with respect thereto; then, in any such case, Company shall promptly pay to such Lender, upon receipt of the statement referred to in the next sentence, such additional amount or amounts (in the form of an increased rate of, or a different method of calculating, interest or otherwise as such Lender in its sole discretion shall determine) as may be necessary to compensate such Lender for any such increased cost or reduction in amounts received or receivable hereunder. Such Lender shall deliver to Company (with a copy to Administrative Agent) a written statement, setting forth in reasonable detail the basis for calculating the additional amounts owed to such Lender under this Section 2.19(a), which statement shall be conclusive and binding upon all parties hereto absent demonstrable error.
(b) Capital Adequacy Adjustment. In the event that any Lender (which term shall include Issuing Bank for purposes of this Section 2.19(b)) shall have determined that the adoption, effectiveness, phase-in or applicability after the Closing Date of any law, rule or regulation (or any provision thereof) regarding capital adequacy, or any change therein or in the
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interpretation or administration thereof by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Lender (or its applicable lending office) with any guideline, request or directive regarding capital adequacy (whether or not having the force of law) of any such Governmental Authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on the capital of such Lender or any corporation controlling such Lender as a consequence of, or with reference to, such Lender's Loans or Revolving Commitments or Letters of Credit, or participations therein or other obligations hereunder with respect to the Loans or the Letters of Credit to a level below that which such Lender or such controlling corporation could have achieved but for such adoption, effectiveness, phase-in, applicability, change or compliance (taking into consideration the policies of such Lender or such controlling corporation with regard to capital adequacy), then from time to time, within five Business Days after receipt by Company from such Lender of the statement referred to in the next sentence, Company shall pay to such Lender such additional amount or amounts as will compensate such Lender or such controlling corporation on an after-tax basis for such reduction. Such Lender shall deliver to Company (with a copy to Administrative Agent) a written statement, setting forth in reasonable detail the basis for calculating the additional amounts owed to Lender under this Section 2.19(b), which statement shall be conclusive and binding upon all parties hereto absent demonstrable error.
2.20. TAXES; WITHHOLDING, ETC.
(a) Payments to Be Free and Clear. All sums payable by any Credit Party hereunder and under the other Credit Documents shall (except to the extent required by law) be paid free and clear of, and without any deduction or withholding on account of, any Tax (other than a Tax on the overall net income of any Lender) imposed, levied, collected, withheld or assessed by or within the United States of America or any political subdivision in or of the United States of America or any other jurisdiction from or to which a payment is made by or on behalf of any Credit Party or by any federation or organization of which the United States of America or any such jurisdiction is a member at the time of payment.
(b) Withholding of Taxes. If any Credit Party or any other Person is required by law to make any deduction or withholding on account of any such Tax from any sum paid or payable by any Credit Party to Administrative Agent or any Lender (which term shall include Issuing Bank for purposes of this Section 2.20(b)) under any of the Credit Documents: (i) Company shall notify Administrative Agent of any such requirement or any change in any such requirement as soon as Company becomes aware of it; (ii) Company shall pay any such Tax before the date on which penalties attach thereto, such payment to be made (if the liability to pay is imposed on any Credit Party) for its own account or (if that liability is imposed on Administrative Agent or such Lender, as the case may be) on behalf of and in the name of Administrative Agent or such Lender; (iii) the sum payable by such Credit Party in respect of which the relevant deduction, withholding or payment is required shall be increased to the extent necessary to ensure that, after the making of that deduction, withholding or payment, Administrative Agent or such Lender, as the case may be, receives on the due date a net sum equal to what it would have received had no such deduction, withholding or payment been required or made; and (iv) within thirty days after paying any sum from which it is required by law to make any deduction or withholding, and within thirty days after the due date of payment
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of any Tax which it is required by clause (ii) above to pay, Company shall deliver to Administrative Agent evidence satisfactory to the other affected parties of such deduction, withholding or payment and of the remittance thereof to the relevant taxing or other authority; provided, no such additional amount shall be required to be paid to any Lender under clause (iii) above except to the extent that any change after the date hereof (in the case of each Lender listed on the signature pages hereof on the Closing Date) or after the effective date of the Assignment Agreement pursuant to which such Lender became a Lender (in the case of each other Lender) in any such requirement for a deduction, withholding or payment as is mentioned therein shall result in an increase in the rate of such deduction, withholding or payment from that in effect at the date hereof or at the date of such Assignment Agreement, as the case may be, in respect of payments to such Lender.
(c) Evidence of Exemption From U.S. Withholding Tax. Each Lender that is not a United States Person (as such term is defined in Section 7701(a)(30) of the Internal Revenue Code) for U.S. federal income tax purposes (a "NON-US LENDER") shall deliver to Administrative Agent and the Company, on or prior to the Closing Date (in the case of each Lender listed on the signature pages hereof on the Closing Date) or on or prior to the date of the Assignment Agreement pursuant to which it becomes a Lender (in the case of each other Lender), and at such other times as may be necessary in the determination of Company or Administrative Agent (each in the reasonable exercise of its discretion), (i) two original copies of Internal Revenue Service Form W-8BEN or W-8ECI (or any successor forms), properly completed and duly executed by such Lender, and such other documentation required under the Internal Revenue Code and reasonably requested by Company to establish that such Lender is not subject to deduction or withholding of United States federal income tax with respect to any payments to such Lender of principal, interest, fees or other amounts payable under any of the Credit Documents, or (ii) if such Lender is not a "bank" or other Person described in Section 881(c)(3) of the Internal Revenue Code and cannot deliver either Internal Revenue Service Form W-8BEN or W-8ECI pursuant to clause (i) above, a Certificate re Non-Bank Status together with two original copies of Internal Revenue Service Form W-8 (or any successor form), properly completed and duly executed by such Lender, and such other documentation required under the Internal Revenue Code and reasonably requested by Company to establish that such Lender is not subject to deduction or withholding of United States federal income tax with respect to any payments to such Lender of interest payable under any of the Credit Documents. Each Lender required to deliver any forms, certificates or other evidence with respect to United States federal income tax withholding matters pursuant to this Section 2.20(c) hereby agrees, from time to time after the initial delivery by such Lender of such forms, certificates or other evidence, whenever a lapse in time or change in circumstances renders such forms, certificates or other evidence obsolete or inaccurate in any material respect, that such Lender shall promptly deliver to Administrative Agent and the Company two new original copies of Internal Revenue Service Form W-8BEN or W-8ECI , or a Certificate re Non-Bank Status and two original copies of Internal Revenue Service Form W-8, as the case may be, properly completed and duly executed by such Lender, and such other documentation required under the Internal Revenue Code and reasonably requested by Company to confirm or establish that such Lender is not subject to deduction or withholding of United States federal income tax with respect to payments to such Lender under the Credit Documents, or notify Administrative Agent and Company of its inability to deliver any such forms, certificates or other evidence.
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Company shall not be required to pay any additional amount to any Non-US Lender under Section 2.20(b)(iii) if such Lender shall have failed (1) to deliver the forms, certificates or other evidence referred to in the second sentence of this
Section 2.20(c), or (2) to notify Administrative Agent and Company of its inability to deliver any such forms, certificates or other evidence, as the case may be; provided, if such Lender shall have satisfied the requirements of the first sentence of this Section 2.20(c) on the Closing Date or on the date of the Assignment Agreement pursuant to which it became a Lender, as applicable, nothing in this last sentence of Section 2.20(c) shall relieve Company of its obligation to pay any additional amounts pursuant this Section 2.20 in the event that, as a result of any change in any applicable law, treaty or governmental rule, regulation or order, or any change in the interpretation, administration or application thereof, such Lender is no longer properly entitled to deliver forms, certificates or other evidence at a subsequent date establishing the fact that such Lender is not subject to withholding as described herein.
2.21. OBLIGATION TO MITIGATE. Each Lender (which term shall include Issuing Bank for purposes of this Section 2.21) agrees that, as promptly as practicable after the officer of such Lender responsible for administering its Loans or Letters of Credit, as the case may be, becomes aware of the occurrence of an event or the existence of a condition that would cause such Lender to become an Affected Lender or that would entitle such Lender to receive payments under Section 2.18, 2.19 or 2.20, it will, to the extent not inconsistent with the internal policies of such Lender and any applicable legal or regulatory restrictions, use reasonable efforts to (a) make, issue, fund or maintain its Credit Extensions, including any Affected Loans, through another office of such Lender, or (b) take such other measures as such Lender may deem reasonable, if as a result thereof the circumstances which would cause such Lender to be an Affected Lender would cease to exist or the additional amounts which would otherwise be required to be paid to such Lender pursuant to Section 2.18, 2.19 or 2.20 would be materially reduced and if, as determined by such Lender in its sole discretion, the making, issuing, funding or maintaining of such Revolving Commitments, Loans or Letters of Credit through such other office or in accordance with such other measures, as the case may be, would not otherwise adversely affect such Revolving Commitments, Loans or Letters of Credit or the interests of such Lender; provided, such Lender will not be obligated to utilize such other office pursuant to this Section 2.21 unless Company agrees to pay all incremental expenses incurred by such Lender as a result of utilizing such other office as described in clause (i) above. A certificate as to the amount of any such expenses payable by Company pursuant to this Section 2.21 (setting forth in reasonable detail the basis for requesting such amount) submitted by such Lender to Company (with a copy to Administrative Agent) shall be conclusive absent demonstrable error.
2.22. DEFAULTING LENDERS. Anything contained herein to the contrary notwithstanding, in the event that any Lender, except at the direction or request of any regulatory agency or authority, defaults (a "DEFAULTING LENDER") in its obligation to fund (a "FUNDING DEFAULT") any Revolving Loan or its portion of any unreimbursed payment under Section 2.3(b)(iv) or 2.4(e) (in each case, a "DEFAULTED LOAN"), then (a) during any Default Period with respect to such Defaulting Lender,
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such Defaulting Lender shall be deemed not to be a "Lender" for purposes of voting on any matters (including the granting of any consents or waivers) with respect to any of the Credit Documents; (b) to the extent permitted by applicable law, until such time as the Default Excess with respect to such Defaulting Lender shall have been reduced to zero, (i) any voluntary prepayment of the Revolving Loans shall, if Company so directs at the time of making such voluntary prepayment, be applied to the Revolving Loans of other Lenders as if such Defaulting Lender had no Revolving Loans outstanding and the Revolving Exposure of such Defaulting Lender were zero, and (ii) any mandatory prepayment of the Revolving Loans shall, if Company so directs at the time of making such mandatory prepayment, be applied to the Revolving Loans of other Lenders (but not to the Revolving Loans of such Defaulting Lender) as if such Defaulting Lender had funded all Defaulted Loans of such Defaulting Lender, it being understood and agreed that Company shall be entitled to retain any portion of any mandatory prepayment of the Revolving Loans that is not paid to such Defaulting Lender solely as a result of the operation of the provisions of this clause (b); (c) such Defaulting Lender's Revolving Commitment and outstanding Revolving Loans and such Defaulting Lender's Pro Rata Share of the Letter of Credit Usage shall be excluded for purposes of calculating the Revolving Commitment fee payable to Lenders in respect of any day during any Default Period with respect to such Defaulting Lender, and such Defaulting Lender shall not be entitled to receive any Revolving Commitment fee pursuant to Section 2.11 with respect to such Defaulting Lender's Revolving Commitment in respect of any Default Period with respect to such Defaulting Lender; and (d) the Total Utilization of Revolving Commitments as at any date of determination shall be calculated as if such Defaulting Lender had funded all Defaulted Loans of such Defaulting Lender. No Revolving Commitment of any Lender shall be increased or otherwise affected, and, except as otherwise expressly provided in this Section 2.22, performance by Company of its obligations hereunder and the other Credit Documents shall not be excused or otherwise modified as a result of any Funding Default or the operation of this Section 2.22. The rights and remedies against a Defaulting Lender under this Section 2.22 are in addition to other rights and remedies which Company may have against such Defaulting Lender with respect to any Funding Default and which Administrative Agent or any Lender may have against such Defaulting Lender with respect to any Funding Default.
2.23. REMOVAL OR REPLACEMENT OF A LENDER. Anything contained herein to the contrary notwithstanding, in the event that: (a) (i) any Lender (an "INCREASED-COST LENDER") shall give notice to Company that such Lender is an Affected Lender or that such Lender is entitled to receive payments under
Section 2.18, 2.19 or 2.20, (ii) the circumstances which have caused such Lender to be an Affected Lender or which entitle such Lender to receive such payments shall remain in effect, and (iii) such Lender shall fail to withdraw such notice within five Business Days after Company's request for such withdrawal; or (b)
(i) any Lender shall become a Defaulting Lender, (ii) the Default Period for such Defaulting Lender shall remain in effect, and (iii) such Defaulting Lender shall fail to cure the default as a result of which it has become a Defaulting Lender within five Business Days after Company's request that it cure such default; or (c) in connection with any proposed amendment, modification, termination, waiver or consent with respect to any of the provisions hereof as contemplated by Section 10.5(b), the consent of Requisite Lenders shall have been obtained but the consent of one or more of such other Lenders (each a "NON-CONSENTING
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LENDER") whose consent is required shall not have been obtained; then, with respect to each such Increased-Cost Lender, Defaulting Lender or Non-Consenting Lender (the "TERMINATED LENDER"), Company may, by giving written notice to Administrative Agent and any Terminated Lender of its election to do so, elect to cause such Terminated Lender (and such Terminated Lender hereby irrevocably agrees) to assign its outstanding Loans and its Revolving Commitments, if any, in full to one or more Eligible Assignees (each a "REPLACEMENT LENDER") in accordance with the provisions of Section 10.6 and Terminated Lender shall pay any fees payable thereunder in connection with such assignment; provided, (1) on the date of such assignment, the Replacement Lender shall pay to Terminated Lender an amount equal to the sum of (A) an amount equal to the principal of, and all accrued interest on, all outstanding Loans of the Terminated Lender, (B) an amount equal to all unreimbursed drawings that have been funded by such Terminated Lender, together with all then unpaid interest with respect thereto at such time and (C) an amount equal to all accrued, but theretofore unpaid fees owing to such Terminated Lender pursuant to Section 2.11; (2) on the date of such assignment, Company shall pay any amounts payable to such Terminated Lender pursuant to Section 2.18(c), 2.19 or 2.20; or otherwise as if it were a prepayment and (3) in the event such Terminated Lender is a Non-Consenting Lender, each Replacement Lender shall consent, at the time of such assignment, to each matter in respect of which such Terminated Lender was a Non-Consenting Lender; provided, Company may not make such election with respect to any Terminated Lender that is also an Issuing Bank unless, prior to the effectiveness of such election, Company shall have caused each outstanding Letter of Credit issued thereby to be cancelled. Upon the prepayment of all amounts owing to any Terminated Lender and the termination of such Terminated Lender's Revolving Commitments, if any, such Terminated Lender shall no longer constitute a "Lender" for purposes hereof; provided, any rights of such Terminated Lender to indemnification hereunder shall survive as to such Terminated Lender.
SECTION 3. CONDITIONS PRECEDENT
3.1. CLOSING DATE. The obligation of any Lender to make a Credit Extension on the Closing Date is subject to the satisfaction, or waiver in accordance with
Section 10.5, of the following conditions on or before the Closing Date:
(a) Credit Documents. Administrative Agent shall have received sufficient copies of each Credit Document in a form satisfactory to the Administrative Agent originally executed and delivered by each applicable Credit Party for each Lender.
(b) Organizational Documents; Incumbency. Administrative Agent shall have received (i) sufficient copies of each Organizational Document executed and delivered by each Credit Party, as applicable, and, to the extent applicable, certified as of a recent date by the appropriate governmental official, for each Lender, each dated the Closing Date or a recent date prior thereto; (ii) signature and incumbency certificates of the officers of such Person executing the Credit Documents to which it is a party; (iii) resolutions of the Board of Directors or similar governing body of each Credit Party approving and authorizing the execution, delivery and
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performance of this Agreement and the other Credit Documents and the Related Agreements to which it is a party or by which it or its assets may be bound as of the Closing Date, certified as of the Closing Date by its secretary or an assistant secretary as being in full force and effect without modification or amendment; (iv) a good standing certificate from the applicable Governmental Authority of each Credit Party's jurisdiction of incorporation, organization or formation and in each jurisdiction in which it is qualified as a foreign corporation or other entity to do business, each dated a recent date prior to the Closing Date; and (v) such other documents as Administrative Agent may reasonably request.
(c) Organizational and Capital Structure. The organizational structure and capital structure of Holdings and its Subsidiaries shall be as set forth on Schedule 4.1.
(d) Capitalization of Holdings and Company; Related Financings. On or before the Closing Date:
(i) Administrative Agent and Syndication Agent shall be satisfied in all respects with Holdings' capital structure; and
(ii) the transactions contemplated by the Second Lien Credit Agreement shall have been consummated.
(e) Related Agreements. Syndication Agent and Administrative Agent shall each have received a fully executed or conformed copy of each Related Agreement and any documents executed in connection therewith, together with copies of each of the opinions of counsel delivered to the parties under the Related Agreements, accompanied by a letter from each such counsel (to the extent not inconsistent with such counsel's established internal policies) authorizing Lenders to rely upon such opinion to the same extent as though it were addressed to Lenders. There shall be no defaults or events of default (as may be defined in the applicable Related Agreement) under any Related Agreements and each Related Agreement shall be in full force and effect, and no provision thereof shall have been modified or waived in any respect determined by Syndication Agent or Administrative Agent to be material, in each case without the consent of Syndication Agent and Administrative Agent.
(f) Existing Indebtedness. (I) There shall be no material defaults or material events of default under the Existing Indebtedness and (II) on the Closing Date, Holdings and its Subsidiaries shall have (i) repaid in full all Existing Indebtedness (other than Indebtedness under the Existing Seller Subordinated Notes), (ii) terminated any commitments to lend or make other extensions of credit thereunder, (iii) delivered to Syndication Agent and Administrative Agent all documents or instruments necessary to release all Liens securing Existing Indebtedness or other obligations of Holdings and its Subsidiaries thereunder being repaid on the Closing Date, (iv) made arrangements satisfactory to Syndication Agent and Administrative Agent with respect to the cancellation of any letters of credit outstanding thereunder or the issuance of Letters of Credit to support the obligations of Holdings and its Subsidiaries with respect thereto, and (v) delivered to Syndication Agent and Administrative Agent (1) a fully executed or conformed copy of each document evidencing the Existing Seller Subordinated Notes and the Existing Earn-Out Obligations and (2) a certificate from an Authorized Officer of each applicable Credit Party, in
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form and substance satisfactory to Syndication Agent and Administrative Agent, with respect thereto.
(g) Transaction Costs. On or prior to the Closing Date, Company shall have delivered to Administrative Agent Company's reasonable best estimate of the Transactions Costs (other than fees payable to any Agent).
(h) Governmental Authorizations and Consents. Each Credit Party shall have obtained all Governmental Authorizations and all consents of other Persons, in each case that are necessary or advisable in connection with the transactions contemplated by the Credit Documents and the Related Agreements and each of the foregoing shall be in full force and effect and in form and substance reasonably satisfactory to Syndication Agent and Administrative Agent. All applicable waiting periods shall have expired without any action being taken or threatened by any competent authority which would restrain, prevent or otherwise impose adverse conditions on the transactions contemplated by the Credit Documents or the Related Agreements or the financing thereof and no action, request for stay, petition for review or rehearing, reconsideration, or appeal with respect to any of the foregoing shall be pending, and the time for any applicable agency to take action to set aside its consent on its own motion shall have expired.
(i) Real Estate Assets. In order to create in favor of Collateral Agent, for the benefit of Secured Parties, a valid and, subject to any filing and/or recording referred to herein, perfected First Priority security interest in certain Real Estate Assets, Collateral Agent shall have received from Company and each applicable Guarantor:
(i) fully executed and notarized Mortgages, in proper form for recording in all appropriate places in all applicable jurisdictions, encumbering each Real Estate Asset listed in Schedule 3.1(i) (each, a "CLOSING DATE MORTGAGED PROPERTY");
(ii) an opinion of counsel (which counsel shall be reasonably satisfactory to Collateral Agent) in each state in which a Closing Date Mortgaged Property is located with respect to the enforceability of the form(s) of Mortgages to be recorded in such state and such other matters as Collateral Agent may reasonably request, in each case in form and substance reasonably satisfactory to Collateral Agent;
(iii) in the case of each Leasehold Property, if any, that is a Closing Date Mortgaged Property, (1) a Landlord Consent and Estoppel and
(2) evidence that such Leasehold Property is a Recorded Leasehold Interest;
(iv) (a) ALTA mortgagee title insurance policies or unconditional commitments therefore issued by one or more title companies reasonably satisfactory to Collateral Agent with respect to each Closing Date Mortgaged Property (each, a "TITLE POLICY"), in amounts not less than the fair market value of each Closing Date Mortgaged Property, together with a title report issued by a title company with respect thereto, dated not more than thirty days prior to the Closing Date and copies of all recorded documents listed as exceptions to title or otherwise referred to therein, each in form and substance
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reasonably satisfactory to Collateral Agent and (b) evidence satisfactory to Collateral Agent that such Credit Party has paid to the title company or to the appropriate Governmental Authorities all expenses and premiums of the title company and all other sums required in connection with the issuance of each Title Policy and all recording and stamp taxes (including mortgage recording and intangible taxes) payable in connection with recording the Mortgages for each Closing Date Mortgaged Property in the appropriate real estate records; and
(v) evidence of flood insurance with respect to each Flood Hazard Property that is located in a community that participates in the National Flood Insurance Program, in each case in compliance with any applicable regulations of the Board of Governors of the Federal Reserve System, in form and substance reasonably satisfactory to Collateral Agent.
(j) Personal Property Collateral. In order to create in favor of Collateral Agent, for the benefit of Secured Parties, a valid, perfected First Priority security interest in the personal property Collateral, Collateral Agent shall have received:
(i) evidence satisfactory to Collateral Agent of the compliance by each Credit Party of their obligations under the Pledge and Security Agreement and the other Collateral Documents (including, without limitation, their obligations to execute and deliver UCC financing statements, originals of securities, instruments and chattel paper and any agreements governing deposit and/or securities accounts as provided therein);
(ii) A completed Collateral Questionnaire dated the Closing Date and executed by an Authorized Officer of each Credit Party, together with all attachments contemplated thereby, including (A) the results of a recent search, by a Person satisfactory to Collateral Agent, of all effective UCC financing statements (or equivalent filings) made with respect to any personal or mixed property of any Credit Party in the jurisdictions specified in the Collateral Questionnaire, together with copies of all such filings disclosed by such search, and (B) UCC termination statements (or similar documents) duly executed by all applicable Persons for filing in all applicable jurisdictions as may be necessary to terminate any effective UCC financing statements (or equivalent filings) disclosed in such search (other than any such financing statements in respect of Permitted Liens);
(iii) opinions of counsel (which counsel shall be reasonably satisfactory to Collateral Agent) with respect to the creation and perfection of the security interests in favor of Collateral Agent in such Collateral and such other matters governed by the laws of each jurisdiction in which any Credit Party or any personal property Collateral is located as Collateral Agent may reasonably request, in each case in form and substance reasonably satisfactory to Collateral Agent; and
(iv) evidence that each Credit Party shall have taken or caused to be taken any other action, executed and delivered or caused to be executed and delivered any other agreement, document and instrument (including, without limitation, any
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intercompany notes evidencing Indebtedness permitted to be incurred pursuant to Section 6.1(b)) and made or caused to be made any other filing and recording (other than as set forth herein) reasonably required by Collateral Agent.
(k) Environmental Reports. Syndication Agent and Administrative Agent shall have received reports and other information, in form, scope and substance satisfactory to Syndication Agent and Administrative Agent, regarding environmental matters relating to the Facilities, which reports shall include a Phase I Report for each of the Facilities specified by the Syndication Agent and Administrative Agent.
(l) Financial Statements; Projections. Lenders shall have received from Holdings (i) the Historical Financial Statements, (ii) pro forma consolidated and consolidating balance sheets of Holdings and its Subsidiaries as of October 31, 2003, and reflecting the consummation of the Refinancing, the related financings and the other transactions contemplated by the Credit Documents to occur on or prior to the Closing Date, which pro forma financial statements shall be in form and substance satisfactory to Administrative Agent and Syndication Agent, and (iii) the Projections.
(m) Evidence of Insurance. Collateral Agent shall have received a certificate from Company's insurance broker or other evidence satisfactory to it that all insurance required to be maintained pursuant to Section 5.5 is in full force and effect and that Collateral Agent, for the benefit of Lenders has been named as additional insured and loss payee thereunder to the extent required under Section 5.5.
(n) Opinions of Counsel to Credit Parties. Lenders and their respective counsel shall have received originally executed copies of the favorable written opinions of those counsel for Credit Parties set forth in Schedule 3.1(n), in the form of Exhibit D and as to such other matters as Administrative Agent or Syndication Agent may reasonably request, dated as of the Closing Date and otherwise in form and substance reasonably satisfactory to Administrative Agent and Syndication Agent (and each Credit Party hereby instructs such counsel to deliver such opinions to Agents and Lenders).
(o) Opinions of Counsel to Syndication Agent. Lenders shall have received originally executed copies of one or more favorable written opinions of Skadden, Arps, Slate, Meagher & Flom LLP, counsel to Syndication Agent, dated as of the Closing Date, in form and substance reasonably satisfactory to Syndication Agent.
(p) Fees. Company shall have paid to Syndication Agent and Administrative Agent, the fees payable on the Closing Date referred to in
Section 2.11(d).
(q) Closing Date Certificate. Holdings and Company shall have delivered to Syndication Agent and Administrative Agent an originally executed Closing Date Certificate, together with all attachments thereto.
(r) Credit Rating. The credit facilities provided for under this Agreement shall have been assigned a credit rating by either S&P and/or Moody's of not less than BB- in the case of S&P or B1 in the case of Moody's.
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(s) Closing Date. Lenders shall have made the Term Loans to Company on or before January 31, 2004.
(t) No Litigation. There shall not exist any action, suit, investigation, litigation or proceeding or other legal or regulatory developments, pending or threatened in any court or before any arbitrator or Governmental Authority that, in the reasonable opinion of Administrative Agent and Syndication Agent, singly or in the aggregate, materially impairs the Refinancing or any of the other transactions contemplated by the Credit Documents or the Related Agreements, or that could reasonably be expected to have a Material Adverse Effect.
(u) Completion of Proceedings. All partnership, corporate and other proceedings taken or to be taken in connection with the transactions contemplated hereby and all documents incidental thereto not previously found acceptable by Administrative Agent or Syndication Agent and its counsel shall be satisfactory in form and substance to Administrative Agent and Syndication Agent and such counsel, and Administrative Agent, Syndication Agent and such counsel shall have received all such counterpart originals or certified copies of such documents as Administrative Agent or Syndication Agent may reasonably request.
Each Lender, by delivering its signature page to this Agreement and funding a Loan on the Closing Date, shall be deemed to have acknowledged receipt of, and consented to and approved, each Credit Document and each other document required to be approved by any Agent, Requisite Lenders or Lenders, as applicable on the Closing Date.
3.2. CONDITIONS TO EACH CREDIT EXTENSION.
(a) Conditions Precedent. The obligation of each Lender to make any Loan, or Issuing Bank to issue any Letter of Credit, on any Credit Date, including the Closing Date, are subject to the satisfaction, or waiver in accordance with Section 10.5, of the following conditions precedent:
(i) Administrative Agent shall have received a fully executed and delivered Funding Notice or Issuance Notice, as the case may be;
(ii) after making the Credit Extensions requested on such Credit Date, the Total Utilization of Revolving Commitments shall not exceed the Revolving Commitments then in effect;
(iii) as of such Credit Date, the representations and warranties contained herein and in the other Credit Documents shall be true and correct in all material respects on and as of that Credit Date to the same extent as though made on and as of that date, except to the extent such representations and warranties specifically relate to an earlier date, in which case such representations and warranties shall have been true and correct in all material respects on and as of such earlier date;
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(iv) as of such Credit Date, no event shall have occurred and be continuing or would result from the consummation of the applicable Credit Extension that would constitute an Event of Default or a Default;
(v) on or before the date of issuance of any Letter of Credit, Administrative Agent shall have received all other information required by the applicable Issuance Notice, and such other documents or information as Issuing Bank may reasonably require in connection with the issuance of such Letter of Credit;
(vi) as of such Credit Date, the Leverage Ratio determined as of such date after giving effect to the contemplated Credit Extension shall not exceed the maximum Leverage Ratio permitted as of the last day of the immediately succeeding Fiscal Quarter pursuant to Section 6.8(c); and
(vii) after giving effect to such Credit Extension the aggregate Cash and Cash Equivalents of Holdings and its subsidiaries will not exceed $15,000,000.
Any Agent or Requisite Lenders shall be entitled, but not obligated to, request and receive, prior to the making of any Credit Extension, additional information reasonably satisfactory to the requesting party confirming the satisfaction of any of the foregoing if, in the good faith judgment of such Agent or Requisite Lender such request is warranted under the circumstances.
(b) Notices. Any Notice shall be executed by an Authorized Officer in a writing delivered to Administrative Agent. In lieu of delivering a Notice, Company may give Administrative Agent telephonic notice by the required time of any proposed borrowing, conversion/continuation or issuance of a Letter of Credit, as the case may be; provided each such notice shall be promptly confirmed in writing by delivery of the applicable Notice to Administrative Agent on or before the applicable date of borrowing, continuation/conversion or issuance. Neither Administrative Agent nor any Lender shall incur any liability to Company in acting upon any telephonic notice referred to above that Administrative Agent believes in good faith to have been given by a duly authorized officer or other person authorized on behalf of Company or for otherwise acting in good faith.
SECTION 4. REPRESENTATIONS AND WARRANTIES
In order to induce Lenders and Issuing Bank to enter into this Agreement and to make each Credit Extension to be made thereby, each Credit Party represents and warrants to each Lender and Issuing Bank, on the Closing Date and on each Credit Date, that the following statements are true and correct (it being understood and agreed that the representations and warranties made on the Closing Date are deemed to be made concurrently with the consummation of the Refinancing contemplated hereby):
4.1. ORGANIZATION; REQUISITE POWER AND AUTHORITY; QUALIFICATION. Each of Holdings and its Subsidiaries (a) is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization as identified in Schedule 4.1, (b) has all
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requisite power and authority to own and operate its properties, to carry on its business as now conducted and as proposed to be conducted, to enter into the Credit Documents to which it is a party and to carry out the transactions contemplated thereby, and (c) is qualified to do business and in good standing in every jurisdiction where its assets are located and wherever necessary to carry out its business and operations, except in jurisdictions where the failure to be so qualified or in good standing has not had, and could not be reasonably expected to have, a Material Adverse Effect.
4.2. CAPITAL STOCK AND OWNERSHIP. The Capital Stock of each of Holdings and its Subsidiaries has been duly authorized and validly issued and is fully paid and non-assessable. Except as set forth on Schedule 4.2, as of the date hereof, there is no existing option, warrant, call, right, commitment or other agreement to which Holdings or any of its Subsidiaries is a party requiring, and there is no Capital Stock of Holdings or any of its Subsidiaries outstanding which upon conversion or exchange would require, the issuance by Holdings or any of its Subsidiaries of any additional Capital Stock of Holdings or any of its Subsidiaries or other Securities convertible into, exchangeable for or evidencing the right to subscribe for or purchase, Capital Stock of Holdings or any of its Subsidiaries. Schedule 4.2 correctly sets forth the ownership interest of Holdings and each of its Subsidiaries in their respective Subsidiaries as of the Closing Date.
4.3. DUE AUTHORIZATION. The execution, delivery and performance of the Credit Documents have been duly authorized by all necessary action on the part of each Credit Party that is a party thereto.
4.4. NO CONFLICT. The execution, delivery and performance by Credit Parties of the Credit Documents to which they are parties and the consummation of the transactions contemplated by the Credit Documents do not and will not (a) violate any provision of any law or any governmental rule or regulation applicable to Holdings or any of its Subsidiaries, any of the Organizational Documents of Holdings or any of its Subsidiaries, or any order, judgment or decree of any court or other agency of government binding on Holdings or any of its Subsidiaries except to the extent such violation could not be reasonably expected to have a Material Adverse Effect; (b) conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any Contractual Obligation of Holdings or any of its Subsidiaries except to the extent such conflict, breach or default could not reasonably be expected to have a Material Adverse Effect; (c) result in or require the creation or imposition of any Lien upon any of the properties or assets of Holdings or any of its Subsidiaries (other than any Liens created under any of the Credit Documents in favor of Collateral Agent, on behalf of Secured Parties and the Liens securing obligations under the Second Lien Credit Agreement pursuant to subsection 6.2(p)); or (d) require any approval of stockholders, members or partners or any approval or consent of any Person under any Contractual Obligation of Holdings or any of its Subsidiaries, except for such approvals or consents which will be obtained on or before the Closing Date and disclosed in
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writing to Lenders and except for any such approvals or consents the failure of which to obtain will not have a Material Adverse Effect.
4.5. GOVERNMENTAL CONSENTS. The execution, delivery and performance by Credit Parties of the Credit Documents to which they are parties and the consummation of the transactions contemplated by the Credit Documents do not and will not require any registration with, consent or approval of, or notice to, or other action to, with or by, any Governmental Authority except for filings and recordings with respect to the Collateral to be made, or otherwise delivered to Collateral Agent for filing and/or recordation, as of the Closing Date.
4.6. BINDING OBLIGATION. Each Credit Document has been duly executed and delivered by each Credit Party that is a party thereto and is the legally valid and binding obligation of such Credit Party, enforceable against such Credit Party in accordance with its respective terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors' rights generally or by equitable principles relating to enforceability.
4.7. HISTORICAL FINANCIAL STATEMENTS. The Historical Financial Statements were prepared in conformity with GAAP and fairly present, in all material respects, the financial position, on a consolidated basis, of the Persons described in such financial statements as at the respective dates thereof and the results of operations and cash flows, on a consolidated basis, of the entities described therein for each of the periods then ended, subject, in the case of any such unaudited financial statements, to changes resulting from audit and normal year-end adjustments. As of the Closing Date, neither Holdings nor any of its Subsidiaries has any contingent liability or liability for taxes, long-term lease or unusual forward or long-term commitment that is not reflected in the Historical Financial Statements or the notes thereto and which in any such case is material in relation to the business, operations, properties, assets, condition (financial or otherwise) or prospects of Holdings and any of its Subsidiaries taken as a whole.
4.8. PROJECTIONS. On and as of the Closing Date, the projected financial information of Holdings and its Subsidiaries for the period Fiscal Year 2004 through and including Fiscal Year 2009 (the "PROJECTIONS") are based on good faith estimates and assumptions made by the management of Holdings; provided, the Projections are not to be viewed as facts and that actual results during the period or periods covered by the Projections may differ from such Projections and that the differences may be material; provided further, as of the Closing Date, management of Holdings believed that the Projections were reasonable and attainable.
4.9. NO MATERIAL ADVERSE CHANGE. Since December 31, 2002, no event, circumstance or change has occurred that has caused or evidences, either in any case or in the aggregate, a Material Adverse Effect.
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4.10. NO RESTRICTED JUNIOR PAYMENTS. Since September 30, 2003, neither Holdings nor any of its Subsidiaries has directly or indirectly declared, ordered, paid or made, or set apart any sum or property for, any Restricted Junior Payment or agreed to do so except as permitted pursuant to Section 6.5.
4.11. ADVERSE PROCEEDINGS, ETC. There are no Adverse Proceedings, individually or in the aggregate, that could reasonably be expected to have a Material Adverse Effect. Neither Holdings nor any of its Subsidiaries (a) is in violation of any applicable laws (including Environmental Laws) that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect, or (b) is subject to or in default with respect to any final judgments, writs, injunctions, decrees, rules or regulations of any court or any federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect.
4.12. PAYMENT OF TAXES. Except as otherwise permitted under Section 5.3, all tax returns and reports of Holdings and its Subsidiaries required to be filed by any of them have been timely filed, and all taxes shown on such tax returns to be due and payable and all assessments, fees and other governmental charges upon Holdings and its Subsidiaries and upon their respective properties, assets, income, businesses and franchises which are due and payable have been paid when due and payable. Holdings knows of no proposed tax assessment against Holdings or any of its Subsidiaries which is not being actively contested by Holdings or such Subsidiary in good faith and by appropriate proceedings; provided, such reserves or other appropriate provisions, if any, as shall be required in conformity with GAAP shall have been made or provided therefore.
4.13. PROPERTIES.
(a) Title. Each of Holdings and its Subsidiaries has (i) good, sufficient and legal title to (in the case of fee interests in real property),
(ii) valid leasehold interests in (in the case of leasehold interests in real or personal property), and (iii) good title to (in the case of all other personal property), all of their respective properties and assets reflected in their respective Historical Financial Statements referred to in Section 4.7 and in the most recent financial statements delivered pursuant to Section 5.1, in each case except for assets disposed of since the date of such financial statements in the ordinary course of business or as otherwise permitted under Section 6.9. Except as permitted by this Agreement, all such properties and assets are free and clear of Liens.
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(b) Real Estate. As of the Closing Date, Schedule 4.13 contains a true, accurate and complete list of (i) all Real Estate Assets, and (ii) all leases, subleases or assignments of leases (together with all amendments, modifications, supplements, renewals or extensions of any thereof) affecting each Real Estate Asset of any Credit Party, regardless of whether such Credit Party is the landlord or tenant (whether directly or as an assignee or successor in interest) under such lease, sublease or assignment. Each agreement listed in Schedule 4.13 is in full force and effect and Holdings does not have knowledge of any default that has occurred and is continuing thereunder, and each such agreement constitutes the legally valid and binding obligation of each applicable Credit Party, enforceable against such Credit Party in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors' rights generally or by equitable principles.
4.14. ENVIRONMENTAL MATTERS. Neither Holdings nor any of its Subsidiaries nor any of their respective Facilities or operations are subject to any outstanding written order, consent decree or settlement agreement with any Person relating to any Environmental Law, any Environmental Claim, or any Hazardous Materials Activity that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. Neither Holdings nor any of its Subsidiaries has received any letter or request for information under
Section 104 of the Comprehensive Environmental Response, Compensation, and Liability Act (42 U.S.C. Section 9604) or any comparable state law. There are and, to each of Holdings' and its Subsidiaries' knowledge, have been, no conditions, occurrences, or Hazardous Materials Activities which could reasonably be expected to form the basis of an Environmental Claim against Holdings or any of its Subsidiaries that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. Neither Holdings nor any of its Subsidiaries nor, to any Credit Party's knowledge, any predecessor of Holdings or any of its Subsidiaries has filed any notice under any Environmental Law indicating past or present treatment of Hazardous Materials at any Facility, and none of Holdings' or any of its Subsidiaries' operations involves the generation, transportation, treatment, storage or disposal of hazardous waste, as defined under 40 C.F.R. Parts 260-270 or any state equivalent in violation of law. Compliance with all current or reasonably foreseeable future requirements pursuant to or under Environmental Laws could not be reasonably expected to have, individually or in the aggregate, a Material Adverse Effect. No event or condition has occurred or is occurring with respect to Holdings or any of its Subsidiaries relating to any Environmental Law, any Release of Hazardous Materials, or any Hazardous Materials Activity which individually or in the aggregate has had, or could reasonably be expected to have, a Material Adverse Effect.
4.15. NO DEFAULTS. Neither Holdings nor any of its Subsidiaries is in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any of its Contractual Obligations, and no condition exists which, with the giving of notice or the lapse of time or both, could constitute such a default, except where the consequences, direct or indirect, of such default or defaults, if any, could not reasonably be expected to have a Material Adverse Effect.
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4.16. MATERIAL CONTRACTS. Schedule 4.16 contains a true, correct and complete list of all the Material Contracts in effect on the Closing Date, and except as described thereon, all such Material Contracts are in full force and effect and no defaults in any material respect currently exist thereunder.
4.17. GOVERNMENTAL REGULATION. Neither Holdings nor any of its Subsidiaries is subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act or the Investment Company Act of 1940 or under any other federal or state statute or regulation which may limit its ability to incur Indebtedness or which may otherwise render all or any portion of the Obligations unenforceable. Neither Holdings nor any of its Subsidiaries is a "registered investment company" or a company "controlled" by a "registered investment company" or a "principal underwriter" of a "registered investment company" as such terms are defined in the Investment Company Act of 1940.
4.18. MARGIN STOCK. Neither Holdings nor any of its Subsidiaries is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying any Margin Stock. No part of the proceeds of the Loans made to such Credit Party will be used to purchase or carry any such margin stock or to extend credit to others for the purpose of purchasing or carrying any such margin stock or for any purpose that violates, or is inconsistent with, the provisions of Regulation T, U or X of said Board of Governors.
4.19. EMPLOYEE MATTERS. Neither Holdings nor any of its Subsidiaries is engaged in any unfair labor practice that could reasonably be expected to have a Material Adverse Effect. There is (a) no unfair labor practice complaint pending against Holdings or any of its Subsidiaries, or to the best knowledge of Holdings and Company, threatened against any of them before the National Labor Relations Board and no grievance or arbitration proceeding arising out of or under any collective bargaining agreement that is so pending against Holdings or any of its Subsidiaries or to the best knowledge of Holdings and Company, threatened against any of them, (b) no strike or work stoppage in existence or threatened involving Holdings or any of its Subsidiaries that could reasonably be expected to have a Material Adverse Effect, and (c) to the best knowledge of Holdings and Company, no union representation question existing with respect to the employees of Holdings or any of its Subsidiaries and, to the best knowledge of Holdings and Company, no union organization activity that is taking place, except (with respect to any matter specified in clause (a), (b) or (c) above, either individually or in the aggregate) such as is not reasonably likely to have a Material Adverse Effect.
4.20. EMPLOYEE BENEFIT PLANS. Holdings, each of its Subsidiaries and each of their respective ERISA Affiliates are in substantial compliance with all applicable provisions and requirements of ERISA and the Internal Revenue Code and the regulations and published interpretations thereunder with respect
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to each Employee Benefit Plan, and have substantially performed all their obligations under each Employee Benefit Plan. Each Employee Benefit Plan which is intended to qualify under Section 401(a) of the Internal Revenue Code has received a favorable determination letter from the Internal Revenue Service indicating that such Employee Benefit Plan is so qualified and nothing has occurred subsequent to the issuance of such determination letter which would cause such Employee Benefit Plan to lose its qualified status. No liability to the PBGC (other than required premium payments), the Internal Revenue Service, any Employee Benefit Plan or any trust established under Title IV of ERISA has been or is expected to be incurred by Holdings, any of its Subsidiaries or any of their ERISA Affiliates other than contribution and expense reimbursement in the ordinary course. No ERISA Event has occurred or is reasonably expected to occur. Except to the extent disclosed on Schedule 4.20 or as required under
Section 4980B of the Internal Revenue Code or similar state laws, no Employee Benefit Plan provides health or welfare benefits (through the purchase of insurance or otherwise) for any retired or former employee of Holdings, any of its Subsidiaries or any of their respective ERISA Affiliates. The present value of the aggregate benefit liabilities under each Pension Plan sponsored or maintained by Holdings, any of its Subsidiaries or any of their ERISA Affiliates, (determined as of the end of the most recent plan year on the basis of the actuarial assumptions specified for funding purposes in the most recent actuarial valuation for such Pension Plan), did not exceed the aggregate current value of the assets of such Pension Plan. As of the most recent valuation date for each Multiemployer Plan for which the actuarial report is available, the potential liability of Holdings, its Subsidiaries and their respective ERISA Affiliates for a complete withdrawal from such Multiemployer Plan (within the meaning of Section 4203 of ERISA), when aggregated with such potential liability for a complete withdrawal from all Multiemployer Plans, based on information available pursuant to Section 4221(e) of ERISA, does not exceed $1,500,000. Holdings, each of its Subsidiaries and each of their ERISA Affiliates have complied with the requirements of Section 515 of ERISA with respect to each Multiemployer Plan and are not in material "default" (as defined in Section 4219(c)(5) of ERISA) with respect to payments to a Multiemployer Plan.
4.21. CERTAIN FEES. No broker's or finder's fee or commission will be payable with respect hereto or any of the transactions contemplated hereby.
4.22. SOLVENCY. Each Credit Party is and, upon the incurrence of any Obligation by such Credit Party on any date on which this representation and warranty is made, will be, Solvent.
4.23. RELATED AGREEMENTS.
(a) Delivery. Holdings and Company have delivered to Syndication Agent and Administrative Agent complete and correct copies of (i) each Related Agreement and of all exhibits and schedules thereto as of the date hereof and
(ii) copies of any material amendment,
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restatement, supplement or other modification to or waiver of each Related Agreement entered into after the date hereof.
(b) Representations and Warranties. Except to the extent otherwise expressly set forth herein or in the schedules hereto, and subject to the qualifications set forth therein, each of the representations and warranties given by any Credit Party in any Related Agreement is true and correct in all material respects as of the Closing Date (or as of any earlier date to which such representation and warranty specifically relates). Notwithstanding anything in the Related Agreement to the contrary, the representations and warranties of each Credit Party set forth in this Section 4.23 shall, solely for purposes hereof, survive the Closing Date for the benefit of Lenders.
(c) Governmental Approvals. All Governmental Authorizations and all other authorizations, approvals and consents of any other Person required by the Related Agreements or to consummate the Refinancing have been obtained and are in full force and effect.
(d) Conditions Precedent. On the Closing Date, (i) all of the conditions to effecting or consummating the Refinancing set forth in the Related Agreements have been duly satisfied or, with the consent of Administrative Agent and Syndication Agent, waived, and (ii) the Refinancing has been consummated in accordance with the Related Agreements and all applicable laws.
4.24. COMPLIANCE WITH STATUTES, ETC. Each of Holdings and its Subsidiaries is in compliance with all applicable statutes, regulations and orders of, and all applicable restrictions imposed by, all Governmental Authorities, in respect of the conduct of its business and the ownership of its property (including compliance with all applicable Environmental Laws with respect to any Real Estate Asset or governing its business and the requirements of any permits issued under such Environmental Laws with respect to any such Real Estate Asset or the operations of Holdings or any of its Subsidiaries), except such non-compliance that could not reasonably be expected to result in a Material Adverse Effect.
4.25. DISCLOSURE. No representation or warranty of any Credit Party contained in any Credit Document or in any other documents, certificates or written statements furnished to Lenders by or on behalf of Holdings or any of its Subsidiaries for use in connection with the transactions contemplated hereby contains any untrue statement of a material fact or omits to state a material fact (known to Holdings or Company, in the case of any document not furnished by either of them) necessary in order to make the statements contained herein or therein not misleading in light of the circumstances in which the same were made. Any projections and pro forma financial information contained in such materials are based upon good faith estimates and assumptions believed by Holdings or Company to be reasonable at the time made, it being recognized by Lenders that such projections as to future events are not to be viewed as facts and that actual results during the period or periods covered by any such projections may differ from the
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projected results. There are no facts known (or which should upon the reasonable exercise of diligence be known) to Holdings or Company (other than matters of a general economic nature) that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect and that have not been disclosed herein or in such other documents, certificates and statements furnished to Lenders for use in connection with the transactions contemplated hereby.
4.26. EXISTING SELLER SUBORDINATED NOTES AND EXISTING EARN-OUT OBLIGATIONS. Holdings and Company have delivered to Syndication Agent and Administrative Agent complete and correct copies of (i) each document evidencing the Existing Seller Subordinated Notes and the Existing Earn-Out Obligations and
(ii) copies of any amendment, restatement, supplement or other modification to or waiver of any such document entered into after the date hereof.
SECTION 5. AFFIRMATIVE COVENANTS
Each Credit Party covenants and agrees that so long as any Commitment is in effect and until payment in full of all Obligations and cancellation or expiration of all Letters of Credit, each Credit Party shall perform, and shall cause each of its Subsidiaries to perform, all covenants in this Section 5.
5.1. FINANCIAL STATEMENTS AND OTHER REPORTS. Holdings will deliver to Administrative Agent and Lenders:
(a) Monthly Reports. As soon as available, and in any event within thirty (30) days after the end of each month ending after the Closing Date, the consolidated balance sheet of Holdings and its Subsidiaries as at the end of such month and the related consolidated statements of income, members' equity and cash flows of Holdings and its Subsidiaries for such month and for the period from the beginning of the then current Fiscal Year to the end of such month, setting forth in each case in comparative form the corresponding figures for the corresponding periods of the previous Fiscal Year and the corresponding figures from the Financial Plan for the current Fiscal Year, to the extent prepared on a monthly basis, all in reasonable detail, together with a Financial Officer Certification and a Narrative Report with respect thereto;
(b) Quarterly Financial Statements. As soon as available, and in any event within forty-five (45) days after the end of each of the first three Fiscal Quarters of each Fiscal Year, the consolidated and consolidating balance sheets of Holdings and its Subsidiaries as at the end of such Fiscal Quarter and the related consolidated (and with respect to statements of income, consolidating) statements of income, members' equity and cash flows of Holdings and its Subsidiaries for such Fiscal Quarter and for the period from the beginning of the then current Fiscal Year to the end of such Fiscal Quarter, setting forth in each case in comparative form the corresponding figures for the corresponding periods of the previous Fiscal Year and the corresponding figures from the Financial Plan for the current Fiscal Year, all in reasonable detail, together with a Financial Officer Certification and a Narrative Report with respect thereto;
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(c) Annual Financial Statements. As soon as available, and in any event within ninety (90) days after the end of each Fiscal Year, (i) the consolidated and consolidating balance sheets of Holdings and its Subsidiaries as at the end of such Fiscal Year and the related consolidated (and with respect to statements of income, consolidating) statements of income, members' equity and cash flows of Holdings and its Subsidiaries for such Fiscal Year, setting forth in each case in comparative form the corresponding figures for the previous Fiscal Year and the corresponding figures from the Financial Plan for the Fiscal Year covered by such financial statements, in reasonable detail, together with a Financial Officer Certification and a Narrative Report with respect thereto; and (ii) with respect such consolidated financial statements a report thereon of PricewaterhouseCoopers LLP or other independent certified public accountants of recognized national standing selected by Holdings, and reasonably satisfactory to Administrative Agent (which report shall be unqualified as to going concern and scope of audit, and shall state that such consolidated financial statements fairly present, in all material respects, the consolidated financial position of Holdings and its Subsidiaries as at the dates indicated and the results of their operations and their cash flows for the periods indicated in conformity with GAAP applied on a basis consistent with prior years (except as otherwise disclosed in such financial statements) and that the examination by such accountants in connection with such consolidated financial statements has been made in accordance with generally accepted auditing standards) together with a written statement by such independent certified public accountants stating (1) that their audit examination has included a review of the terms of the Credit Documents, (2) whether, in connection therewith, any condition or event that constitutes a Default or an Event of Default has come to their attention and, if such a condition or event has come to their attention, specifying the nature and period of existence thereof, and (3) that nothing has come to their attention that causes them to believe that the information contained in any Compliance Certificate is not correct or that the matters set forth in such Compliance Certificate are not stated in accordance with the terms hereof;
(d) Compliance Certificate. Together with each delivery of financial statements of Holdings and its Subsidiaries pursuant to Sections 5.1(b) and 5.1(c), a duly executed and completed Compliance Certificate;
(e) Statements of Reconciliation after Change in Accounting Principles. If, as a result of any change in accounting principles and policies from those used in the preparation of the Historical Financial Statements, the consolidated financial statements of Holdings and its Subsidiaries delivered pursuant to Section 5.1(b) or 5.1(c) will differ in any material respect from the consolidated financial statements that would have been delivered pursuant to such subdivisions had no such change in accounting principles and policies been made, then, together with the first delivery of such financial statements after such change, one or more statements of reconciliation for all such prior financial statements in form and substance satisfactory to Administrative Agent;
(f) Notice of Default. Promptly upon any officer of Holdings or Company obtaining knowledge (i) of any condition or event that constitutes a Default or an Event of Default or that notice has been given to Holdings or Company with respect thereto; (ii) that any Person has given any notice to Holdings or any of its Subsidiaries or taken any other action with respect to any event or condition set forth in Section 8.1(b); or (iii) of the occurrence of any
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event or change that has caused or evidences, either in any case or in the aggregate, a Material Adverse Effect, a certificate of its Authorized Officers specifying the nature and period of existence of such condition, event or change, or specifying the notice given and action taken by any such Person and the nature of such claimed Event of Default, Default, default, event or condition, and what action Company has taken, is taking and proposes to take with respect thereto;
(g) Notice of Litigation. Promptly upon any officer of Holdings or Company obtaining knowledge of (i) the institution of, or non-frivolous threat of, any Adverse Proceeding not previously disclosed in writing by Company to Lenders, or (ii) any material development in any Adverse Proceeding that, in the case of either (i) or (ii) if adversely determined, could be reasonably expected to have a Material Adverse Effect, or seeks to enjoin or otherwise prevent the consummation of, or to recover any damages or obtain relief as a result of, the transactions contemplated hereby, written notice thereof together with such other information as may be reasonably available to Holdings or Company to enable Lenders and their counsel to evaluate such matters;
(h) ERISA. (i) Promptly upon becoming aware of the occurrence of or forthcoming occurrence of any ERISA Event, a written notice specifying the nature thereof, what action Holdings, any of its Subsidiaries or any of their respective ERISA Affiliates has taken, is taking or proposes to take with respect thereto and, when known, any action taken or threatened by the Internal Revenue Service, the Department of Labor or the PBGC with respect thereto; and
(ii) with reasonable promptness, copies of (1) each Schedule B (Actuarial Information) to the annual report (Form 5500 Series) filed by Holdings, any of its Subsidiaries or any of their respective ERISA Affiliates with the Internal Revenue Service with respect to each Pension Plan; (2) all notices received by Holdings, any of its Subsidiaries or any of their respective ERISA Affiliates from a Multiemployer Plan sponsor concerning an ERISA Event; and (3) copies of such other documents or governmental reports or filings relating to any Employee Benefit Plan as Administrative Agent shall reasonably request;
(i) Financial Plan. As soon as practicable and in any event no later than thirty (30) days after the beginning of each Fiscal Year, a consolidated plan and financial forecast for such Fiscal Year and each Fiscal Year (or portion thereof) through the final maturity date of the Loans (a "FINANCIAL PLAN"), including (i) a forecasted consolidated balance sheet and forecasted consolidated statements of income and cash flows of Holdings and its Subsidiaries for each such Fiscal Year, together with pro forma Compliance Certificates for each such Fiscal Year and an explanation of the assumptions on which such forecasts are based, (ii) forecasted consolidated statements of income and cash flows of Holdings and its Subsidiaries for each month of such Fiscal Year, (iii) forecasts demonstrating projected compliance with the requirements of Section 6.8 through the final maturity date of the Loans and
(iv) forecasts demonstrating adequate liquidity through the final maturity date of the Loans without giving effect to any additional debt or equity offerings not reflected in the Projections, together, in each case, with an explanation of the assumptions on which such forecasts are based all in form and substance reasonably satisfactory to Agents;
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(j) Insurance Report. As soon as practicable and in any event by the last day of each Fiscal Year, a report in form and substance satisfactory to Administrative Agent outlining all material insurance coverage maintained as of the date of such report by Holdings and its Subsidiaries and all material insurance coverage planned to be maintained by Holdings and its Subsidiaries in the immediately succeeding Fiscal Year;
(k) Notice of Change in Managers or Board of Advisors. With reasonable promptness, written notice of any change in the managers or board of advisors (or similar governing body) of Holdings or Company;
(l) Notice Regarding Material Contracts. Promptly, and in any event within ten Business Days (i) after any Material Contract of Holdings or any of its Subsidiaries is terminated or amended in a manner that is materially adverse to Holdings or such Subsidiary, as the case may be, or (ii) any new Material Contract is entered into, a written statement describing such event, with copies of such material amendments or new contracts, delivered to Administrative Agent (to the extent such delivery is permitted by the terms of any such Material Contract, provided, no such prohibition on delivery shall be effective if it were bargained for by Holdings or its applicable Subsidiary with the intent of avoiding compliance with this Section 5.1(l));
(m) Environmental Reports and Audits. As soon as practicable following receipt thereof, copies of all environmental audits and reports with respect to environmental matters at any Facility or which relate to any environmental liabilities of Holdings or its Subsidiaries which, in any such case, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect;
(n) Information Regarding Collateral. (a) Company will furnish to Collateral Agent prompt written notice of any change (i) in any Credit Party's corporate name, (ii) in any Credit Party's identity or corporate structure or
(iii) in any Credit Party's Federal Taxpayer Identification Number. Company agrees not to effect or permit any change referred to in the preceding sentence unless all filings have been made under the Uniform Commercial Code or otherwise that are required in order for Collateral Agent to continue at all times following such change to have a valid, legal and perfected security interest in all the Collateral and for the Collateral at all times following such change to have a valid, legal and perfected security interest as contemplated in the Collateral Documents. Company also agrees promptly to notify Collateral Agent if any material portion of the Collateral is damaged or destroyed;
(o) Annual Collateral Verification. Each year, at the time of delivery of annual financial statements with respect to the preceding Fiscal Year pursuant to Section 5.1(c), Company shall deliver to Collateral Agent an Officer's Certificate (i) either confirming that there has been no material change in such information since the date of the Collateral Questionnaire delivered on the Closing Date or the date of the most recent certificate delivered pursuant to this Section and/or identifying such changes and (ii) certifying that all Uniform Commercial Code financing statements (including fixtures filings, as applicable) or other appropriate filings, recordings or registrations, have been filed of record in each governmental, municipal or other appropriate office in each jurisdiction identified pursuant to clause (i) above to the extent necessary to protect and perfect the security interests under the Collateral Documents for a
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period of not less than 18 months after the date of such certificate (except as noted therein with respect to any continuation statements to be filed within such period); and
(p) Other Information. (A) Promptly upon their becoming available, copies of (i) all financial statements, reports, notices and proxy statements sent or made available generally by Holdings to its security holders acting in such capacity or by any Subsidiary of Holdings to its security holders other than Holdings or another Subsidiary of Holdings, (ii) all regular and periodic reports and all registration statements and prospectuses, if any, filed by Holdings or any of its Subsidiaries with any securities exchange or with the Securities and Exchange Commission or any governmental or private regulatory authority, (iii) all press releases and other statements made available generally by Holdings or any of its Subsidiaries to the public concerning material developments in the business of Holdings or any of its Subsidiaries, and (B) such other information and data with respect to Holdings or any of its Subsidiaries as from time to time may be reasonably requested by Administrative Agent or any Lender.
5.2. EXISTENCE. Except as otherwise permitted under Section 6.9, each Credit Party will, and will cause each of its Subsidiaries to, at all times preserve and keep in full force and effect its existence and all rights and franchises, licenses and permits material to its business; provided, no Credit Party or any of its Subsidiaries shall be required to preserve any such existence, right or franchise, licenses and permits if such Person's board of directors (or similar governing body) shall determine that the preservation thereof is no longer desirable in the conduct of the business of such Person, and that the loss thereof is not disadvantageous in any material respect to such Person or to Lenders.
5.3. PAYMENT OF TAXES AND CLAIMS. Each Credit Party will, and will cause each of its Subsidiaries to, pay all Taxes imposed upon it or any of its properties or assets or in respect of any of its income, businesses or franchises before any penalty or fine accrues thereon, and all claims (including claims for labor, services, materials and supplies) for sums that have become due and payable and that by law have or may become a Lien upon any of its properties or assets, prior to the time when any penalty or fine shall be incurred with respect thereto; provided, no such Tax or claim need be paid if it is being contested in good faith by appropriate proceedings promptly instituted and diligently conducted, so long as (a) adequate reserve or other appropriate provision, as shall be required in conformity with GAAP shall have been made therefore, and (b) in the case of a Tax or claim which has or may become a Lien against any of the Collateral, such contest proceedings conclusively operate to stay the sale of any portion of the Collateral to satisfy such Tax or claim. No Credit Party will, nor will it permit any of its Subsidiaries to, file or consent to the filing of any consolidated income tax return with any Person (other than Holdings or any of its Subsidiaries).
5.4. MAINTENANCE OF PROPERTIES. Each Credit Party will, and will cause each of its Subsidiaries to, maintain or cause to be maintained in good repair, working order and condition, ordinary wear and tear excepted, all material properties used or useful in the business of Holdings and its Subsidiaries and from time to time will make or cause to be made all appropriate repairs, renewals and replacements thereof.
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5.5. INSURANCE. Holdings will maintain or cause to be maintained, with financially sound and reputable insurers, such public liability insurance, third party property damage insurance, business interruption insurance and casualty insurance with respect to liabilities, losses or damage in respect of the assets, properties and businesses of Holdings and its Subsidiaries as may customarily be carried or maintained under similar circumstances by Persons of established reputation engaged in similar businesses, in each case in such amounts (giving effect to self-insurance), with such deductibles, covering such risks and otherwise on such terms and conditions as shall be customary for such Persons. Without limiting the generality of the foregoing, Holdings will maintain or cause to be maintained (a) flood insurance with respect to each Flood Hazard Property that is located in a community that participates in the National Flood Insurance Program, in each case in compliance with any applicable regulations of the Board of Governors of the Federal Reserve System, and (b) replacement value casualty insurance on the Collateral under such policies of insurance, with such insurance companies, in such amounts, with such deductibles, and covering such risks as are at all times carried or maintained under similar circumstances by Persons of established reputation engaged in similar businesses. Each such policy of insurance shall (i) name Administrative Agent, on behalf of Lenders as an additional insured thereunder as its interests may appear and (ii) in the case of each casualty insurance policy, contain a loss payable clause or endorsement, satisfactory in form and substance to Administrative Agent, that names Administrative Agent, on behalf of Lenders as the loss payee thereunder and provides for at least thirty days' prior written notice to Administrative Agent of any modification or cancellation of such policy.
5.6. INSPECTIONS. Each Credit Party will, and will cause each of its Subsidiaries to, permit any authorized representatives designated by any Lender to visit and inspect any of the properties of any Credit Party and any of its respective Subsidiaries, to inspect, copy and take extracts from its and their financial and accounting records, and to discuss its and their affairs, finances and accounts with its and their officers and independent public accountants, all upon reasonable notice and at such reasonable times during normal business hours and as often as may reasonably be requested.
5.7. LENDERS MEETINGS. Holdings and Company will, upon the request of Administrative Agent or Requisite Lenders, participate in a meeting of Administrative Agent and Lenders once during each Fiscal Year to be held at Company's corporate offices (or at such other location as may be agreed to by Company and Administrative Agent) at such time as may be agreed to by Company and Administrative Agent.
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5.8. COMPLIANCE WITH LAWS. Each Credit Party will comply, and shall cause each of its Subsidiaries and all other Persons, if any, on or occupying any Facilities to comply, with the requirements of all applicable laws, rules, regulations and orders of any Governmental Authority (including all Environmental Laws), noncompliance with which could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.
5.9. ENVIRONMENTAL.
(a) Environmental Disclosure. Holdings will deliver to Administrative Agent and Lenders:
(i) as soon as practicable following receipt thereof, copies of all environmental audits, investigations, analyses and reports of any kind or character, whether prepared by personnel of Holdings or any of its Subsidiaries or by independent consultants, Governmental Authorities or any other Persons, with respect to environmental matters at any Facility which could reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect or with respect to any Environmental Claims which could reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect;
(ii) promptly upon the occurrence thereof, written notice describing in reasonable detail (1) any Release required to be reported to any federal, state or local governmental or regulatory agency under any applicable Environmental Laws, (2) any remedial action taken by Holdings or any other Person in response to (A) any Hazardous Materials Activities the existence of which has a reasonable possibility of resulting in one or more Environmental Claims having, individually or in the aggregate, a Material Adverse Effect, or (B) any Environmental Claims that, individually or in the aggregate, have a reasonable possibility of resulting in a Material Adverse Effect, and (3) Holdings or Company's discovery of any occurrence or condition on any real property adjoining or in the vicinity of any Facility that could cause such Facility or any part thereof to be subject to any material restrictions on the ownership, occupancy, transferability or use thereof under any Environmental Laws;
(iii) as soon as practicable following the sending or receipt thereof by Holdings or any of its Subsidiaries, a copy of any and all written communications with respect to (1) any Environmental Claims that, individually or in the aggregate, have a reasonable possibility of giving rise to a Material Adverse Effect, (2) any Release required to be reported to any federal, state or local governmental or regulatory agency, and (3) any request for information from any governmental agency that suggests such agency is investigating whether Holdings or any of its Subsidiaries may be potentially responsible for any material Hazardous Materials Activity;
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(iv) prompt written notice describing in reasonable detail (1) any proposed acquisition of stock, assets, or property by Holdings or any of its Subsidiaries that could reasonably be expected to (A) expose Holdings or any of its Subsidiaries to, or result in, Environmental Claims that could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect or (B) affect the ability of Holdings or any of its Subsidiaries to maintain in full force and effect all material Governmental Authorizations required under any Environmental Laws for their respective operations and (2) any proposed action to be taken by Holdings or any of its Subsidiaries to modify current operations in a manner that could reasonably be expected to subject Holdings or any of its Subsidiaries to any additional material obligations or requirements under any Environmental Laws; and
(v) with reasonable promptness, such other documents and information as from time to time may be reasonably requested by Administrative Agent in relation to any matters disclosed pursuant to this
Section 5.9(a).
(b) Hazardous Materials Activities, Etc. Each Credit Party shall promptly take, and shall cause each of its Subsidiaries promptly to take, any and all actions necessary to (i) cure any violation of applicable Environmental Laws by such Credit Party or its Subsidiaries that could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, and (ii) make an appropriate response to any Environmental Claim against such Credit Party or any of its Subsidiaries and discharge any obligations it may have to any Person thereunder where failure to do so could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.
5.10. SUBSIDIARIES. In the event that any Person becomes a Domestic Subsidiary of Company, Company shall (a) promptly cause such Domestic Subsidiary to become a Guarantor hereunder and a Grantor under the Pledge and Security Agreement by executing and delivering to Administrative Agent and Collateral Agent a Counterpart Agreement, and (b) take all such actions and execute and deliver, or cause to be executed and delivered, all such documents, instruments, agreements, and certificates as are similar to those described in Sections 3.1(b), 3.1(i) (with respect to a Material Real Estate Asset), 3.1(j), 3.1(k) and 3.1(n). In the event that any Person becomes a Foreign Subsidiary of Company, and the ownership interests of such Foreign Subsidiary are owned by Company or by any Domestic Subsidiary thereof, Company shall, or shall cause such Domestic Subsidiary to, deliver, all such documents, instruments, agreements, and certificates as are similar to those described in Sections 3.1(b), and Company shall take, or shall cause such Domestic Subsidiary to take, all of the actions referred to in Section 3.1(j)(i) necessary to grant and to perfect a First Priority Lien in favor of Collateral Agent, for the benefit of Secured Parties, under the Pledge and Security Agreement in 65% of such ownership interests. With respect to each such Subsidiary, Company shall promptly send to Administrative Agent written notice setting forth with respect to such Person (i) the date on which such Person became a Subsidiary of Company, and (ii) all of the data required to be set forth in Schedules 4.1 and 4.2 with respect to all Subsidiaries of Company; provided, such written notice shall be deemed to supplement Schedule 4.1 and 4.2 for all purposes hereof.
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5.11. ADDITIONAL MATERIAL REAL ESTATE ASSETS. In the event that any Credit Party acquires a Material Real Estate Asset or a Real Estate Asset owned or leased on the Closing Date becomes a Material Real Estate Asset and such interest has not otherwise been made subject to the Lien of the Collateral Documents in favor of Collateral Agent, for the benefit of Secured Parties, then such Credit Party, contemporaneously with acquiring such Material Real Estate Asset, shall take all such actions and execute and deliver, or cause to be executed and delivered, all such mortgages, documents, instruments, agreements, opinions and certificates similar to those described in Sections 3.1(i), 3.1(j) and 3.1(k) with respect to each such Material Real Estate Asset that Collateral Agent shall reasonably request to create in favor of Collateral Agent, for the benefit of Secured Parties, a valid and, subject to any filing and/or recording referred to herein, perfected First Priority security interest in such Material Real Estate Assets. In addition to the foregoing, Company shall, at the request of Requisite Lenders, deliver, from time to time, to Administrative Agent such appraisals as are required by law or regulation of Real Estate Assets with respect to which Collateral Agent has been granted a Lien.
5.12. INTEREST RATE PROTECTION. No later than ninety (90) days following the Closing Date, Company shall maintain, or caused to be maintained, in effect one or more Interest Rate Agreements for a term of not less than three years and otherwise in form and substance reasonably satisfactory to Administrative Agent and Syndication Agent, such that not less than an aggregate notional principal amount of 40% of the aggregate principal amount of the sum of (i) the Term Loans and (ii) any Indebtedness incurred under the Second Lien Credit Agreement, in each case outstanding from time to time (based on the assumption that such notional principal amount was a Eurodollar Rate Loan with an Interest Period of three months).
5.13. FURTHER ASSURANCES. At any time or from time to time upon the request of Administrative Agent, each Credit Party will, at its expense, promptly execute, acknowledge and deliver such further documents and do such other acts and things as Administrative Agent or Collateral Agent may reasonably request in order to effect fully the purposes of the Credit Documents, including providing Lenders with any information requested pursuant to Section 10.21. In furtherance and not in limitation of the foregoing, each Credit Party shall take such actions as Administrative Agent or Collateral Agent may reasonably request from time to time to ensure that the Obligations are guarantied by the Guarantors and are secured by substantially all of the assets of Holdings, and its Subsidiaries and all of the outstanding Capital Stock of Company and its Subsidiaries (subject to limitations contained in the Credit Documents with respect to Foreign Subsidiaries).
5.14. MISCELLANEOUS BUSINESS COVENANTS. Unless otherwise consented to by Agents or Requisite Lenders:
(a) Non-Consolidation. Holdings will and will cause each of its Subsidiaries to: (i) maintain entity records and books of account separate from those of any other entity which
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is an Affiliate of such entity; (ii) not commingle its funds or assets with those of any other entity which is an Affiliate of such entity; and (iii) provide that its board of directors or other analogous governing body will hold all appropriate meetings to authorize and approve such entity's actions, which meetings will be separate from those of other entities.
(b) Trade Accounts Payable. Each Credit Party will pay all trade accounts payable before the same become more than 90 days past due, except (a) trade accounts payable contested in good faith or (b) trade accounts payable in an aggregate amount not to exceed $100,000 at any time outstanding and with respect to which no proceeding to enforce collection has been commenced or, to the knowledge of such Credit Party, threatened.
(c) Cash Management Systems. Holdings and its subsidiaries shall establish and maintain cash management systems with a Lender reasonably acceptable to Agents.
(d) Filing of Agreement. No later than the earlier of the next filing of a quarterly report on Form 10Q or annual report on Form 10K, provided that Holdings or any of its Subsidiaries is otherwise required to file periodic reports with the Securities and Exchange Commission, Holdings or such Subsidiaries shall file a copy of this Agreement and the schedules hereto as a material contract with the Securities and Exchange Commission.
SECTION 6. NEGATIVE COVENANTS
Each Credit Party covenants and agrees that, so long as any Commitment is in effect and until payment in full of all Obligations and cancellation or expiration of all Letters of Credit, such Credit Party shall perform, and shall cause each of its Subsidiaries to perform, all covenants in this Section 6.
6.1. INDEBTEDNESS. No Credit Party shall, nor shall it permit any of its Subsidiaries to, directly or indirectly, create, incur, assume or guaranty, or otherwise become or remain directly or indirectly liable with respect to any Indebtedness, except:
(a) the Obligations;
(b) (x) Indebtedness of any Guarantor Subsidiary to Company or to any other Guarantor Subsidiary, or of Company to any Guarantor Subsidiary; provided, (i) all such Indebtedness shall be evidenced by promissory notes and all such notes shall be subject to a First Priority Lien pursuant to the Pledge and Security Agreement, (ii) all such Indebtedness shall be unsecured and subordinated in right of payment to the payment in full of the Obligations pursuant to the terms of the applicable promissory notes or an intercompany subordination agreement that in any such case, is reasonably satisfactory to Administrative Agent, and (iii) any payment by any such Guarantor Subsidiary under any guaranty of the Obligations shall result in a pro tanto reduction of the amount of any Indebtedness owed by such Subsidiary to Company or to any of its Subsidiaries for whose benefit such payment is made; and (y) Indebtedness of any
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Subsidiary of Company which is not a Guarantor Subsidiary to any other Subsidiary of Company that is not a Guarantor Subsidiary;
(c) (i) Indebtedness of Company or any of its Subsidiaries under any Seller Subordinated Notes and under any Earn-Out Obligations and (ii) Indebtedness of Holdings under any Investor Notes;
(d) Indebtedness incurred by Holdings or any of its Subsidiaries arising from agreements providing for indemnification, adjustment of purchase price or similar obligations, or from guaranties or letters of credit, surety bonds or performance bonds securing the performance of Company or any such Subsidiary pursuant to such agreements, in connection with Permitted Acquisitions or permitted dispositions of any business, assets or Subsidiary of Holdings or any of its Subsidiaries;
(e) Indebtedness which may be deemed to exist pursuant to any guaranties, performance, surety, statutory, appeal or similar obligations incurred in the ordinary course of business;
(f) Indebtedness in respect of netting services, overdraft protections and otherwise in connection with deposit accounts;
(g) guaranties in the ordinary course of business of the obligations of suppliers, customers, franchisees and licensees of Holdings and its Subsidiaries;
(h) guaranties by Company of Indebtedness of a Guarantor Subsidiary or guaranties by a Subsidiary of Company of Indebtedness of Company or a Guarantor Subsidiary with respect, in each case, to Indebtedness otherwise permitted to be incurred pursuant to this Section 6.1;
(i) Indebtedness described in Schedule 6.1, but not any extensions, renewals or replacements of such Indebtedness;
(j) Indebtedness with respect to Capital Leases in an aggregate amount not to exceed at any time $25,000,000;
(k) purchase money Indebtedness in an aggregate amount not to exceed at any time $3,000,000 (including any Indebtedness acquired in connection with a Permitted Acquisition); provided, any such Indebtedness (i) shall be secured only to the asset acquired in connection with the incurrence of such Indebtedness, and (ii) shall constitute not less than 100% of the aggregate consideration paid with respect to such asset;
(l) (i) Indebtedness of Company with respect to Additional Seller Subordinated Notes in an aggregate amount not to exceed at any time (x) for so long as the Leverage Ratio is greater than or equal to 3.0:1.0, $14,000,000 and
(y) at any time after the Leverage Ratio (calculated on a pro forma basis giving effect to such Additional Seller Subordinated Notes) has fallen below 3.0:1.0, $20,000,000 and (ii) Indebtedness of Company and ARC Acquisition Corporation with respect to the Existing Seller Subordinated Notes;
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(m) (i) Indebtedness of Company with respect to Additional Earn-Out Obligations; provided that such Additional Earn-Out Obligations also conform to the requirements of clause (iv) of the definition of Permitted Acquisition and
(ii) Indebtedness of Company and ARC Acquisition Corporation with respect to Existing Earn-Out Obligations;
(n) Indebtedness owed under the Second Lien Credit Agreement in an aggregate principal amount not to exceed $225,000,000, and Indebtedness incurred to refinance such Indebtedness; provided that, the terms and conditions of such Indebtedness are no less favorable to the obligors thereon or to the Lenders than the Second Lien Credit Facility, the average life to maturity thereof is greater than or equal to that of the Second Lien Credit Facility and all other terms and provisions of such Indebtedness are reasonably acceptable to the Agents;
(o) Indebtedness of Holdings with respect to any Investor Notes; and
(p) other unsecured Indebtedness of Holdings and its Subsidiaries in an aggregate amount not to exceed at any time $2,000,000.
6.2. LIENS. No Credit Party shall, nor shall it permit any of its Subsidiaries to, directly or indirectly, create, incur, assume or permit to exist any Lien on or with respect to any property or asset of any kind (including any document or instrument in respect of goods or accounts receivable) of Holdings or any of its Subsidiaries, whether now owned or hereafter acquired, or any income or profits therefrom, or file or permit the filing of, or permit to remain in effect, any financing statement or other similar notice of any Lien with respect to any such property, asset, income or profits under the UCC of any State or under any similar recording or notice statute, except:
(a) Liens in favor of Collateral Agent for the benefit of Secured Parties granted pursuant to any Credit Document;
(b) Liens for Taxes if obligations with respect to such Taxes are being contested in good faith by appropriate proceedings promptly instituted and diligently conducted, so long as such reserves or other appropriate provisions, if any, as shall be required by GAAP shall have been made for any such contested amounts;
(c) statutory Liens of landlords, banks (and rights of set-off), of carriers, warehousemen, mechanics, repairmen, workmen and materialmen, and other Liens imposed by law (other than any such Lien imposed pursuant to Section 401
(a)(29) or 412(n) of the Internal Revenue Code or by ERISA), in each case incurred in the ordinary course of business (i) for amounts not yet overdue or
(ii) for amounts that are overdue and that (in the case of any such amounts overdue for a period in excess of five days) are being contested in good faith by appropriate proceedings, so long as such reserves or other appropriate provisions, if any, as shall be required by GAAP shall have been made for any such contested amounts;
(d) Liens incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security, or to secure the performance of tenders, statutory obligations, surety and appeal bonds,
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bids, leases, government contracts, trade contracts, performance and return-of-money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money or other Indebtedness), so long as no foreclosure, sale or similar proceedings have been commenced with respect to any portion of the Collateral on account thereof;
(e) easements, rights-of-way, restrictions, encroachments, and other minor defects or irregularities in title, in each case which do not and will not interfere in any material respect with the ordinary conduct of the business of Holdings or any of its Subsidiaries;
(f) any interest or title of a lessor or sublessor under any lease of real estate permitted hereunder;
(g) Liens solely on any cash earnest money deposits made by Holdings or any of its Subsidiaries in connection with any letter of intent or purchase agreement permitted hereunder;
(h) purported Liens evidenced by the filing of precautionary UCC financing statements relating solely to operating and capital leases of personal property entered into in the ordinary course of business;
(i) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods;
(j) any zoning or similar law or right reserved to or vested in any governmental office or agency to control or regulate the use of any real property;
(k) licenses of patents, trademarks and other intellectual property rights granted by Holdings or any of its Subsidiaries in the ordinary course of business and not interfering in any respect with the ordinary conduct of the business of Company or such Subsidiary;
(l) Liens incurred in connection with the purchase or shipping of goods or assets on the related assets and proceeds thereof in favor of the seller or shipper of such goods or assets;
(m) Liens described in Schedule 6.2 or on a title report delivered pursuant to Section 3.1(i)(iv);
(n) Liens securing Indebtedness permitted pursuant to 6.1(i) and in existence as of the Closing Date;
(o) Liens securing Indebtedness permitted pursuant to 6.1(k); provided, any such Lien shall encumber only the asset acquired with the proceeds of such Indebtedness;
(p) Liens on the collateral securing obligations under the Second Lien Credit Agreement; provided that such Liens are subordinated to the Liens securing the Obligations in accordance with the terms of the Intercreditor Agreement; and
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(q) other Liens on assets other than the Collateral securing Indebtedness in an aggregate amount not to exceed $500,000 at any time outstanding.
6.3. EQUITABLE LIEN. If any Credit Party or any of its Subsidiaries shall create or assume any Lien upon any of its properties or assets, whether now owned or hereafter acquired, other than Permitted Liens, it shall make or cause to be made effective provisions whereby the Obligations will be secured by such Lien equally and ratably with any and all other Indebtedness secured thereby as long as any such Indebtedness shall be so secured; provided, notwithstanding the foregoing, this covenant shall not be construed as a consent by Requisite Lenders to the creation or assumption of any such Lien not otherwise permitted hereby.
6.4. NO FURTHER NEGATIVE PLEDGES. Except (a) with respect to specific property encumbered to secure payment of particular Indebtedness or to be sold pursuant to an executed agreement with respect to a permitted Asset Sale, (b) with respect to restrictions by reason of customary provisions restricting assignments, subletting or other transfers contained in leases, licenses and similar agreements entered into in the ordinary course of business (provided that such restrictions are limited to the property or assets secured by such Liens or the property or assets subject to such leases, licenses or similar agreements, as the case may be) and (c) as otherwise provided herein or in the Second Lien Credit Agreement, no Credit Party nor any of its Subsidiaries shall enter into any agreement prohibiting the creation or assumption of any Lien upon any of its properties or assets, whether now owned or hereafter acquired.
6.5. RESTRICTED JUNIOR PAYMENTS. No Credit Party shall, nor shall it permit any of its Subsidiaries or Affiliates through any manner or means or through any other Person to, directly or indirectly, declare, order, pay, make or set apart, or agree to declare, order, pay, make or set apart, any sum for any Restricted Junior Payment except the following shall be permitted:
(a) Company may make regularly scheduled payments in respect of any Subordinated Indebtedness of Company and its Subsidiaries in accordance with the terms of, and only to the extent required by, and subject to the subordination provisions contained in, the indenture or other agreement pursuant to which such Subordinated Indebtedness was issued or is otherwise subject;
(b) the Company may make required payments of principal and interest in respect of the Indebtedness incurred under the Second Lien Credit Agreement and any refinancing thereof permitted thereunder and hereunder;
(c) Company may make Restricted Junior Payments to Holdings to permit the payment of Management Fees so long as Holdings applies the amount of any such Restricted Junior Payment for such purpose; provided, that at the time of such Restricted Junior Payment and immediately after giving effect thereto, no Event of Default shall have occurred and be
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continuing under Section 8.1(a) or as a result of the failure of any Credit Party to perform or comply with any term or condition contained in Section 6.5; provided, further, that any payments of Management Fees which were not permitted to be made as a result of the application of the immediately preceding proviso or this proviso shall accrue and may be paid upon the waiver or cure of the applicable Events of Default related thereto provided that at the time of such Restricted Junior Payment and immediately after giving effect thereto, no Event of Default shall have occurred and be continuing under Section 8.1(a) or as a result of the failure of any Credit Party to perform or comply with any term or condition contained in Section 6.5;
(d) with respect to periods during which (i) both Company and Holdings are treated as partnerships within the meaning of the Internal Revenue Code, (not including publicly traded partnerships taxable as corporations) or
(ii) Company is disregarded as an entity separate from Holdings for federal income tax purposes pursuant to Treas. Reg. Section 301.7701-3 (or any successor provision) (x) Company may make Restricted Junior Payments to Holdings to the extent required to permit Holdings to, and Holdings may, make the Permitted Tax Distributions to Holdings' members so long as Holdings applies the amount of any such Restricted Junior Payment for such purpose; and (y) on each date on which a Permitted Tax Distribution to Holdings' members is made, Company may make Restricted Junior Payments to Holdings to the extent required to permit the payment by Holdings of cash in respect of interest on the Investor Notes in accordance with the terms of the Investor Notes so long as Holdings applies the amount of any such Restricted Junior Payment for such purpose and Holdings may make such payments; provided that the amount of any Restricted Junior Payment made pursuant to this clause (y) shall not exceed the Investor Note Tax Benefit Amount (the amount of any Restricted Junior Payment made under this clause (y), the "PERMITTED INVESTOR NOTE TAX DISTRIBUTION AMOUNT");
(e) so long as no Default or Event of Default shall have occurred and be continuing or shall be caused thereby, Company may make Restricted Junior Payments to Holdings (i) in an aggregate amount not to exceed $100,000 in any Fiscal Year, to the extent necessary to permit Holdings to pay general administrative costs and expenses;
(f) Company may make Restricted Junior Payments to Holdings to the extent required to permit Holdings to repurchase its Capital Stock, in each case from deceased, disabled, terminated or retired officers, directors, consultants or employees of Holdings and its Subsidiaries, so long as Holdings applies the amount of such Restricted Junior Payment for such purpose; provided, that (x) at the time of each such Restricted Junior Payment and immediately after giving effect thereto, no Default or Event of Default shall have occurred and be continuing and (y) the aggregate amount of Restricted Junior Payments made pursuant to this clause (f) shall not exceed $750,000 in any Fiscal Year; and
(g) Company may make Restricted Junior Payments with respect to cash payments in respect of Additional Earn-Out Obligations in an aggregate amount not to exceed in any Fiscal Year the aggregate amount corresponding to such Fiscal Year set forth on Schedule 6.5(g).
6.6. RESTRICTIONS ON SUBSIDIARY DISTRIBUTIONS. Except as provided herein, no Credit Party shall, nor shall it permit any of its Subsidiaries to, create or otherwise cause or suffer to exist or become effective any consensual encumbrance or restriction of any kind on the ability of any Subsidiary of Company to (a) pay dividends or make any other distributions on any of such Subsidiary's Capital Stock owned by Company or any other Subsidiary of Company,
(b) repay or prepay any Indebtedness owed by such Subsidiary to Company or any other Subsidiary of Company, (c) make loans or advances to Company or any other Subsidiary of Company, or (d) transfer any of its property or assets to Company or any other Subsidiary of Company other than restrictions (i) in agreements evidencing Indebtedness permitted by Section 6.1(k) that impose restrictions on the property so acquired and (ii) by reason of customary provisions restricting assignments, subletting or other transfers contained in leases, licenses, joint venture agreements and similar agreements entered into in the ordinary course of business, and (iii) that are or were created by virtue of any transfer of, agreement to transfer or option or right with respect to any property, assets or Capital Stock not otherwise prohibited under this Agreement.
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6.7. INVESTMENTS. No Credit Party shall, nor shall it permit any of its Subsidiaries to, directly or indirectly, make or own any Investment in any Person, including without limitation any Joint Venture, except:
(a) Investments in Cash and Cash Equivalents;
(b) equity Investments owned as of the Closing Date in any Subsidiary and Investments made after the Closing Date in wholly-owned Subsidiaries of Company;
(c) Investments (i) in accounts receivable arising and trade credit granted, in each case, in the ordinary course of business and in any Securities received in satisfaction or partial satisfaction thereof from financially troubled account debtors and (ii) deposits, prepayments and other credits to suppliers made in the ordinary course of business consistent with the past practices of Holdings and its Subsidiaries;
(d) intercompany loans to the extent permitted under Section 6.1(b);
(e) Consolidated Capital Expenditures permitted by Section 6.8(e);
(f) loans and advances to employees of Holdings and its Subsidiaries made in the ordinary course of business in an aggregate principal amount not to exceed at any time $1,000,000 outstanding in the aggregate;
(g) Investments made in connection with Permitted Acquisitions permitted pursuant to Section 6.9;
(h) Investments described in Schedule 6.7; and
(i) other Investments in an aggregate amount not to exceed at any time $1,000,000.
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Notwithstanding the foregoing, in no event shall any Credit Party make any Investment which results in or facilitates in any manner any Restricted Junior payment not otherwise permitted under the terms of Section 6.5.
6.8. FINANCIAL COVENANTS.
(a) Interest Coverage Ratio. Holdings shall not permit the Interest Coverage Ratio as of the last day of any Fiscal Quarter (which last day occurs in any period set forth below), beginning with the Fiscal Quarter ending December 31, 2003, to be less than the correlative ratio indicated:

            PERIOD                        INTEREST COVERAGE RATIO
            ------                        -----------------------
Closing Date - December 31, 2005                  1.70:1.00
January 1, 2006 - December 31, 2006               1.75:1.00
January 1, 2007 - June 30, 2007                   1.80:1.00
July 1, 2007 - December 31, 2007                  1.90:1.00
January 1, 2008 - March 31, 2008                  2.00:1.00
April 1, 2008 - June 30, 2008                     2.10:1.00
July 1, 2008 - September 30, 2008                 2.20:1.00
October 1, 2008 - December 31, 2008               2.30:1.00
January 1, 2009 - March 31, 2009                  2.40:1.00
Thereafter                                        2.50:1.00	

(b) Fixed Charge Coverage Ratio. Holdings shall not permit the Fixed Charge Coverage Ratio as of the last day of any Fiscal Quarter (which last day occurs in any period set forth below), beginning with the Fiscal Quarter ending December 31, 2003, to be less than the correlative ratio indicated:
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                                               FIXED CHARGE
            PERIOD                            COVERAGE RATIO
            ------                            --------------
Closing Date - December 31, 2005                 1.25:1.00
January 1, 2006 - June 30, 2006                  1.30:1.00
July 1, 2006 - December 31, 2006                 1.35:1.00
January 1, 2007 - June 30, 2007                  1.40:1.00
Thereafter                                       1.50:1.00	

(c) Leverage Ratio. Holdings shall not permit the Leverage Ratio as of the last day of any Fiscal Quarter (which last day occurs in any period set forth below), beginning with the Fiscal Quarter ending December 31, 2003, to exceed the correlative ratio indicated:

              PERIOD                           LEVERAGE RATIO
              ------                           --------------
Closing Date - December 31, 2004                  5.10:1.00
January 1, 2005 - March 31, 2005                  5.00:1.00
April 1, 2005 - June 30, 2005                     4.90:1.00
July 1, 2005 - September 30, 2005                 4.70:1.00
October 1, 2005 - December 31, 2005               4.60:1.00
January 1, 2006 - March 31, 2006                  4.50:1.00
April 1, 2006 - June 30, 2006                     4.30:1.00
July 1, 2006 - September 30, 2006                 4.15:1.00
October 1, 2006 - December 31, 2006               4.00:1.00
January 1, 2007 - March 31, 2007                  3.90:1.00
April 1, 2007 - June 30, 2007                     3.70:1.00
July 1, 2007 - September 30, 2007                 3.60:1.00
October 1, 2007 - December 31, 2007               3.50:1.00
January 1, 2008 - March 31, 2008                  3.40:1.00
April 1, 2008 - June 30, 2008                     3.20:1.00
July 1, 2008 - September 30, 2008                 3.00:1.00
October 1, 2008 - December 31, 2008               2.80:1.00
January 1, 2009 - March 31, 2009                  2.60:1.00
Thereafter                                        2.40:1.00	

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(d) First Priority Senior Debt Leverage Ratio. Holdings shall not permit the First Priority Senior Debt Leverage Ratio as of the last day of any Fiscal Quarter (which last day occurs in any period set forth below), beginning with the Fiscal Quarter ending December 31, 2003, to exceed the correlative ratio indicated:

            FISCAL                              SENIOR DEBT
            QUARTER                            LEVERAGE RATIO
            -------                            --------------
Closing Date - December 31, 2004                  1.75:1.00
January 1, 2005 - June 30, 2005                   1.70:1.00
July 1, 2005 - December 31, 2005                  1.65:1.00
January 1, 2006 - March 31, 2006                  1.60:1.00
April 1, 2006 - December 31, 2006                 1.50:1.00
January 1, 2007 - March 31, 2008                  1.25:1.00
April 1, 2008 - September 30, 2008                1.10:1.00
Thereafter                                        1.00:1.00	

(e) Maximum Consolidated Capital Expenditures. Holdings shall not, and shall not permit its Subsidiaries to, make or incur Consolidated Capital Expenditures, in any Fiscal Year indicated below, in an aggregate amount for Holdings and its Subsidiaries in excess of the corresponding amount set forth below opposite such Fiscal Year; provided, such amount for any Fiscal Year shall be increased by an amount equal to the excess, if any, (but in no event more than $1,000,000) of such amount for the previous Fiscal Year (as adjusted in accordance with this proviso) over the actual amount of Consolidated Capital Expenditures for such previous Fiscal Year:

FISCAL               CONSOLIDATED
 YEAR            CAPITAL EXPENDITURES
 ----            --------------------
2003                  $11,000,000
2004                  $12,000,000
2005                  $12,000,000
2006                  $14,000,000
2007                  $14,000,000
2008                  $14,000,000
2009                  $ 8,000,000	

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(f) Certain Calculations. With respect to any period during which a Permitted Acquisition or an Asset Sale has occurred (each, a "SUBJECT TRANSACTION"), for purposes of determining compliance with (i) the financial covenants set forth in this Section 6.8 (but not for purposes of determining the Applicable Margin) and (ii) clause "vii" of the definition of Permitted Acquisition, Consolidated Adjusted EBITDA and the components of Consolidated Fixed Charges shall be calculated with respect to such period on a pro forma basis (including pro forma adjustments arising out of events which are directly attributable to a specific transaction, are factually supportable and are expected to have a continuing impact, in each case determined on a basis consistent with Article 11 of Regulation S-X promulgated under the Securities Act and as interpreted by the staff of the Securities and Exchange Commission, which would include cost savings resulting from head count reduction, closure of facilities and similar restructuring charges, which pro forma adjustments shall be certified by the chief financial officer of Holdings) using the historical audited financial statements of any business so acquired or to be acquired or sold or to be sold and the consolidated financial statements of Holdings and its Subsidiaries which shall be reformulated as if such Subject Transaction, and any Indebtedness incurred or repaid in connection therewith, had been consummated or incurred or repaid at the beginning of such period (and assuming that such Indebtedness bears interest during any portion of the applicable measurement period prior to the relevant acquisition at the weighted average of the interest rates applicable to outstanding Loans incurred during such period).
6.9. FUNDAMENTAL CHANGES; DISPOSITION OF ASSETS; ACQUISITIONS. No Credit Party shall, nor shall it permit any of its Subsidiaries to, enter into any transaction of merger or consolidation, or liquidate, wind-up or dissolve itself (or suffer any liquidation or dissolution), or convey, sell, lease or sub-lease (as lessor or sublessor), exchange, transfer or otherwise dispose of, in one transaction or a series of transactions, all or any part of its business, assets or property of any kind whatsoever, whether real, personal or mixed and whether tangible or intangible, whether now owned or hereafter acquired, or acquire by purchase or otherwise (other than purchases or other acquisitions of inventory, materials and equipment and capital expenditures in the ordinary course of business) the business, property or fixed assets of, or stock or other evidence of beneficial ownership of, any Person or any division or line of business or other business unit of any Person, except:
(a) any Subsidiary of Holdings may be merged with or into Company or any Guarantor Subsidiary, or be liquidated, wound up or dissolved, or all or any part of its business, property or assets may be conveyed, sold, leased, transferred or otherwise disposed of, in one transaction or a series of transactions, to Company or any Guarantor Subsidiary; provided, in the case of such a merger, Company or such Guarantor Subsidiary, as applicable shall be the continuing or surviving Person;
(b) sales or other dispositions of assets that do not constitute Asset Sales;
(c) Asset Sales (excluding Asset Sales under Section 6.9(g)), the proceeds of which (valued at the principal amount thereof in the case of non-Cash proceeds consisting of notes or other debt Securities and valued at fair market value in the case of other non-Cash proceeds) (i) are less than $200,000 with respect to any single Asset Sale or series of related
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Asset Sales and (ii) when aggregated with the proceeds of all other Asset Sales made within the same Fiscal Year, are less than $1,000,000; provided (1) the consideration received for such assets shall be in an amount at least equal to the fair market value thereof (determined in good faith by the board of directors of Company (or similar governing body)), (2) no less than 80% thereof shall be paid in Cash, and (3) the Net Asset Sale Proceeds thereof shall be applied as required by Section 2.14(a);
(d) disposals of obsolete, worn out or surplus property;
(e) Permitted Acquisitions, the cash consideration for which constitutes (i) for so long as the Leverage Ratio is greater than or equal to 3.0:1.0, less than $5,000,000 in the aggregate in any Fiscal Year and (ii) at any time after the Leverage Ratio has fallen below 3.0:1.0, less than $10,000,000 in the aggregate in any Fiscal Year; provided that, such amounts with respect to Fiscal Year 2004 only shall be increased by any unused capacity of Permitted Acquisitions from Fiscal Year 2003 up to an additional $3,000,000 in the aggregate;
(f) Investments made in accordance with Section 6.7; and
(g) Asset Sales of equipment in connection with Permitted Sale-Leasebacks, provided that the proceeds of any such Permitted Sale-Leaseback shall be entirely in cash and shall not be less than 100% of the fair market value of the equipment being sold (determined in good faith by the board of advisors of Company (or similar governing body)).
6.10. DISPOSAL OF SUBSIDIARY INTERESTS. Except for any sale of all of its interests in the Capital Stock of any of its Subsidiaries in compliance with the provisions of Section 6.9 and except with respect to Liens securing the Obligations hereunder or "Obligations" under and as defined in the Second Lien Credit Agreement, no Credit Party shall, nor shall it permit any of its Subsidiaries to, (a) directly or indirectly sell, assign, pledge or otherwise encumber or dispose of any Capital Stock of any of its Subsidiaries, except to qualify directors if required by applicable law; or (b) permit any of its Subsidiaries directly or indirectly to sell, assign, pledge or otherwise encumber or dispose of any Capital Stock of any of its Subsidiaries, except to another Credit Party (subject to the restrictions on such disposition otherwise imposed hereunder), or to qualify directors if required by applicable law.
6.11. SALES AND LEASE-BACKS. No Credit Party shall, nor shall it permit any of its Subsidiaries to, directly or indirectly, become or remain liable as lessee or as a guarantor or other surety with respect to any lease (a "SALE-LEASEBACK") of any property (whether real, personal or mixed), whether now owned or hereafter acquired, which such Credit Party (a) has sold or transferred or is to sell or to transfer to any other Person (other than Holdings or any of its Subsidiaries), or (b) intends to use for substantially the same purpose as any other property which has been or is to be sold or transferred by such Credit Party to any Person (other than Holdings or any of its Subsidiaries) in connection with such lease; provided, however, that Company and its Subsidiaries may enter into Sale-Leasebacks which are in the ordinary course of Company's or such Subsidiary's business,
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consistent with past practice and at market rates and subject to compliance with
Section 6.9(g), with respect to equipment acquired by Company and its Subsidiaries after the Closing Date ("PERMITTED SALE-LEASEBACKS"). For avoidance of doubt, Sale-Leasebacks that result in Capital Leases shall be treated as Indebtedness for all purposes of this Agreement.
6.12. TRANSACTIONS WITH SHAREHOLDERS AND AFFILIATES. No Credit Party shall, nor shall it permit any of its Subsidiaries to, directly or indirectly, enter into or permit to exist any transaction (including the purchase, sale, lease or exchange of any property or the rendering of any service) with any holder of 5% or more of any class of Capital Stock of Holdings or any of its Subsidiaries or with any Affiliate of Holdings or of any such holder, on terms that are less favorable to Holdings or that Subsidiary, as the case may be, than those that might be obtained at the time from a Person who is not such a holder or Affiliate; provided, the foregoing restriction shall not apply to (a) any transaction between Company and any Guarantor Subsidiary; (b) reasonable and customary fees paid to members of the board of directors (or similar governing body) of Holdings and its Subsidiaries; (c) compensation arrangements for officers and other employees of Holdings and its Subsidiaries entered into in the ordinary course of business; and (d) transactions described in Schedule 6.12.
6.13. CONDUCT OF BUSINESS. From and after the Closing Date, no Credit Party shall, nor shall it permit any of its Subsidiaries to, engage in any business other than (i) the businesses engaged in by such Credit Party on the Closing Date and similar or related businesses and (ii) such other lines of business as may be consented to by Requisite Lenders.
6.14. PERMITTED ACTIVITIES OF HOLDINGS. Holdings shall not (a) incur, directly or indirectly, any Indebtedness or any other obligation or liability whatsoever other than the Indebtedness and obligations under the Related Agreements; (b) create or suffer to exist any Lien upon any property or assets now owned or hereafter acquired by it other than the Liens created under the Collateral Documents to which it is a party or permitted pursuant to Section 6.2; (c) engage in any business or activity or own any assets other than (i) holding 100% of the Capital Stock of Company, (ii) performing its obligations and activities incidental thereto under the Credit Documents, and to the extent not inconsistent therewith, the Related Agreements; (iii) paying general administrative costs and expenses in the ordinary course of business; (iv) making Restricted Junior Payments and Investments to the extent permitted by this Agreement; and (v) holding the Capital Stock of American Reprographics Midco, LLC ("MIDCO") provided that Midco shall not own any assets and thereafter shall not engage in any business or other activity; (d) consolidate with or merge with or into, or convey, transfer or lease all or substantially all its assets to, any Person; (e) sell or otherwise dispose of any Capital Stock of any of its Subsidiaries; (f) create or acquire any Subsidiary or make or own any Investment in any Person other than Company; or (g) fail to hold itself out to the public as a legal entity separate and distinct from all other Persons.
6.15. AMENDMENTS OR WAIVERS OF CERTAIN RELATED AGREEMENTS. Except as set forth in Section 6.16, no Credit Party shall nor shall it permit any of its Subsidiaries to, agree to any material amendment, restatement, supplement or other modification to, or waiver of, any of its material rights under any Related Agreement after the Closing Date which may adversely affect the interests of any of the Agents or the Lenders without in each case obtaining the prior written consent of Requisite Lenders to such amendment, restatement, supplement or other modification or waiver.
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6.16. AMENDMENTS OR WAIVERS WITH RESPECT TO SUBORDINATED INDEBTEDNESS AND SECOND LIEN CREDIT AGREEMENT. (a) No Credit Party shall, nor shall it permit any of its Subsidiaries to, amend or otherwise change the terms of any Subordinated Indebtedness or make any payment consistent with an amendment thereof or change thereto, if the effect of such amendment or change is to increase the interest rate applicable to such Subordinated Indebtedness, change (to earlier dates) any dates upon which payments of principal or interest are due thereon, change any event of default or condition to an event of default with respect thereto (other than to eliminate any such event of default or increase any grace period related thereto), change the redemption, prepayment or defeasance provisions thereof, change the subordination provisions of such Subordinated Indebtedness (or of any guaranty thereof), or if the effect of such amendment or change, together with all other amendments or changes made, is to increase materially the obligations of the obligor thereunder or to confer any additional rights on the holders of such Subordinated Indebtedness (or a trustee or other representative on their behalf) which would be adverse to any Credit Party or Lenders.
(b) No Credit Party shall, nor shall it permit any of its Subsidiaries to, amend or otherwise change the terms of the Second Lien Credit Agreement or make any payment consistent with an amendment thereof or change thereto, if the effect of such amendment or change is to increase the interest rate applicable thereto, change (to earlier dates) any dates upon which payments of principal or interest are due thereon, change any event of default or condition to an event of default with respect thereto (other than to eliminate any such event of default or increase any grace period related thereto), change the prepayment provisions thereof, change the subordination provisions thereof (or of any guaranty thereof), or change any collateral therefore (other than to release such collateral), or if the effect of such amendment or change, together with all other amendments or changes made, is to increase materially the obligations of the obligor thereunder or to confer any additional rights on the lenders under the Second Lien Credit Agreement (or a representative on their behalf) which would be adverse to any Credit Party or Lenders.
6.17. FISCAL YEAR. No Credit Party shall, nor shall it permit any of its Subsidiaries to change its Fiscal Year-end from December 31.
SECTION 7. GUARANTY
7.1. GUARANTY OF THE OBLIGATIONS. Subject to the provisions of Section 7.2, Guarantors jointly and severally hereby irrevocably and unconditionally guaranty to Administrative Agent for the ratable benefit of the Beneficiaries the due and punctual payment in full of all Obligations when the same shall become due, whether at stated maturity, by required prepayment, declaration, acceleration, demand or otherwise (including amounts that would become due but for the operation of the automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C. Section 362(a)) (collectively, the "GUARANTEED OBLIGATIONS").
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7.2. CONTRIBUTION BY GUARANTORS. All Guarantors desire to allocate among themselves (collectively, the "CONTRIBUTING GUARANTORS"), in a fair and equitable manner, their obligations arising under this Guaranty. Accordingly, in the event any payment or distribution is made on any date by a Guarantor (a "FUNDING GUARANTOR") under this Guaranty such that its Aggregate Payments exceeds its Fair Share as of such date, such Funding Guarantor shall be entitled to a contribution from each of the other Contributing Guarantors in an amount sufficient to cause each Contributing Guarantor's Aggregate Payments to equal its Fair Share as of such date. "FAIR SHARE" means, with respect to a Contributing Guarantor as of any date of determination, an amount equal to (a) the ratio of (i) the Fair Share Contribution Amount with respect to such Contributing Guarantor to (ii) the aggregate of the Fair Share Contribution Amounts with respect to all Contributing Guarantors multiplied by (b) the aggregate amount paid or distributed on or before such date by all Funding Guarantors under this Guaranty in respect of the obligations Guaranteed. "FAIR SHARE CONTRIBUTION AMOUNT" means, with respect to a Contributing Guarantor as of any date of determination, the maximum aggregate amount of the obligations of such Contributing Guarantor under this Guaranty that would not render its obligations hereunder or thereunder subject to avoidance as a fraudulent transfer or conveyance under Section 548 of Title 11 of the United States Code or any comparable applicable provisions of state law; provided, solely for purposes of calculating the "FAIR SHARE CONTRIBUTION AMOUNT" with respect to any Contributing Guarantor for purposes of this Section 7.2, any assets or liabilities of such Contributing Guarantor arising by virtue of any rights to subrogation, reimbursement or indemnification or any rights to or obligations of contribution hereunder shall not be considered as assets or liabilities of such Contributing Guarantor. "AGGREGATE PAYMENTS" means, with respect to a Contributing Guarantor as of any date of determination, an amount equal to (1) the aggregate amount of all payments and distributions made on or before such date by such Contributing Guarantor in respect of this Guaranty (including, without limitation, in respect of this Section 7.2), minus (2) the aggregate amount of all payments received on or before such date by such Contributing Guarantor from the other Contributing Guarantors as contributions under this
Section 7.2. The amounts payable as contributions hereunder shall be determined as of the date on which the related payment or distribution is made by the applicable Funding Guarantor. Notwithstanding anything herein to the contrary, the allocation among Contributing Guarantors of their obligations as set forth in this Section 7.2 shall not be construed in any way to limit the liability of any Contributing Guarantor hereunder. Each Guarantor is a third party beneficiary to the contribution agreement set forth in this Section 7.2.
7.3. PAYMENT BY GUARANTORS. Subject to Section 7.2, Guarantors hereby jointly and severally agree, in furtherance of the foregoing and not in limitation of any other right which any Beneficiary may have at law or in equity against any Guarantor by virtue hereof, that upon the failure of Company to pay any of the Guaranteed Obligations when and as the same shall become due, whether at stated maturity, by required prepayment, declaration, acceleration, demand or otherwise (including amounts that would become due but for the operation of the automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C. Section
362(a)), Guarantors will upon demand pay, or cause to be paid, in Cash, to Administrative Agent for the ratable benefit of Beneficiaries, an amount equal to the sum of the unpaid principal amount of all Guaranteed Obligations then due as aforesaid, accrued and unpaid interest on such Guaranteed Obligations (including interest which, but for Company's becoming the subject of a case under the Bankruptcy Code, would have accrued on such Guaranteed Obligations, whether or not a claim is allowed against Company for such interest in the related bankruptcy case) and all other Guaranteed Obligations then owed to Beneficiaries as aforesaid.
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7.4. LIABILITY OF GUARANTORS ABSOLUTE. Each Guarantor agrees that its obligations hereunder are irrevocable, absolute, independent and unconditional and shall not be affected by any circumstance which constitutes a legal or equitable discharge of a guarantor or surety other than payment in full of the Guaranteed Obligations. In furtherance of the foregoing and without limiting the generality thereof, each Guarantor agrees as follows:
(a) this Guaranty is a guaranty of payment when due and not of collectability. This Guaranty is a primary obligation of each Guarantor and not merely a contract of surety;
(b) Administrative Agent may enforce this Guaranty upon the occurrence of an Event of Default notwithstanding the existence of any dispute between Company and any Beneficiary with respect to the existence of such Event of Default;
(c) the obligations of each Guarantor hereunder are independent of the obligations of Company and the obligations of any other guarantor (including any other Guarantor) of the obligations of Company, and a separate action or actions may be brought and prosecuted against such Guarantor whether or not any action is brought against Company or any of such other guarantors and whether or not Company is joined in any such action or actions;
(d) payment by any Guarantor of a portion, but not all, of the Guaranteed Obligations shall in no way limit, affect, modify or abridge any Guarantor's liability for any portion of the Guaranteed Obligations which has not been paid. Without limiting the generality of the foregoing, if Administrative Agent is awarded a judgment in any suit brought to enforce any Guarantor's covenant to pay a portion of the Guaranteed Obligations, such judgment shall not be deemed to release such Guarantor from its covenant to pay the portion of the Guaranteed Obligations that is not the subject of such suit, and such judgment shall not, except to the extent satisfied by such Guarantor, limit, affect, modify or abridge any other Guarantor's liability hereunder in respect of the Guaranteed Obligations;
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(e) any Beneficiary, upon such terms as it deems appropriate, without notice or demand and without affecting the validity or enforceability hereof or giving rise to any reduction, limitation, impairment, discharge or termination of any Guarantor's liability hereunder, from time to time may (i) renew, extend, accelerate, increase the rate of interest on, or otherwise change the time, place, manner or terms of payment of the Guaranteed Obligations; (ii) settle, compromise, release or discharge, or accept or refuse any offer of performance with respect to, or substitutions for, the Guaranteed Obligations or any agreement relating thereto and/or subordinate the payment of the same to the payment of any other obligations; (iii) request and accept other guaranties of the Guaranteed Obligations and take and hold security for the payment hereof or the Guaranteed Obligations; (iv) release, surrender, exchange, substitute, compromise, settle, rescind, waive, alter, subordinate or modify, with or without consideration, any security for payment of the Guaranteed Obligations, any other guaranties of the Guaranteed Obligations, or any other obligation of any Person (including any other Guarantor) with respect to the Guaranteed Obligations; (v) enforce and apply any security now or hereafter held by or for the benefit of such Beneficiary in respect hereof or the Guaranteed Obligations and direct the order or manner of sale thereof, or exercise any other right or remedy that such Beneficiary may have against any such security, in each case as such Beneficiary in its discretion may determine consistent herewith or the applicable Hedge Agreement and any applicable security agreement, including foreclosure on any such security pursuant to one or more judicial or nonjudicial sales, whether or not every aspect of any such sale is commercially reasonable, and even though such action operates to impair or extinguish any right of reimbursement or subrogation or other right or remedy of any Guarantor against Company or any security for the Guaranteed Obligations; and (vi) exercise any other rights available to it under the Credit Documents or the Hedge Agreements; and
(f) this Guaranty and the obligations of Guarantors hereunder shall be valid and enforceable and shall not be subject to any reduction, limitation, impairment, discharge or termination for any reason (other than payment in full of the Guaranteed Obligations), including the occurrence of any of the following, whether or not any Guarantor shall have had notice or knowledge of any of them: (i) any failure or omission to assert or enforce or agreement or election not to assert or enforce, or the stay or enjoining, by order of court, by operation of law or otherwise, of the exercise or enforcement of, any claim or demand or any right, power or remedy (whether arising under the Credit Documents or the Hedge Agreements, at law, in equity or otherwise) with respect to the Guaranteed Obligations or any agreement relating thereto, or with respect to any other guaranty of or security for the payment of the Guaranteed Obligations; (ii) any rescission, waiver, amendment or modification of, or any consent to departure from, any of the terms or provisions (including provisions relating to events of default) hereof, any of the other Credit Documents, any of the Hedge Agreements or any agreement or instrument executed pursuant thereto, or of any other guaranty or security for the Guaranteed Obligations, in each case whether or not in accordance with the terms hereof or such Credit Document, such Hedge Agreement or any agreement relating to such other guaranty or security; (iii) the Guaranteed Obligations, or any agreement relating thereto, at any time being found to be illegal, invalid or unenforceable in any respect;
(iv) the application of payments received from any source (other than payments received pursuant to the other Credit Documents or any of the Hedge Agreements or from the proceeds of any security for the Guaranteed Obligations, except to the extent such security also serves as collateral for indebtedness other than the Guaranteed Obligations) to the
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payment of indebtedness other than the Guaranteed Obligations, even though any Beneficiary might have elected to apply such payment to any part or all of the Guaranteed Obligations; (v) any Beneficiary's consent to the change, reorganization or termination of the corporate structure or existence of Holdings or any of its Subsidiaries and to any corresponding restructuring of the Guaranteed Obligations; (vi) any failure to perfect or continue perfection of a security interest in any collateral which secures any of the Guaranteed Obligations; (vii) any defenses, set-offs or counterclaims which Company may allege or assert against any Beneficiary in respect of the Guaranteed Obligations, including failure of consideration, breach of warranty, payment, statute of frauds, statute of limitations, accord and satisfaction and usury; and (viii) any other act or thing or omission, or delay to do any other act or thing, which may or might in any manner or to any extent vary the risk of any Guarantor as an obligor in respect of the Guaranteed Obligations.
7.5. WAIVERS BY GUARANTORS. Each Guarantor hereby waives, for the benefit of Beneficiaries: (a) any right to require any Beneficiary, as a condition of payment or performance by such Guarantor, to (i) proceed against Company, any other guarantor (including any other Guarantor) of the Guaranteed Obligations or any other Person, (ii) proceed against or exhaust any security held from Company, any such other guarantor or any other Person, (iii) proceed against or have resort to any balance of any Deposit Account or credit on the books of any Beneficiary in favor of Company or any other Person, or (iv) pursue any other remedy in the power of any Beneficiary whatsoever; (b) any defense arising by reason of the incapacity, lack of authority or any disability or other defense of Company or any other Guarantor including any defense based on or arising out of the lack of validity or the unenforceability of the Guaranteed Obligations or any agreement or instrument relating thereto or by reason of the cessation of the liability of Company or any other Guarantor from any cause other than payment in full of the Guaranteed Obligations; (c) any defense based upon any statute or rule of law which provides that the obligation of a surety must be neither larger in amount nor in other respects more burdensome than that of the principal; (d) any defense based upon any Beneficiary's errors or omissions in the administration of the Guaranteed Obligations, except behavior which amounts to bad faith; (e) (i) any principles or provisions of law, statutory or otherwise, which are or might be in conflict with the terms hereof and any legal or equitable discharge of such Guarantor's obligations hereunder, (ii) the benefit of any statute of limitations affecting such Guarantor's liability hereunder or the enforcement hereof, (iii) any rights to set-offs, recoupments and counterclaims, and (iv) promptness, diligence and any requirement that any Beneficiary protect, secure, perfect or insure any security interest or lien or any property subject thereto; (f) notices, demands, presentments, protests, notices of protest, notices of dishonor and notices of any action or inaction, including acceptance hereof, notices of default hereunder, the Hedge Agreements or any agreement or instrument related thereto, notices of any renewal, extension or modification of the Guaranteed Obligations or any agreement related thereto, notices of any extension of credit to Company and notices of any of the matters referred to in Section 7.4 and any right to consent to any thereof; and
(g) any defenses or benefits that may be derived from or afforded by law which limit the liability of or exonerate guarantors or sureties, or which may conflict with the terms hereof.
7.6. GUARANTORS' RIGHTS OF SUBROGATION, CONTRIBUTION, ETC. Until the Guaranteed Obligations shall have been indefeasibly paid in full and the Revolving Commitments shall have terminated and all Letters of Credit shall have expired or been cancelled, each Guarantor hereby waives any claim, right or remedy, direct or indirect, that such Guarantor now has or may hereafter have against Company or any other Guarantor or any of its assets in connection with this Guaranty or the performance by such Guarantor of its obligations hereunder, in each case whether such claim, right or remedy arises in equity, under contract, by statute, under common law or otherwise and including without limitation (a) any right of subrogation, reimbursement or indemnification that such Guarantor now has or may hereafter have against Company with respect to the Guaranteed Obligations, (b) any right to enforce, or
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to participate in, any claim, right or remedy that any Beneficiary now has or may hereafter have against Company, and (c) any benefit of, and any right to participate in, any collateral or security now or hereafter held by any Beneficiary. In addition, until the Guaranteed Obligations shall have been indefeasibly paid in full and the Revolving Commitments shall have terminated and all Letters of Credit shall have expired or been cancelled, each Guarantor shall withhold exercise of any right of contribution such Guarantor may have against any other guarantor (including any other Guarantor) of the Guaranteed Obligations, including, without limitation, any such right of contribution as contemplated by Section 7.2. Each Guarantor further agrees that, to the extent the waiver or agreement to withhold the exercise of its rights of subrogation, reimbursement, indemnification and contribution as set forth herein is found by a court of competent jurisdiction to be void or voidable for any reason, any rights of subrogation, reimbursement or indemnification such Guarantor may have against Company or against any collateral or security, and any rights of contribution such Guarantor may have against any such other guarantor, shall be junior and subordinate to any rights any Beneficiary may have against Company, to all right, title and interest any Beneficiary may have in any such collateral or security, and to any right any Beneficiary may have against such other guarantor. If any amount shall be paid to any Guarantor on account of any such subrogation, reimbursement, indemnification or contribution rights at any time when all Guaranteed Obligations shall not have been finally and indefeasibly paid in full, such amount shall be held in trust for Administrative Agent on behalf of Beneficiaries and shall forthwith be paid over to Administrative Agent for the benefit of Beneficiaries to be credited and applied against the Guaranteed Obligations, whether matured or unmatured, in accordance with the terms hereof.
7.7. SUBORDINATION OF OTHER OBLIGATIONS. Any Indebtedness of Company or any Guarantor now or hereafter held by any Guarantor (the "OBLIGEE GUARANTOR") is hereby subordinated in right of payment to the Guaranteed Obligations, and any such indebtedness collected or received by the Obligee Guarantor after an Event of Default has occurred and is continuing shall be held in trust for Administrative Agent on behalf of Beneficiaries and shall forthwith be paid over to Administrative Agent for the benefit of Beneficiaries to be credited and applied against the Guaranteed Obligations but without affecting, impairing or limiting in any manner the liability of the Obligee Guarantor under any other provision hereof.
7.8. CONTINUING GUARANTY. This Guaranty is a continuing guaranty and shall remain in effect until all of the Guaranteed Obligations shall have been paid in full and the Revolving Commitments shall have terminated and all Letters of Credit shall have expired or been cancelled. Each Guarantor hereby irrevocably waives any right to revoke this Guaranty as to future transactions giving rise to any Guaranteed Obligations.
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7.9. AUTHORITY OF GUARANTORS OR COMPANY. It is not necessary for any Beneficiary to inquire into the capacity or powers of any Guarantor or Company or the officers, directors or any agents acting or purporting to act on behalf of any of them.
7.10. FINANCIAL CONDITION OF COMPANY. Any Credit Extension may be made to Company or continued from time to time, and any Hedge Agreements may be entered into from time to time, in each case without notice to or authorization from any Guarantor regardless of the financial or other condition of Company at the time of any such grant or continuation or at the time such Hedge Agreement is entered into, as the case may be. No Beneficiary shall have any obligation to disclose or discuss with any Guarantor its assessment, or any Guarantor's assessment, of the financial condition of Company. Each Guarantor has adequate means to obtain information from Company on a continuing basis concerning the financial condition of Company and its ability to perform its obligations under the Credit Documents and the Hedge Agreements, and each Guarantor assumes the responsibility for being and keeping informed of the financial condition of Company and of all circumstances bearing upon the risk of nonpayment of the Guaranteed Obligations. Each Guarantor hereby waives and relinquishes any duty on the part of any Beneficiary to disclose any matter, fact or thing relating to the business, operations or conditions of Company now known or hereafter known by any Beneficiary.
7.11. BANKRUPTCY, ETC. (a) So long as any Guaranteed Obligations remain outstanding, no Guarantor shall, without the prior written consent of Administrative Agent acting pursuant to the instructions of Requisite Lenders, commence or join with any other Person in commencing any bankruptcy, reorganization or insolvency case or proceeding of or against Company or any other Guarantor. The obligations of Guarantors hereunder shall not be reduced, limited, impaired, discharged, deferred, suspended or terminated by any case or proceeding, voluntary or involuntary, involving the bankruptcy, insolvency, receivership, reorganization, liquidation or arrangement of Company or any other Guarantor or by any defense which Company or any other Guarantor may have by reason of the order, decree or decision of any court or administrative body resulting from any such proceeding.
(b) Each Guarantor acknowledges and agrees that any interest on any portion of the Guaranteed Obligations which accrues after the commencement of any case or proceeding referred to in clause (a) above (or, if interest on any portion of the Guaranteed Obligations ceases to accrue by operation of law by reason of the commencement of such case or proceeding, such
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interest as would have accrued on such portion of the Guaranteed Obligations if such case or proceeding had not been commenced) shall be included in the Guaranteed Obligations because it is the intention of Guarantors and Beneficiaries that the Guaranteed Obligations which are guaranteed by Guarantors pursuant hereto should be determined without regard to any rule of law or order which may relieve Company of any portion of such Guaranteed Obligations. Guarantors will permit any trustee in bankruptcy, receiver, debtor in possession, assignee for the benefit of creditors or similar person to pay Administrative Agent, or allow the claim of Administrative Agent in respect of, any such interest accruing after the date on which such case or proceeding is commenced.
(c) In the event that all or any portion of the Guaranteed Obligations are paid by Company, the obligations of Guarantors hereunder shall continue and remain in full force and effect or be reinstated, as the case may be, in the event that all or any part of such payment(s) are rescinded or recovered directly or indirectly from any Beneficiary as a preference, fraudulent transfer or otherwise, and any such payments which are so rescinded or recovered shall constitute Guaranteed Obligations for all purposes hereunder.
7.12. DISCHARGE OF GUARANTY UPON SALE OF GUARANTOR. If all of the Capital Stock of any Guarantor or any of its successors in interest hereunder shall be sold or otherwise disposed of (including by merger or consolidation) in accordance with the terms and conditions hereof, the Guaranty of such Guarantor or such successor in interest, as the case may be, hereunder shall automatically be discharged and released without any further action by any Beneficiary or any other Person effective as of the time of such Asset Sale.
SECTION 8. EVENTS OF DEFAULT
8.1. EVENTS OF DEFAULT. If any one or more of the following conditions or events shall occur:
(a) Failure to Make Payments When Due. Failure by Company to pay (i) when due any installment of principal of any Loan, whether at stated maturity, by acceleration, by notice of voluntary prepayment, by mandatory prepayment or otherwise; (ii) when due any amount payable to Issuing Bank in reimbursement of any drawing under a Letter of Credit; or (iii) any interest on any Loan or any fee or any other amount due hereunder within five days after the date due; or
(b) Default in Other Agreements. (i) Failure of any Credit Party or any of their respective Subsidiaries to pay when due any principal of or interest on or any other amount payable in respect of one or more items of Indebtedness (other than Indebtedness referred to in Section 8.1(a)) with an aggregate principal amount of $1,000,000 or more, beyond the grace period, if any, provided therefore; or (ii) breach or default by any Credit Party with respect to any other material term of (1) one or more items of Indebtedness in the individual or aggregate principal amounts referred to in clause (i) above or
(2) any loan agreement, mortgage, indenture or other agreement relating to such item(s) of Indebtedness, in each case beyond the grace
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period, if any, provided therefore, if the effect of such breach or default is to cause, or to permit the holder or holders of that Indebtedness (or a trustee on behalf of such holder or holders), to cause, that Indebtedness to become or be declared due and payable (or redeemable) prior to its stated maturity or the stated maturity of any underlying obligation, as the case may be; or
(c) Breach of Certain Covenants. Failure of any Credit Party to perform or comply with any term or condition contained in Section 2.6, Section 5.2 or Section 6; or
(d) Breach of Representations, etc. Any representation, warranty, certification or other statement made or deemed made by any Credit Party in any Credit Document or in any statement or certificate at any time given by any Credit Party or any of its Subsidiaries in writing pursuant hereto or thereto or in connection herewith or therewith shall be false in any material respect as of the date made or deemed made; or
(e) Other Defaults Under Credit Documents. Any Credit Party shall default in the performance of or compliance with any term contained herein or any of the other Credit Documents, other than any such term referred to in any other Section of this Section 8.1, and such default shall not have been remedied or waived within thirty days after the earlier of (i) an officer of such Credit Party becoming aware of such default or (ii) receipt by Company of notice from Administrative Agent or any Lender of such default; or
(f) Involuntary Bankruptcy; Appointment of Receiver, etc.. (i) A court of competent jurisdiction shall enter a decree or order for relief in respect of Holdings or any of its Subsidiaries in an involuntary case under the Bankruptcy Code or under any other applicable bankruptcy, insolvency or similar law now or hereafter in effect, which decree or order is not stayed; or any other similar relief shall be granted under any applicable federal or state law; or (ii) an involuntary case shall be commenced against Holdings or any of its Subsidiaries under the Bankruptcy Code or under any other applicable bankruptcy, insolvency or similar law now or hereafter in effect; or a decree or order of a court having jurisdiction in the premises for the appointment of a receiver, liquidator, sequestrator, trustee, custodian or other officer having similar powers over Holdings or any of its Subsidiaries, or over all or a substantial part of its property, shall have been entered; or there shall have occurred the involuntary appointment of an interim receiver, trustee or other custodian of Holdings or any of its Subsidiaries for all or a substantial part of its property; or a warrant of attachment, execution or similar process shall have been issued against any substantial part of the property of Holdings or any of its Subsidiaries, and any such event described in this clause (ii) shall continue for sixty days without having been dismissed, bonded or discharged; or
(g) Voluntary Bankruptcy; Appointment of Receiver, etc.. (i) Holdings or any of its Subsidiaries shall have an order for relief entered with respect to it or shall commence a voluntary case under the Bankruptcy Code or under any other applicable bankruptcy, insolvency or similar law now or hereafter in effect, or shall consent to the entry of an order for relief in an involuntary case, or to the conversion of an involuntary case to a voluntary case, under any such law, or shall consent to the appointment of or taking possession by a receiver, trustee or other custodian for all or a substantial part of its property; or Holdings or any of its Subsidiaries shall make any assignment for the benefit of creditors; or (ii) Holdings or any of its Subsidiaries shall
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be unable, or shall fail generally, or shall admit in writing its inability, to pay its debts as such debts become due; or the board of directors (or similar governing body) of Holdings or any of its Subsidiaries (or any committee thereof) shall adopt any resolution or otherwise authorize any action to approve any of the actions referred to herein or in Section 8.1(f); or
(h) Judgments and Attachments. Any money judgment, writ or warrant of attachment or similar process involving in the aggregate at any time an amount in excess of $750,000 (in any case to the extent not adequately covered by insurance as to which a solvent and unaffiliated insurance company has acknowledged coverage) shall be entered or filed against Holdings or any of its Subsidiaries or any of their respective assets and shall remain undischarged, unvacated, unbonded or unstayed for a period of sixty days (or in any event later than five days prior to the date of any proposed sale thereunder); or
(i) Dissolution. Any order, judgment or decree shall be entered against any Credit Party decreeing the dissolution or split up of such Credit Party and such order shall remain undischarged or unstayed for a period in excess of thirty days; or
(j) Employee Benefit Plans. (i) There shall occur one or more ERISA Events which individually or in the aggregate results in or might reasonably be expected to result in liability of Holdings, any of its Subsidiaries or any of their respective ERISA Affiliates in excess of $1,500,000 during the term hereof; or (ii) there exists any fact or circumstance that reasonably could be expected to result in the imposition of a Lien or security interest under
Section 412(n) of the Internal Revenue Code or under ERISA;
(k) Change of Control. A Change of Control shall occur; or
(l) Guaranties, Collateral Documents and other Credit Documents. At any time after the execution and delivery thereof, (i) the Guaranty for any reason, other than the satisfaction in full of all Obligations, shall cease to be in full force and effect (other than in accordance with its terms) or shall be declared to be null and void or any Guarantor shall repudiate its obligations thereunder, (ii) this Agreement or any Collateral Document ceases to be in full force and effect (other than by reason of a release of Collateral in accordance with the terms hereof or thereof or the satisfaction in full of the Obligations in accordance with the terms hereof) or shall be declared null and void, or Collateral Agent shall not have or shall cease to have a valid and perfected Lien in any Collateral purported to be covered by the Collateral Documents with the priority required by the relevant Collateral Document, in each case for any reason other than the failure of Collateral Agent or any Secured Party to take any action within its control, or (iii) any Credit Party shall contest the validity or enforceability of any Credit Document in writing or deny in writing that it has any further liability, including with respect to future advances by Lenders, under any Credit Document to which it is a party;
THEN, (1) upon the occurrence of any Event of Default described in Section 8.1(f) or 8.1(g), automatically, and (2) upon the occurrence of any other Event of Default, at the request of (or with the consent of) Requisite Lenders, upon notice to Company by Administrative Agent, (A) the Revolving Commitments, if any, of each Lender having such Revolving Commitments and the obligation of Issuing Bank to issue any Letter of Credit shall immediately terminate; (B) each
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of the following shall immediately become due and payable, in each case without presentment, demand, protest or other requirements of any kind, all of which are hereby expressly waived by each Credit Party: (I) the unpaid principal amount of and accrued interest on the Loans, (II) an amount equal to the maximum amount that may at any time be drawn under all Letters of Credit then outstanding (regardless of whether any beneficiary under any such Letter of Credit shall have presented, or shall be entitled at such time to present, the drafts or other documents or certificates required to draw under such Letters of Credit), and (III) all other Obligations; provided, the foregoing shall not affect in any way the obligations of Lenders under Section 2.3(b)(iv) or Section 2.4(e); (C) Administrative Agent may cause Collateral Agent to enforce any and all Liens and security interests created pursuant to Collateral Documents; and (D) Administrative Agent shall direct Company to pay (and Company hereby agrees upon receipt of such notice, or upon the occurrence of any Event of Default specified in Section 8.1(f) and (g) to pay) to Administrative Agent such additional amounts of cash, to be held as security for Company's reimbursement Obligations in respect of Letters of Credit then outstanding, equal to the Letter of Credit Usage at such time.
SECTION 9. AGENTS
9.1. APPOINTMENT OF AGENTS. GSCP is hereby appointed Syndication Agent hereunder, and each Lender hereby authorizes Syndication Agent to act as its agent in accordance with the terms hereof and the other Credit Documents. GECC is hereby appointed Administrative Agent hereunder and under the other Credit Documents and each Lender hereby authorizes Administrative Agent to act as its agent in accordance with the terms hereof and the other Credit Documents. GECC is hereby appointed Collateral Agent hereunder and under the other Credit Documents and each Lender hereby authorizes Collateral Agent to act as its agent in accordance with the terms hereof and the other Credit Documents. Each Agent hereby agrees to act upon the express conditions contained herein and the other Credit Documents, as applicable. The provisions of this Section 9 are solely for the benefit of Agents and Lenders and no Credit Party shall have any rights as a third party beneficiary of any of the provisions thereof. In performing its functions and duties hereunder, each Agent shall act solely as an agent of Lenders and does not assume and shall not be deemed to have assumed any obligation towards or relationship of agency or trust with or for Holdings or any of its Subsidiaries. Syndication Agent, without consent of or notice to any party hereto, may assign any and all of its rights or obligations hereunder to any of its Affiliates. As of the Closing Date, GSCP, in its capacity as Syndication Agent, shall not have any obligations but shall be entitled to all benefits of this Section 9.
9.2. POWERS AND DUTIES. Each Lender irrevocably authorizes each Agent to take such action on such Lender's behalf and to exercise such powers, rights and remedies hereunder and under the other Credit Documents as are specifically delegated or granted to such Agent by the terms hereof and thereof, together with such powers, rights and remedies as are reasonably incidental thereto. Each Agent shall have only those duties and responsibilities that are expressly specified herein
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and the other Credit Documents. Each Agent may exercise such powers, rights and remedies and perform such duties by or through its agents or employees. No Agent shall have, by reason hereof or any of the other Credit Documents, a fiduciary relationship in respect of any Lender; and nothing herein or any of the other Credit Documents, expressed or implied, is intended to or shall be so construed as to impose upon any Agent any obligations in respect hereof or any of the other Credit Documents except as expressly set forth herein or therein.
9.3. GENERAL IMMUNITY.
(a) No Responsibility for Certain Matters. No Agent shall be responsible to any Lender for the execution, effectiveness, genuineness, validity, enforceability, collectability or sufficiency hereof or any other Credit Document or for any representations, warranties, recitals or statements made herein or therein or made in any written or oral statements or in any financial or other statements, instruments, reports or certificates or any other documents furnished or made by any Agent to Lenders or by or on behalf of any Credit Party to any Agent or any Lender in connection with the Credit Documents and the transactions contemplated thereby or for the financial condition or business affairs of any Credit Party or any other Person liable for the payment of any Obligations, nor shall any Agent be required to ascertain or inquire as to the performance or observance of any of the terms, conditions, provisions, covenants or agreements contained in any of the Credit Documents or as to the use of the proceeds of the Loans or as to the existence or possible existence of any Event of Default or Default or to make any disclosures with respect to the foregoing. Anything contained herein to the contrary notwithstanding, Administrative Agent shall not have any liability arising from confirmations of the amount of outstanding Loans or the Letter of Credit Usage or the component amounts thereof.
(b) Exculpatory Provisions. No Agent nor any of its officers, partners, directors, employees or agents shall be liable to Lenders for any action taken or omitted by any Agent under or in connection with any of the Credit Documents except to the extent caused by such Agent's gross negligence or willful misconduct. Each Agent shall be entitled to refrain from any act or the taking of any action (including the failure to take an action) in connection with this Agreement or any of the other Loan Documents or from the exercise of any power, discretion or authority vested in it hereunder or thereunder unless and until such Agent, in the case of any Agent other than the Collateral Agent, shall have received instructions in respect thereof from Requisite Lenders (or such other Lenders as may be required to give such instructions under subsection 10.5) or, in the case of the Collateral Agent, in accordance with the Pledge and Security Agreement, Intercreditor Agreement or other applicable Collateral Document, and, upon receipt of such instructions from Requisite Lenders (or such other Lenders, as the case may be) or in accordance with the Pledge and Security Agreement, Intercreditor Agreement or other applicable Collateral Document, as the case may be, such Agent shall be entitled to act or (where so instructed) refrain from acting, or to exercise such power, discretion or authority, in accordance with such instructions. In no event shall any Agent be liable for punitive, special, consequential, incidental, exemplary or other similar damages. Without prejudice to the generality of the foregoing, (i) each Agent shall be entitled to rely, and shall be fully protected in relying, upon any communication, instrument or document believed by it to be genuine and
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correct and to have been signed or sent by the proper Person or Persons, and shall be entitled to rely and shall be protected in relying on opinions and judgments of attorneys (who may be attorneys for Holdings and its Subsidiaries), accountants, experts and other professional advisors selected by it; and (ii) no Lender shall have any right of action whatsoever against any Agent as a result of such Agent acting or (where so instructed) refraining from acting under this Agreement or any of the other Loan Documents, in the case of any Agent other than the Collateral Agent, in accordance with the instructions of Requisite Lenders (or such other Lenders as may be required to give such instructions under subsection 10.5) or, in the case of the Collateral Agent, in accordance with the Pledge and Security Agreement, Intercreditor Agreement or other applicable Collateral Document.
9.4. AGENTS ENTITLED TO ACT AS LENDER. The agency hereby created shall in no way impair or affect any of the rights and powers of, or impose any duties or obligations upon, any Agent in its individual capacity as a Lender hereunder. With respect to its participation in the Loans and the Letters of Credit, each Agent shall have the same rights and powers hereunder as any other Lender and may exercise the same as if it were not performing the duties and functions delegated to it hereunder, and the term "Lender" shall, unless the context clearly otherwise indicates, include each Agent in its individual capacity. Any Agent and its Affiliates may accept deposits from, lend money to, own securities of, and generally engage in any kind of banking, trust, financial advisory or other business with Holdings or any of its Affiliates as if it were not performing the duties specified herein, and may accept fees and other consideration from Company for services in connection herewith and otherwise without having to account for the same to Lenders.
9.5. LENDERS' REPRESENTATIONS, WARRANTIES AND ACKNOWLEDGMENT.
(a) Each Lender represents and warrants that it has made its own independent investigation of the financial condition and affairs of Holdings and its Subsidiaries in connection with Credit Extensions hereunder and that it has made and shall continue to make its own appraisal of the creditworthiness of Holdings and its Subsidiaries. No Agent shall have any duty or responsibility, either initially or on a continuing basis, to make any such investigation or any such appraisal on behalf of Lenders or to provide any Lender with any credit or other information with respect thereto, whether coming into its possession before the making of the Loans or at any time or times thereafter, and no Agent shall have any responsibility with respect to the accuracy of or the completeness of any information provided to Lenders.
(b) Each Lender, by delivering its signature page to this Agreement and funding its Term Loan and/or Revolving Loans on the Closing Date, shall be deemed to have acknowledged receipt of, and consented to and approved, each Credit Document and each other document required to be approved by any Agent, Requisite Lenders or Lenders, as applicable on the Closing Date.
9.6. RIGHT TO INDEMNITY. Each Lender, in proportion to its Pro Rata Share, severally agrees to indemnify each Agent, to the extent that such Agent shall not have been reimbursed by any Credit Party, for and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses (including counsel fees and disbursements) or disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted against such Agent in exercising its powers, rights and remedies or performing its duties hereunder or under the other Credit Documents or otherwise in its capacity as such Agent in any way relating to or arising out of this Agreement
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or the other Credit Documents; provided, no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from such Agent's gross negligence or willful misconduct. If any indemnity furnished to any Agent for any purpose shall, in the opinion of such Agent, be insufficient or become impaired, such Agent may call for additional indemnity and cease, or not commence, to do the acts indemnified against until such additional indemnity is furnished; provided, in no event shall this sentence require any Lender to indemnify any Agent against any liability, obligation, loss, damage, penalty, action, judgment, suit, cost, expense or disbursement in excess of such Lender's Pro Rata Share thereof; and provided further, this sentence shall not be deemed to require any Lender to indemnify any Agent against any liability, obligation, loss, damage, penalty, action, judgment, suit, cost, expense or disbursement described in the proviso in the immediately preceding sentence.
9.7. SUCCESSOR ADMINISTRATIVE AGENT AND/OR COLLATERAL AGENT AND SWING LINE LENDER. The Administrative Agent and/or Collateral Agent may at any time give notice of its resignation to the Lenders and the Company, and Administrative Agent and/or the Collateral Agent may be removed at any time with or without cause by an instrument or concurrent instruments in writing delivered to Company and Administrative Agent and signed by Requisite Lenders. Upon any such notice of resignation or any such removal, Requisite Lenders shall have the right, upon five Business Days' notice to Company and in consultation with the Company, to appoint a successor Administrative Agent and/or Collateral Agent, as applicable. Upon the acceptance of any appointment as Administrative Agent and/or Collateral Agent, as applicable, hereunder by a successor Administrative Agent and/or Collateral Agent, as applicable, that successor Administrative Agent and/or Collateral Agent, as applicable, shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring or removed Administrative Agent and/or Collateral Agent, as applicable, and the retiring or removed Administrative Agent and/or Collateral Agent, as applicable, shall promptly (i) transfer to such successor Administrative Agent and/or Collateral Agent, as applicable, all sums, Securities and other items of Collateral held under the Collateral Documents, together with all records and other documents necessary or appropriate in connection with the performance of the duties of the successor Administrative Agent and/or Collateral Agent, as applicable, under the Credit Documents, and (ii) execute and deliver to such successor Administrative Agent and/or Collateral Agent, as applicable, such amendments to financing statements, and take such other actions, as may be necessary or appropriate in connection with the assignment to such successor Administrative Agent and/or Collateral Agent, as applicable, of the security interests created under the Collateral Documents, whereupon such retiring or removed Administrative Agent and/or Collateral Agent, as applicable, shall be discharged from its duties and obligations
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hereunder. After any retiring or removed Administrative Agent's and/or Collateral Agent's, as applicable, resignation or removal hereunder as Administrative Agent and/or Collateral Agent, as applicable, the provisions of this Section 9 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent and/or Collateral Agent, as applicable hereunder. Any resignation or removal of Administrative Agent pursuant to this Section shall also constitute the resignation or removal of GECC or its successor as Swing Line Lender, and any successor Administrative Agent appointed pursuant to this Section shall, upon its acceptance of such appointment, become the successor Swing Line Lender for all purposes hereunder. In such event (a) Company shall prepay any outstanding Swing Line Loans made by the retiring or removed Administrative Agent in its capacity as Swing Line Lender, (b) upon such prepayment, the retiring or removed Administrative Agent and Swing Line Lender shall surrender any Swing Line Note held by it to Company for cancellation, and (c) Company shall issue, if so requested by successor Administrative Agent and Swing Line Loan Lender, a new Swing Line Note to the successor Administrative Agent and Swing Line Lender, in the principal amount of the Swing Line Loan Sublimit then in effect and with other appropriate insertions.
9.8. COLLATERAL DOCUMENTS AND GUARANTY.
(a) Agents under Collateral Documents and Guaranty. Each Lender hereby further authorizes Administrative Agent or Collateral Agent, as applicable, on behalf of and for the benefit of Lenders, to (i) be the agent for and representative of Lenders with respect to the Guaranty, the Collateral, and the other Collateral Documents and (ii) enter into the Intercreditor Agreement, and each Lender agrees to be bound by the terms of the Intercreditor Agreement. Subject to Section 10.5, without further written consent or authorization from Lenders, Administrative Agent or Collateral Agent, as applicable may execute any documents or instruments necessary to (i) release any Lien encumbering any item of Collateral that is the subject of a sale or other disposition of assets permitted hereby or to which Requisite Lenders (or such other Lenders as may be required to give such consent under Section 10.5) have otherwise consented or
(ii) release any Guarantor from the Guaranty pursuant to Section 7.12 or with respect to which Requisite Lenders (or such other Lenders as may be required to give such consent under Section 10.5) have otherwise consented; provided that Collateral Agent shall not enter into or consent to any material amendment, modification, termination or waiver of the Intercreditor Agreement without the prior consent of Requisite Lenders (or such other Lenders as may be required to give such instructions under subsection 10.5).
(b) Right to Realize on Collateral and Enforce Guaranty. Anything contained in any of the Credit Documents to the contrary notwithstanding, Company, Administrative Agent, Collateral Agent and each Lender hereby agree that (i) no Lender shall have any right individually to realize upon any of the Collateral or to enforce the Guaranty, it being understood and agreed that all powers, rights and remedies hereunder may be exercised solely by Administrative Agent, on behalf of Lenders in accordance with the terms hereof and all powers, rights and remedies under the Collateral Documents may be exercised solely by Collateral Agent, and (ii) in the event of a foreclosure by Collateral Agent on any of the Collateral pursuant to a public or private sale, Collateral Agent or any Lender may be the purchaser of any or all of
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such Collateral at any such sale and Collateral Agent, as agent for and representative of Secured Parties (but not any Lender or Lenders in its or their respective individual capacities unless Requisite Lenders shall otherwise agree in writing) shall be entitled, for the purpose of bidding and making settlement or payment of the purchase price for all or any portion of the Collateral sold at any such public sale, to use and apply any of the Obligations as a credit on account of the purchase price for any collateral payable by Collateral Agent at such sale.
SECTION 10. MISCELLANEOUS
10.1. NOTICES. Unless otherwise specifically provided herein, any notice or other communication herein required or permitted to be given to a Credit Party, Syndication Agent, Collateral Agent, Administrative Agent, Swing Line Lender or Issuing Bank, shall be sent to such Person's address as set forth on Appendix B or in the other relevant Credit Document, and in the case of any Lender, the address as indicated on Appendix B or otherwise indicated to Administrative Agent in writing. Each notice hereunder shall be in writing and may be personally served, telexed or sent by telefacsimile or United States mail or courier service and shall be deemed to have been given when delivered in person or by courier service and signed for against receipt thereof, upon receipt of telefacsimile or telex, or three Business Days after depositing it in the United States mail with postage prepaid and properly addressed; provided, no notice to any Agent shall be effective until received by such Agent.
10.2. EXPENSES. Whether or not the transactions contemplated hereby shall be consummated, Company agrees to pay promptly (a) all the actual and reasonable costs and expenses of preparation of the Credit Documents and any consents, amendments, waivers or other modifications thereto; (b) all the costs of furnishing all opinions by counsel for Company and the other Credit Parties; (c) the reasonable fees, expenses and disbursements of counsel to Agents (in each case including allocated costs of internal counsel) in connection with the negotiation, preparation, execution and administration of the Credit Documents and any consents, amendments, waivers or other modifications thereto and any other documents or matters requested by Company; (d) all the actual costs and reasonable expenses of creating and perfecting Liens in favor of Collateral Agent, for the benefit of Lenders pursuant hereto, including filing and recording fees, expenses and taxes, stamp or documentary taxes, search fees, title insurance premiums and reasonable fees, expenses and disbursements of counsel to each Agent and of counsel providing any opinions that any Agent or Requisite Lenders may request in respect of the Collateral or the Liens created pursuant to the Collateral Documents; (e) all the actual costs and reasonable fees, expenses and disbursements of any auditors, accountants, consultants or appraisers; (f) all the actual costs and reasonable expenses (including the reasonable fees, expenses and disbursements of any appraisers, consultants, advisors and agents employed or retained by Collateral Agent and its counsel) in connection with the custody or preservation of any of the Collateral; (g) all other actual and reasonable costs and expenses incurred by each Agent in connection with the syndication of the Loans and Commitments and the negotiation, preparation and execution of the
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Credit Documents and any consents, amendments, waivers or other modifications thereto and the transactions contemplated thereby; and (h) after the occurrence of a Default or an Event of Default, all costs and expenses, including reasonable attorneys' fees (including allocated costs of internal counsel) and costs of settlement, incurred by any Agent and Lenders in enforcing any Obligations of or in collecting any payments due from any Credit Party hereunder or under the other Credit Documents by reason of such Default or Event of Default (including in connection with the sale of, collection from, or other realization upon any of the Collateral or the enforcement of the Guaranty) or in connection with any refinancing or restructuring of the credit arrangements provided hereunder in the nature of a "work-out" or pursuant to any insolvency or bankruptcy cases or proceedings. At the reasonable request of the Company, Agents shall, in its sole discretion, use its commercially reasonable efforts to provide back-up documentation for any of the above reimbursable costs, fees and expenses; provided, however, the inability to provide such back-up documentation shall not be a reason for the any Credit Party to object to or refuse reimbursement of any such costs, fees and expenses.
10.3. INDEMNITY.
(a) In addition to the payment of expenses pursuant to Section 10.2, whether or not the transactions contemplated hereby shall be consummated, each Credit Party agrees to defend (subject to Indemnitees' selection of counsel), indemnify, pay and hold harmless, each Agent and Lender and the officers, partners, directors, trustees, investment advisers, employees, agents and Affiliates of each Agent and each Lender (each, an "INDEMNITEE"), from and against any and all Indemnified Liabilities; provided, no Credit Party shall have any obligation to any Indemnitee hereunder with respect to any Indemnified Liabilities to the extent such Indemnified Liabilities arise from the gross negligence or willful misconduct of that Indemnitee. To the extent that the undertakings to defend, indemnify, pay and hold harmless set forth in this
Section 10.3 may be unenforceable in whole or in part because they are violative of any law or public policy, the applicable Credit Party shall contribute the maximum portion that it is permitted to pay and satisfy under applicable law to the payment and satisfaction of all Indemnified Liabilities incurred by Indemnitees or any of them.
(b) To the extent permitted by applicable law, no Credit Party shall assert, and each Credit Party hereby waives, any claim against Lenders, Agents and their respective Affiliates, directors, employees, attorneys or agents, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) (whether or not the claim therefore is based on contract, tort or duty imposed by any applicable legal requirement) arising out of, in connection with, arising out of, as a result of, or in any way related to, this Agreement or any Credit Document or any agreement or instrument contemplated hereby or thereby or referred to herein or therein, the transactions contemplated hereby or thereby, any Loan or the use of the proceeds thereof or any act or omission or event occurring in connection therewith, and Holdings and Company hereby waives, releases and agrees not to sue upon any such claim or any such damages, whether or not accrued and whether or not known or suspected to exist in its favor.
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10.4. SET-OFF. In addition to any rights now or hereafter granted under applicable law and not by way of limitation of any such rights, upon the occurrence of any Event of Default each Lender is hereby authorized by each Credit Party at any time or from time to time subject to the consent of Administrative Agent (such consent not to be unreasonably withheld or delayed), without notice to any Credit Party or to any other Person (other than Administrative Agent), any such notice being hereby expressly waived, to set off and to appropriate and to apply any and all deposits (general or special, including Indebtedness evidenced by certificates of deposit, whether matured or unmatured, but not including trust accounts) and any other Indebtedness at any time held or owing by such Lender to or for the credit or the account of any Credit Party against and on account of the obligations and liabilities of any Credit Party to such Lender hereunder, the Letters of Credit and participations therein and under the other Credit Documents, including all claims of any nature or description arising out of or connected hereto, the Letters of Credit and participations therein or with any other Credit Document, irrespective of whether or not (a) such Lender shall have made any demand hereunder or (b) the principal of or the interest on the Loans or any amounts in respect of the Letters of Credit or any other amounts due hereunder shall have become due and payable pursuant to Section 2 and although such obligations and liabilities, or any of them, may be contingent or unmatured.
10.5. AMENDMENTS AND WAIVERS.
(a) Requisite Lenders' Consent. Subject to Section 10.5(b) and 10.5(c), no amendment, modification, termination or waiver of any provision of the Credit Documents, or consent to any departure by any Credit Party therefrom, shall in any event be effective without the written concurrence of the Requisite Lenders.
(b) Affected Lenders' Consent. Without the written consent of each Lender (other than a Defaulting Lender) that would be affected thereby, no amendment, modification, termination, or consent shall be effective if the effect thereof would:
(i) extend the scheduled final maturity of any Loan or Note;
(ii) waive, reduce or postpone any Installment or other scheduled repayment (but not prepayment);
(iii) extend the stated expiration date of any Letter of Credit beyond the Revolving Commitment Termination Date;
(iv) reduce the rate of interest on any Loan (other than any waiver of any increase in the interest rate applicable to any Loan pursuant to Section 2.10) or any fee payable hereunder;
(v) extend the time for payment of any such interest or fees;
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(vi) reduce the principal amount of any Loan or any reimbursement obligation in respect of any Letter of Credit;
(vii) amend, modify, terminate or waive any provision of
Section 2.17, this Section 10.5(b) or Section 10.5(c);
(viii) amend the definition of "REQUISITE LENDERS" or "PRO RATA SHARE";
(ix) release all or substantially all of the Collateral or all or substantially all of the Guarantors from the Guaranty except as expressly provided in the Credit Documents; or
(x) consent to the assignment or transfer by any Credit Party of any of its rights and obligations under any Credit Document.
(c) Other Consents. No amendment, modification, termination or waiver of any provision of the Credit Documents, or consent to any departure by any Credit Party therefrom, shall:
(i) increase any Commitment of any Lender over the amount thereof then in effect without the consent of such Lender; provided, no amendment, modification or waiver of any condition precedent, covenant, Default or Event of Default shall constitute an increase in any Commitment of any Lender;
(ii) amend, modify, terminate or waive any provision hereof relating to the Swing Line Sublimit or the Swing Line Loans without the consent of Swing Line Lender;
(iii) amend the definition of "REQUISITE CLASS LENDERS" without the consent of Requisite Class Lenders of each Class;
(iv) amend or waive any mandatory prepayment or alter the required application of any repayments or prepayments as between Classes pursuant to Section 2.15 without the consent of Requisite Class Lenders of each Class which is being allocated a lesser repayment or prepayment as a result thereof; provided, Requisite Lenders may waive, in whole or in part, any prepayment so long as the application, as between Classes, of any portion of such prepayment which is still required to be made is not altered;
(v) amend, modify, terminate or waive any obligation of Lenders relating to the purchase of participations in Letters of Credit as provided in Section 2.4(e) without the written consent of Administrative Agent and of Issuing Bank; or
(vi) amend, modify, terminate or waive any provision of
Section 9 as the same applies to any Agent, or any other provision hereof as the same applies to the rights or obligations of any Agent, in each case without the consent of such Agent.
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(d) Execution of Amendments, etc. Administrative Agent may, but shall have no obligation to, with the concurrence of any Lender, execute amendments, modifications, waivers or consents on behalf of such Lender. Any waiver or consent shall be effective only in the specific instance and for the specific purpose for which it was given. No notice to or demand on any Credit Party in any case shall entitle any Credit Party to any other or further notice or demand in similar or other circumstances. Any amendment, modification, termination, waiver or consent effected in accordance with this Section 10.5 shall be binding upon each Lender at the time outstanding, each future Lender and, if signed by a Credit Party, on such Credit Party.
10.6. SUCCESSORS AND ASSIGNS; PARTICIPATIONS.
(a) Generally. This Agreement shall be binding upon the parties hereto and their respective successors and assigns and shall inure to the benefit of the parties hereto and the successors and assigns of Lenders. No Credit Party's rights or obligations hereunder nor any interest therein may be assigned or delegated by any Credit Party without the prior written consent of all Lenders. Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby and, to the extent expressly contemplated hereby, Affiliates of each of the Agents and Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement.
(b) Register. Company, Administrative Agent and Lenders shall deem and treat the Persons listed as Lenders in the Register as the holders and owners of the corresponding Commitments and Loans listed therein for all purposes hereof, and no assignment or transfer of any such Commitment or Loan shall be effective, in each case, unless and until an Assignment Agreement effecting the assignment or transfer thereof shall have been delivered to and accepted by Administrative Agent and recorded in the Register as provided in
Section 10.6(e). Prior to such recordation, all amounts owed with respect to the applicable Commitment or Loan shall be owed to the Lender listed in the Register as the owner thereof, and any request, authority or consent of any Person who, at the time of making such request or giving such authority or consent, is listed in the Register as a Lender shall be conclusive and binding on any subsequent holder, assignee or transferee of the corresponding Commitments or Loans.
(c) Right to Assign. Each Lender shall have the right at any time to sell, assign or transfer all or a portion of its rights and obligations under this Agreement, including, without limitation, all or a portion of its Commitment or Loans owing to it or other Obligation (provided, however, that each such assignment shall be of a uniform, and not varying, percentage of all rights and obligations under and in respect of any Loan and any related Commitments):
(i) to any Person meeting the criteria of clause (i) of the definition of the term of "Eligible Assignee" upon the giving of notice to Company and Administrative Agent; and
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(ii) to any Person meeting the criteria of clause (ii) of the definition of the term of "Eligible Assignee" and, in the case of assignments of Revolving Loans or Revolving Commitments to any such Person (except in the case of assignments made by or to GSCP), consented to by each of Company and Administrative Agent (such consent not to be (x) unreasonably withheld or delayed or, (y) in the case of Company, required at any time an Event of Default shall have occurred and then be continuing); provided, further each such assignment pursuant to this
Section 10.6(c)(ii) shall be in an aggregate amount of not less than (A) $2,500,000 (or such lesser amount as may be agreed to by Company and Administrative Agent or as shall constitute the aggregate amount of the Revolving Commitments and Revolving Loans of the assigning Lender) with respect to the assignment of the Revolving Commitments and Revolving Loans and (B) $1,000,000 (or such lesser amount as may be agreed to by Company and Administrative Agent or as shall constitute the aggregate amount of the Term Loan of the assigning Lender) with respect to the assignment of Term Loans.
(d) Mechanics. The assigning Lender and the assignee thereof shall execute and deliver to Administrative Agent an Assignment Agreement, together with such forms, certificates or other evidence, if any, with respect to United States federal income tax withholding matters as the assignee under such Assignment Agreement may be required to deliver to Administrative Agent pursuant to Section 2.20(c).
(e) Notice of Assignment. Upon its receipt of a duly executed and completed Assignment Agreement (and any forms, certificates or other evidence required by this Agreement in connection therewith), Administrative Agent shall record the information contained in such Assignment Agreement in the Register, shall give prompt notice thereof to Company and shall maintain a copy of such Assignment Agreement.
(f) Representations and Warranties of Assignee. Each Lender, upon execution and delivery hereof or upon executing and delivering an Assignment Agreement, as the case may be, represents and warrants as of the Closing Date or as of the applicable Effective Date (as defined in the applicable Assignment Agreement) that (i) it is an Eligible Assignee; (ii) it has experience and expertise in the making of or investing in commitments or loans such as the applicable Commitments or Loans, as the case may be; and (iii) it will make or invest in, as the case may be, its Commitments or Loans for its own account in the ordinary course of its business and without a view to distribution of such Commitments or Loans within the meaning of the Securities Act or the Exchange Act or other federal securities laws (it being understood that, subject to the provisions of this Section 10.6, the disposition of such Commitments or Loans or any interests therein shall at all times remain within its exclusive control).
(g) Effect of Assignment. Subject to the terms and conditions of this Section 10.6, as of the "Effective Date" specified in the applicable Assignment Agreement: (i) the assignee thereunder shall have the rights and obligations of a "Lender" hereunder to the extent such rights and obligations hereunder have been assigned to it pursuant to such Assignment Agreement and shall thereafter be a party hereto and a "Lender" for all purposes hereof; (ii) the assigning Lender thereunder shall, to the extent that rights and obligations hereunder have been assigned thereby pursuant to such Assignment Agreement, relinquish its rights (other than any
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rights which survive the termination hereof under Section 10.8) and be released from its obligations hereunder (and, in the case of an Assignment Agreement covering all or the remaining portion of an assigning Lender's rights and obligations hereunder, such Lender shall cease to be a party hereto; provided, anything contained in any of the Credit Documents to the contrary notwithstanding, (y) Issuing Bank shall continue to have all rights and obligations thereof with respect to such Letters of Credit until the cancellation or expiration of such Letters of Credit and the reimbursement of any amounts drawn thereunder and (z) such assigning Lender shall continue to be entitled to the benefit of all indemnities hereunder as specified herein with respect to matters arising out of the prior involvement of such assigning Lender as a Lender hereunder); (iii) the Commitments shall be modified to reflect the Commitment of such assignee and any Revolving Commitment of such assigning Lender, if any; and (iv) if any such assignment occurs after the issuance of any Note hereunder, the assigning Lender shall, upon the effectiveness of such assignment or as promptly thereafter as practicable, surrender its applicable Notes to Administrative Agent for cancellation, and thereupon Company shall issue and deliver new Notes, if so requested by the assignee and/or assigning Lender, to such assignee and/or to such assigning Lender, with appropriate insertions, to reflect the new Revolving Commitments and/or outstanding Loans of the assignee and/or the assigning Lender.
(h) Participations. Each Lender shall have the right at any time to sell one or more participations to any Person (other than Holdings, any of its Subsidiaries or any of its Affiliates) in all or any part of its Commitments, Loans or in any other Obligation. The holder of any such participation, other than an Affiliate of the Lender granting such participation, shall not be entitled to require such Lender to take or omit to take any action hereunder except with respect to any amendment, modification or waiver that would (i) extend the final scheduled maturity of any Loan, Note or Letter of Credit (unless such Letter of Credit is not extended beyond the Revolving Commitment Termination Date) in which such participant is participating, or reduce the rate or extend the time of payment of interest or fees thereon (except in connection with a waiver of applicability of any post-default increase in interest rates) or reduce the principal amount thereof, or increase the amount of the participant's participation over the amount thereof then in effect (it being understood that a waiver of any Default or Event of Default or of a mandatory reduction in the Commitment shall not constitute a change in the terms of such participation, and that an increase in any Commitment or Loan shall be permitted without the consent of any participant if the participant's participation is not increased as a result thereof), (ii) consent to the assignment or transfer by any Credit Party of any of its rights and obligations under this Agreement or
(iii) release all or substantially all of the Collateral under the Collateral Documents (except as expressly provided in the Credit Documents) supporting the Loans hereunder in which such participant is participating. Company agrees that each participant shall be entitled to the benefits of Sections 2.18(c), 2.19 and 2.20 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to paragraph (c) of this Section; provided, (i) a participant shall not be entitled to receive any greater payment under Section 2.19 or 2.20 than the applicable Lender would have been entitled to receive with respect to the participation sold to such participant, unless the sale of the participation to such participant is made with Company's prior written consent and (ii) a participant that would be a Non-US Lender if it were a Lender shall not be entitled to the benefits of Section 2.20 unless Company is notified of the participation sold to such participant and such participant agrees, for the benefit of Company, to comply with Section 2.20 as though it were a Lender. To the extent permitted by
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law, each participant also shall be entitled to the benefits of Section 10.4 as though it were a Lender, provided such Participant agrees to be subject to
Section 2.17 as though it were a Lender.
(i) Certain Other Assignments. In addition to any other assignment permitted pursuant to this Section 10.6, (i) any Lender may assign and/or pledge all or any portion of its Loans, the other Obligations owed by or to such Lender, and its Notes, if any, to secure obligations of such Lender including, without limitation, any Federal Reserve Bank as collateral security pursuant to Regulation A of the Board of Governors of the Federal Reserve System and any operating circular issued by such Federal Reserve Bank; provided, no Lender, as between Company and such Lender, shall be relieved of any of its obligations hereunder as a result of any such assignment and pledge, and provided further, in no event shall the applicable Federal Reserve Bank, pledgee or trustee be considered to be a "Lender" or be entitled to require the assigning Lender to take or omit to take any action hereunder.
10.7. INDEPENDENCE OF COVENANTS. All covenants hereunder shall be given independent effect so that if a particular action or condition is not permitted by any of such covenants, the fact that it would be permitted by an exception to, or would otherwise be within the limitations of, another covenant shall not avoid the occurrence of a Default or an Event of Default if such action is taken or condition exists.
10.8. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. All representations, warranties and agreements made herein shall survive the execution and delivery hereof and the making of any Credit Extension. Notwithstanding anything herein or implied by law to the contrary, the agreements of each Credit Party set forth in Sections 2.18(c), 2.19, 2.20, 10.2, 10.3 and 10.4 and the agreements of Lenders set forth in Sections 2.17, 9.3(b) and 9.6 shall survive the payment of the Loans, the cancellation or expiration of the Letters of Credit and the reimbursement of any amounts drawn thereunder, and the termination hereof.
10.9. NO WAIVER; REMEDIES CUMULATIVE. No failure or delay on the part of any Agent or any Lender in the exercise of any power, right or privilege hereunder or under any other Credit Document shall impair such power, right or privilege or be construed to be a waiver of any default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other power, right or privilege. The rights, powers and remedies given to each Agent and each Lender hereby are cumulative and shall be in addition to and independent of all rights, powers and remedies existing by virtue of any statute or rule of law or in any of the other Credit Documents or any of the Hedge Agreements. Any forbearance or failure to exercise, and any delay in exercising, any right, power or remedy hereunder shall not impair any such right, power or remedy or be construed to be a waiver thereof, nor shall it preclude the further exercise of any such right, power or remedy.
10.10. MARSHALLING; PAYMENTS SET ASIDE. Neither any Agent nor any Lender shall be under any obligation to marshal any assets in favor of any Credit Party or any other Person or against or in payment of any or all of the Obligations. To the extent that any Credit Party makes a payment or payments to Administrative Agent or Lenders (or to Administrative Agent, on behalf of Lenders), or Administrative Agent or Lenders enforce any security interests or exercise their rights of setoff, and such payment or payments or the proceeds of such enforcement or setoff or any part thereof are subsequently invalidated, declared to be fraudulent or preferential,
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set aside and/or required to be repaid to a trustee, receiver or any other party under any bankruptcy law, any other state or federal law, common law or any equitable cause, then, to the extent of such recovery, the obligation or part thereof originally intended to be satisfied, and all Liens, rights and remedies therefore or related thereto, shall be revived and continued in full force and effect as if such payment or payments had not been made or such enforcement or setoff had not occurred.
10.11. SEVERABILITY. In case any provision in or obligation hereunder or any Note shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby.
10.12. OBLIGATIONS SEVERAL; INDEPENDENT NATURE OF LENDERS' RIGHTS. The obligations of Lenders hereunder are several and no Lender shall be responsible for the obligations or Commitment of any other Lender hereunder. Nothing contained herein or in any other Credit Document, and no action taken by Lenders pursuant hereto or thereto, shall be deemed to constitute Lenders as a partnership, an association, a joint venture or any other kind of entity. The amounts payable at any time hereunder to each Lender shall be a separate and independent debt, and each Lender shall be entitled to protect and enforce its rights arising out hereof and it shall not be necessary for any other Lender to be joined as an additional party in any proceeding for such purpose.
10.13. HEADINGS. Section headings herein are included herein for convenience of reference only and shall not constitute a part hereof for any other purpose or be given any substantive effect.
10.14. APPLICABLE LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES THEREOF.
10.15. CONSENT TO JURISDICTION. ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST ANY CREDIT PARTY ARISING OUT OF OR RELATING HERETO OR ANY OTHER CREDIT DOCUMENT,
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OR ANY OF THE OBLIGATIONS, MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE, COUNTY AND CITY OF NEW YORK. BY EXECUTING AND DELIVERING THIS AGREEMENT, EACH CREDIT PARTY, FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, IRREVOCABLY (a) ACCEPTS GENERALLY AND UNCONDITIONALLY THE NONEXCLUSIVE JURISDICTION AND VENUE OF SUCH COURTS; (b) WAIVES ANY DEFENSE OF FORUM NON CONVENIENS; (c) AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN ANY SUCH COURT MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO THE APPLICABLE CREDIT PARTY AT ITS ADDRESS PROVIDED IN ACCORDANCE WITH SECTION 10.1; (d) AGREES THAT SERVICE AS PROVIDED IN CLAUSE (c) ABOVE IS SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER THE APPLICABLE CREDIT PARTY IN ANY SUCH PROCEEDING IN ANY SUCH COURT, AND OTHERWISE CONSTITUTES EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT; AND (e) AGREES AGENTS AND LENDERS RETAIN THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST ANY CREDIT PARTY IN THE COURTS OF ANY OTHER JURISDICTION.
10.16. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY AGREES TO WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING HEREUNDER OR UNDER ANY OF THE OTHER CREDIT DOCUMENTS OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS LOAN TRANSACTION OR THE LENDER/COMPANY RELATIONSHIP THAT IS BEING ESTABLISHED. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS TRANSACTION, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. EACH PARTY HERETO ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH HAS ALREADY RELIED ON THIS WAIVER IN ENTERING INTO THIS AGREEMENT, AND THAT EACH WILL CONTINUE TO RELY ON THIS WAIVER IN ITS RELATED FUTURE DEALINGS. EACH PARTY HERETO FURTHER WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING (OTHER THAN BY A MUTUAL WRITTEN WAIVER SPECIFICALLY REFERRING TO THIS SECTION
10.16 AND EXECUTED BY EACH OF THE PARTIES HERETO), AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS HERETO OR ANY OF THE OTHER CREDIT DOCUMENTS OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE LOANS
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MADE HEREUNDER. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
10.17. CONFIDENTIALITY. Each Lender shall hold all non-public information regarding Company and its Subsidiaries and their businesses identified as such by Company and obtained by such Lender pursuant to the requirements hereof in accordance with such Lender's customary procedures for handling confidential information of such nature and in accordance with prudent lending or investing practices, it being understood and agreed by Company that, in any event, a Lender may make (i) disclosures of such information to Affiliates of such Lender and to their agents and advisors (and to other persons authorized by a Lender or Agent to organize, present or disseminate such information in connection with disclosures otherwise made in accordance with this Section 10.17), (ii) disclosures of such information reasonably required by any bona fide or potential assignee, transferee or participant in connection with the contemplated assignment, transfer or participation by such Lender of any Loans or any participations therein or by any direct or indirect contractual counterparties (or the professional advisors thereto) in Hedge Agreements (provided, such counterparties and advisors are advised of and agree to be bound by the provisions of this Section 10.17), (iii) disclosure to any rating agency when required by it, provided that, prior to any disclosure, such rating agency shall undertake in writing to preserve the confidentiality of any confidential information relating to the Credit Parties received by it from any of the Agents or any Lender, and (iv) disclosures required or requested by any governmental agency or representative thereof or by the NAIC or pursuant to legal or judicial process; provided, unless specifically prohibited by applicable law or court order, each Lender shall make reasonable efforts to notify Company of any request by any governmental agency or representative thereof (other than any such request in connection with any examination of the financial condition or other routine examination of such Lender by such governmental agency) for disclosure of any such non-public information prior to disclosure of such information. Notwithstanding anything to the contrary set forth herein, each party (and each of their respective employees, representatives or other agents) may disclose to any and all persons, without limitations of any kind, the tax treatment and tax structure of the transactions contemplated by this Agreement and all materials of any kind (including opinions and other tax analyses) that are provided to any such party relating to such tax treatment and tax structure. However, any information relating to the tax treatment or tax structure shall remain subject to the confidentiality provisions hereof (and the foregoing sentence shall not apply) to the extent reasonably necessary to enable the parties hereto, their respective Affiliates, and their and their respective Affiliates' directors and employees to comply with applicable securities laws. For this purpose, "tax structure" means any facts relevant to the federal income tax treatment of the transactions contemplated by this Agreement but does not include information relating to the identity of any of the parties hereto or any of their respective Affiliates.
10.18. PRESS RELEASES AND RELATED MATTERS. Each Credit Party executing this Agreement agrees that neither it nor its Affiliates will in the future issue any press releases or other public disclosure using the name of GECC or its affiliates or referring to this Agreement or the other Credit Documents without at least two (2)
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Business Days' prior notice to GECC and without the prior written consent of GECC unless (and only to the extent that) such Credit Party or Affiliate is required to do so under law and then, in any event, such Credit Party or Affiliate will consult with GECC before issuing such press release or other public disclosure. Each Credit Party consents to the publication by Administrative Agent or any Lender of advertising material relating to the financing transactions contemplated by this Agreement using Company's name, product photographs, logo or trademark. Administrative Agent or such Lender shall provide a draft of any advertising material to each Credit Party for review and comment prior to the publication thereof. Administrative Agent reserves the right to provide to industry trade organizations information necessary and customary for inclusion in league table measurements.
10.19. USURY SAVINGS CLAUSE. Notwithstanding any other provision herein, the aggregate interest rate charged with respect to any of the Obligations, including all charges or fees in connection therewith deemed in the nature of interest under applicable law shall not exceed the Highest Lawful Rate. If the rate of interest (determined without regard to the preceding sentence) under this Agreement at any time exceeds the Highest Lawful Rate, the outstanding amount of the Loans made hereunder shall bear interest at the Highest Lawful Rate until the total amount of interest due hereunder equals the amount of interest which would have been due hereunder if the stated rates of interest set forth in this Agreement had at all times been in effect. In addition, if when the Loans made hereunder are repaid in full the total interest due hereunder (taking into account the increase provided for above) is less than the total amount of interest which would have been due hereunder if the stated rates of interest set forth in this Agreement had at all times been in effect, then to the extent permitted by law, Company shall pay to Administrative Agent an amount equal to the difference between the amount of interest paid and the amount of interest which would have been paid if the Highest Lawful Rate had at all times been in effect. Notwithstanding the foregoing, it is the intention of Lenders and Company to conform strictly to any applicable usury laws. Accordingly, if any Lender contracts for, charges, or receives any consideration which constitutes interest in excess of the Highest Lawful Rate, then any such excess shall be cancelled automatically and, if previously paid, shall at such Lender's option be applied to the outstanding amount of the Loans made hereunder or be refunded to Company.
10.20. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument.
10.21. USA PATRIOT ACT. Each Lender hereby notifies the Borrower that pursuant to the requirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the "ACT"), it is required to obtain, verify and record information that identifies the Company, which information includes the name and address of the Company and other information that will allow such Lender to identify the Company in accordance with the Act.
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10.22. EFFECTIVENESS. This Agreement shall become effective upon the execution of a counterpart hereof by each of the parties hereto and receipt by Company and Administrative Agent of written or telephonic notification of such execution and authorization of delivery thereof.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above.
AMERICAN REPROGRAPHICS COMPANY, L.L.C.

By: /s/ Mark W. Legg
   ----------------------------------------
Name: Mark W. Legg
Title: Chief Financial Officer	

AMERICAN REPROGRAPHICS HOLDINGS, L.L.C.

By: /s/ Mark W. Legg
   ----------------------------------------
Name: Mark W. Legg
Title: Chief Financial Officer	

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GUARANTOR SUBSIDIARIES
ARC ACQUISITION CORPORATION

By: /s/ Mark W. Legg
   ----------------------------------------
Name: Mark W. Legg
Title: Chief Financial Officer	

BLUE PRINT SERVICE COMPANY, INC.

By: /s/ Mark W. Legg
   ----------------------------------------
Name: Mark W. Legg
Title: Chief Financial Officer	

INPRINT CORPORATION

By: /s/ Mark W. Legg
   ----------------------------------------
Name: Mark W. Legg
Title: Chief Financial Officer	

RHODE ISLAND BLUEPRINT CO.

By: /s/ Mark W. Legg
   ----------------------------------------
Name: Mark W. Legg
Title: Chief Financial Officer	

OLYMPIC BLUEPRINT CO., INC.

By: /s/ Mark W. Legg
   ----------------------------------------
Name: Mark W. Legg
Title: Chief Financial Officer	

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LEET-MELBROOK, INC.

By: /s/ Mark W. Legg
   ----------------------------------------
Name: Mark W. Legg
Title: Chief Financial Officer	

PENINSULA BLUEPRINT, INC.

By: /s/ Mark W. Legg
   ----------------------------------------
Name: Mark W. Legg
Title: Chief Financial Officer	

STRATO REPROGRAPHIX, INC.

By: /s/ Mark W. Legg
   ----------------------------------------
Name: Mark W. Legg
Title: Chief Financial Officer	

QUALITY REPROGRAPHIC SERVICES, INC.

By: /s/ Mark W. Legg
   ----------------------------------------
Name: Mark W. Legg
Title: Chief Financial Officer	

MIRROR PLUS TECHNOLOGIES, INC.

By: /s/ Mark W. Legg
   ----------------------------------------
Name: Mark W. Legg
Title: Chief Financial Officer	

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E. PAVILION, L.L.C.

By: /s/ Mark W. Legg
   ----------------------------------------
Name: Mark W. Legg
Title: Chief Financial Officer	

FRANKLIN GRAPHICS CORPORATION

By: /s/ Mark W. Legg
   ----------------------------------------
Name: Mark W. Legg
Title: Chief Financial Officer	

ENGINEERING REPRO SYSTEMS, INC.

By: /s/ Mark W. Legg
   ----------------------------------------
Name: Mark W. Legg
Title: Chief Financial Officer	

WEST SIDE REPROGRAPHICS, INC.

By: /s/ Mark W. Legg
   ----------------------------------------
Name: Mark W. Legg
Title: Chief Financial Officer	

CITY BLUEPRINT AND SUPPLY CO.

By: /s/ Mark W. Legg
   ----------------------------------------
Name: Mark W. Legg
Title: Chief Financial Officer	

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DUNN BLUE PRINT COMPANY

By: /s/ Mark W. Legg
   ----------------------------------------
Name: Mark W. Legg
Title: Chief Financial Officer	

TAMPA REPROGRAPHICS & SUPPLY COMPANY

By: /s/ Mark W. Legg
   ----------------------------------------
Name: Mark W. Legg
Title: Chief Financial Officer	

OCB, LLC

By: /s/ Mark W. Legg
   ----------------------------------------
Name: Mark W. Legg
Title: Chief Financial Officer	

COMMERCIAL GRAPHICS CORPORATION

By: /s/ Mark W. Legg
   ----------------------------------------
Name: Mark W. Legg
Title: Chief Financial Officer	

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FORD S.F., L.L.C.

By: /s/ Mark W. Legg
   ----------------------------------------
Name: Mark W. Legg
Title: Chief Financial Officer	

A&E ARCHITECTURAL & ENGINEERING SUPPLY
COMPANY

By: /s/ Mark W. Legg
   ----------------------------------------
Name: Mark W. Legg
Title: Chief Financial Officer	

APPLICAD GRAPHICS, L.L.C.

By: /s/ Mark W. Legg
   ----------------------------------------
Name: Mark W. Legg
Title: Chief Financial Officer	

RIDGWAY'S, LTD.

By: /s/ Mark W. Legg
   ----------------------------------------
Name: Mark W. Legg
Title: Chief Financial Officer	

SOUTHWESTERN REPROGRAPHICS, INC.

By: /s/ Mark W. Legg
   ----------------------------------------
Name: Mark W. Legg
Title: Chief Financial Officer	

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REPROGRAPHICS NORTHWEST, LLC

By: /s/ Mark W. Legg
   ----------------------------------------
Name: Mark W. Legg
Title: Chief Financial Officer	

WILCO REPROGRAPHICS, INC.

By: /s/ Mark W. Legg
   ----------------------------------------
Name: Mark W. Legg
Title: Chief Financial Officer	

BPI REPRO, LLC

By: /s/ Mark W. Legg
   ----------------------------------------
Name: Mark W. Legg
Title: Chief Financial Officer	

RIDGWAY'S GP, LLC

By: /s/ Mark W. Legg
   ----------------------------------------
Name: Mark W. Legg
Title: Chief Financial Officer	

RIDGWAY'S LP, LLC

By: /s/ Mark W. Legg
   ----------------------------------------
Name: Mark W. Legg
Title: Chief Financial Officer	

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THE PEiR GROUP, LLC

By: /s/ Mark W. Legg
   ----------------------------------------
Name: Mark W. Legg
Title: Chief Financial Officer	

THE PEiR GROUP INTERNATIONAL, LLC

By: /s/ Mark W. Legg
   ----------------------------------------
Name: Mark W. Legg
Title: Chief Financial Officer	

LICENSING SERVICES INTERNATIONAL, LLC

By: /s/ Mark W. Legg
   ----------------------------------------
Name: Mark W. Legg
Title: Chief Financial Officer	

PLANWELL, LLC

By: /s/ Mark W. Legg
   ----------------------------------------
Name: Mark W. Legg
Title: Chief Financial Officer	

AMERICAN REPROGRAPHICS MIDCO, L.L.C.

By: /s/ Mark W. Legg
   ----------------------------------------
Name: Mark W. Legg
Title: Chief Financial Officer	

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LENDERS
GOLDMAN SACHS CREDIT PARTNERS L.P.,
as Lead Arranger, Sole Bookrunner, Syndication Agent, and a Lender

By: /s/ W. W. Archer
    -------------------------------------------
Name:      William Archer
           Authorized Signatory	

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GENERAL ELECTRIC CAPITAL CORPORATION,
as Administrative Agent, Collateral Agent, Swing Line Lender, Issuing Bank and a Lender

By: /s/ Woodrow Broaders, Jr.
    --------------------------------------------
    Name:  Woodrow Broaders, Jr.
    Title:   As Its Duly Authorized Signatory	

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LASALLE BANK NATIONAL ASSOCIATION,
as a Lender

By: /s/ Garett Gilles
   --------------------------------------------
   Name: Garett Gilles
   Title: Loan Officer	

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APPENDIX A-1
TO CREDIT AND GUARANTY AGREEMENT
TERM LOAN COMMITMENTS

================================================================================
                                                                        PRO
         LENDER                        TERM LOAN COMMITMENT         RATA SHARE
================================================================================
Goldman Sachs Credit Partners L.P.      $100,000,000.00                 100%
--------------------------------------------------------------------------------
    TOTAL                               $100,000,000.00                 100%
================================================================================	

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APPENDIX A-2
TO CREDIT AND GUARANTY AGREEMENT
REVOLVING COMMITMENTS

==================================================================================
            LENDER                        REVOLVING COMMITMENT      PRO RATA SHARE
==================================================================================
Goldman Sachs Credit Partners L.P.           $ 5,000,000.00             16.67%
----------------------------------------------------------------------------------
General Electric Capital Corporation         $15,000,000.00             50.00%
----------------------------------------------------------------------------------
LaSalle Bank National Association            $10,000,000.00             33.33%
----------------------------------------------------------------------------------
    TOTAL                                    $30,000,000.00               100%
==================================================================================	

APPENDIX A-2
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APPENDIX B
TO CREDIT AND GUARANTY AGREEMENT
NOTICE ADDRESSES
AMERICAN REPROGRAPHICS COMPANY, L.L.C.
 700 North Central Avenue, Suite 550
Glendale, CA 91203
Attention: Chief Financial Officer
Telecopier: (626) 441-6649
AMERICAN REPROGRAPHICS HOLDINGS, L.L.C.
 700 North Central Avenue, Suite 550
Glendale, CA 91203
Attention: Chief Financial Officer
Telecopier: (626) 441-6649
FOR EACH GUARANTOR SUBSIDIARY:
 700 North Central Avenue, Suite 550
Glendale, CA 91203
Attention: Chief Financial Officer
Telecopier: (626) 441-6649
in each case, with a copy to:
CODE HENNESSY & SIMMONS
 10 South Wacker Drive, Suite 3175
Chicago, IL 60606
Attention: Thomas J. Formolo
Telecopier: (312) 876-3851
APPENDIX-B-1
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GOLDMAN SACHS CREDIT PARTNERS L.P.,
as Lead Arranger, Sole Bookrunner, Syndication Agent and a Lender
Goldman Sachs Credit Partners L.P.
85 Broad Street
New York, New York 10004
Attention: Elizabeth Fischer
Telecopier: (212) 357-0932
with a copy to:
Goldman Sachs Credit Partners L.P. 85 Broad Street
New York, New York 10004
Attention: [Lisa Perrotto]
Telecopier: 212-346-2608
APPENDIX-B-2
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GENERAL ELECTRIC CAPITAL CORPORATION,
 as Administrative Agent, Collateral Agent, Swing Line Lender, Issuing Bank and a Lender
Administrative Agent's, Collateral Agent's, Swing Line Lender's And Issuing Bank's Principal Office:
General Electric Capital Corporation 500 West Monroe Street
Chicago, Illinois 60661
Attention: American Reprographics Company Account Officer Telecopier: 312-441-6158
in each case, with a copy to:
General Electric Capital Corporation 201 High Ridge Road
Stamford, Connecticut 06927-5100 Attention: Corporate Counsel,
Corporate Financial Services - Global Sponsor Finance Telecopier: 203-316-7899
and
General Electric Capital Corporation 500 West Monroe Street
Chicago, Illinois 60661
Attention: Corporate Counsel,
Corporate Financial Services - Global Sponsor Finance Telecopier: 312-441-6876
APPENDIX-B-3
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EXHIBIT B-1 TO
CREDIT AND GUARANTY AGREEMENT
TERM LOAN NOTE
#[1][___,___,___] December __, 2003 New York, New York
FOR VALUE RECEIVED, AMERICAN REPROGRAPHICS COMPANY, L.L.C., A CALIFORNIA LIMITED LIABILITY COMPANY ("COMPANY"), promises to pay [NAME OF LENDER] ("PAYEE") or its registered assigns the principal amount of [DOLLARS] ($[1][___,___,___]) in the installments referred to below.
Company also promises to pay interest on the unpaid principal amount hereof, from the date hereof until paid in full, at the rates and at the times which shall be determined in accordance with the provisions of that certain Credit and Guaranty Agreement, dated as of December __, 2003 (as it may be amended, supplemented or otherwise modified, the "CREDIT AGREEMENT"; the terms defined therein and not otherwise defined herein being used herein as therein defined), by and among Company, AMERICAN REPROGRAPHICS HOLDINGS, L.L.C., certain Subsidiaries of Company, as Guarantors, the Lenders party thereto from time to time, GOLDMAN SACHS CREDIT PARTNERS L.P., as Lead Arranger, Sole Book Runner and Syndication Agent, and GENERAL ELECTRIC CAPITAL CORPORATION as Administrative Agent and as Collateral Agent.
Company shall make principal payments on this Note as set forth in
Section 2.12 of the Credit Agreement.
This Note is one of the "Term Loan Notes" in the aggregate principal amount of $100,000,000 and is issued pursuant to and entitled to the benefits of the Credit Agreement, to which reference is hereby made for a more complete statement of the terms and conditions under which the Term Loan evidenced hereby was made and is to be repaid and may be transferred or assigned.
All payments of principal and interest in respect of this Note shall be made in lawful money of the United States of America in same day funds at the Principal Office of Administrative Agent or at such other place as shall be designated in writing for such purpose in accordance with the terms of the Credit Agreement. Unless and until an Assignment Agreement effecting the assignment or transfer of the obligations evidenced hereby shall have been accepted by Administrative Agent and recorded in the Register, Company, each Agent and Lenders shall be entitled to deem and treat Payee as the owner and holder of this Note and the obligations evidenced hereby. Payee hereby agrees, by its acceptance hereof, that before disposing of this Note or any part hereof it will make a notation hereon of all principal payments previously made

[1] Lender's Term Loan Commitment
EXHIBIT B-1-1
FIRST LIEN
CREDIT AND GUARANTY AGREEMENT
824323-New York Server 7A
hereunder and of the date to which interest hereon has been paid; provided, the failure to make a notation of any payment made on this Note shall not limit or otherwise affect the obligations of Company hereunder with respect to payments of principal of or interest on this Note.
This Note is subject to mandatory prepayment and to prepayment at the option of Company, each as provided in the Credit Agreement.
THIS NOTE AND THE RIGHTS AND OBLIGATIONS OF COMPANY AND PAYEE HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES THEREOF.
Upon the occurrence of an Event of Default, the unpaid balance of the principal amount of this Note, together with all accrued and unpaid interest thereon, may become, or may be declared to be, due and payable in the manner, upon the conditions and with the effect provided in the Credit Agreement.
The terms of this Note are subject to amendment only in the manner provided in the Credit Agreement.
No reference herein to the Credit Agreement and no provision of this Note or the Credit Agreement shall alter or impair the obligations of Company, which are absolute and unconditional, to pay the principal of and interest on this Note at the place, at the respective times, and in the currency herein prescribed.
Company promises to pay all costs and expenses, including reasonable attorneys' fees, all as provided in the Credit Agreement, incurred in the collection and enforcement of this Note. Company and any endorsers of this Note hereby consent to renewals and extensions of time at or after the maturity hereof, without notice, and hereby waive diligence, presentment, protest, demand notice of every kind and, to the full extent permitted by law, the right to plead any statute of limitations as a defense to any demand hereunder.
IN WITNESS WHEREOF, Company has caused this Note to be duly executed and delivered by its officer thereunto duly authorized as of the date and at the place first written above.
AMERICAN REPROGRAPHICS COMPANY, L.L.C.
By:

Title:
EXHIBIT B-1-2
FIRST LIEN
CREDIT AND GUARANTY AGREEMENT
824323-New York Server 7A
EXHIBIT B-2 TO
CREDIT AND GUARANTY AGREEMENT
REVOLVING LOAN NOTE
$[1][___,___,___] December __, 2003 New York, New York
FOR VALUE RECEIVED, AMERICAN REPROGRAPHICS COMPANY, L.L.C., a California limited liability company ("COMPANY"), promises to pay [NAME OF LENDER] ("PAYEE") or its registered assigns, on or before December __, 2008, the lesser of (a) [l] [DOLLARS] ($[l][___,___,___]) and (b) the unpaid principal amount of all advances made by Payee to Company as Revolving Loans under the Credit Agreement referred to below.
Company also promises to pay interest on the unpaid principal amount hereof, from the date hereof until paid in full, at the rates and at the times which shall be determined in accordance with the provisions of that certain Credit and Guaranty Agreement, dated as of December __, 2003 (as it may be amended, supplemented or otherwise modified, the "CREDIT AGREEMENT"; the terms defined therein and not otherwise defined herein being used herein as therein defined), by and among Company, AMERICAN REPROGRAPHICS HOLDINGS, L.L.C., certain Subsidiaries of Company, as Guarantors, the Lenders party thereto from time to time, GOLDMAN SACHS CREDIT PARTNERS L.P., as Lead Arranger, Sole Book Runner and Syndication Agent, and GENERAL ELECTRIC CAPITAL CORPORATION as Administrative Agent and as Collateral Agent.
This Note is one of the "Revolving Loan Notes" in the aggregate principal amount of $30,000,000 and is issued pursuant to and entitled to the benefits of the Credit Agreement, to which reference is hereby made for a more complete statement of the terms and conditions under which the Loans evidenced hereby were made and are to be repaid and may be transferred or assigned.
All payments of principal and interest in respect of this Note shall be made in lawful money of the United States of America in same day funds at the Principal Office of Administrative Agent or at such other place as shall be designated in writing for such purpose in accordance with the terms of the Credit Agreement. Unless and until an Assignment Agreement effecting the assignment or transfer of the obligations evidenced hereby shall have been accepted by Administrative Agent and recorded in the Register, Company, each Agent and Lenders shall be entitled to deem and treat Payee as the owner and holder of this Note and the obligations evidenced hereby. Payee hereby agrees, by its acceptance hereof, that before disposing of this Note or any part hereof it will make a notation hereon of all principal payments previously made hereunder and of the date to which interest hereon has been paid; provided, the failure to make a notation of any payment made on this Note shall not limit or otherwise affect the obligations of Company hereunder with respect to payments of principal of or interest on this Note.

[1] Lender's Revolving Credit Commitment
EXHIBIT B-2-1
FIRST LIEN
CREDIT AND GUARANTY AGREEMENT
824323-New York Server 7A
This Note is subject to mandatory prepayment and to prepayment at the option of Company, each as provided in the Credit Agreement.
THIS NOTE AND THE RIGHTS AND OBLIGATIONS OF COMPANY AND PAYEE HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES THEREOF.
Upon the occurrence of an Event of Default, the unpaid balance of the principal amount of this Note, together with all accrued and unpaid interest thereon, may become, or may be declared to be, due and payable in the manner, upon the conditions and with the effect provided in the Credit Agreement.
The terms of this Note are subject to amendment only in the manner provided in the Credit Agreement.
No reference herein to the Credit Agreement and no provision of this Note or the Credit Agreement shall alter or impair the obligations of Company, which are absolute and unconditional, to pay the principal of and interest on this Note at the place, at the respective times, and in the currency herein prescribed.
Company promises to pay all costs and expenses, including reasonable attorneys' fees, all as provided in the Credit Agreement, incurred in the collection and enforcement of this Note. Company and any endorsers of this Note hereby consent to renewals and extensions of time at or after the maturity hereof, without notice, and hereby waive diligence, presentment, protest, demand notice of every kind and, to the full extent permitted by law, the right to plead any statute of limitations as a defense to any demand hereunder.
IN WITNESS WHEREOF, Company has caused this Note to be duly executed and delivered by its officer thereunto duly authorized as of the date and at the place first written above.
AMERICAN REPROGRAPHICS COMPANY, L.L.C.
By:

Title:
EXHIBIT B-2-2
FIRST LIEN
CREDIT AND GUARANTY AGREEMENT
824323-New York Server 7A
TRANSACTIONS ON
REVOLVING LOAN NOTE

                      Amount of Loan     Amount of Principal     Outstanding Principal
    Date              Made This Date        Paid This Date         Balance This Date       Notation Made By
-----------------------------------------------------------------------------------------------------------	

EXHIBIT B-2-3
FIRST LIEN
CREDIT AND GUARANTY AGREEMENT
824323-New York Server 7A
EXHIBIT B-3 TO
CREDIT AND GUARANTY AGREEMENT
SWING LINE NOTE
#[1][___,___,___] December __, 2003 New York, New York
FOR VALUE RECEIVED, AMERICAN REPROGRAPHICS COMPANY, L.L.C., a California limited liability company ("COMPANY"), promises to pay to GENERAL ELECTRIC CAPITAL CORPORATION ("GECC"), as Swing Line Lender ("Payee"), on or before December __, 2008, the lesser of (a) [1] [DOLLARS]; ($[___,___,___]) and
(b) the unpaid principal amount of all advances made by Payee to Company as Swing Line Loans under the Credit Agreement referred to below.
Company also promises to pay interest on the unpaid principal amount hereof, from the date hereof until paid in full, at the rates and at the times which shall be determined in accordance with the provisions of that certain Credit and Guaranty Agreement, dated as of December __, 2003 (as it may be amended, supplemented or otherwise modified, the "CREDIT AGREEMENT"; the terms defined therein and not otherwise defined herein being used herein as therein defined), by and among Company, AMERICAN REPROGRAPHICS HOLDINGS, L.L.C., certain Subsidiaries of Company, as Guarantors, the Lenders party thereto from time to time, GOLDMAN SACHS CREDIT PARTNERS, L.P., as Lead Arranger, Sole Book Runner and Syndication Agent, and GECC as Administrative Agent and as Collateral Agent.
This Note is the "Swing Line Note" and is issued pursuant to and entitled to the benefits of the Credit Agreement, to which reference is hereby made for a more complete statement of the terms and conditions under which the Swing Line Loans evidenced hereby were made and are to be repaid and may be transferred or assigned.
All payments of principal and interest in respect of this Note shall be made in lawful money of the United States of America in same day funds at the Principal Office of Swing Line Lender or at such other place as shall be designated in writing for such purpose in accordance with the terms of the Credit Agreement.
This Note is subject to mandatory prepayment and to prepayment at the option of Company, each as provided in the Credit Agreement.
THIS NOTE AND THE RIGHTS AND OBLIGATIONS OF COMPANY AND PAYEE HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES THEREOF.

[1] Swing Line Sublimit
EXHIBIT B-3-1
FIRST LIEN
CREDIT AND GUARANTY AGREEMENT
824323-New York Server 7A
Upon the occurrence of an Event of Default, the unpaid balance of the principal amount of this Note, together with all accrued and unpaid interest thereon, may become, or may be declared to be, due and payable in the manner, upon the conditions and with the effect provided in the Credit Agreement.
The terms of this Note are subject to amendment only in the manner provided in the Credit Agreement.
No reference herein to the Credit Agreement and no provision of this Note or the Credit Agreement shall alter or impair the obligations of Company, which are absolute and unconditional, to pay the principal of and interest on this Note at the place, at the respective times, and in the currency herein prescribed.
Company promises to pay all costs and expenses, including reasonable attorneys' fees, all as provided in the Credit Agreement, incurred in the collection and enforcement of this Note. Company and any endorsers of this Note hereby consent to renewals and extensions of time at or after the maturity hereof, without notice, and hereby waive diligence, presentment, protest, demand notice of every kind and, to the full extent permitted by law, the right to plead any statute of limitations as a defense to any demand hereunder.
IN WITNESS WHEREOF, Company has caused this Note to be duly executed and delivered by its officer thereunto duly authorized as of the date and at the place first written above.
AMERICAN REPROGRAPHICS COMPANY, L.L.C.
By:

Title:
EXHIBIT B-3-2
FIRST LIEN
CREDIT AND GUARANTY AGREEMENT
824323-New York Server 7A
TRANSACTIONS ON
SWING LINE NOTE

                                                                   Outstanding
               Amount of Loan Made     Amount of Principal      Principal Balance
     Date           This Date            Paid This Date            This Date          Notation Made By
------------------------------------------------------------------------------------------------------	

EXHIBIT B-3-3
FIRST LIEN
CREDIT AND GUARANTY AGREEMENT
824323-New York Server 7A
EXHIBIT I TO
CREDIT AND GUARANTY AGREEMENT
PLEDGE AND SECURITY AGREEMENT
FIRST LIEN
PLEDGE AND SECURITY AGREEMENT
PLEDGE AND SECURITY AGREEMENT
DATED AS OF DECEMBER 18, 2003
BETWEEN
EACH OF THE GRANTORS PARTY HERETO
AND
GENERAL ELECTRIC CAPITAL CORPORATION,
AS THE COLLATERAL AGENT
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PLEDGE AND SECURITY AGREEMENT
TABLE OF CONTENTS

                                                                               PAGE
                                                                               ----
SECTION 1. DEFINITIONS; GRANT OF SECURITY........................................1
   1.1     General Definitions...................................................1
   1.2     Definitions; Interpretation...........................................8

SECTION 2. GRANT OF SECURITY.....................................................8
   2.1     Grant of Security.....................................................8
   2.2     Certain Limited Exclusions............................................9

SECTION 3. SECURITY FOR OBLIGATIONS; GRANTORS REMAIN LIABLE......................9
   3.1     Security for Obligations..............................................9
   3.2     Continuing Liability Under Collateral................................10

SECTION 4. REPRESENTATIONS AND WARRANTIES AND COVENANTS.........................10
   4.1     Generally............................................................10
   4.2     Equipment and Inventory..............................................13
   4.3     Receivables..........................................................15
   4.4     Investment Related Property..........................................17
   4.5     Material Contracts...................................................23
   4.6     Letter of Credit Rights..............................................24
   4.7     Intellectual Property................................................24
   4.8     Commercial Tort Claims...............................................28

SECTION 5. ACCESS; RIGHT OF INSPECTION AND FURTHER ASSURANCES; ADDITIONAL
GRANTORS........................................................................28
   5.1     Access; Right of Inspection..........................................28
   5.2     Further Assurances...................................................28
   5.3     Additional Grantors..................................................29

SECTION 6. COLLATERAL AGENT APPOINTED ATTORNEY-IN-FACT..........................30
   6.1     Power of Attorney....................................................30
   6.2     No Duty on the Part of Collateral Agent or Secured Parties...........31

SECTION 7. REMEDIES.............................................................31
   7.1     Generally............................................................31
   7.2     Application of Proceeds..............................................32
   7.3     Sales on Credit......................................................33
   7.4     Deposit Accounts.....................................................33
   7.5     Investment Related Property..........................................33
   7.6     Intellectual Property................................................33
   7.7     Cash Proceeds........................................................35

SECTION 8. COLLATERAL AGENT.....................................................36

SECTION 9. CONTINUING SECURITY INTEREST; TRANSFER OF LOANS......................36	

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PLEDGE AND SECURITY AGREEMENT

SECTION 10. STANDARD OF CARE; COLLATERAL AGENT MAY PERFORM......................37

SECTION 11. MISCELLANEOUS.......................................................37	

SCHEDULE 4.1 -- GENERAL INFORMATION
SCHEDULE 4.2 -- LOCATION OF EQUIPMENT AND INVENTORY
SCHEDULE 4.4 -- INVESTMENT RELATED PROPERTY
SCHEDULE 4.5 -- MATERIAL CONTRACTS
SCHEDULE 4.6 -- DESCRIPTION OF LETTERS OF CREDIT
SCHEDULE 4.7 -- INTELLECTUAL PROPERTY - EXCEPTIONS
SCHEDULE 4.8 -- COMMERCIAL TORT CLAIMS
EXHIBIT A -- PLEDGE SUPPLEMENT
EXHIBIT B -- UNCERTIFICATED SECURITIES CONTROL AGREEMENT
EXHIBIT C -- SECURITIES ACCOUNT CONTROL AGREEMENT
EXHIBIT D -- DEPOSIT ACCOUNT CONTROL AGREEMENT
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PLEDGE AND SECURITY AGREEMENT
This PLEDGE AND SECURITY AGREEMENT, dated as of December 18, 2003 (this "AGREEMENT"), between EACH OF THE UNDERSIGNED, whether as an original signatory hereto or as an Additional Grantor (as herein defined) (each, a "GRANTOR"), and GENERAL ELECTRIC CAPITAL CORPORATION ("GECC"), as collateral agent for the Secured Parties (as herein defined) (in such capacity as collateral agent, the "COLLATERAL AGENT").
RECITALS:
WHEREAS, reference is made to that certain Credit and Guaranty Agreement, dated as of the date hereof (as it may be amended, restated, supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT"), by and among AMERICAN REPROGRAPHICS COMPANY, L.L.C., a California limited liability company ("COMPANY"), AMERICAN REPROGRAPHICS HOLDINGS, L.L.C., (f/k/a Ford Graphics Holdings, L.L.C.) a California limited liability company ("HOLDINGS"), CERTAIN SUBSIDIARIES OF COMPANY, the Lenders party thereto from time to time, GOLDMAN SACHS CREDIT PARTNERS L.P., as Lead Arranger, Sole Book Runner and Syndication Agent, and GECC as Administrative Agent and Collateral Agent;
WHEREAS, subject to the terms and conditions of the Credit Agreement, certain Grantors may enter into one or more Hedge Agreements (as herein defined) with one or more Lender Counterparties;
WHEREAS, in consideration of the extensions of credit and other accommodations of Lenders and Lender Counterparties as set forth in the Credit Agreement and the Hedge Agreements, respectively, each Grantor has agreed to secure such Grantor's obligations under the Credit Documents and the Hedge Agreements as set forth herein; and
NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein contained, each Grantor and the Collateral Agent agree as follows:
SECTION 1. DEFINITIONS; GRANT OF SECURITY.
1.1 GENERAL DEFINITIONS. In this Agreement, the following terms shall have the following meanings:
"ACCOUNT DEBTOR" shall mean each Person who is obligated on a Receivable or any Supporting Obligation related thereto.
"ACCOUNTS" shall mean all "accounts" as defined in Article 9 of the UCC.
"AGREEMENT" shall have the meaning set forth in the preamble.
"ADDITIONAL GRANTORS" shall have the meaning assigned in
Section 5.3.
"ASSIGNED AGREEMENTS" shall mean all agreements and contracts to which such Grantor is a party as of the date hereof, or to which such Grantor becomes a party after the date
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PLEDGE AND SECURITY AGREEMENT
hereof, including, without limitation, each Material Contract, as each such agreement may be amended, supplemented or otherwise modified from time to time.
"BANKRUPTCY CODE" as defined in the Credit Agreement.
"CAPITAL LEASE" as defined in the Credit Agreement.
"CAPITAL STOCK" as defined in the Credit Agreement.
"CASH PROCEEDS" shall have the meaning assigned in Section 7.7.
"CHATTEL PAPER" shall mean all "chattel paper" as defined in Article 9 of the UCC, including, without limitation, "electronic chattel paper" or "tangible chattel paper", as each term is defined in Article 9 of the UCC.
"COLLATERAL" shall have the meaning assigned in Section 2.1.
"COLLATERAL ACCOUNT" shall mean any account established by the Collateral Agent.
"COLLATERAL AGENT" shall have the meaning set forth in the preamble.
"COLLATERAL RECORDS" shall mean books, records, ledger cards, files, correspondence, customer lists, blueprints, technical specifications, manuals, computer software, computer printouts, tapes, disks and related data processing software and similar items that at any time evidence or contain information relating to any of the Collateral or are otherwise necessary or helpful in the collection thereof or realization thereupon.
"COLLATERAL SUPPORT" shall mean all property (real or personal) assigned, hypothecated or otherwise securing any Collateral and shall include any security agreement or other agreement granting a lien or security interest in such real or personal property.
"COMMERCIAL TORT CLAIMS" shall mean all "commercial tort claims" as defined in Article 9 of the UCC, including, without limitation, all commercial tort claims listed on Schedule 4.8 (as such schedule may be amended or supplemented from time to time).
"COMMODITIES ACCOUNTS" (i) shall mean all "commodity accounts" as defined in Article 9 of the UCC and (ii) shall include, without limitation, all of the accounts listed on Schedule 4.4 under the heading "COMMODITIES ACCOUNTS" (as such schedule may be amended or supplemented from time to time).
"COMPANY" shall have the meaning set forth in the preamble.
"CONTROLLED FOREIGN CORPORATION" shall mean "controlled foreign corporation" as defined in the Tax Code.
"COPYRIGHT LICENSES" shall mean any and all agreements providing for the granting of any right in or to Copyrights (whether such Grantor is licensee or licensor thereunder) including, without limitation, each agreement referred to in Schedule 4.7(B) (as such schedule may be amended or supplemented from time to time).
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"COPYRIGHTS" shall mean all United States, and foreign copyrights (including European Community designs), including but not limited to copyrights in software and databases, and all Mask Works (as defined under 17 U.S.C. 901 of the U.S. Copyright Act), whether registered or unregistered, and, with respect to any and all of the foregoing: (i) all registrations and applications therefor including, without limitation, the registrations and applications referred to in Schedule 4.7(A) (as such schedule may be amended or supplemented from time to time), (ii) all extensions and renewals thereof, (iii) all rights corresponding thereto throughout the world, (iv) all rights to sue for past, present and future infringements thereof, and (v) all Proceeds of the foregoing, including, without limitation, licenses, royalties, income, payments, claims, damages and proceeds of suit.
"CREDIT AGREEMENT" shall have the meaning set forth in the recitals.
"CREDIT DOCUMENTS" as defined in the Credit Agreement.
"DEPOSIT ACCOUNTS" (i) shall mean all "deposit accounts" as defined in Article 9 of the UCC and (ii) shall include, without limitation, all of the accounts listed on Schedule 4.4 under the heading "Deposit Accounts" (as such schedule may be amended or supplemented from time to time).
"DOCUMENTS" shall mean all "documents" as defined in Article 9 of the UCC.
"EQUIPMENT" shall mean: (i) all "equipment" as defined in Article 9 of the UCC, (ii) all machinery, manufacturing equipment, data processing equipment, computers, office equipment, furnishings, furniture, appliances, fixtures and tools (in each case, regardless of whether characterized as equipment under the UCC) and (iii) all accessions or additions thereto, all parts thereof, whether or not at any time of determination incorporated or installed therein or attached thereto, and all replacements therefor, wherever located, now or hereafter existing, including any fixtures.
"ERISA" as defined in the Credit Agreement.
"EVENT OF DEFAULT" as defined in the Credit Agreement.
"GAAP" as defined in the Credit Agreement.
"GENERAL INTANGIBLES" (i) shall mean all "general intangibles" as defined in Article 9 of the UCC, including "payment intangibles" also as defined in Article 9 of the UCC and (ii) shall include, without limitation, all interest rate or currency protection or hedging arrangements, all tax refunds, all licenses, permits, concessions and authorizations, all Assigned Agreements and all Intellectual Property (in each case, regardless of whether characterized as general intangibles under the UCC).
"GOODS" (i) shall mean all "goods" as defined in Article 9 of the UCC and (ii) shall include, without limitation, all Inventory and Equipment (in each case, regardless of whether characterized as goods under the UCC).
"GRANTORS" shall have the meaning set forth in the preamble.
"HEDGE AGREEMENT" as defined in the Credit Agreement.
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"INDEBTEDNESS" as defined in the Credit Agreement.
"INDEMNITEE" shall mean the Collateral Agent, and its and its Affiliates' officers, partners, directors, trustees, employees, agents.
"INSTRUMENTS" shall mean all "instruments" as defined in Article 9 of the UCC.
"INSURANCE" shall mean (i) all insurance policies covering any or all of the Collateral (regardless of whether the Collateral Agent is the loss payee thereof) and (ii) any key man life insurance policies.
"INTELLECTUAL PROPERTY" shall mean, collectively, the Copyrights, the Copyright Licenses, the Patents, the Patent Licenses, the Trademarks, the Trademark Licenses, the Trade Secrets, and the Trade Secret Licenses.
"INVENTORY" shall mean (i) all "inventory" as defined in Article 9 of the UCC and (ii) all goods held for sale or lease or to be furnished under contracts of service or so leased or furnished, all raw materials, work in process, finished goods, and materials used or consumed in the manufacture, packing, shipping, advertising, selling, leasing, furnishing or production of such inventory or otherwise used or consumed in any Grantor's business; all goods in which any Grantor has an interest in mass or a joint or other interest or right of any kind; and all goods which are returned to or repossessed by any Grantor, all computer programs embedded in any goods and all accessions thereto and products thereof (in each case, regardless of whether characterized as inventory under the UCC).
"INVESTMENT ACCOUNTS" shall mean the Collateral Account, Securities Accounts, Commodities Accounts and Deposit Accounts.
"INVESTMENT RELATED PROPERTY" shall mean: (i) all "investment property" (as such term is defined in Article 9 of the UCC) and (ii) all of the following (regardless of whether classified as investment property under the UCC): all Pledged Equity Interests, Pledged Debt, the Investment Accounts and certificates of deposit.
"LENDER" shall have the meaning set forth in the recitals.
"LENDER COUNTERPARTY" as defined in the Credit Agreement.
"LETTER OF CREDIT RIGHT" shall mean "letter-of-credit right" as defined in Article 9 of the UCC.
"LIEN" as defined in the Credit Agreement.
"MATERIAL ADVERSE EFFECT" as defined in the Credit Agreement.
"MATERIAL CONTRACT" as defined in the Credit Agreement.
"MONEY" shall mean "money" as defined in the UCC.
"NON-ASSIGNABLE CONTRACT" shall mean any agreement, contract or license to which any the Grantor is a party that by its terms purport to restrict or prevent the assignment or granting of a security interest therein (either by its terms or by any federal or state statutory
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PLEDGE AND SECURITY AGREEMENT
prohibition or otherwise irrespective of whether such prohibition or restriction is enforceable under Section 9-406 through 409 of the UCC).
"OBLIGATIONS" as defined in the Credit Agreement.
"PATENT LICENSES" shall mean all agreements providing for the granting of any right in or to Patents (whether such Grantor is licensee or licensor thereunder) including, without limitation, each agreement referred to in Schedule 4.7(D) (as such schedule may be amended or supplemented from time to time).
"PATENTS" shall mean all United States and foreign patents and certificates of invention, or similar industrial property rights, and applications for any of the foregoing, including, but not limited to: (i) each patent and patent application referred to in Schedule 4.7(C) hereto (as such schedule may be amended or supplemented from time to time), (ii) all reissues, divisions, continuations, continuations-in-part, extensions, renewals, and reexaminations thereof, (ii) all rights corresponding thereto throughout the world, (ii) all inventions and improvements described therein, (iv) all rights to sue for past, present and future infringements thereof, (v) all licenses, claims, damages, and proceeds of suit arising therefrom, and (v) all Proceeds of the foregoing, including, without limitation, licenses, royalties, income, payments, claims, damages, and proceeds of suit.
"PERMITTED LIEN" as defined in the Credit Agreement.
"PERMITTED SALE" shall mean those sales, transfers or assignments permitted by the Credit Agreement.
"PERMITTED TAX DISTRIBUTIONS" as defined in the Credit Agreement.
"PERSON" as defined in the Credit Agreement.
"PLEDGE SUPPLEMENT" shall mean any supplement to this agreement in substantially the form of Exhibit A.
"PLEDGED DEBT" shall mean all Indebtedness owed to such Grantor, including, without limitation, all Indebtedness described on Schedule 4.4(A) under the heading "Pledged Debt" (as such schedule may be amended or supplemented from time to time), issued by the obligors named therein, the instruments evidencing such Indebtedness, and all interest, cash, instruments and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such Indebtedness
"PLEDGED EQUITY INTERESTS" shall mean all Pledged Stock, Pledged LLC Interests, Pledged Partnership Interests and Pledged Trust Interests.
"PLEDGED LLC INTERESTS" shall mean all interests in any limited liability company including, without limitation, all limited liability company interests listed on Schedule 4.4(A) under the heading "Pledged LLC Interests" (as such schedule may be amended or supplemented from time to time) and the certificates, if any, representing such limited liability company interests and any interest of such Grantor on the books and records of such limited liability company or on the books and records of any securities intermediary pertaining to such interest and all dividends, distributions, cash, warrants, rights, options, instruments, securities and
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PLEDGE AND SECURITY AGREEMENT
other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such limited liability company interests.
"PLEDGED PARTNERSHIP INTERESTS" shall mean all interests in any general partnership, limited partnership, limited liability partnership or other partnership including, without limitation, all partnership interests listed on Schedule 4.4(A) under the heading "Pledged Partnership Interests" (as such schedule may be amended or supplemented from time to time) and the certificates, if any, representing such partnership interests and any interest of such Grantor on the books and records of such partnership or on the books and records of any securities intermediary pertaining to such interest and all dividends, distributions, cash, warrants, rights, options, instruments, securities and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such partnership interests.
"PLEDGED STOCK" shall mean all shares of Capital Stock owned by such Grantor, including, without limitation, all shares of Capital Stock described on Schedule 4.4(A) under the heading "Pledged Stock" (as such schedule may be amended or supplemented from time to time), and the certificates, if any, representing such shares and any interest of such Grantor in the entries on the books of the issuer of such shares or on the books of any securities intermediary pertaining to such shares, and all dividends, distributions, cash, warrants, rights, options, instruments, securities and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such shares.
"PLEDGED TRUST INTERESTS" shall mean all interests in a Delaware business trust or other trust including, without limitation, all trust interests listed on Schedule 4.4(A) under the heading "Pledged Trust Interests" (as such schedule may be amended or supplemented from time to time) and the certificates, if any, representing such trust interests and any interest of such Grantor on the books and records of such trust or on the books and records of any securities intermediary pertaining to such interest and all dividends, distributions, cash, warrants, rights, options, instruments, securities and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such trust interests.
"PROCEEDS" shall mean: (i) all "proceeds" as defined in Article 9 of the UCC, (ii) payments or distributions made with respect to any Investment Related Property and (iii) whatever is receivable or received when Collateral or proceeds are sold, exchanged, collected or otherwise disposed of, whether such disposition is voluntary or involuntary.
"RECEIVABLES" shall mean all rights to payment, whether or not earned by performance, for goods or other property sold, leased, licensed, assigned or otherwise disposed of, or services rendered or to be rendered, including, without limitation all such rights constituting or evidenced by any Account, Chattel Paper, Instrument, General Intangible or Investment Related Property, together with all of Grantor's rights, if any, in any goods or other property giving rise to such right to payment and all Collateral Support and Supporting Obligations related thereto and all Receivables Records.
"RECEIVABLES RECORDS" shall mean (i) all original copies of all documents, instruments or other writings or electronic records or other Records evidencing the Receivables, (ii) all books, correspondence, credit or other files, Records, ledger sheets or cards, invoices, and other papers relating to Receivables, including, without limitation, all tapes, cards, computer
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tapes, computer discs, computer runs, record keeping systems and other papers and documents relating to the Receivables, whether in the possession or under the control of Grantor or any computer bureau or agent from time to time acting for Grantor or otherwise, (iii) all evidences of the filing of financing statements and the registration of other instruments in connection therewith, and amendments, supplements or other modifications thereto, notices to other creditors or secured parties, and certificates, acknowledgments, or other writings, including, without limitation, lien search reports, from filing or other registration officers, (iv) all credit information, reports and memoranda relating thereto and (v) all other written or nonwritten forms of information related in any way to the foregoing or any Receivable.
"RECORD" shall have the meaning specified in Article 9 of the 
UCC.
"SECURED OBLIGATIONS" shall have the meaning assigned in
Section 3.1.
"SECURED PARTIES" shall mean the Lenders and the Lender Counterparties and shall include, without limitation, all former Lenders and Lender Counterparties to the extent that any Obligations owing to such Persons were incurred while such Persons were Lenders or Lender Counterparties and such Obligations have not been paid or satisfied in full.
"SECURITIES" as defined in the Credit Agreement.
"SECURITIES ACCOUNTS" (i) shall mean all "securities accounts" as defined in Article 8 of the UCC and (ii) shall include, without limitation, all of the accounts listed on Schedule 4.4(A) under the heading "Securities Accounts" (as such schedule may be amended or supplemented from time to time).
"SUPPORTING OBLIGATION" shall mean all "supporting obligations" as defined in Article 9 of the UCC.
"TAX CODE" shall mean the United States Internal Revenue Code of 1986, as amended from time to time.
"TRADEMARK LICENSES" shall mean any and all agreements providing for the granting of any right in or to Trademarks (whether such Grantor is licensee or licensor thereunder) including, without limitation, each agreement referred to in Schedule 4.7(F) (as such schedule may be amended or supplemented from time to time).
"TRADEMARKS" shall mean all United States, and foreign trademarks, trade names, corporate names, company names, business names, fictitious business names, Internet domain names, service marks, certification marks, collective marks, logos, other source or business identifiers, designs and general intangibles of a like nature, all registrations and applications for any of the foregoing including, but not limited to: (i) the registrations and applications referred to in Schedule 4.7(E) (as such schedule may be amended or supplemented from time to time), (ii) all extensions or renewals of any of the foregoing, (iii) all of the goodwill of the business connected with the use of and symbolized by the foregoing, (iv) the right to sue for past, present and future infringement or dilution of any of the foregoing or for any injury to goodwill, and (v) all Proceeds of the foregoing, including, without limitation, licenses, royalties, income, payments, claims, damages, and proceeds of suit.
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"TRADE SECRET LICENSES" shall mean any and all agreements providing for the granting of any right in or to Trade Secrets (whether such Grantor is licensee or licensor thereunder) including, without limitation, each agreement referred to in Schedule 4.7(G) (as such schedule may be amended or supplemented from time to time).
"TRADE SECRETS" shall mean all trade secrets and all other confidential or proprietary information and know-how whether or not such Trade Secret has been reduced to a writing or other tangible form, including all documents and things embodying, incorporating, or referring in any way to such Trade Secret, including but not limited to: (i) the right to sue for past, present and future misappropriation or other violation of any Trade Secret, and
(ii) all Proceeds of the foregoing, including, without limitation, licenses, royalties, income, payments, claims, damages, and proceeds of suit.
"UCC" shall mean the Uniform Commercial Code as in effect from time to time in the State of New York or, when the context implies, the Uniform Commercial Code as in effect from time to time in any other applicable jurisdiction.
"UNITED STATES" shall mean the United States of America.
1.2 DEFINITIONS; INTERPRETATION. All capitalized terms used herein (including the preamble and recitals hereto) and not otherwise defined herein shall have the meanings ascribed thereto in the Credit Agreement or, if not defined therein, in the UCC. References to "Sections," "Exhibits" and "Schedules" shall be to Sections, Exhibits and Schedules, as the case may be, of this Agreement unless otherwise specifically provided. Section headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose or be given any substantive effect. Any of the terms defined herein may, unless the context otherwise requires, be used in the singular or the plural, depending on the reference. The use herein of the word "include" or "including", when following any general statement, term or matter, shall not be construed to limit such statement, term or matter to the specific items or matters set forth immediately following such word or to similar items or matters, whether or not nonlimiting language (such as "without limitation" or "but not limited to" or words of similar import) is used with reference thereto, but rather shall be deemed to refer to all other items or matters that fall within the broadest possible scope of such general statement, term or matter. If any conflict or inconsistency exists between this Agreement and the Credit Agreement, the Credit Agreement shall govern. All references herein to provisions of the UCC shall include all successor provisions under any subsequent version or amendment to any Article of the UCC.
SECTION 2. GRANT OF SECURITY.
2.1 GRANT OF SECURITY. Each Grantor hereby grants to the Collateral Agent a security interest in and continuing lien on all of such Grantor's right, title and interest in, to and under all personal property of such Grantor including, but not limited to the following, in each case whether now owned or existing or hereafter acquired or arising and wherever located (all of which being hereinafter collectively referred to as the "COLLATERAL"):
(a) Accounts;
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(b) Chattel Paper;
(c) Documents;
(d) General Intangibles;
(e) Goods;
(f) Instruments;
(g) Insurance;
(h) Intellectual Property;
(i) Investment Related Property;
(j) Letter of Credit Rights;
(k) Money;
(l) Receivables and Receivable Records;
(m) Commercial Tort Claims;
(n) to the extent not otherwise included above, all Collateral Records, Collateral Support and Supporting Obligations relating to any of the foregoing; and
(o) to the extent not otherwise included above, all Proceeds, products, accessions, rents and profits of or in respect of any of the foregoing.
2.2 CERTAIN LIMITED EXCLUSIONS. Notwithstanding anything herein to the contrary, in no event shall the security interest granted under Section 2.1 hereof attach to (a) any Intellectual Property, lease, license, contract, property rights or agreement to which any Grantor is a party or any of its rights or interests thereunder if and for so long as the grant of such security interest shall constitute or result in (i) the abandonment, invalidation or the rendering unenforceable of any right, title or interest of any Grantor therein or (ii) in a breach or termination pursuant to the terms of, or constitute a default under or termination of, any such lease, license, contract property rights or agreement (other than to the extent that any such term would be rendered ineffective pursuant to Sections 9-406, 9-407, 9-408 or 9-409 of the UCC (or any successor provision or provisions) of any relevant jurisdiction or any other applicable law (including the Bankruptcy Code) or principles of equity); provided, however that such security interest shall attach immediately at such time as the condition causing such abandonment, invalidation or unenforceability shall be remedied and to the extent severable, shall attach immediately to any portion of such lease, license, contract, property rights or agreement that does not result in any of the consequences specified in (i) or
(ii) above; (b) any Permitted Tax Distributions; or (c) in any of the outstanding Capital Stock of a Controlled Foreign Corporation in excess of 65% of the voting power of all classes of Capital Stock of such Controlled Foreign Corporation entitled to vote; provided that immediately upon the amendment of the Tax Code to allow the pledge of a greater percentage of the voting power of Capital Stock in a Controlled Foreign Corporation without adverse tax consequences, the Collateral shall
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include, and the security interest granted by each Grantor shall attach to, such greater percentage of Capital Stock of each Controlled Foreign Corporation.
SECTION 3. SECURITY FOR OBLIGATIONS; GRANTORS REMAIN LIABLE.
3.1 SECURITY FOR OBLIGATIONS. This Agreement secures, and the Collateral is collateral security for, the prompt and complete payment or performance in full when due, whether at stated maturity, by required prepayment, declaration, acceleration, demand or otherwise (including the payment of amounts that would become due but for the operation of the automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C. Section 362(a) (and any successor provision thereof)), of all Obligations with respect to every Grantor (the "SECURED OBLIGATIONS").
3.2 CONTINUING LIABILITY UNDER COLLATERAL. Notwithstanding anything herein to the contrary, (i) each Grantor shall remain liable for all obligations under the Collateral and nothing contained herein is intended or shall be a delegation of duties to the Collateral Agent or any Secured Party, (ii) each Grantor shall remain liable under each of the agreements included in the Collateral, including, without limitation, any agreements relating to Pledged Partnership Interests or Pledged LLC Interests, to perform all of the obligations undertaken by it thereunder all in accordance with and pursuant to the terms and provisions thereof and neither the Collateral Agent nor any Secured Party shall have any obligation or liability under any of such agreements by reason of or arising out of this Agreement or any other document related thereto nor shall the Collateral Agent nor any Secured Party have any obligation to make any inquiry as to the nature or sufficiency of any payment received by it or have any obligation to take any action to collect or enforce any rights under any agreement included in the Collateral, including, without limitation, any agreements relating to Pledged Partnership Interests or Pledged LLC Interests, and (iii) the exercise by the Collateral Agent of any of its rights hereunder shall not release any Grantor from any of its duties or obligations under the contracts and agreements included in the Collateral.
SECTION 4. REPRESENTATIONS AND WARRANTIES AND COVENANTS.
4.1 Generally.
(a) Representations and Warranties. Each Grantor hereby represents and warrants, on the Closing Date and on each Credit Date, that:
(i) it owns the Collateral purported to be owned by it or otherwise has the rights it purports to have in each item of Collateral and, as to all Collateral whether now existing or hereafter acquired, will continue to own or have such rights in each item of the Collateral, in each case free and clear of any and all Liens, rights or claims of all other Persons other than Permitted Liens;
(ii) it has indicated on Schedule 4.1(A)(as such schedule may be amended or supplemented from time to time): (w) the type of organization of such Grantor, (x) the jurisdiction of organization of such Grantor, (y) its organizational identification number and (z) the jurisdiction where the chief executive office or its sole
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place of business is (or the principal residence if such Grantor is a natural person), and for the one-year period preceding the date hereof has been, located.
(iii) the full legal name of such Grantor is as set forth on Schedule 4.1(A) and it has not done in the last five (5) years, and does not do, business under any other name (including any trade-name or fictitious business name) except for those names set forth on Schedule
4.1(B) (as such schedule may be amended or supplemented from time to time);
(iv) except as provided on Schedule 4.1(C), it has not changed its name, jurisdiction of organization, chief executive office or sole place of business (or principal residence if such Grantor is a natural person) or its corporate structure in any way (e.g., by merger, consolidation, change in corporate form or otherwise) within the past five (5) years;
(v) it has not within the last five (5) years become bound (whether as a result of merger or otherwise) as debtor under a security agreement entered into by another Person, which has not heretofore been terminated other than the agreements identified on Schedule 4.1(D) hereof (as such schedule may be amended or supplemented from time to time);
(vi) with respect to each agreement identified on Schedule 4.1(D), it has indicated on Schedule 4.1 (A) and Schedule 4.1(B) the information required pursuant to Section 4.1(a)(ii), (iii) and (iv) with respect to the debtor under each such agreement;
(vii) upon the filing of all UCC financing statements (and the payment of any fees applicable thereto) naming each Grantor as "debtor" and the Collateral Agent as "secured party" and describing the Collateral in the filing offices set forth opposite such Grantor's name on Schedule 4.1(E) hereof (as such schedule may be amended or supplemented from time to time) and other filings delivered by each Grantor, upon execution of a control agreement in the form of Exhibit D hereto with respect to any Deposit Account, the balance of which exceeds $400,000, upon execution of a control agreement in the form of Exhibit C hereto with respect to any Securities Account carrying a positive balance, upon delivery by the applicable Grantor to the Collateral Agent any certificated Securities together with the applicable stock power, upon execution of a control agreement in the form of Exhibit B hereto with respect to any Uncertificated Securities, upon delivery by any bailee holding any Collateral of any Grantor, acknowledgment that it is holding such Collateral for the benefit of the Collateral Agent, upon consent of the issuer with respect to Letter of Credit Rights, and to the extent not subject to Article 9 of the UCC, upon recordation of the security interests granted hereunder in Patents, Trademarks and Copyrights in the applicable intellectual property registries, including but not limited to the United States Patent and Trademark Office and the United States Copyright Office, the security interests granted to the Collateral Agent hereunder constitute valid and perfected first priority Liens (subject in the case of priority only to Permitted Liens and to the rights of the United States government (including any agency or department thereof) with respect to United States government Receivables) on all of the Collateral;
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(viii) all actions and consents, including all filings, notices, registrations and recordings necessary for the exercise by the Collateral Agent of the voting or other rights provided for in this Agreement or the exercise of remedies in respect of the Collateral have been made or obtained;
(ix) other than the financing statements filed in favor of the Collateral Agent, no effective UCC financing statement, fixture filing or other instrument similar in effect under any applicable law covering all or any part of the Collateral is on file in any filing or recording office except for (x) financing statements for which proper termination statements have been delivered to the Collateral Agent for filing and
(y) financing statements filed in connection with Permitted Liens;
(x) no authorization, approval or other action by, and no notice to or filing with, any Governmental Authority or regulatory body is required for either (i) the pledge or grant by any Grantor of the Liens purported to be created in favor of the Collateral Agent hereunder or (ii) the exercise by Collateral Agent of any rights or remedies in respect of any Collateral (whether specifically granted or created hereunder or created or provided for by applicable law), except (A) for the filings contemplated by clause (vii) above and (B) as may be required, in connection with the disposition of any Investment Related Property, by laws generally affecting the offering and sale of Securities;
(xi) all written information supplied by any Grantor with respect to any of the Collateral (in each case taken as a whole with respect to any particular Collateral) is accurate and complete in all material respects;
(xii) none of the Collateral constitutes, or is the Proceeds of, "farm products" (as defined in the UCC);
(xiii) it does not own any "as extracted collateral" (as defined in the UCC) or any timber to be cut;
(xiv) Except as described on Schedule 4.1(D), such Grantor has not become bound as a debtor, either by contract or by operation of law, by a security agreement previously entered into by another Person; and
(xv) Such Grantor has been duly organized as an entity of the type as set forth opposite such Grantor's name on Schedule 4.1(A) solely under the laws of the jurisdiction as set forth opposite such Grantor's name on Schedule 4.1(A) and remains duly existing as such. Such Grantor has not filed any certificates of domestication, transfer or continuance in any other jurisdiction.
(b) Covenants and Agreements. Each Grantor hereby covenants and agrees that:
(i) except for the security interest created by this Agreement, it shall not create or suffer to exist any Lien upon or with respect to any of the Collateral, except Permitted Liens, and such Grantor shall defend the Collateral against all Persons at any time claiming any interest therein;
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(ii) it shall not produce, use or permit any Collateral to be used unlawfully or in violation of any provision of this Agreement or any applicable statute, regulation or ordinance or any policy of insurance covering the Collateral;
(iii) it shall not change such Grantor's name, identity, corporate structure (e.g., by merger, consolidation, change in corporate form or otherwise) sole place of business (or principal residence if such Grantor is a natural person), chief executive office, type of organization or jurisdiction of organization or establish any trade names unless it shall have (a) notified the Collateral Agent in writing, by executing and delivering to the Collateral Agent a completed Pledge Supplement, substantially in the form of Exhibit A attached hereto, together with all Supplements to Schedules thereto, at least thirty (30) days prior to any such change or establishment, identifying such new proposed name, identity, corporate structure, sole place of business (or principal residence if such Grantor is a natural person), chief executive office, jurisdiction of organization or trade name and providing such other information in connection therewith as the Collateral Agent may reasonably request and (b) taken all actions necessary or advisable to maintain the continuous validity, perfection and the same or better priority of the Collateral Agent's security interest in the Collateral intended to be granted and agreed to hereby;
(iv) if the Collateral Agent or any Secured Party gives value to enable Grantor to acquire rights in or the use of any Collateral, it shall use such value for such purposes and such Grantor further agrees that repayment of any Obligation shall apply on a "first-in, first-out" basis so that the portion of the value used to acquire rights in any Collateral shall be paid in the chronological order such Grantor acquired rights therein;
(v) it shall pay promptly when due all property and other taxes, assessments and governmental charges or levies imposed upon, and all claims (including claims for labor, materials and supplies) against, the Collateral, except to the extent the validity thereof is being contested in good faith; provided, such Grantor shall in any event pay such taxes, assessments, charges, levies or claims not later than five (5) days prior to the date of any proposed sale under any judgment, writ or warrant of attachment entered or filed against such Grantor or any of the Collateral as a result of the failure to make such payment;
(vi) upon such Grantor or any officer of such Grantor obtaining knowledge thereof, it shall promptly notify the Collateral Agent in writing of any event that may materially and adversely affect the value of the Collateral or any material portion thereof, the ability of any Grantor or the Collateral Agent to dispose of the Collateral or any material portion thereof, or the rights and remedies of the Collateral Agent in relation thereto, including, without limitation, the levy of any legal process against the Collateral or any portion thereof;
(vii) it shall not take or permit any action which could impair the Collateral Agent's rights in the Collateral; and
(viii) it shall not sell, transfer or assign (by operation of law or otherwise) any Collateral except as Permitted Sales; provided that in connection with any Permitted Sale the Collateral Agent shall release the Lien hereof encumbering the
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Collateral that is the subject of such Permitted Sale and the Collateral Agent shall execute each and every appropriate filing statement and/or recording document reasonably requested by any Grantor in connection with the foregoing. Any reasonable expense or cost incurred by the Collateral Agent in connection with any such release shall be for the account of the applicable Grantor.
4.2 EQUIPMENT AND INVENTORY.
(a) Representations and Warranties. Each Grantor represents and warrants, on the Closing Date and on each Credit Date, that:
(i) all of the Equipment and Inventory included in the Collateral has been kept for the past two (2) years only at the locations specified in Schedule 4.2;
(ii) any Goods now or hereafter produced by any Grantor included in the Collateral have been and will be produced in compliance with the requirements of the Fair Labor Standards Act, as amended; and
(iii) none of the Inventory or Equipment is in the possession of an issuer of a negotiable document (as defined in Section 7-104 of the UCC) therefor or otherwise in the possession of a bailee or a warehouseman.
(b) Covenants and Agreements. Each Grantor covenants and agrees that:
(i) it shall keep the Equipment, Inventory and any Documents evidencing any Equipment and Inventory in the locations specified on Schedule 4.2 (as such schedule may be amended or supplemented from time to time) unless it shall have (a) notified the Collateral Agent in writing, by executing and delivering to the Collateral Agent a completed Pledge Supplement, substantially in the form of Exhibit A attached hereto, together with all Supplements to Schedules thereto, at least thirty (30) days prior to any change in locations, identifying such new locations and providing such other information in connection therewith as the Collateral Agent may reasonably request and (b) taken all actions necessary or advisable to maintain the continuous validity, perfection and the same or better priority of the Collateral Agent's security interest in the Collateral intended to be granted and agreed to hereby, or to enable the Collateral Agent to exercise and enforce its rights and remedies hereunder, with respect to such Equipment and Inventory;
(ii) it shall keep correct and accurate records of the Inventory, as is customarily maintained under similar circumstances by Persons of established reputation engaged in similar business, and in any event in conformity with GAAP;
(iii) it shall not deliver any Document evidencing any Equipment and Inventory to any Person other than the issuer of such Document to claim the Goods evidenced therefor or the Collateral Agent;
(iv) if any Equipment or Inventory having a value in excess of $250,000 in the aggregate is in possession or control of any third party, each Grantor
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shall join with the Collateral Agent in notifying the third party of the Collateral Agent's security interest and use its reasonable best efforts in obtaining an acknowledgment from the third party that it is holding the Equipment and Inventory for the benefit of the Collateral Agent; and
(v) with respect to any item of Equipment which is covered by a certificate of title under a statute of any jurisdiction under the law of which indication of a security interest on such certificate is required as a condition of perfection thereof, upon the reasonable request of the Collateral Agent execute and file with the registrar of motor vehicles or other appropriate authority in such jurisdiction an application or other document requesting the notation or other indication of the security interest created hereunder on such certificate of title, and, upon the reasonable request of the Collateral Agent, deliver to the Collateral Agent copies of all such applications or other documents filed during such calendar quarter and copies of all such certificates of title issued during such calendar quarter indicating the security interest created hereunder in the items of Equipment covered thereby.
4.3 RECEIVABLES.
(a) Representations and Warranties. Each Grantor represents and warrants, on the Closing Date and on each Credit Date, that:
(i) each Receivable (a) is and will be the legal, valid and binding obligation of the Account Debtor in respect thereof, representing an unsatisfied obligation of such Account Debtor, (b) is and will be enforceable in accordance with its terms, (c) is not and will not be subject to any setoffs, defenses, taxes, counterclaims (except with respect to refunds, returns and allowances in the ordinary course of business with respect to damaged merchandise) and (d) is and will be in compliance with all applicable laws, whether federal, state, local or foreign;
(ii) none of the Account Debtors in respect of any Receivable in excess of $2,500,000 in the aggregate is the government of the United States, any agency or instrumentality thereof. No Receivable in excess of $2,500,000 in the aggregate requires the consent of the Account Debtor in respect thereof in connection with the pledge hereunder, except any consent which has been obtained; and
(iii) no Receivable is evidenced by, or constitutes, an Instrument or Chattel Paper which has not been delivered to, or otherwise subjected to the control of, the Collateral Agent to the extent required by, and in accordance with Section 4.3(c).
(b) Covenants and Agreements: Each Grantor hereby covenants and agrees that:
(i) it shall keep and maintain at its own cost and expense satisfactory and complete records of the Receivables, including, but not limited to, the originals of all documentation with respect to all Receivables and records of all payments received and all credits granted on the Receivables, all merchandise returned and all other dealings therewith;
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(ii) it shall mark conspicuously, in form and manner reasonably satisfactory to the Collateral Agent, all Chattel Paper, Instruments and other evidence of Receivables (other than any delivered to the Collateral Agent as provided herein) in each case provided such Chattel Paper, Instruments and other evidence of Receivables is in excess of $500,000, as well as the Receivables Records with an appropriate reference to the fact that the Collateral Agent has a security interest therein;
(iii) it shall perform in all material respects all of its obligations with respect to the Receivables;
(iv) it shall not amend, modify, terminate or waive any provision of any Receivable in excess of $250,000 individually in any manner which could reasonably be expected to have a Material Adverse Effect on the value of such Receivable as Collateral. Other than in the ordinary course of business as generally conducted by it on and prior to the date hereof, and except as otherwise provided in subsection (v) below, following an Event of Default, such Grantor shall not (w) grant any extension or renewal of the time of payment of any Receivable, (x) compromise or settle any dispute, claim or legal proceeding with respect to any Receivable for less than the total unpaid balance thereof, (y) release, wholly or partially, any Person liable for the payment thereof, or (z) allow any credit or discount thereon;
(v) except as otherwise provided in this subsection, each Grantor shall continue to collect all amounts due or to become due to such Grantor under the Receivables and any Supporting Obligation and diligently exercise each material right it may have under any Receivable any Supporting Obligation or Collateral Support, in each case, at its own expense, and in connection with such collections and exercise, such Grantor shall take such action as such Grantor or the Collateral Agent (upon notice to the applicable Grantor) may deem necessary or advisable. Notwithstanding the foregoing, the Collateral Agent shall have the right at any time to notify, or require any Grantor to notify, any Account Debtor of the Collateral Agent's security interest in the Receivables and any Supporting Obligation and, in addition, at any time following the occurrence and during the continuation of an Event of Default, the Collateral Agent may: (1) direct the Account Debtors under any Receivables to make payment of all amounts due or to become due to such Grantor thereunder directly to the Collateral Agent; (2) notify, or require any Grantor to notify, each Person maintaining a lockbox or similar arrangement to which Account Debtors under any Receivables have been directed to make payment to remit all amounts representing collections on checks and other payment items from time to time sent to or deposited in such lockbox or other arrangement directly to the Collateral Agent; and (3) enforce, at the expense of such Grantor, collection of any such Receivables and to adjust, settle or compromise the amount or payment thereof, in the same manner and to the same extent as such Grantor might have done. If the Collateral Agent notifies any Grantor that it has elected to collect the Receivables in accordance with the preceding sentence, any payments of Receivables received by such Grantor shall be forthwith (and in any event within two (2) Business Days) deposited by such Grantor in the exact form received, duly indorsed by such Grantor to the Collateral Agent if required, in the Collateral Account maintained under the sole dominion and control of the Collateral Agent, and until so turned over, all amounts and proceeds (including checks and other instruments) received by such Grantor in respect of the Receivables, any Supporting Obligation or Collateral Support shall be received in trust for the benefit of the Collateral Agent hereunder and shall be segregated from other funds of such Grantor
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and such Grantor shall not adjust, settle or compromise the amount or payment of any Receivable, or release wholly or partly any Account Debtor or obligor thereof, or allow any credit or discount thereon; and
(vi) it shall use its best efforts to keep in full force and effect any Supporting Obligation or Collateral Support relating to any Receivable.
(c) Delivery and Control of Receivables. With respect to any Receivable in excess of $250,000 individually that is evidenced by, or constitutes, Chattel Paper or Instruments, each Grantor shall cause each originally executed copy thereof to be delivered to the Collateral Agent (or its agent or designee) appropriately indorsed to the Collateral Agent or indorsed in blank: (i) with respect to any such Receivable in existence on the date hereof, on or prior to the date hereof and (ii) with respect to any such Receivable hereafter arising, within ten (10) days of such Grantor acquiring rights therein. With respect to any Receivable in excess of $250,000 individually which would constitute "electronic chattel paper" under Article 9 of the UCC, each Grantor shall take all steps necessary to give the Collateral Agent control over such Receivable (within the meaning of Section 9-105 of the UCC): (i) with respect to any such Receivable in existence on the date hereof, on or prior to the date hereof and (ii) with respect to any such Receivable hereafter arising, within ten (10) days of such Grantor acquiring rights therein. Any Receivable not otherwise required to be delivered or subjected to the control of the Collateral Agent in accordance with this subsection (c) shall be delivered or subjected to such control upon request of the Collateral Agent.
4.4 INVESTMENT RELATED PROPERTY
4.4.1. INVESTMENT RELATED PROPERTY GENERALLY
(a) Covenants and Agreements. Each Grantor hereby covenants and agrees that:
(i) in the event it acquires rights in any Investment Related Property after the date hereof, it shall deliver to the Collateral Agent a completed Pledge Supplement, substantially in the form of Exhibit A attached hereto, together with all Supplements to Schedules thereto, reflecting such new Investment Related Property and all other Investment Related Property. Notwithstanding the foregoing, it is understood and agreed that the security interest of the Collateral Agent shall attach to all Investment Related Property immediately upon any Grantor's acquisition of rights therein and shall not be affected by the failure of any Grantor to deliver a supplement to Schedule 4.4 as required hereby;
(ii) except as provided in the next sentence, in the event such Grantor receives any dividends, interest or distributions on any Investment Related Property, or any securities or other property upon the merger, consolidation, liquidation or dissolution of any issuer of any Investment Related Property, then (a) such dividends, interest or distributions and securities or other property shall be included in the definition of Collateral without further action and (b) such Grantor shall immediately take all steps, if any, necessary or advisable to ensure the validity, perfection, priority and, if applicable, control of the Collateral Agent over such Investment Related Property (including, without limitation, delivery thereof to the Collateral Agent) and pending any such action such Grantor shall be deemed to hold such dividends, interest, distributions, securities or other
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property in trust for the benefit of the Collateral Agent and shall segregate such dividends, distributions, Securities or other property from all other property of such Grantor. Notwithstanding the foregoing, so long as no Event of Default shall have occurred and be continuing, the Collateral Agent authorizes each Grantor to retain all ordinary cash dividends and distributions paid in the normal course of the business of the issuer and consistent with the past practice of the issuer and all scheduled payments of interest;
(iii) each Grantor consents to the grant by each other Grantor of a security interest in all Investment Related Property to the Collateral Agent.
(b) Delivery and Control.
(i) Each Grantor agrees that with respect to any Investment Related Property in which it currently has rights it shall comply with the provisions of this Section 4.4.1(b) on or before the Credit Date and with respect to any Investment Related Property hereafter acquired by such Grantor it shall comply with the provisions of this Section 4.4.1(b) immediately upon acquiring rights therein, in each case in form and substance satisfactory to the Collateral Agent. With respect to any Investment Related Property that is represented by a certificate or that is an "instrument" (other than any Investment Related Property credited to a Securities Account) it shall cause such certificate or instrument to be delivered to the Collateral Agent, indorsed in blank by an "effective indorsement" (as defined in Section 8-107 of the UCC), regardless of whether such certificate constitutes a "certificated security" for purposes of the UCC. With respect to any Investment Related Property that is an "uncertificated security" for purposes of the UCC (other than any "uncertificated securities" credited to a Securities Account), it shall cause the issuer of such uncertificated security to either (i) register the Collateral Agent as the registered owner thereof on the books and records of the issuer or (ii) execute an agreement substantially in the form of Exhibit B hereto, pursuant to which such issuer agrees to comply with the Collateral Agent's instructions with respect to such uncertificated security without further consent by such Grantor.
(c) Voting and Distributions.
(i) So long as no Event of Default shall have occurred and be continuing:
(1) except as otherwise provided under the covenants and agreements relating to investment related property in this Agreement or elsewhere herein or in the Credit Agreement, each Grantor shall be entitled to exercise or refrain from exercising any and all voting and other consensual rights pertaining to the Investment Related Property or any part thereof for any purpose not inconsistent with the terms of this Agreement or the Credit Agreement; provided, no Grantor shall exercise or refrain from exercising any such right if the Collateral Agent shall have notified such Grantor that, in the Collateral Agent's reasonable judgment, such action would have a Material Adverse Effect on the value of the Investment Related Property or any part thereof; and provided further, such Grantor shall give the Collateral Agent at least five (5) Business Days prior written notice of the manner in which it intends to exercise, or the reasons for refraining from exercising, any such right; it being understood, however, that
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neither the voting by such Grantor of any Pledged Stock for, or such Grantor's consent to, the election of directors (or similar governing body) at a regularly scheduled annual or other meeting of stockholders or with respect to incidental matters at any such meeting, nor such Grantor's consent to or approval of any action otherwise permitted under or not prohibited by this Agreement and the Credit Agreement, shall be deemed inconsistent with the terms of this Agreement or the Credit Agreement within the meaning of this Section 4.4(c)(i)(1), and no notice of any such voting or consent need be given to the Collateral Agent; and
(2) the Collateral Agent shall promptly execute and deliver (or cause to be executed and delivered) to each Grantor all proxies, and other instruments as such Grantor may from time to time reasonably request for the purpose of enabling such Grantor to exercise the voting and other consensual rights when and to the extent which it is entitled to exercise pursuant to clause (1) above;
(3) Upon the occurrence and during the continuation of an Event of Default:
(A) all rights of each Grantor to exercise or refrain from exercising the voting and other consensual rights which it would otherwise be entitled to exercise pursuant hereto shall cease and all such rights shall thereupon become vested in the Collateral Agent who shall thereupon have the sole right to exercise such voting and other consensual rights; and
(B) in order to permit the Collateral Agent to exercise the voting and other consensual rights which it may be entitled to exercise pursuant hereto and to receive all dividends and other distributions which it may be entitled to receive hereunder: (1) each Grantor shall promptly execute and deliver (or cause to be executed and delivered) to the Collateral Agent all proxies, dividend payment orders and other instruments as the Collateral Agent may from time to time reasonably request and (2) the each Grantor acknowledges that the Collateral Agent may utilize the power of attorney set forth in Section 6.1.
4.4.2 PLEDGED EQUITY INTERESTS
(a) Representations and Warranties. Each Grantor hereby represents and warrants, on the Closing Date and on each Credit Date, that:
(i) Schedule 4.4(A) (as such schedule may be amended or supplemented from time to time) sets forth under the headings "Pledged Stock, "Pledged LLC Interests," "Pledged Partnership Interests" and "Pledged Trust Interests," respectively, all of the Pledged Stock, Pledged LLC Interests, Pledged Partnership Interests and Pledged Trust Interests owned by any Grantor and such Pledged Equity Interests constitute the percentage of issued and outstanding shares of stock, percentage of membership interests, percentage of partnership interests or percentage of beneficial interest of the respective issuers thereof indicated on such Schedule;
(ii) it is the record and beneficial owner of the Pledged Equity Interests free of all Liens, rights or claims of other Persons other than Permitted Liens
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and there are no outstanding warrants, options or other rights to purchase, or shareholder, voting trust or similar agreements outstanding with respect to, or property that is convertible into, or that requires the issuance or sale of, any Pledged Equity Interests;
(iii) without limiting the generality of Section 4.1(a)(v), no consent of any Person including any other general or limited partner, any other member of a limited liability company, any other shareholder or any other trust beneficiary is necessary or desirable in connection with the creation, perfection or first priority status of the security interest of the Collateral Agent in any Pledged Equity Interests or the exercise by the Collateral Agent of the voting or other rights provided for in this Agreement or the exercise of remedies in respect thereof; and
(iv) none of the Pledged LLC Interests nor Pledged Partnership Interests are or represent interests in issuers that: (a) are registered as investment companies, (b) are dealt in or traded on securities exchanges or markets or (c) have opted to be treated as securities under the uniform commercial code of any jurisdiction.
(b) Covenants and Agreements. Each Grantor hereby covenants and agrees that:
(i) without the prior written consent of the Collateral Agent, it shall not vote to enable or take any other action to: (a) amend or terminate any partnership agreement, limited liability company agreement, certificate of incorporation, by-laws or other organizational documents in any way that materially changes the rights of such Grantor with respect to any Investment Related Property or adversely affects the validity, perfection or priority of the Collateral Agent's security interest, (b) permit any issuer of any Pledged Equity Interest to issue any additional stock, partnership interests, limited liability company interests or other equity interests of any nature or to issue securities convertible into or granting the right of purchase or exchange for any stock or other equity interest of any nature of such issuer, except, in each case, (i) the issuance of Securities by any Grantor pursuant to any outstanding options or warrants issued by such Grantor prior to the Closing Date,
(ii) the issuance of additional Securities of any Grantor pursuant to the Holdings' Unit Option Plan II dated January 1, 2001, as amended to the date hereof, and (iii) the issuance of any Securities by any Grantor in connection with any Permitted Acquisition, (c) other than as permitted under the Credit Agreement, permit any issuer of any Pledged Equity Interest to dispose of all or a material portion of their assets, (d) waive any default under or breach of any terms of organizational document relating to the issuer of any Pledged Equity Interest or the terms of any Pledged Debt, or (e) cause any issuer of any Pledged Partnership Interests or Pledged LLC Interests which are not Securities (for purposes of the UCC) on the Closing Date to elect or otherwise take any action to cause such Pledged Partnership Interests or Pledged LLC Interests to be treated as Securities for purposes of the UCC; provided, however, notwithstanding the foregoing, if any issuer of any Pledged Partnership Interests or Pledged LLC Interests takes any such action in violation of the foregoing in this clause (e), such Grantor shall promptly notify the Collateral Agent in writing of any such election or action and, in such event, shall take all steps necessary or advisable to establish the Collateral Agent's "control" thereof;
(ii) it shall comply with all of its obligations under any partnership agreement or limited liability company agreement relating to Pledged
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Partnership Interests or Pledged LLC Interests and shall enforce all of its rights with respect to any Investment Related Property;
(iii) without the prior written consent of the Collateral Agent, it shall not permit any issuer of any Pledged Equity Interest to merge or consolidate unless (i) such issuer creates a security interest that is perfected by a filed financing statement (that is not effective solely under section 9-508 of the UCC) in collateral in which such new debtor has or acquires rights, and (ii) all the outstanding Capital Stock of the surviving or resulting corporation, limited liability company, partnership or other entity is, upon such merger or consolidation, pledged hereunder and no cash, Securities or other property is distributed in respect of the outstanding Capital Stock of any other constituent Grantor; provided that if the surviving or resulting Grantors upon any such merger or consolidation involving an issuer which is a Controlled Foreign Corporation, then such Grantor shall only be required to pledge Capital Stock in accordance with
Section 2.2; and
(iv) each Grantor consents to the grant by each other Grantor of a security interest in all Investment Related Property to the Collateral Agent and, without limiting the foregoing, consents to the transfer of any Pledged Partnership Interest and any Pledged LLC Interest to the Collateral Agent or its nominee following an Event of Default and to the substitution of the Collateral Agent or its nominee as a partner in any partnership or as a member in any limited liability company with all the rights and powers related thereto.
(v) it shall notify the Collateral Agent of any default under any Pledged Debt that has caused, either in any case or in the aggregate, a Material Adverse Effect.
4.4.3 PLEDGED DEBT
(a) Representations and Warranties. Each Grantor hereby represents and warrants, on the Closing Date and each Credit Date, that:
(i) Schedule 4.4 (as such schedule may be amended or supplemented from time to time) sets forth under the heading "Pledged Debt" all of the Pledged Debt owned by any Grantor and all of such Pledged Debt has been duly authorized, authenticated or issued, and delivered and is the legal, valid and binding obligation of the issuers thereof and is not in default and constitutes all of the issued and outstanding inter-company Indebtedness;
(b) Covenants and Agreements. Each Grantor hereby covenants and agrees that:
(i) it shall notify the Collateral Agent of any default under any Pledged Debt that has caused, either in any individual case or in the aggregate, a Material Adverse Effect.
4.4.4 INVESTMENT ACCOUNTS
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(a) Representations and Warranties. Each Grantor hereby represents and warrants, on the Closing Date and each Credit Date, that:
(i) Schedule 4.4 hereto (as such schedule may be amended or supplemented from time to time) sets forth under the headings "Securities Accounts" and "Commodities Accounts," respectively, all of the Securities Accounts and Commodities Accounts in which each Grantor has an interest. Each Grantor is the sole entitlement holder of each such Securities Account and Commodity Account, and such Grantor has not consented to, and is not otherwise aware of, any Person (other than the Collateral Agent pursuant thereto) having "control" (within the meanings of Sections 8-106 and 9-106 of the UCC) over, or any other interest in, any such Securities Account or Commodity Account or securities or other property credited thereto;
(ii) Schedule 4.4 hereto (as such schedule may be amended or supplemented from time to time) sets forth under the headings "Deposit Accounts" all of the Deposit Accounts in which each Grantor has an interest. Each Grantor is the sole account holder of each such Deposit Account and such Grantor has not consented to, and is not otherwise aware of, any Person (other than the Collateral Agent pursuant thereto) having either sole dominion and control (within the meaning of common law) or "control" (within the meanings of Section 9-104 of the UCC) over, or any other interest in, any such Deposit Account or any money or other property deposited therein; and
(iii) Each Grantor has taken all actions necessary or desirable, including those specified in Section 4.4.4(c), to: (a) establish Collateral Agent's "control" (within the meanings of Sections 8-106 and 9-106 of the UCC) over any portion of the Investment Related Property constituting Certificated Securities, Uncertificated Securities, Securities Accounts, Securities Entitlements or Commodities Accounts (each as defined in the UCC) other than as separately listed on Schedule 4.4.4(a)(iii) hereto; (b) establish the Collateral Agent's "control" (within the meaning of Section 9-104 of the UCC) over all Deposit Accounts that have a balance in excess of $400,000; and (c) deliver all Instruments to the Collateral Agent.
(b) Covenant and Agreement. Each Grantor hereby covenants and agrees with the Collateral Agent and each other Secured Party that it shall not close or terminate any Investment Account having a balance in excess of $400,000 without the prior consent of the Collateral Agent and unless a successor or replacement account has been established with the consent of the Collateral Agent with respect to which successor or replacement account a control agreement has been entered into by the appropriate Grantor, Collateral Agent and securities intermediary or depository institution at which such successor or replacement account is to be maintained in accordance with the provisions of
Section 4.4.4(c).
(c) Delivery and Control
(i) With respect to any Investment Related Property consisting of Securities Accounts carrying a positive balance or Securities Entitlements set forth on Schedule 4.4, it shall cause the securities intermediary maintaining such Securities Account or Securities Entitlement to enter into an agreement substantially in the form of Exhibit C hereto pursuant to which it shall agree to comply with the Collateral Agent's "entitlement orders" without further consent by such Grantor. With respect to any Investment Related Property that is a "Deposit Account," having a balance in excess of
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$400,000, it shall cause the depositary institution maintaining such account to enter into an agreement substantially in the form of Exhibit D hereto, pursuant to which the Collateral Agent shall have both sole dominion and control over such Deposit Account (within the meaning of the common law) and "control" (within the meaning of Section 9-104 of the UCC) over such Deposit Account. Each Grantor shall have entered into such control agreement or agreements with respect to: (i) any Securities Accounts carrying a positive balance, Securities Entitlements or Deposit Accounts that exist on the Credit Date and that have a balance in excess of $400,000, as of or prior to the Credit Date and (ii) any Securities Accounts carrying a positive balance, Securities Entitlements or Deposit Accounts that are created or acquired after the Credit Date having a balance in excess of $400,000, as of or prior to the deposit or transfer of any such Securities Entitlements or funds, whether constituting moneys or investments, into such Securities Accounts or Deposit Accounts.
In addition to the foregoing, if any issuer of any Investment Related Property is located in a jurisdiction outside of the United States, each Grantor shall take such additional actions, including, without limitation, causing the issuer to register the pledge on its books and records or making such filings or recordings, in each case as may be necessary or advisable, under the laws of such issuer's jurisdiction to insure the validity, perfection and priority of the security interest of the Collateral Agent. Upon the occurrence of an Event of Default, the Collateral Agent shall have the right, without notice to any Grantor, to transfer all or any portion of the Investment Related Property to its name or the name of its nominee or agent. In addition, the Collateral Agent shall have the right at any time, without notice to any Grantor, to exchange any certificates or instruments representing any Investment Related Property for certificates or instruments of smaller or larger denominations.
4.5 MATERIAL CONTRACTS.
(a) Representations and Warranties. Each Grantor hereby represents and warrants, on the Closing Date and on each Credit Date, that:
(i) Schedule 4.5 (as such schedule may be amended or supplemented from time to time) sets forth all of the Material Contracts to which such Grantor has rights; and
(ii) the Material Contracts, true and complete copies (including any amendments or supplements thereof) of which have been furnished to the Collateral Agent, have been duly authorized, executed and delivered by all parties thereto, are in full force and effect and are binding upon and enforceable against all parties thereto in accordance with their respective terms. There exists no default in any material respect under any Material Contract by any party thereto and neither such Grantor, nor to its best knowledge, any other Person party thereto is likely to become in default thereunder and no Person party thereto has any defenses, counterclaims or right of set-off with respect to any Material Contract.
(b) Covenants and Agreements. Each Grantor hereby covenants and agrees that:
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(i) in addition to any rights under Section 4.3, the Collateral Agent may at any time notify, or require any Grantor to so notify, the counterparty on any Material Contract of the security interest of the Collateral Agent therein. In addition, after the occurrence and during the continuance of an Event of Default, the Collateral Agent may upon written notice to the applicable Grantor, notify, or require any Grantor to notify, the counterparty to make all payments under the Material Contracts directly to the Collateral Agent;
(ii) each Grantor shall deliver promptly to the Collateral Agent a copy of each material demand, notice or document received by it relating in any way to any Material Contract;
(iii) each Grantor shall deliver promptly to the Collateral Agent, and in any event within ten (10) Business Days, after (1) any Material Contract of such Grantor is terminated or amended in a manner that is materially adverse to such Grantor or (2) any new Material Contract is entered into by such Grantor, a written statement describing such event, with copies of such material amendments or new contracts, delivered to the Collateral Agent (to the extent such delivery is permitted by the terms of any such Material Contract, provided, no prohibition on delivery shall be effective if it were bargained for by such Grantor with the intent of avoiding compliance with this Section 4.5(b)(iii)), and an explanation of any actions being taken with respect thereto;
(iv) it shall perform in all material respects all of its obligations with respect to the Material Contracts;
(v) it shall promptly and diligently exercise each material right (except the right of termination) it may have under any Material Contract, any Supporting Obligation or Collateral Support, in each case, at its own expense, and in connection with such collections and exercise, such Grantor shall take such action as such Grantor or the Collateral Agent (upon notice to the applicable Grantor) may deem necessary or advisable;
(vi) it shall use its diligent efforts to keep in full force and effect any Supporting Obligation or Collateral Support relating to any Material Contract;
(vii) each Grantor shall, within thirty (30) days of the date hereof with respect to any Non-Assignable Contract in effect on the date hereof and within thirty (30) days after entering into any Non-Assignable Contract after the Closing Date, request in writing the consent of the counterparty or counterparties to the Non-Assignable Contract pursuant to the terms of such Non-Assignable Contract or applicable law to the assignment or granting of a security interest in such Non-Assignable Contract to Secured Party and use its best efforts to obtain such consent as soon as practicable thereafter; and
(viii) each Grantor shall use its commercially reasonable efforts to prohibit anti-assignment provisions in any Material Contract after the date hereof.
4.6 LETTER OF CREDIT RIGHTS.
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(a) Representations and Warranties. Each Grantor hereby represents and warrants, on the Closing Date and on each Credit Date, that:
(i) all material letters of credit to which such Grantor has rights is listed on Schedule 4.6 (as such schedule may be amended or supplemented from time to time) hereto; and
(ii) it has obtained the consent of each issuer of any material letter of credit to the assignment of the proceeds of the letter of credit to the Collateral Agent.
(b) Covenants and Agreements. Each Grantor hereby covenants and agrees that with respect to any material letter of credit hereafter arising it shall obtain the consent of the issuer thereof to the assignment of the proceeds of the letter of credit to the Collateral Agent and shall deliver to the Collateral Agent a completed Pledge Supplement, substantially in the form of Exhibit A attached hereto, together with all Supplements to Schedules thereto.
4.7 INTELLECTUAL PROPERTY.
(a) Representations and Warranties. Except as disclosed in Schedule 4.7(H) (as such schedule may be amended or supplemented from time to time), each Grantor hereby represents and warrants, on the Closing Date and on each Credit Date, that:
(i) Schedule 4.7 (as such schedule may be amended or supplemented from time to time) sets forth a true and complete list of
(i) all United States, state and foreign registrations of and applications for Patents, Trademarks, and Copyrights owned by each Grantor and (ii) all Patent Licenses, Trademark Licenses, Trade Secret Licenses and Copyright Licenses material to the business of such Grantor (other than any licenses relating to "off-the-shelf software");
(ii) it is the sole and exclusive owner of the entire right, title, and interest in and to all Intellectual Property listed on Schedule 4.7 (as such schedule may be amended or supplemented from time to time), and owns or has the valid right to use all other Intellectual Property used in or necessary to conduct its business, free and clear of all Liens, claims, encumbrances and licenses, except for Permitted Liens and the licenses set forth on Schedule 4.7(B), (D), (F) and (G) (as each may be amended or supplemented from time to time);
(iii) all Intellectual Property is subsisting and has not been adjudged invalid or unenforceable, in whole or in part, and each Grantor has performed all acts and has paid all renewal, maintenance, and other fees and taxes required to maintain each and every registration and application of Copyrights, Patents and Trademarks necessary to conduct its business is, to the best of each Grantor's knowledge, in full force and effect;
(iv) all Intellectual Property included in the Collateral is, to the best of each Grantor's knowledge, valid and enforceable; no holding, decision, or judgment has been rendered in any action or proceeding before any court or administrative authority challenging the validity of, such Grantor's right to register, or
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such Grantor's rights to own or use, any Intellectual Property and no such action or proceeding is pending or, to the best of such Grantor's knowledge, threatened;
(v) all registrations and applications for Copyrights, Patents and Trademarks are standing in the name of each Grantor, and none of the Trademarks, Patents, Copyrights or Trade Secrets are currently licensed by any Grantor to any Affiliate or third party, except as disclosed in Schedule 4.7(B), (D), (F), or (G) (as each may be amended or supplemented from time to time);
(vi) each Grantor has been using appropriate statutory notice of registration in connection with its use of registered Trademarks, proper marking practices in connection with the use of Patents, and appropriate notice of copyright in connection with the publication of Copyrights material to the business of such Grantor;
(vii) each Grantor uses adequate standards of quality in the manufacture, distribution, and sale of all products sold and in the provision of all services rendered under or in connection with all Trademarks and has taken all action necessary to insure that all licensees of the Trademarks owned by such Grantor use such adequate standards of quality;
(viii) to the best of each Grantor's knowledge, the conduct of such Grantor's business does not infringe upon or otherwise violate any trademark, patent, copyright, trade secret or other intellectual property right owned or controlled by a third party;
(ix) to the best of each Grantor's knowledge, no claim has been made that the use of any Intellectual Property owned or used by each Grantor (or any of its respective licensees) violates the asserted rights of any third party;
(x) to the best of each Grantor's knowledge, no third party is infringing upon or otherwise violating any rights in any Intellectual Property owned or used by such Grantor, or any of its respective licensees;
(xi) no settlement or consents, covenants not to sue, nonassertion assurances, or releases have been entered into by Grantor or to which Grantor is bound that adversely affect Grantor's rights to own or use any Intellectual Property; and
(xii) other than in the ordinary course of business, each Grantor has not made a previous assignment, sale, transfer or agreement constituting a present or future assignment, sale, transfer or agreement of any Intellectual Property that has not been terminated or released. There is no effective financing statement or other document or instrument now executed, or on file or recorded in any public office, granting a security interest in or otherwise encumbering any part of the Intellectual Property, other than in favor of the Collateral Agent.
(b) Covenants and Agreements. Each Grantor hereby covenants and agrees as follows:
(i) it shall not do any act or omit to do any act whereby any of the Intellectual Property which is material to the business of Grantor may lapse, or
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become abandoned, dedicated to the public, or unenforceable, or which would adversely affect the validity, grant, or enforceability of the security interest granted therein;
(ii) it shall not, with respect to any Trademarks which are material to the business of any Grantor, cease the use of any of such Trademarks or fail to maintain the level of the quality of products sold and services rendered under any of such Trademark at a level at least substantially consistent with the quality of such products and services as of the date hereof, and each Grantor shall take all steps necessary to insure that licensees of such Trademarks use such consistent standards of quality;
(iii) it shall, within thirty (30) days of the creation or acquisition of any Copyrightable work which is material to the business of Grantor in the United States, apply to register the Copyright in the United States Copyright Office, provided, however, that the Company may, in its prudent business judgment, decide that it shall not apply to register such Copyright in the United States Copyright Office;
(iv) it shall promptly notify the Collateral Agent if it knows or has reason to know that any item of the Intellectual Property that is material to the business of any Grantor is likely to become (a) abandoned or dedicated to the public or placed in the public domain,
(b) invalid or unenforceable, or (c) subject to any adverse determination or development (including the institution of proceedings) in any action or proceeding in the United States Patent and Trademark Office, the United States Copyright Office, any state registry, any foreign counterpart of the foregoing, or any court;
(v) it shall take all reasonable steps in the United States Patent and Trademark Office, the United States Copyright Office, any state registry or any foreign counterpart of the foregoing, to pursue any application and maintain any registration of each Trademark, Patent, and Copyright owned by any Grantor and material to its business which is now or shall become included in the Intellectual Property (except for such works with respect to which such Grantor has determined in the exercise of its commercially reasonable judgment that it shall not seek registration) including, but not limited to, those items on Schedule 4.7(A), (C) and (E) (as each may be amended or supplemented from time to time);
(vi) in the event that any Intellectual Property owned by or exclusively licensed to any Grantor is infringed, misappropriated, or diluted by a third party, such Grantor shall take all commercially reasonable actions to stop such infringement, misappropriation, or dilution and protect its rights in such Intellectual Property including, but not limited to, the initiation of a suit for injunctive relief and to recover damages;
(vii) it shall timely report to the Collateral Agent (i) the filing of any application to register any Intellectual Property with the United States Patent and Trademark Office, the United States Copyright Office, or any state registry or foreign counterpart of the foregoing (whether such application is filed by such Grantor or through any agent, employee, licensee, or designee thereof) and (ii) the registration of any Intellectual Property by any such office, in each case by executing and delivering to the Collateral Agent a completed Pledge Supplement, substantially in the form of Exhibit A attached hereto, together with all Supplements to Schedules thereto;
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(viii) it shall, promptly upon the reasonable request of the Collateral Agent, execute and deliver to the Collateral Agent any document required to acknowledge, confirm, register, record, or perfect the Collateral Agent's interest in any part of the Intellectual Property, whether now owned or hereafter acquired;
(ix) except with the prior consent of the Collateral Agent or as permitted under the Credit Agreement, each Grantor shall not execute, and there will not be on file in any public office, any financing statement or other document or instruments, except financing statements or other documents or instruments filed or to be filed in favor of the Collateral Agent and each Grantor shall not sell, assign, transfer, license, grant any option, or create or suffer to exist any Lien upon or with respect to the Intellectual Property, except for the Lien created by and under this Agreement and the other Credit Documents;
(x) it shall hereafter use commercially reasonable efforts so as not to permit the inclusion in any contract to which it hereafter becomes a party of any provision that could or might in any way materially impair or prevent the creation of a security interest in, or the assignment of, such Grantor's rights and interests in any property included within the definitions of any Intellectual Property acquired under such contracts;
(xi) it shall take all steps reasonably necessary to protect the secrecy of all Trade Secrets necessary to conduct its business relating to the products and services sold or delivered under or in connection with the Intellectual Property Collateral, including, without limitation, entering into confidentiality agreements with employees and labeling and restricting access to secret information and documents in accordance with standard practices in the industry; and
(xii) it shall use its best efforts to use proper statutory notice in connection with its use of any of the Intellectual Property.
4.8 COMMERCIAL TORT CLAIMS
(a) Representations and Warranties. Each Grantor hereby represents and warrants, on the Closing Date and on each Credit Date, that Schedule 4.8 (as such schedule may be amended or supplemented from time to time) sets forth all Commercial Tort Claims of each Grantor in excess of $250,000 individually; and
(b) Covenants and Agreements. Each Grantor hereby covenants and agrees that with respect to any Commercial Tort Claim in excess of $250,000 individually hereafter arising it shall deliver to the Collateral Agent a completed Pledge Supplement, substantially in the form of Exhibit A attached hereto, together with all Supplements to Schedules thereto, identifying such new Commercial Tort Claims.
SECTION 5. ACCESS; RIGHT OF INSPECTION AND FURTHER ASSURANCES; ADDITIONAL GRANTORS.
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5.1 ACCESS; RIGHT OF INSPECTION. Upon reasonable notice, the Collateral Agent shall have full and free access during normal business hours to all the books, correspondence and records of each Grantor, and the Collateral Agent and its representatives may examine the same, take extracts therefrom and make photocopies thereof, and each Grantor agrees to render to the Collateral Agent, at such Grantor's cost and expense, such clerical and other assistance as may be reasonably requested with regard thereto. The Collateral Agent and its representatives shall at all times also have the right to enter any premises of each Grantor and inspect any property of each Grantor where any of the Collateral of such Grantor granted pursuant to this Agreement is located for the purpose of inspecting the same, observing its use or otherwise protecting its interests therein.
5.2 FURTHER ASSURANCES.
(a) Each Grantor agrees that from time to time, at the expense of such Grantor, that it shall promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or desirable, or that the Collateral Agent may reasonably request, in order to create and/or maintain the validity, perfection or priority of and protect any security interest granted hereby or to enable the Collateral Agent to exercise and enforce its rights and remedies hereunder with respect to any Collateral. Without limiting the generality of the foregoing, each Grantor shall:
(i) file such financing or continuation statements, or amendments thereto, and execute and deliver such other agreements, instruments, endorsements, powers of attorney or notices, as may be necessary or desirable, or as the Collateral Agent may reasonably request, in order to perfect and preserve the security interests granted or purported to be granted hereby;
(ii) take all actions necessary to ensure the recordation of appropriate evidence of the liens and security interest granted hereunder in the Intellectual Property with any intellectual property registry in which said Intellectual Property is registered or in which an application for registration is pending including, without limitation, the United States Patent and Trademark Office, the United States Copyright Office, the various Secretaries of State, and the foreign counterparts on any of the foregoing;
(iii) at any reasonable time, upon request by the Collateral Agent, assemble the Collateral and allow inspection of the Collateral by the Collateral Agent, or persons designated by the Collateral Agent; and
(iv) at the Collateral Agent's reasonable request, appear in and defend any action or proceeding that may affect such Grantor's title to or the Collateral Agent's security interest in all or any material part of the Collateral.
(b) Each Grantor hereby authorizes the Collateral Agent to file a Record or Records, including, without limitation, financing or continuation statements, and amendments thereto, in any jurisdictions and with any filing offices as the Collateral Agent may determine, in
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its sole discretion, are necessary or advisable to perfect the security interest granted to the Collateral Agent herein. Such financing statements may describe the Collateral in the same manner as described herein or may contain an indication or description of collateral that describes such property in any other manner as the Collateral Agent may determine, in its sole discretion, is necessary, advisable or prudent to ensure the perfection of the security interest in the Collateral granted to the Collateral Agent herein, including, without limitation, describing such property as "all assets" or "all personal property, whether now owned or hereafter acquired." Each Grantor shall furnish to the Collateral Agent from time to time statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as the Collateral Agent may reasonably request, all in reasonable detail.
(c) Each Grantor hereby authorizes the Collateral Agent to modify this Agreement after obtaining such Grantor's approval of or signature to such modification by amending Schedule 4.7 (as such schedule may be amended or supplemented from time to time) to include reference to any right, title or interest in any existing Intellectual Property or any Intellectual Property acquired or developed by any Grantor after the execution hereof or to delete any reference to any right, title or interest in any Intellectual Property in which any Grantor no longer has or claims any right, title or interest.
5.3 ADDITIONAL GRANTORS. From time to time subsequent to the date hereof, additional Persons may become parties hereto as additional Grantors (each, an "Additional Grantor"), by executing a Counterpart Agreement. Upon delivery of any such counterpart agreement to the Collateral Agent, notice of which is hereby waived by Grantors, each Additional Grantor shall be a Grantor and shall be as fully a party hereto as if Additional Grantor were an original signatory hereto. Each Grantor expressly agrees that its obligations arising hereunder shall not be affected or diminished by the addition or release of any other Grantor hereunder, nor by any election of Collateral Agent not to cause any Subsidiary of Company to become an Additional Grantor hereunder. This Agreement shall be fully effective as to any Grantor that is or becomes a party hereto regardless of whether any other Person becomes or fails to become or ceases to be a Grantor hereunder.
SECTION 6. COLLATERAL AGENT APPOINTED ATTORNEY-IN-FACT.
6.1 POWER OF ATTORNEY. Each Grantor hereby irrevocably appoints the Collateral Agent (such appointment being coupled with an interest) as such Grantor's attorney-in-fact, with full authority in the place and stead of such Grantor and in the name of such Grantor, the Collateral Agent or otherwise, from time to time in the Collateral Agent's discretion to take any action and to execute any instrument that the Collateral Agent may deem reasonably necessary or advisable to accomplish the purposes of this Agreement, including, without limitation, the following:
(a) upon the occurrence and during the continuance of any Event of Default, to obtain and adjust insurance required to be maintained by such Grantor or paid to the Collateral Agent pursuant to the Credit Agreement;
(b) upon the occurrence and during the continuance of any Event of Default, to ask for, demand, collect, sue for, recover, compound, receive and give acquittance and receipts for moneys due and to become due under or in respect of any of the Collateral;
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(c) upon the occurrence and during the continuance of any Event of Default, to receive, endorse and collect any drafts or other instruments, documents and chattel paper in connection with clause (b) above;
(d) upon the occurrence and during the continuance of any Event of Default, to file any claims or take any action or institute any proceedings that the Collateral Agent may deem necessary or desirable for the collection of any of the Collateral or otherwise to enforce the rights of the Collateral Agent with respect to any of the Collateral;
(e) to prepare and file any UCC financing statements against such Grantor as debtor (a copy of any such UCC financing statements shall be forwarded to such Grantor);
(f) to prepare, sign, and file for recordation in any intellectual property registry, appropriate evidence of the lien and security interest granted herein in the Intellectual Property in the name of such Grantor as debtor;
(g) to take or cause to be taken all actions necessary to perform or comply or cause performance or compliance with the terms of this Agreement, including, without limitation, access to pay or discharge taxes or Liens (other than Permitted Liens) levied or placed upon or threatened against the Collateral, the legality or validity thereof and the amounts necessary to discharge the same to be determined by the Collateral Agent in its sole discretion, any such payments made by the Collateral Agent to become obligations of such Grantor to the Collateral Agent, due and payable immediately without demand; and
(h) generally to sell, transfer, pledge, make any agreement with respect to or otherwise deal with any of the Collateral as fully and completely as though the Collateral Agent were the absolute owner thereof for all purposes, and to do, at the Collateral Agent's option and such Grantor's expense, at any time or from time to time, all acts and things that the Collateral Agent deems reasonably necessary to protect, preserve or, upon the occurrence and during the continuation of an Event of Default, realize upon the Collateral and the Collateral Agent's security interest therein in order to effect the intent of this Agreement, all as fully and effectively as such Grantor might do.
6.2 NO DUTY ON THE PART OF COLLATERAL AGENT OR SECURED PARTIES. The powers conferred on the Collateral Agent hereunder are solely to protect the interests of the Secured Parties in the Collateral and shall not impose any duty upon the Collateral Agent or any Secured Party to exercise any such powers. The Collateral Agent and the Secured Parties shall be accountable only for amounts that they actually receive as a result of the exercise of such powers, and neither they nor any of their officers, directors, employees or agents shall be responsible to any Grantor for any act or failure to act hereunder, except for their own gross negligence or willful misconduct.
SECTION 7. REMEDIES.
7.1 GENERALLY.
(a) If any Event of Default shall have occurred and be continuing, the Collateral Agent may exercise in respect of the Collateral, in addition to all other rights and
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remedies provided for herein or otherwise available to it at law or in equity, all the rights and remedies of the Collateral Agent on default under the UCC (whether or not the UCC applies to the affected Collateral) to collect, enforce or satisfy any Secured Obligations then owing, whether by acceleration or otherwise, and also may pursue any of the following separately, successively or simultaneously:
(i) require any Grantor to, and each Grantor hereby agrees that it shall at its expense and promptly upon request of the Collateral Agent forthwith, assemble all or part of the Collateral as directed by the Collateral Agent and make it available to the Collateral Agent at a place to be designated by the Collateral Agent that is reasonably convenient to both parties;
(ii) enter onto the property where any Collateral is located and take possession thereof with or without judicial process;
(iii) prior to the disposition of the Collateral, store, process, repair or recondition the Collateral or otherwise prepare the Collateral for disposition in any manner to the extent the Collateral Agent deems appropriate; and
(iv) without notice except as specified below or under the UCC, sell, assign, lease, license (on an exclusive or nonexclusive basis) or otherwise dispose of the Collateral or any part thereof in one or more parcels at public or private sale, at any of the Collateral Agent's offices or elsewhere, for cash, on credit or for future delivery, at such time or times and at such price or prices and upon such other terms as the Collateral Agent may deem commercially reasonable.
(b) The Collateral Agent or any Secured Party may be the purchaser of any or all of the Collateral at any public or private (to the extent to the portion of the Collateral being privately sold is of a kind that is customarily sold on a recognized market or the subject of widely distributed standard price quotations) sale in accordance with the UCC and the Collateral Agent, as collateral agent for and representative of the Secured Parties, shall be entitled, for the purpose of bidding and making settlement or payment of the purchase price for all or any portion of the Collateral sold at any such sale made in accordance with the UCC, to use and apply any of the Secured Obligations as a credit on account of the purchase price for any Collateral payable by the Collateral Agent at such sale. Each purchaser at any such sale shall hold the property sold absolutely free from any claim or right on the part of any Grantor, and each Grantor hereby waives (to the extent permitted by applicable law) all rights of redemption, stay and/or appraisal which it now has or may at any time in the future have under any rule of law or statute now existing or hereafter enacted. Each Grantor agrees that, to the extent notice of sale shall be required by law, at least ten (10) days notice to such Grantor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. The Collateral Agent shall not be obligated to make any sale of Collateral regardless of notice of sale having been given. The Collateral Agent may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. Each Grantor agrees that it would not be commercially unreasonable for the Collateral Agent to dispose of the Collateral or any portion thereof by using Internet sites that provide for the auction of assets of the types included in the Collateral or that have the reasonable capability of doing so, or that match buyers and sellers of assets. Each Grantor hereby waives any claims against the Collateral Agent arising by reason of the fact that the price at which any Collateral may have been sold at such a private sale was less than the price which might have been obtained at a public sale, even if the Collateral
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Agent accepts the first offer received and does not offer such Collateral to more than one offeree. If the proceeds of any sale or other disposition of the Collateral are insufficient to pay all the Secured Obligations, Grantors shall be liable for the deficiency and the fees of any attorneys employed by the Collateral Agent to collect such deficiency. Each Grantor further agrees that a breach of any of the covenants contained in this Section will cause irreparable injury to the Collateral Agent, that the Collateral Agent has no adequate remedy at law in respect of such breach and, as a consequence, that each and every covenant contained in this Section shall be specifically enforceable against such Grantor, and such Grantor hereby waives and agrees not to assert any defenses against an action for specific performance of such covenants except for a defense that no default has occurred giving rise to the Secured Obligations becoming due and payable prior to their stated maturities. Nothing in this
Section shall in any way alter the rights of the Collateral Agent hereunder.
(c) The Collateral Agent may sell the Collateral without giving any warranties as to the Collateral. The Collateral Agent may specifically disclaim or modify any warranties of title or the like. This procedure will not be considered to adversely affect the commercial reasonableness of any sale of the Collateral.
(d) The Collateral Agent shall have no obligation to marshal any of the Collateral.
7.2 APPLICATION OF PROCEEDS. Except as expressly provided elsewhere in this Agreement, all proceeds received by the Collateral Agent in respect of any sale, any collection from, or other realization upon all or any part of the Collateral shall be applied in full or in part by the Collateral Agent against, the Secured Obligations in the following order of priority: first, to the payment of all costs and expenses of such sale, collection or other realization, including reasonable compensation to the Collateral Agent and its agents and counsel, and all other expenses, liabilities and advances made or incurred by the Collateral Agent in connection therewith, and all amounts for which the Collateral Agent is entitled to indemnification hereunder (in its capacity as the Collateral Agent and not as a Lender) and all advances made by the Collateral Agent hereunder for the account of the applicable Grantor, and to the payment of all costs and expenses paid or incurred by the Collateral Agent in connection with the exercise of any right or remedy hereunder or under the Credit Agreement, all in accordance with the terms hereof or thereof; second, to the extent of any excess of such proceeds, to the payment of all other Secured Obligations for the ratable benefit of the Lenders and the Lender Counterparties; and third, subject to the provisions of the Intercreditor Agreement, to the extent of any excess of such proceeds, to the payment to or upon the order of such Grantor or to whosoever may be lawfully entitled to receive the same or as a court of competent jurisdiction may direct.
7.3 SALES ON CREDIT. If Collateral Agent sells any of the Collateral on credit, Grantor will be credited only with payments actually made by purchaser and received by Collateral Agent and applied to indebtedness of the purchaser. In the event the purchaser fails to pay for the Collateral, Collateral Agent may resell the Collateral and Grantor shall be credited with proceeds of the sale.
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7.4 DEPOSIT ACCOUNTS. If any Event of Default shall have occurred and be continuing, the Collateral Agent may apply the balance from any Deposit Account or instruct the bank at which any Deposit Account is maintained to pay the balance of any Deposit Account to or for the benefit of the Collateral Agent.
7.5 INVESTMENT RELATED PROPERTY. Each Grantor recognizes that, by reason of certain prohibitions contained in the Securities Act and applicable state securities laws, the Collateral Agent may be compelled, with respect to any sale of all or any part of the Investment Related Property conducted without prior registration or qualification of such Investment Related Property under the Securities Act and/or such state securities laws, to limit purchasers to those who will agree, among other things, to acquire the Investment Related Property for their own account, for investment and not with a view to the distribution or resale thereof. Each Grantor acknowledges that any such private sale may be at prices and on terms less favorable than those obtainable through a public sale without such restrictions (including a public offering made pursuant to a registration statement under the Securities Act) and, notwithstanding such circumstances, each Grantor agrees that any such private sale shall be deemed to have been made in a commercially reasonable manner and that the Collateral Agent shall have no obligation to engage in public sales and no obligation to delay the sale of any Investment Related Property for the period of time necessary to permit the issuer thereof to register it for a form of public sale requiring registration under the Securities Act or under applicable state securities laws, even if such issuer would, or should, agree to so register it. If the Collateral Agent determines to exercise its right to sell any or all of the Investment Related Property, upon written request, each Grantor shall and shall cause each issuer of any Pledged Stock to be sold hereunder, each partnership and each limited liability company from time to time to furnish to the Collateral Agent all such information as the Collateral Agent may request in order to determine the number and nature of interest, shares or other instruments included in the Investment Related Property which may be sold by the Collateral Agent in exempt transactions under the Securities Act and the rules and regulations of the Securities and Exchange Commission thereunder, as the same are from time to time in effect. Notwithstanding anything to the contrary set forth herein, no Grantor shall be required to register any such Collateral under federal or state securities laws.
7.6 INTELLECTUAL PROPERTY.
(a) Anything contained herein to the contrary notwithstanding, upon the occurrence and during the continuation of an Event of Default:
(i) the Collateral Agent shall have the right (but not the obligation) to bring suit or otherwise commence any action or proceeding in the name of any Grantor, the Collateral Agent or otherwise, in the Collateral Agent's reasonable discretion, to enforce any Intellectual Property, in which event such Grantor shall, at the request of the Collateral Agent, do any and all lawful acts and execute any and all documents reasonably required by the Collateral Agent in aid of such enforcement and such Grantor shall promptly, upon demand, reimburse and indemnify the Collateral Agent as provided in Section 10 hereof in connection with the exercise of its rights under this Section, and, to the extent that the Collateral Agent shall elect not to bring suit to enforce any Intellectual Property as provided in this Section, each Grantor agrees to use all reasonable measures, whether by action, suit, proceeding or otherwise, to prevent the infringement or other violation of any of such Grantor's rights in the Intellectual Property
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by others and for that purpose agrees to diligently maintain any action, suit or proceeding against any Person so infringing as shall be necessary to prevent such infringement or violation;
(ii) upon written demand from the Collateral Agent, each Grantor shall grant, assign, convey or otherwise transfer to the Collateral Agent an absolute assignment of all of such Grantor's right, title and interest in and to the Intellectual Property and shall execute and deliver to the Collateral Agent such documents as are necessary or appropriate to carry out the intent and purposes of this Agreement;
(iii) each Grantor agrees that such an assignment and/or recording shall be applied to reduce the Secured Obligations outstanding only to the extent that the Collateral Agent (or any Secured Party) receives cash proceeds in respect of the sale of, or other realization upon, the Intellectual Property;
(iv) within five (5) Business Days after written notice from the Collateral Agent, each Grantor shall make available to the Collateral Agent, to the extent within such Grantor's power and authority, such personnel in such Grantor's employ on the date of such Event of Default as the Collateral Agent may reasonably designate, by name, title or job responsibility, to permit such Grantor to continue, directly or indirectly, to produce, advertise and sell the products and services sold or delivered by such Grantor under or in connection with the Trademarks, Trademark Licenses, such persons to be available to perform their prior functions on the Collateral Agent's behalf and to be compensated by the Collateral Agent at such Grantor's expense on a per diem, pro-rata basis consistent with the salary and benefit structure applicable to each as of the date of such Event of Default; and
(v) the Collateral Agent shall have the right to notify, or require each Grantor to notify, any obligors with respect to amounts due or to become due to such Grantor in respect of the Intellectual Property, of the existence of the security interest created herein, to direct such obligors to make payment of all such amounts directly to the Collateral Agent, and, upon such notification and at the expense of such Grantor, to enforce collection of any such amounts and to adjust, settle or compromise the amount or payment thereof, in the same manner and to the same extent as such Grantor might have done;
(1) all amounts and proceeds (including checks and other instruments) received by Grantor in respect of amounts due to such Grantor in respect of the Collateral or any portion thereof shall be received in trust for the benefit of the Collateral Agent hereunder, shall be segregated from other funds of such Grantor and shall be forthwith paid over or delivered to the Collateral Agent in the same form as so received (with any necessary endorsement) to be held as cash Collateral and applied as provided by Section 7.7 hereof; and
(2) Grantor shall not adjust, settle or compromise the amount or payment of any such amount or release wholly or partly any obligor with respect thereto or allow any credit or discount thereon.
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(b) If (i) an Event of Default shall have occurred and, by reason of cure, waiver, modification, amendment or otherwise, no longer be continuing, (ii) no other Event of Default shall have occurred and be continuing, (iii) an assignment or other transfer to the Collateral Agent of any rights, title and interests in and to the Intellectual Property shall have been previously made and shall have become absolute and effective, and (iv) the Secured Obligations shall not have become immediately due and payable, upon the written request of any Grantor, the Collateral Agent shall promptly execute and deliver to such Grantor, at such Grantor's sole cost and expense, such assignments or other transfer as may be necessary to reassign to such Grantor any such rights, title and interests as may have been assigned to the Collateral Agent as aforesaid, subject to any disposition thereof that may have been made by the Collateral Agent; provided, after giving effect to such reassignment, the Collateral Agent's security interest granted pursuant hereto, as well as all other rights and remedies of the Collateral Agent granted hereunder, shall continue to be in full force and effect; and provided further, the rights, title and interests so reassigned shall be free and clear of all Liens other than Liens (if any) encumbering such rights, title and interest at the time of their assignment to the Collateral Agent and Permitted Liens.
(c) Solely for the purpose of enabling the Collateral Agent to exercise rights and remedies under this Section 7 and at such time as the Collateral Agent shall be lawfully entitled to exercise such rights and remedies, each Grantor hereby grants to the Collateral Agent, to the extent it has the right to do so, an irrevocable, nonexclusive license (exercisable without payment of royalty or other compensation to such Grantor), subject, in the case of Trademarks, to sufficient rights to quality control and inspection in favor of such Grantor to avoid the risk of invalidation of said Trademarks, to use, operate under, license, or sublicense any Intellectual Property now owned or hereafter acquired by such Grantor, and wherever the same may be located.
7.7 CASH PROCEEDS. In addition to the rights of the Collateral Agent specified in Section 4.3 with respect to payments of Receivables, if an Event of Default shall occur and be continuing, all proceeds of any Collateral received by any Grantor consisting of cash, checks and other near-cash items (collectively, "CASH PROCEEDS") shall be held by such Grantor in trust for the Collateral Agent, segregated from other funds of such Grantor, and shall, forthwith upon receipt by such Grantor, unless otherwise provided pursuant to
Section 4.4(a)(ii), be turned over to the Collateral Agent in the exact form received by such Grantor (duly indorsed by such Grantor to the Collateral Agent, if required) and held by the Collateral Agent in the Collateral Account. With respect to any Cash Proceeds received by the Collateral Agent (whether from a Grantor or otherwise): (i) if no Event of Default shall have occurred and be continuing, such Cash Proceeds shall be returned to the applicable Grantor and
(ii) if an Event of Default shall have occurred and be continuing, may, in the sole discretion of the Collateral Agent, (A) be held by the Collateral Agent for the ratable benefit of the Secured Parties, as collateral security for the Secured Obligations (whether matured or unmatured) and/or (B) then or at any time thereafter may be applied by the Collateral Agent against the Secured Obligations then due and owing.
SECTION 8. COLLATERAL AGENT.
The Collateral Agent has been appointed to act as Collateral Agent hereunder by Lenders and, by their acceptance of the benefits hereof, the other Secured Parties. The Collateral Agent shall be obligated, and shall have the right hereunder, to make demands, to give notices, to
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exercise or refrain from exercising any rights, and to take or refrain from taking any action (including, without limitation, the release or substitution of Collateral), solely in accordance with this Agreement and the Credit Agreement; provided, the Collateral Agent shall, after payment in full of all Obligations under the Credit Agreement and the other Credit Documents, exercise, or refrain from exercising, any remedies provided for herein in accordance with the instructions of the holders of a majority of the aggregate notional amount (or, with respect to any Hedge Agreement that has been terminated in accordance with its terms, the amount then due and payable (exclusive of expenses and similar payments but including any early termination payments then due) under such Hedge Agreement) under all Hedge Agreements. In furtherance of the foregoing provisions of this Section, each Secured Party, by its acceptance of the benefits hereof, agrees that it shall have no right individually to realize upon any of the Collateral hereunder, it being understood and agreed by such Secured Party that all rights and remedies hereunder may be exercised solely by the Collateral Agent for the benefit of the Secured Parties in accordance with the terms of this Section. Collateral Agent may resign at any time by giving written notice thereof to Lenders and the Grantors, and Collateral Agent may be removed at any time with or without cause by an instrument or concurrent instruments in writing delivered to the Grantors and Collateral Agent signed by the Requisite Lenders. Upon any such notice of resignation or any such removal, Requisite Lenders shall have the right, upon five (5) Business Days' notice to the Collateral Agent, following receipt of the Grantors' consent (which shall not be unreasonably withheld or delayed and which shall not be required while an Event of Default exists), to appoint a successor Collateral Agent. Upon the acceptance of any appointment as Administrative Agent under the terms of the Credit Agreement by a successor Administrative Agent, that successor Administrative Agent shall thereby also be deemed the successor Collateral Agent and such successor Collateral Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring or removed Collateral Agent under this Agreement, and the retiring or removed Collateral Agent under this Agreement shall promptly (i) transfer to such successor Collateral Agent all sums, Securities and other items of Collateral held hereunder, together with all records and other documents necessary or appropriate in connection with the performance of the duties of the successor Collateral Agent under this Agreement, and (ii) execute and deliver to such successor Collateral Agent such amendments to financing statements, and take such other actions, as may be necessary or appropriate in connection with the assignment to such successor Collateral Agent of the security interests created hereunder, whereupon such retiring or removed Collateral Agent shall be discharged from its duties and obligations under this Agreement. After any retiring or removed Collateral Agent's resignation or removal hereunder as the Collateral Agent, the provisions of this Agreement shall inure to its benefit as to any actions taken or omitted to be taken by it under this Agreement while it was the Collateral Agent hereunder.
SECTION 9. CONTINUING SECURITY INTEREST; TRANSFER OF LOANS.
This Agreement shall create a continuing security interest in the Collateral and shall remain in full force and effect until the payment in full of all Secured Obligations, the cancellation or termination of the Commitments and the cancellation or expiration of all outstanding Letters of Credit, be binding upon each Grantor, its successors and assigns, and inure, together with the rights and remedies of the Collateral Agent hereunder, to the benefit of the Collateral Agent and its successors, transferees and assigns. Without limiting the generality of the foregoing, but subject to the terms of the Credit Agreement, any Lender may assign or otherwise transfer any Loans held by it to any other Person, and such other Person shall thereupon become vested with all the benefits in respect thereof granted to Lenders herein or otherwise. Upon the payment in full of all Secured Obligations, the cancellation or termination of
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the Commitments and the cancellation or expiration of all outstanding Letters of Credit, the security interest granted hereby shall terminate hereunder and of record and all rights to the Collateral shall revert to Grantors. Thereafter, this Agreement shall be reinstated if at any time any payment of any of the Obligations is rescinded or must otherwise be returned upon the insolvency, bankruptcy or reorganization of any Grantor or any other Person or otherwise, all as though the payment had not been made. Upon any such termination the Collateral Agent shall, at Grantors' expense, execute and deliver to Grantors such documents as Grantors shall reasonably request in writing to evidence such termination.
SECTION 10. STANDARD OF CARE; COLLATERAL AGENT MAY PERFORM.
The powers conferred on the Collateral Agent hereunder are solely to protect its interest in the Collateral and shall not impose any duty upon it to exercise any such powers. Except for the exercise of reasonable care in the custody of any Collateral in its possession and the accounting for moneys actually received by it hereunder, the Collateral Agent shall have no duty as to any Collateral or as to the taking of any necessary steps to preserve rights against prior parties or any other rights pertaining to any Collateral. The Collateral Agent shall be deemed to have exercised reasonable care in the custody and preservation of Collateral in its possession if such Collateral is accorded treatment substantially equal to that which the Collateral Agent accords its own property. Neither the Collateral Agent nor any of its directors, officers, employees or agents shall be liable for failure to demand, collect or realize upon all or any part of the Collateral or for any delay in doing so or shall be under any obligation to sell or otherwise dispose of any Collateral upon the request of any Grantor or otherwise. If any Grantor fails to perform any agreement contained herein, the Collateral Agent may itself perform, or cause performance of, such agreement, and the expenses of the Collateral Agent incurred in connection therewith shall be payable by each Grantor under Section 10.2 of the Credit Agreement.
SECTION 11. MISCELLANEOUS.
Any notice required or permitted to be given under this Agreement shall be given in accordance with Section 10.1 of the Credit Agreement. No failure or delay on the part of the Collateral Agent in the exercise of any power, right or privilege hereunder or under any other Credit Document shall impair such power, right or privilege or be construed to be a waiver of any default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other power, right or privilege. All rights and remedies existing under this Agreement and the other Credit Documents are cumulative to, and not exclusive of, any rights or remedies otherwise available. In case any provision in or obligation under this Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. All covenants hereunder shall be given independent effect so that if a particular action or condition is not permitted by any of such covenants, the fact that it would be permitted by an exception to, or would otherwise be within the limitations of, another covenant shall not avoid the occurrence of a Default or an Event of Default if such action is taken or condition exists. This Agreement shall be binding upon and inure to the benefit of the Collateral Agent and Grantors and their respective successors and assigns. No Grantor shall, without the prior written consent of the Collateral Agent given in accordance with the Credit Agreement, assign any right, duty or obligation hereunder. This Agreement and the other Credit Documents embody the entire agreement and understanding between Grantors and the Collateral Agent and supersede all prior agreements and understandings between such parties relating to the subject
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matter hereof and thereof. Accordingly, the Credit Documents may not be contradicted by evidence of prior, contemporaneous or subsequent oral agreements of the parties. There are no unwritten oral agreements between the parties. This Agreement may be executed in one or more counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument; signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document.
THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO ITS CONFLICTS OF LAW PROVISIONS (OTHER THAN SECTION 5-1401 AND SECTION 5-1402 OF THE NEW YORK GENERAL OBLIGATION LAWS).
39
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PLEDGE AND SECURITY AGREEMENT
IN WITNESS WHEREOF, each Grantor and the Collateral Agent have caused this Agreement to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above.
AMERICAN REPROGRAPHICS COMPANY, L.L.C.,
By

Name:

Title:
AMERICAN REPROGRAPHICS HOLDINGS, L.L.C.,
By

Name:

Title:
ARC ACQUISITION CORPORATION
By

Name: Mark W. Legg Title: Chief Financial Officer
BLUE PRINT SERVICE COMPANY, INC.
By

Name: Mark W. Legg Title: Chief Financial Officer

S-1
FIRST LIEN
PLEDGE AND SECURITY AGREEMENT
INPRINT CORPORATION
By

Name: Mark W. Legg Title: Chief Financial Officer
RHODE ISLAND BLUEPRINT CO.
By

Name: Mark W. Legg Title: Chief Financial Officer
OLYMPIC BLUEPRINT CO., INC.
By

Name: Mark W. Legg Title: Chief Financial Officer
LEET-MELBROOK, INC.
By

Name: Mark W. Legg Title: Chief Financial Officer
PENINSULA BLUEPRINT, INC.
By

Name: Mark W. Legg Title: Chief Financial Officer

S-2
FIRST LIEN
PLEDGE AND SECURITY AGREEMENT
STRATO REPROGRAPHIX, INC.
By

Name: Mark W. Legg Title: Chief Financial Officer
QUALITY REPROGRAPHIC SERVICES, INC.
By

Name: Mark W. Legg Title: Chief Financial Officer
MIRROR PLUS TECHNOLOGIES, INC.
By

Name: Mark W. Legg Title: Chief Financial Officer
E. PAVILION, L.L.C.
By

Name: Mark W. Legg Title: Chief Financial Officer
FRANKLIN GRAPHICS CORPORATION
By

Name: Mark W. Legg Title: Chief Financial Officer

S-3
FIRST LIEN
PLEDGE AND SECURITY AGREEMENT
ENGINEERING REPRO SYSTEMS, INC.
By

Name: Mark W. Legg Title: Chief Financial Officer
WEST SIDE REPROGRAPHICS, INC.
By

Name: Mark W. Legg Title: Chief Financial Officer
CITY BLUEPRINT AND SUPPLY CO.
By

Name: Mark W. Legg Title: Chief Financial Officer
DUNN BLUE PRINT COMPANY
By

Name: Mark W. Legg Title: Chief Financial Officer
TAMPA REPROGRAPHICS & SUPPLY COMPANY
By

Name:

Title:
S-4
FIRST LIEN
PLEDGE AND SECURITY AGREEMENT
OCB, LLC
By

Name: Mark W. Legg Title: Chief Financial Officer
COMMERCIAL GRAPHICS CORPORATION
By

Name: Mark W. Legg Title: Chief Financial Officer
FORD S.F., L.L.C.
By

Name: Mark W. Legg Title: Chief Financial Officer
A&E ARCHITECTURAL & ENGINEERING
SUPPLY COMPANY
By

Name: Mark W. Legg Title: Chief Financial Officer
APPLICAD GRAPHICS, L.L.C.
By

Name: Mark W. Legg Title: Chief Financial Officer

S-5
FIRST LIEN
PLEDGE AND SECURITY AGREEMENT
RIDGWAY'S, LTD.
By

Name: Mark W. Legg Title: Chief Financial Officer
SOUTHWESTERN REPROGRAPHICS, INC.
By

Name: Mark W. Legg Title: Chief Financial Officer
REPROGRAPHICS NORTHWEST, LLC
By

Name: Mark W. Legg Title: Chief Financial Officer
WILCO REPROGRAPHICS, INC.
By

Name: Mark W. Legg Title: Chief Financial Officer
BPI REPRO, LLC
By

Name: Mark W. Legg Title: Chief Financial Officer

S-6
FIRST LIEN
PLEDGE AND SECURITY AGREEMENT
RIDGWAY'S GP, LLC
By

Name: Mark W. Legg Title: Chief Financial Officer
RIDGWAY'S LP, LLC
By

Name: Mark W. Legg Title: Chief Financial Officer
THE PEIR GROUP, LLC
By

Name: Mark W. Legg Title: Chief Financial Officer
THE PEIR GROUP INTERNATIONAL, LLC
By

Name: Mark W. Legg Title: Chief Financial Officer
LICENSING SERVICES INTERNATIONAL, LLC
By

Name: Mark W. Legg Title: Chief Financial Officer

S-7
FIRST LIEN
PLEDGE AND SECURITY AGREEMENT
PLANWELL, LLC
By

Name: Mark W. Legg Title: Chief Financial Officer
AMERICAN REPROGRAPHICS MIDCO, L.L.C.
By

Name: Mark W. Legg Title: Chief Financial Officer

S-8
FIRST LIEN
PLEDGE AND SECURITY AGREEMENT
GENERAL ELECTRIC CAPITAL CORPORATION,
as the Collateral Agent
By:

Name: Woodrow Broaders, Jr.
Title: As Its Duly Authorized Signatory
S-9
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PLEDGE AND SECURITY AGREEMENT
 
EXHIBIT 10.2
SECOND LIEN
CREDIT AND GUARANTY AGREEMENT
DATED AS OF DECEMBER 18, 2003
AMONG
AMERICAN REPROGRAPHICS COMPANY, L.L.C.,
AMERICAN REPROGRAPHICS HOLDINGS, L.L.C.,
CERTAIN SUBSIDIARIES OF AMERICAN REPROGRAPHICS COMPANY, L.L.C.,
AS GUARANTORS,
VARIOUS LENDERS,
GOLDMAN SACHS CREDIT PARTNERS L.P.,
AS LEAD ARRANGER, SOLE BOOKRUNNER, SYNDICATION AGENT,
ADMINISTRATIVE AGENT AND COLLATERAL AGENT
$225,000,000 SECOND PRIORITY SENIOR SECURED CREDIT FACILITIES
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TABLE OF CONTENTS

                                                                                                                            PAGE
                                                                                                                            ----
SECTION 1. DEFINITIONS AND INTERPRETATION................................................................................     1

             1.1. Definitions............................................................................................     1
             1.2. Accounting Terms.......................................................................................    28
             1.3. Interpretation, etc....................................................................................    28

SECTION 2. LOANS.........................................................................................................    28

             2.1. Term Loans.............................................................................................    28
             2.2. Reserved...............................................................................................    29
             2.3. Reserved...............................................................................................    29
             2.4. Reserved...............................................................................................    29
             2.5. Pro Rata Shares; Availability of Funds.................................................................    29
             2.6. Use of Proceeds........................................................................................    30
             2.7. Evidence of Debt; Register; Lenders' Books and Records; Notes..........................................    30
             2.8. Interest on Loans......................................................................................    30
             2.9. Conversion/Continuation................................................................................    32
             2.10. Default Interest......................................................................................    33
             2.11. Fees..................................................................................................    33
             2.12. Repayment.............................................................................................    33
             2.13. Voluntary Prepayments/Commitment Reductions...........................................................    33
             2.14. Mandatory Prepayments/Commitment Reductions...........................................................    37
             2.15. Application of Prepayments............................................................................    39
             2.16. General Provisions Regarding Payments.................................................................    39
             2.17. Ratable Sharing.......................................................................................    40
             2.18. Making or Maintaining Eurodollar Rate Loans...........................................................    40
             2.19. Increased Costs; Capital Adequacy.....................................................................    42
             2.20. Taxes; Withholding, etc...............................................................................    43
             2.21. Obligation to Mitigate................................................................................    45
             2.22. Removal or Replacement of a Lender....................................................................    46

SECTION 3. CONDITIONS PRECEDENT..........................................................................................    46

             3.1. Closing Date...........................................................................................    46
             3.2. Further Conditions to All Term Loans...................................................................    51

SECTION 4. REPRESENTATIONS AND WARRANTIES................................................................................    52

             4.1. Organization; Requisite Power and Authority; Qualification.............................................    52
             4.2. Capital Stock and Ownership............................................................................    52
             4.3. Due Authorization......................................................................................    53
             4.4. No Conflict............................................................................................    53
             4.5. Governmental Consents..................................................................................    53
             4.6. Binding Obligation.....................................................................................    53
             4.7. Historical Financial Statements........................................................................    53	

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             4.8. Projections............................................................................................    54
             4.9. No Material Adverse Change.............................................................................    54
             4.10. No Restricted Junior Payments.........................................................................    54
             4.11. Adverse Proceedings, etc..............................................................................    54
             4.12. Payment of Taxes......................................................................................    54
             4.13. Properties............................................................................................    55
             4.14. Environmental Matters.................................................................................    55
             4.15. No Defaults...........................................................................................    56
             4.16. Material Contracts....................................................................................    56
             4.17. Governmental Regulation...............................................................................    56
             4.18. Margin Stock..........................................................................................    56
             4.19. Employee Matters......................................................................................    56
             4.20. Employee Benefit Plans................................................................................    57
             4.21. Certain Fees..........................................................................................    57
             4.22. Solvency..............................................................................................    57
             4.23. Related Agreements....................................................................................    57
             4.24. Compliance with Statutes, etc.........................................................................    58
             4.25. Disclosure............................................................................................    58
             4.26. Existing Seller Subordinated Notes and Existing Earn-Out Obligations..................................    59

SECTION 5. AFFIRMATIVE COVENANTS.........................................................................................    59

             5.1. Financial Statements and Other Reports.................................................................    59
             5.2. Existence..............................................................................................    62
             5.3. Payment of Taxes and Claims............................................................................    63
             5.4. Maintenance of Properties..............................................................................    63
             5.5. Insurance..............................................................................................    63
             5.6. Inspections............................................................................................    64
             5.7. Lenders Meetings.......................................................................................    64
             5.8. Compliance with Laws...................................................................................    64
             5.9. Environmental..........................................................................................    64
             5.10. Subsidiaries..........................................................................................    65
             5.11. Additional Material Real Estate Assets................................................................    66
             5.12. Further Assurances....................................................................................    66

SECTION 6. NEGATIVE COVENANTS............................................................................................    66

             6.1. Indebtedness...........................................................................................    67
             6.2. Liens..................................................................................................    69
             6.3. Equitable Lien.........................................................................................    70
             6.4. No Further Negative Pledges............................................................................    70
             6.5. Restricted Junior Payments.............................................................................    71
             6.6. Restrictions on Subsidiary Distributions...............................................................    72
             6.7. Investments............................................................................................    73
             6.8. Financial Covenants....................................................................................    73
             6.9. Fundamental Changes; Disposition of Assets; Acquisitions...............................................    74
             6.10. Disposal of Subsidiary Interests......................................................................    75
             6.11. Sales and Lease-Backs.................................................................................    75	

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             6.12. Transactions with Shareholders and Affiliates.........................................................    76
             6.13. Conduct of Business...................................................................................    76
             6.14. Permitted Activities of Holdings......................................................................    76
             6.15. Amendments or Waivers of Certain Related Agreements...................................................    76
             6.16. Amendments or Waivers with Respect to Subordinated Indebtedness and First Lien Credit Agreement.......    76
             6.17. Fiscal Year...........................................................................................    77

SECTION 7. GUARANTY......................................................................................................    77

             7.1. Guaranty of the Obligations............................................................................    77
             7.2. Contribution by Guarantors.............................................................................    77
             7.3. Payment by Guarantors..................................................................................    78
             7.4. Liability of Guarantors Absolute.......................................................................    78
             7.5. Waivers by Guarantors..................................................................................    80
             7.6. Guarantors' Rights of Subrogation, Contribution, etc...................................................    81
             7.7. Subordination of Other Obligations.....................................................................    81
             7.8. Continuing Guaranty....................................................................................    82
             7.9. Authority of Guarantors or Company.....................................................................    82
             7.10. Financial Condition of Company........................................................................    82
             7.11. Bankruptcy, etc.......................................................................................    82
             7.12. Discharge of Guaranty Upon Sale of Guarantor..........................................................    83

SECTION 8. EVENTS OF DEFAULT; Change of Control..........................................................................    83

             8.1. Events of Default......................................................................................    83
             8.2. Change of Control......................................................................................    86

SECTION 9. AGENTS........................................................................................................    87

             9.1. Appointment of Agents..................................................................................    87
             9.2. Powers and Duties......................................................................................    88
             9.3. General Immunity.......................................................................................    88
             9.4. Agents Entitled to Act as Lender.......................................................................    89
             9.5. Lenders' Representations, Warranties and Acknowledgment................................................    89
             9.6. Right to Indemnity.....................................................................................    90
             9.7. Successor Administrative Agent and/or Collateral Agent.................................................    90
             9.8. Collateral Documents and Guaranty......................................................................    91

SECTION 10. MISCELLANEOUS................................................................................................    92

             10.1. Notices...............................................................................................    92
             10.2. Expenses..............................................................................................    92
             10.3. Indemnity.............................................................................................    93
             10.4. Set-Off...............................................................................................    93
             10.5. Amendments and Waivers................................................................................    94
             10.6. Successors and Assigns; Participations................................................................    95
             10.7. Independence of Covenants.............................................................................    99
             10.8. Survival of Representations, Warranties and Agreements................................................    99
             10.9. No Waiver; Remedies Cumulative........................................................................    99	

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10.10. Marshalling; Payments Set Aside......................................................................    99
10.11. Severability.........................................................................................   100
10.12. Obligations Several; Independent Nature of Lenders' Rights...........................................   100
10.13. Headings.............................................................................................   100
10.14. APPLICABLE LAW.......................................................................................   100
10.15. CONSENT TO JURISDICTION..............................................................................   100
10.16. WAIVER OF JURY TRIAL.................................................................................   101
10.17. Confidentiality......................................................................................   101
10.18. Usury Savings Clause.................................................................................   102
10.19. Counterparts.........................................................................................   102
10.20. USA PATRIOT Act......................................................................................   102
10.21. Effectiveness........................................................................................   103	

APPENDICES: A         Term Loan Commitments
            B         Notice Addresses

SCHEDULES:  1.1(a)    Existing Earn-Out Agreements
            1.1(b)    Existing Seller Subordinated Notes
            3.1(i)    Closing Date Mortgaged Properties
            3.1(n)    Counsel Opinions
            4.1       Jurisdictions of Organization and Qualification
            4.2       Capital Stock and Ownership
            4.13      Real Estate Assets
            4.16      Material Contracts
            4.20      Retiree Benefits
            6.1       Certain Indebtedness
            6.2       Certain Liens
            6.5(g)    Permitted Cash Payments of Additional Earn-Out Obligations
            6.7       Certain Investments
            6.12      Certain Affiliate Transactions

EXHIBITS:   A-1       Funding Notice
            A-2       Conversion/Continuation Notice
            B-1       Term Loan Note
            C         Compliance Certificate
            D         Opinions of Counsel
            E         Assignment Agreement
            F         Certificate Re Non-bank Status
            G         Closing Date Certificate
            H         Counterpart Agreement
            I         Pledge and Security Agreement
            J         Mortgage
            K         Landlord Waiver and Consent Agreement
            L         Intercreditor Agreement	

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M Seller Subordination Agreement
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SECOND LIEN CREDIT AND GUARANTY AGREEMENT
This SECOND LIEN CREDIT AND GUARANTY AGREEMENT, dated as of December 18, 2003, is entered into by and among AMERICAN REPROGRAPHICS COMPANY, L.L.C., a California limited liability company ("COMPANY"), AMERICAN REPROGRAPHICS HOLDINGS, L.L.C., (f/k/a Ford Graphics Holdings, L.L.C.) a California limited liability company ("HOLDINGS"), CERTAIN SUBSIDIARIES OF COMPANY, as Guarantors, the Lenders party hereto from time to time, GOLDMAN SACHS CREDIT PARTNERS L.P. ("GSCP"), as Lead Arranger, Sole Bookrunner, and as Syndication Agent (in such capacities, "SYNDICATION AGENT"), and GSCP, as Administrative Agent (together with its permitted successors in such capacity, "ADMINISTRATIVE AGENT") and as Collateral Agent (together with its permitted successor in such capacity, "COLLATERAL AGENT").
RECITALS:
WHEREAS, capitalized terms used in these Recitals shall have the respective meanings set forth for such terms in Section 1.1 hereof;
WHEREAS, Lenders have agreed to extend certain term loans to the Company in an aggregate amount not to exceed $225,000,000, the proceeds of which will be used, together with the proceeds of a senior first priority secured term loan facility of the Company in an amount of not less than $100,000,000 and a portion of a first priority secured revolving loan, to (i) refinance the Company's Existing Indebtedness (the "REFINANCING"), (ii) to pay related transaction costs, fees and expenses (including a redemption premium, if any, of up to $4,500,000) and (iii) to provide financing for working capital, certain permitted acquisitions to be agreed upon and general corporate purposes of the Company and its Subsidiaries;
WHEREAS, Company has agreed to secure all of its Obligations by granting to Collateral Agent, for the benefit of Secured Parties, a Second Priority Lien on substantially all of its assets, including a pledge of all of the Capital Stock of each of its Domestic Subsidiaries and 65% of all the Capital Stock of each of its Foreign Subsidiaries; and
WHEREAS, Guarantors have agreed to guarantee the obligations of Company hereunder and to secure their respective Obligations by granting to Collateral Agent, for the benefit of Secured Parties, a Second Priority Lien on substantially all of their respective assets, including a pledge of all of the Capital Stock of each of their respective Domestic Subsidiaries (including Company) and 65% of all the Capital Stock of each of their respective Foreign Subsidiaries.
NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein contained, the parties hereto agree as follows:
SECTION 1. DEFINITIONS AND INTERPRETATION
1.1. DEFINITIONS. The following terms used herein, including in the preamble, recitals, exhibits and schedules hereto, shall have the following meanings:
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"ADDITIONAL EARN-OUT OBLIGATION" means any unsecured contingent liability of Company owed to any seller in connection with any Permitted Acquisition that (a) constitutes a portion of the purchase price for such Permitted Acquisition but is not an amount certain on the date of incurrence thereof and is not subject to any right of acceleration by such seller, (b) is only payable upon the achievement of performance standards by the Person or other property acquired in such Permitted Acquisition and in an amount based upon such achievement provided that the maximum aggregate amount of such liability shall be fixed at a specified amount on the date of such Permitted Acquisition, and (c) is expressly subordinate and made junior to the payment and performance in full of all the Obligations in accordance with a subordination agreement substantially in the form of Exhibit M or an agreement containing substantially similar terms, in each case with such modifications thereto as may be consented to by Administrative Agent.
"ADDITIONAL SELLER SUBORDINATED NOTES" means, collectively, the unsecured promissory notes issued by Company to any seller in connection with a Permitted Acquisition which are expressly subordinated and made junior to the payment and performance in full of all the Obligations in accordance with a subordination agreement substantially in the form of Exhibit M with such modifications thereto as may be consented to by Administrative Agent.
"ADJUSTED EURODOLLAR RATE" means, for any Interest Rate Determination Date with respect to an Interest Period for a Eurodollar Rate Loan, the rate per annum obtained by dividing (and rounding upward to the next whole multiple of 1/16 of 1%) (i) (a) the rate per annum (rounded to the nearest 1/100 of 1%) equal to the rate determined by Administrative Agent to be the offered rate which appears on the page of the Telerate Screen which displays an average British Bankers Association Interest Settlement Rate (such page currently being page number 3740 or 3750, as applicable) for deposits (for delivery on the first day of such period) with a term equivalent to such period in Dollars, determined as of approximately 11:00 a.m. (London, England time) on such Interest Rate Determination Date, or (b) in the event the rate referenced in the preceding clause (a) does not appear on such page or service or if such page or service shall cease to be available, the rate per annum (rounded to the nearest 1/100 of 1%) equal to the rate determined by Administrative Agent to be the offered rate on such other page or other service which displays an average British Bankers Association Interest Settlement Rate for deposits (for delivery on the first day of such period) with a term equivalent to such period in Dollars, determined as of approximately 11:00 a.m. (London, England time) on such Interest Rate Determination Date, or (c) in the event the rates referenced in the preceding clauses (a) and (b) are not available, the rate per annum (rounded to the nearest 1/100 of 1%) equal to the offered quotation rate to first class banks in the London interbank market by GSCP for deposits (for delivery on the first day of the relevant period) in Dollars of amounts in same day funds comparable to the principal amount of the applicable Loan of Administrative Agent, in its capacity as a Lender, for which the Adjusted Eurodollar Rate is then being determined with maturities comparable to such period as of approximately 11:00 a.m. (London, England time) on such Interest Rate Determination Date, by (ii) an amount equal to (a) one minus (b) the Applicable Reserve Requirement; provided, however, in no event shall the Adjusted Eurodollar Rate be less than 1.75% per annum at any time.
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"ADMINISTRATIVE AGENT" as defined in the preamble hereto.
"ADVERSE PROCEEDING" means any action, suit, proceeding (whether administrative, judicial or otherwise), governmental investigation or arbitration (whether or not purportedly on behalf of Holdings or any of its Subsidiaries) at law or in equity, or before or by any Governmental Authority, domestic or foreign (including any Environmental Claims), whether pending or, to the knowledge of Holdings or any of its Subsidiaries, threatened against or affecting Holdings or any of its Subsidiaries or any property of Holdings or any of its Subsidiaries.
"AFFECTED LENDER" as defined in Section 2.18(b).
"AFFECTED LOANS" as defined in Section 2.18(b).
"AFFILIATE" means, as applied to any Person, any other Person directly or indirectly controlling, controlled by, or under common control with, that Person. For the purposes of this definition, "control" (including, with correlative meanings, the terms "controlling", "controlled by" and "under common control with"), as applied to any Person, means the possession, directly or indirectly, of the power (i) to vote 5% or more of the Securities having ordinary voting power for the election of directors of such Person or (ii) to direct or cause the direction of the management and policies of that Person, whether through the ownership of voting securities or by contract or otherwise.
"AGENT" means each of Syndication Agent, Administrative Agent and Collateral Agent.
"AGGREGATE AMOUNTS DUE" as defined in Section 2.17.
"AGGREGATE PAYMENTS" as defined in Section 7.2.
"AGREEMENT" means this Credit and Guaranty Agreement, dated as of December 18, 2003, as it may be amended, supplemented or otherwise modified from time to time.
"APPLICABLE RESERVE REQUIREMENT" means, at any time, for any Eurodollar Rate Loan, the maximum rate, expressed as a decimal, at which reserves (including, without limitation, any basic marginal, special, supplemental, emergency or other reserves) are required to be maintained with respect thereto against "Eurocurrency liabilities" (as such term is defined in Regulation D) under regulations issued from time to time by the Board of Governors of the Federal Reserve System or other applicable banking regulator. Without limiting the effect of the foregoing, the Applicable Reserve Requirement shall reflect any other reserves required to be maintained by such member banks with respect to (i) any category of liabilities which includes deposits by reference to which the applicable Adjusted Eurodollar Rate or any other interest rate of a Loan is to be determined, or (ii) any category of extensions of credit or other assets which include Eurodollar Rate Loans. A Eurodollar Rate Loan shall be deemed to constitute Eurocurrency liabilities and as such shall be deemed subject to reserve requirements without benefits of credit for proration, exceptions or offsets that may be available from time to time to the applicable Lender. The rate of interest on Eurodollar Rate Loans shall be adjusted
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automatically on and as of the effective date of any change in the Applicable Reserve Requirement.
"ASSET SALE" means a sale, lease or sub-lease (as lessor or sublessor), sale and leaseback, assignment, conveyance, transfer or other disposition to, or any exchange of property with, any Person (other than Holdings, Company or any Guarantor Subsidiary), in one transaction or a series of transactions, of all or any part of Holdings' or any of its Subsidiaries' businesses, assets or properties of any kind, whether real, personal, or mixed and whether tangible or intangible, whether now owned or hereafter acquired, including, without limitation, the Capital Stock of any of Holdings' Subsidiaries (but excluding, for clarification purposes, the Capital Stock of Holdings), other than (i) inventory (or other assets) sold or leased in the ordinary course of business (excluding any such sales by operations or divisions discontinued or to be discontinued), (ii) Permitted Sale-Leasebacks and (iii) sales of other assets for aggregate consideration of less than $500,000 in the aggregate during any Fiscal Year and less than $2,000,000 in the aggregate from and after the Closing Date so long as this Agreement shall remain in effect.
"ASSIGNMENT AGREEMENT" means an Assignment and Assumption Agreement substantially in the form of Exhibit E, with such amendments or modifications as may be approved by Administrative Agent.
"AUTHORIZED OFFICER" means, as applied to any Person, any individual holding the position of chairman of the board (if an officer), chief executive officer, president or one of its vice presidents (or the equivalent thereof), and such Person's chief financial officer or treasurer.
"BANKRUPTCY CODE" means Title 11 of the United States Code entitled "Bankruptcy," as now and hereafter in effect, or any successor statute.
"BASE RATE" means, for any day, a rate per annum equal to the greater of (i) the Prime Rate in effect on such day and (ii) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%; provided, however, in no event shall the Base Rate be less than 0.75% per annum at any time. Any change in the Base Rate due to a change in the Prime Rate or the Federal Funds Effective Rate shall be effective on the effective day of such change in the Prime Rate or the Federal Funds Effective Rate, respectively.
"BASE RATE LOAN" means a Loan bearing interest at a rate determined by reference to the Base Rate.
"BENEFICIARY" means each Agent and Lender.
"BUSINESS DAY" means (i) any day excluding Saturday, Sunday and any day which is a legal holiday under the laws of the State of New York or is a day on which banking institutions located in such state are authorized or required by law or other governmental action to close and (ii) with respect to all notices, determinations, fundings and payments in connection with the Adjusted Eurodollar Rate or any Eurodollar Rate Loans, the term "BUSINESS DAY" shall
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mean any day which is a Business Day described in clause (i) and which is also a day for trading by and between banks in Dollar deposits in the London interbank market.
"CAPITAL LEASE" means, as applied to any Person, any lease of any property (whether real, personal or mixed) by that Person as lessee that, in conformity with GAAP, is or should be accounted for as a capital lease on the balance sheet of that Person.
"CAPITAL STOCK" means any and all shares, interests, participations or other equivalents (however designated) of capital stock of a corporation, any and all equivalent ownership interests in a Person (other than a corporation), including, without limitation, partnership interests and membership interests, and any and all warrants, rights or options to purchase or other arrangements or rights to acquire any of the foregoing.
"CASH" means money, currency or a credit balance in any demand or Deposit Account.
"CASH EQUIVALENTS" means, as at any date of determination, (i) marketable securities (a) issued or directly and unconditionally guaranteed as to interest and principal by the United States Government or (b) issued by any agency of the United States the obligations of which are backed by the full faith and credit of the United States, in each case maturing within one year after such date; (ii) marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof, in each case maturing within one year after such date and having, at the time of the acquisition thereof, a rating of at least A-1 from S&P or at least P-1 from Moody's; (iii) commercial paper maturing no more than one year from the date of creation thereof and having, at the time of the acquisition thereof, a rating of at least A-1 from S&P or at least P-1 from Moody's; (iv) certificates of deposit or bankers' acceptances maturing within one year after such date and issued or accepted by any Lender or by any commercial bank organized under the laws of the United States of America or any state thereof or the District of Columbia that (a) is at least "adequately capitalized" (as defined in the regulations of its primary Federal banking regulator) and (b) has Tier 1 capital (as defined in such regulations) of not less than $100,000,000; and (v) shares of any money market mutual fund that (a) has substantially all of its assets invested continuously in the types of investments referred to in clauses (i) and (ii) above, (b) has net assets of not less than $500,000,000, and (c) has the highest rating obtainable from either S&P or Moody's.
"CERTIFICATE RE NON-BANK STATUS" means a certificate substantially in the form of Exhibit F.
"CHANGE OF CONTROL" means, at any time, (i) (x) prior to the consummation of an initial public offering of Holdings, Sponsor, Sathiyamurthy Chandramohan or Kumarakulasingam Suriyakumar shall collectively cease to beneficially own and control at least 75% on a fully diluted basis of the economic and voting interests in the Capital Stock of Holdings and (y) after the consummation of any initial public offering of Holdings, Sponsor, Sathiyamurthy Chandramohan or Kumarakulasingam Suriyakumar shall collectively cease to beneficially own and control at least 45% on a fully diluted basis of the economic and voting
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interests in the Capital Stock of Holdings; (ii) any Person or "group" (within the meaning of Rules 13d-3 and 13d-5 under the Exchange Act) other than Sponsor, Sathiyamurthy Chandramohan or Kumarakulasingam Suriyakumar (a) shall have acquired beneficial ownership of 25% or more on a fully diluted basis of the voting and/or economic interest in the Capital Stock of Holdings or (b) shall have obtained the power (whether or not exercised) to elect a majority of the members of the board of directors (or similar governing body) of Holdings; (iii) Holdings shall cease to beneficially own and control 100% on a fully diluted basis of the economic and voting interest in the Capital Stock of Company; or
(iv) the majority of the seats (other than vacant seats) on the board of advisors (or similar governing body) of Holdings cease to be occupied by Persons who either (a) were members of the board of advisors of Holdings on the Closing Date or (b) were appointed to the board of advisors in accordance with the provisions of the Holdings Operating Agreement.
"CHANGE OF CONTROL OFFER" as defined in Section 8.2.
"CLOSING DATE" means the date on or before January 31, 2004 on which the Term Loans are made.
"CLOSING DATE CERTIFICATE" means a Closing Date Certificate substantially in the form of Exhibit G-1.
"CLOSING DATE MORTGAGED PROPERTY" as defined in Section 3.1(i).
"COLLATERAL" means, collectively, all of the real, personal and mixed property (including Capital Stock) in which Liens are purported to be granted pursuant to the Collateral Documents as security for the Obligations.
"COLLATERAL AGENT" as defined in the preamble hereto.
"COLLATERAL DOCUMENTS" means the Pledge and Security Agreement, the Intercreditor Agreement, the Mortgages, the Landlord Personal Property Collateral Access Agreements, if any, and all other instruments, documents and agreements delivered by any Credit Party pursuant to this Agreement or any of the other Credit Documents in order to grant to Collateral Agent, for the benefit of Lenders, a Lien on any real, personal or mixed property of that Credit Party as security for the Obligations.
"COLLATERAL QUESTIONNAIRE" means a certificate in form satisfactory to Collateral Agent that provides information with respect to the personal or mixed property of each Credit Party.
"COMPANY" as defined in the preamble hereto.
"COMPANY OPERATING AGREEMENT" means the Amended and Restated Operating Agreement of Company dated as of April 10, 2000 as in effect on the Closing Date and as such agreement may thereafter be amended, restated, supplemented or otherwise modified from time to time to the extent permitted under Section 6.15.
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"COMPLIANCE CERTIFICATE" means a Compliance Certificate substantially in the form of Exhibit C.
"CONSOLIDATED ADJUSTED EBITDA" means, for any period, an amount determined for Holdings and its Subsidiaries on a consolidated basis equal to
(i) the sum, without duplication, of the amounts for such period of (a) Consolidated Net Income, and to the extent already deducted in arriving at Consolidated Net Income: (b) Consolidated Interest Expense, (c) provisions for taxes based on income, (d) total depreciation expense, (e) total amortization expense, (f) Transaction Costs and (g) other non-Cash items reducing Consolidated Net Income (excluding any such non-Cash item to the extent that it represents an accrual or reserve for potential Cash items in any future period or amortization of a prepaid Cash item that were paid in a prior period), minus
(ii) other non-Cash items increasing Consolidated Net Income for such period (excluding any such non-Cash item to the extent it represents the reversal of an accrual or reserve for potential Cash item in any prior period).
"CONSOLIDATED CAPITAL EXPENDITURES" means, for any period, the aggregate of all expenditures (whether paid in cash or other consideration or accrued as a liability and including that portion of Capital Leases which is capitalized on the consolidated balance sheet of Company and its Subsidiaries) of Holdings and its Subsidiaries during such period determined on a consolidated basis that, in accordance with GAAP, are or should be included in "purchase of property and equipment" or similar items reflected in the consolidated statement of cash flows of Holdings and its Subsidiaries; provided, however, that Consolidated Capital Expenditures shall not include any expenditures by Holdings or any of its Subsidiaries during that period in connection with a Permitted Acquisition, including any payment of any Earn-Out Obligation during that period.
"CONSOLIDATED CASH INTEREST EXPENSE" means, for any period, Consolidated Interest Expense for such period, excluding any amount not payable in Cash (for the avoidance of doubt, "Consolidated Interest Expense" does not include any pay-in-kind interest on the notes issued pursuant to the Senior Note Indenture which is being retired in connection with the Refinancing).
"CONSOLIDATED CURRENT ASSETS" means, as at any date of determination, the total assets of Holdings and its Subsidiaries on a consolidated basis that may properly be classified as current assets in conformity with GAAP, excluding Cash and Cash Equivalents.
"CONSOLIDATED CURRENT LIABILITIES" means, as at any date of determination, the total liabilities of Holdings and its Subsidiaries on a consolidated basis that may properly be classified as current liabilities in conformity with GAAP, excluding the current portion of long term debt.
"CONSOLIDATED EXCESS CASH FLOW" means, for any period, an amount (if positive) equal to: (i) the sum, without duplication, of the amounts for such period of (a) Consolidated Adjusted EBITDA, plus (b) the Consolidated Working Capital Adjustment, minus (ii) the sum, without duplication, of the amounts for such period of (a) voluntary and scheduled repayments of Consolidated Total Debt (excluding (i) repayments of Revolving Loans or Swing
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Line Loans except to the extent (x) such Revolving Loans were made on the Closing Date and are repaid prior to the end of Fiscal Year 2004 and such repayment amount does not exceed 75% of the aggregate amount of Revolving Loans made on the Closing Date or (y) the Revolving Commitments are permanently reduced in connection with such repayments and (ii) repurchases of Term Loans made pursuant to Section 2.13(c) hereof and Section 2.13(c) of the First Lien Credit Agreement), (b) Consolidated Capital Expenditures (net of any proceeds of
(y) any related financings with respect to such expenditures and (z) any sales of assets used to finance such expenditures), (c) Consolidated Cash Interest Expense, (d) the provision for current taxes based on income of Holdings and its Subsidiaries and payable in cash with respect to such period, and any Permitted Tax Distributions payable in cash with respect to such period, (e) the cash portion of any payment of any Earn-Out Obligation made by Company during such period, (f) any scheduled repayments under any Seller Subordinated Notes made by Company made in Cash during such period, (g) the cash portion of any payment made with respect to a Permitted Acquisition completed during such period, and
(h) the cash portion of any payments made during such period in connection with any repurchases of Holdings' Capital Stock from deceased, disabled, terminated or retired employees permitted under Section 6.5(f).
"CONSOLIDATED INTEREST EXPENSE" means, for any period, total interest expense (including that portion attributable to Capital Leases in accordance with GAAP and capitalized interest) of Holdings and its Subsidiaries on a consolidated basis with respect to all outstanding Indebtedness of Holdings and its Subsidiaries, including all commissions, discounts and other fees and charges owed with respect to letters of credit and net costs under Interest Rate Agreements, but excluding, however, any amounts referred to in Section 2.11 payable on or before the Closing Date.
"CONSOLIDATED NET INCOME" means, for any period, (i) the net income (or loss) of Holdings and its Subsidiaries on a consolidated basis for such period taken as a single accounting period determined in conformity with GAAP, minus (ii) (a) the income (or loss) of any Person (other than a Subsidiary of Holdings) in which any other Person (other than Holdings or any of its Subsidiaries) has a joint interest, except to the extent of the amount of dividends or other distributions actually paid to Holdings or any of its Subsidiaries by such Person during such period, (b) the income (or loss) of any Person accrued prior to the date it becomes a Subsidiary of Holdings or is merged into or consolidated with Holdings or any of its Subsidiaries or that Person's assets are acquired by Holdings or any of its Subsidiaries, (c) the income of any Subsidiary of Holdings to the extent that the declaration or payment of dividends or similar distributions by that Subsidiary of that income is not at the time permitted by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary, (d) any after-tax gains or losses attributable to Asset Sales or returned surplus assets of any Pension Plan, and
(e) (to the extent not included in clauses (a) through (d) above) any net extraordinary gains or net extraordinary losses.
"CONSOLIDATED TOTAL DEBT" means, as at any date of determination, the aggregate stated balance sheet amount of all Indebtedness of Holdings and its Subsidiaries determined on a consolidated basis in accordance with GAAP.
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"CONSOLIDATED WORKING CAPITAL" means, as at any date of determination, the excess of Consolidated Current Assets over Consolidated Current Liabilities.
"CONSOLIDATED WORKING CAPITAL ADJUSTMENT" means, for any period on a consolidated basis, the amount (which may be a negative number) by which Consolidated Working Capital as of the beginning of such period exceeds (or is less than) Consolidated Working Capital as of the end of such period.
"CONTRACTUAL OBLIGATION" means, as applied to any Person, any provision of any Security issued by that Person or of any indenture, mortgage, deed of trust, contract, undertaking, agreement or other instrument to which that Person is a party or by which it or any of its properties is bound or to which it or any of its properties is subject.
"CONTRIBUTING GUARANTORS" as defined in Section 7.2.
"CONVERSION/CONTINUATION DATE" means the effective date of a continuation or conversion, as the case may be, as set forth in the applicable Conversion/Continuation Notice.
"CONVERSION/CONTINUATION NOTICE" means a Conversion/Continuation Notice substantially in the form of Exhibit A-2.
"COUNTERPART AGREEMENT" means a Counterpart Agreement substantially in the form of Exhibit H delivered by a Credit Party pursuant to Section 5.10.
"CREDIT DATE" means the date of a Credit Extension.
"CREDIT DOCUMENT" means any of this Agreement, the Notes, if any, the Collateral Documents, and all other documents, instruments or agreements executed and delivered by a Credit Party for the benefit of any Agent or any Lender in connection with this Agreement.
"CREDIT EXTENSION" means the making of a Loan.
"CREDIT PARTY" means each Person (other than any Agent any Lender or any other representative thereof) from time to time party to a Credit Document.
"DEFAULT" means a condition or event that, after notice or lapse of time or both, would constitute an Event of Default.
"DEPOSIT ACCOUNT" means a demand, time, savings, passbook or like account with a bank, savings and loan association, credit union or like organization, other than an account evidenced by a negotiable certificate of deposit.
"DOLLARS" and the sign "$" mean the lawful money of the United States of America.
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"DOMESTIC SUBSIDIARY" means any Subsidiary organized under the laws of the United States of America, any State thereof or the District of Columbia.
"EARN-OUT OBLIGATION" means, collectively, the Existing Earn-Out Obligations and any Additional Earn-Out Obligations.
"ELIGIBLE ASSIGNEE" means (i) any Lender, any Affiliate of any Lender and any Related Fund (any two or more Related Funds being treated as a single Eligible Assignee for all purposes hereof), and (ii) any commercial bank, insurance company, investment or mutual fund or other entity that is an "accredited investor" (as defined in Regulation D under the Securities Act) and which extends credit or buys loans as one of its businesses; provided, no Affiliate of Holdings or Sponsor shall be an Eligible Assignee.
"EMPLOYEE BENEFIT PLAN" means any "employee benefit plan" as defined in Section 3(3) of ERISA which is or was sponsored, maintained or contributed to by, or required to be contributed by, Holdings, any of its Subsidiaries or any of their respective ERISA Affiliates.
"ENVIRONMENTAL CLAIM" means any investigation, notice, notice of violation, claim, action, suit, proceeding, demand, abatement order or other order or directive (conditional or otherwise), by any Governmental Authority or any other Person, arising (i) pursuant to or in connection with any actual or alleged violation of any Environmental Law; (ii) in connection with any Hazardous Material or any actual or alleged Hazardous Materials Activity; or
(iii) in connection with any actual or alleged damage, injury, threat or harm to health, safety, natural resources or the environment.
"ENVIRONMENTAL LAWS" means any and all current or future foreign or domestic, federal or state (or any subdivision of either of them), statutes, ordinances, orders, rules, regulations, judgments, Governmental Authorizations, or any other requirements of Governmental Authorities relating to (i) environmental matters, including those relating to any Hazardous Materials Activity; (ii) the generation, use, storage, transportation or disposal of Hazardous Materials; or (iii) occupational safety and health, industrial hygiene, land use or the protection of human, plant or animal health or welfare, in any manner applicable to Holdings or any of its Subsidiaries or any Facility.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and any successor thereto.
"ERISA AFFILIATE" means, as applied to any Person, (i) any corporation which is a member of a controlled group of corporations within the meaning of Section 414(b) of the Internal Revenue Code of which that Person is a member; (ii) any trade or business (whether or not incorporated) which is a member of a group of trades or businesses under common control within the meaning of Section 414(c) of the Internal Revenue Code of which that Person is a member; and (iii) any member of an affiliated service group within the meaning of Section 414(m) or (o) of the Internal Revenue Code of which that Person, any corporation described in clause (i) above or any trade or business described in clause (ii) above is a member. Any former ERISA Affiliate of Holdings or any of its Subsidiaries shall continue to be considered an ERISA
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Affiliate of Holdings or any such Subsidiary within the meaning of this definition with respect to the period such entity was an ERISA Affiliate of Holdings or such Subsidiary and with respect to liabilities arising after such period for which Holdings or such Subsidiary could reasonably be expected to be liable under the Internal Revenue Code or ERISA.
"ERISA EVENT" means (i) a "reportable event" within the meaning of
Section 4043 of ERISA and the regulations issued thereunder with respect to any Pension Plan (excluding those for which the provision for 30-day notice to the PBGC has been waived by regulation); (ii) the failure to meet the minimum funding standard of Section 412 of the Internal Revenue Code with respect to any Pension Plan (whether or not waived in accordance with Section 412(d) of the Internal Revenue Code) or the failure to make by its due date a required installment under Section 412(m) of the Internal Revenue Code with respect to any Pension Plan or the failure to make any required contribution to a Multiemployer Plan; (iii) the provision by the administrator of any Pension Plan pursuant to Section 4041(a)(2) of ERISA of a notice of intent to terminate such plan in a distress termination described in Section 4041(c) of ERISA; (iv) the withdrawal by Holdings, any of its Subsidiaries or any of their respective ERISA Affiliates from any Pension Plan with two or more contributing sponsors or the termination of any such Pension Plan resulting in liability to Holdings, any of its Subsidiaries or any of their respective Affiliates pursuant to Section 4063 or 4064 of ERISA; (v) the institution by the PBGC of proceedings to terminate any Pension Plan, or the occurrence of any event or condition which could reasonably be expected to constitute grounds under ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan; (vi) the imposition of liability on Holdings, any of its Subsidiaries or any of their respective ERISA Affiliates pursuant to Section 4062(e) or 4069 of ERISA or by reason of the application of Section 4212(c) of ERISA; (vii) the withdrawal of Holdings, any of its Subsidiaries or any of their respective ERISA Affiliates in a complete or partial withdrawal (within the meaning of Sections 4203 and 4205 of ERISA) from any Multiemployer Plan if there is any potential liability therefore, or the receipt by Holdings, any of its Subsidiaries or any of their respective ERISA Affiliates of notice from any Multiemployer Plan that it is in reorganization or insolvency pursuant to Section 4241 or 4245 of ERISA, or that it intends to terminate or has terminated under Section 4041A or 4042 of ERISA;
(viii) the occurrence of an act or omission which could reasonable be expected to give rise to the imposition on Holdings, any of its Subsidiaries or any of their respective ERISA Affiliates of fines, penalties, taxes or related charges under Chapter 43 of the Internal Revenue Code or under Section 409, Section
502(c), (i) or (l), or Section 4071 of ERISA in respect of any Employee Benefit Plan; (ix) the assertion of a material claim (other than routine claims for benefits) against any Employee Benefit Plan other than a Multiemployer Plan or the assets thereof, or against Holdings, any of its Subsidiaries or any of their respective ERISA Affiliates in connection with any Employee Benefit Plan; (x) receipt from the Internal Revenue Service of notice of the failure of any Pension Plan (or any other Employee Benefit Plan intended to be qualified under
Section 401(a) of the Internal Revenue Code) to qualify under Section 401(a) of the Internal Revenue Code, or the failure of any trust forming part of any Pension Plan to qualify for exemption from taxation under Section 501(a) of the Internal Revenue Code; or (xi) the imposition of a Lien pursuant to Section 401(a)(29) or 412(n) of the Internal Revenue Code or pursuant to ERISA with respect to any Pension Plan.
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"EURODOLLAR RATE LOAN" means a Loan bearing interest at a rate determined by reference to the Adjusted Eurodollar Rate.
"EVENT OF DEFAULT" means each of the conditions or events set forth in Section 8.1.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended from time to time, and any successor statute.
"EXISTING EARN-OUT OBLIGATION" means the unsecured contingent liability of Company or ARC Acquisition Corporation, as the case may be, owed to a seller as a portion of the purchase price under, and as set forth in, the acquisition agreements which are identified on Schedule 1.1(a) annexed hereto, as in effect on the Closing Date and as such agreements may thereafter be amended, restated, supplemented or otherwise modified from time to time to the extent permitted under Section 6.16.
"EXISTING INDEBTEDNESS" means (i) Indebtedness and other obligations outstanding under that certain Amended and Restated Credit and Guaranty Agreement dated as of September 8, 2000 between Company, Syndication Agent and Fleet National Bank, as amended prior to the Closing Date and (ii) all outstanding notes of Holdings and the Company issued pursuant to the Senior Note Indentures.
"EXISTING SELLER SUBORDINATED NOTES" means, collectively, the unsecured promissory notes identified on Schedule 1.1(b) annexed hereto, which promissory notes were issued by Company to a seller as a portion of the purchase price in connection with an acquisition consummated prior to the Closing Date, as such notes are in effect on the Closing Date and as such promissory notes may thereafter be amended, restated, supplemented or otherwise modified from time to time to the extent permitted under Section 6.16.
"FACILITY" means any real property (including all buildings, fixtures or other improvements located thereon) now, hereafter or heretofore owned, leased, operated or used by Holdings or any of its Subsidiaries or any of their respective predecessors or Affiliates.
"FAILURE EVENT" as defined in Section 2.8(a)(iii).
"FAIR SHARE" as defined in Section 7.2.
"FAIR SHARE CONTRIBUTION AMOUNT" as defined in Section 7.2.
"FEDERAL FUNDS EFFECTIVE RATE" means for any day, the rate per annum (expressed, as a decimal, rounded upwards, if necessary, to the next higher 1/100 of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day; provided, (i) if such day is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (ii) if no such rate is so published on such next succeeding Business Day, the Federal
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Funds Rate for such day shall be the average rate charged to Administrative Agent, in its capacity as a Lender, on such day on such transactions as determined by Administrative Agent.
"FINANCIAL OFFICER CERTIFICATION" means, with respect to the financial statements for which such certification is required, the certification of the chief financial officer of Holdings that such financial statements fairly present, in all material respects, the financial condition of Holdings and its Subsidiaries as at the dates indicated and the results of their operations and their cash flows for the periods indicated, subject to changes resulting from audit and normal year-end adjustments.
"FINANCIAL PLAN" as defined in Section 5.1(i).
"FIRST LIEN CREDIT AGREEMENT" means the first lien Credit Agreement dated as of the Closing Date among the Company as borrower, Holdings, certain subsidiaries of the Company, GSCP as administrative agent and collateral agent and the lenders party thereto, as it may be amended, restated, supplemented, or otherwise modified from time to time in accordance with the provisions of
Section 6.16 hereof.
"FIRST LIEN OBLIGATIONS" means the "Obligations" under and as defined in the First Lien Credit Agreement.
"FISCAL QUARTER" means a fiscal quarter of any Fiscal Year.
"FISCAL YEAR" means the fiscal year of Holdings and its Subsidiaries ending on December 31st of each calendar year.
"FLOOD HAZARD PROPERTY" means any Real Estate Asset subject to a mortgage in favor of Collateral Agent, for the benefit of the Lenders, and located in an area designated by the Federal Emergency Management Agency as having special flood or mud slide hazards.
"FOREIGN SUBSIDIARY" means any Subsidiary that is not a Domestic Subsidiary.
"FUNDING GUARANTOR" as defined in Section 7.2.
"FUNDING NOTICE" means a notice substantially in the form of Exhibit A-1.
"GAAP" means, subject to the limitations on the application thereof set forth in Section 1.2, United States generally accepted accounting principles in effect as of the date of determination thereof.
"GOVERNMENTAL ACTS" means any act or omission, whether rightful or wrongful, of any present or future de jure or de facto government or Governmental Authority.
"GOVERNMENTAL AUTHORITY" means any federal, state, municipal, national or other government, governmental department, commission, board, bureau, court, agency or instrumentality or political subdivision thereof or any entity or officer exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to any government or
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any court, in each case whether associated with a state of the United States, the United States, or a foreign entity or government.
"GOVERNMENTAL AUTHORIZATION" means any permit, license, authorization, plan, directive, consent order or consent decree of or from any Governmental Authority.
"GRANTOR" as defined in the Pledge and Security Agreement.
"GUARANTEED OBLIGATIONS" as defined in Section 7.1.
"GUARANTOR" means each of Holdings and each Domestic Subsidiary of Holdings (other than Company).
"GUARANTOR SUBSIDIARY" means each Guarantor other than Holdings.
"GUARANTY" means the guaranty of each Guarantor set forth in Section 7.
"HAZARDOUS MATERIALS" means any chemical, material or substance, exposure to which is prohibited, limited or regulated by any Governmental Authority or which may or could pose a hazard to the health and safety of the owners, occupants or any Persons in the vicinity of any Facility or to the indoor or outdoor environment.
"HAZARDOUS MATERIALS ACTIVITY" means any past, current or proposed activity, event or occurrence involving any Hazardous Materials, including the use, manufacture, possession, storage, holding, presence, existence, location, Release, threatened Release, discharge, placement, generation, transportation, processing, treatment, abatement, removal, remediation, disposal, disposition or handling of any Hazardous Materials, and any corrective action or response action with respect to any of the foregoing.
"HIGHEST LAWFUL RATE" means the maximum lawful interest rate, if any, that at any time or from time to time may be contracted for, charged, or received under the laws applicable to any Lender which are presently in effect or, to the extent allowed by law, under such applicable laws which may hereafter be in effect and which allow a higher maximum nonusurious interest rate than applicable laws now allow.
"HISTORICAL FINANCIAL STATEMENTS" means as of the Closing Date, (i) the audited financial statements of Holdings and its Subsidiaries, for the immediately preceding three (3) Fiscal Years, consisting of balance sheets and the related consolidated statements of income, members' equity and cash flows for such Fiscal Years, and (ii) the unaudited financial statements of Holdings and its Subsidiaries as at the most recently ended Fiscal Quarter and month, consisting of a balance sheet and the related consolidated statements of income, members' equity and cash flows for the three-, six-or nine-month period, as applicable, ending on such date, and, in the case of clauses (i) and (ii), certified by the chief financial officer of Company that they fairly present, in all material respects, the financial condition of Holdings and its Subsidiaries as at the dates indicated and the results of their operations and their cash flows for the periods indicated, subject to changes resulting from audit and normal year-end adjustments.
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"HOLDINGS" as defined in the preamble hereto.
"HOLDINGS OPERATING AGREEMENT" means the Amended and Restated Operating Agreement of Holdings dated as of April 10, 2000, as amended through the Closing Date and as such agreement may be further amended, restated, supplemented or otherwise modified from time to time to the extent permitted under Section 6.15.
"INCREASED-COST LENDER" as defined in Section 2.22.
"INDEBTEDNESS", as applied to any Person, means, without duplication, (i) all indebtedness for borrowed money; (ii) that portion of obligations with respect to Capital Leases that is properly classified as a liability on a balance sheet in conformity with GAAP; (iii) notes payable and drafts accepted representing extensions of credit whether or not representing obligations for borrowed money; (iv) any obligation owed for all or any part of the deferred purchase price of property or services (excluding any such obligations incurred under ERISA and ordinary course trade payables), which purchase price is (a) due more than six months from the date of incurrence of the obligation in respect thereof or (b) evidenced by a note or similar written instrument; (v) all indebtedness secured by any Lien on any property or asset owned or held by that Person regardless of whether the indebtedness secured thereby shall have been assumed by that Person or is nonrecourse to the credit of that Person; (vi) the face amount of any letter of credit issued for the account of that Person or as to which that Person is otherwise liable for reimbursement of drawings; (vii) the direct or indirect guaranty, endorsement (otherwise than for collection or deposit in the ordinary course of business), co-making, discounting with recourse or sale with recourse by such Person of the obligation of another; (viii) any obligation of such Person the primary purpose or intent of which is to provide assurance to an obligee that the obligation of the obligor thereof will be paid or discharged, or any agreement relating thereto will be complied with, or the holders thereof will be protected (in whole or in part) against loss in respect thereof (excluding ordinary course trade payables); (ix) any liability of such Person for an obligation of another through any agreement (contingent or otherwise) (a) to purchase, repurchase or otherwise acquire such obligation or any security therefor, or to provide funds for the payment or discharge of such obligation (whether in the form of loans, advances, stock purchases, capital contributions or otherwise) or (b) to maintain the solvency or any balance sheet item, level of income or financial condition of another if, in the case of any agreement described under subclauses
(a) or (b) of this clause (ix), the primary purpose or intent thereof is as described in clause (viii) above; and (x) all obligations of such Person in respect of any exchange traded or over the counter derivative transaction, whether entered into for hedging or speculative purposes.
"INDEMNIFIED LIABILITIES" means, collectively, any and all liabilities, obligations, losses, damages (including natural resource damages), penalties, claims (including Environmental Claims), costs (including the costs of any investigation, study, sampling, testing, abatement, cleanup, removal, remediation or other response action necessary to remove, remediate, clean up or abate any Hazardous Materials Activity), expenses and disbursements of any kind or nature whatsoever (including the reasonable fees and disbursements of counsel for Indemnitees in connection with any investigative, administrative or judicial proceeding commenced or threatened by any Person, whether or not any such Indemnitee shall be designated
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as a party or a potential party thereto, and any fees or expenses incurred by Indemnitees in enforcing this indemnity), whether direct, indirect or consequential and whether based on any federal, state or foreign laws, statutes, rules or regulations (including securities and commercial laws, statutes, rules or regulations and Environmental Laws), on common law or equitable cause or on contract or otherwise, that may be imposed on, incurred by, or asserted against any such Indemnitee, in any manner relating to or arising out of (i) this Agreement or the other Credit Documents or the transactions contemplated hereby or thereby (including the Lenders' agreement to make Credit Extensions or the use or intended use of the proceeds thereof, or any enforcement of any of the Credit Documents (including any sale of, collection from, or other realization upon any of the Collateral or the enforcement of the Guaranty)); (ii) the statements contained in the commitment letter delivered by any Lender to Company or Sponsor with respect to the transactions contemplated by this Agreement; or
(iii) any Environmental Claim or any Hazardous Materials Activity relating to or arising from, directly or indirectly, any past or present activity, operation, land ownership, or practice of Holdings or any of its Subsidiaries.
"INDEMNITEE" as defined in Section 10.3.
"INTERCREDITOR AGREEMENT" means an Intercreditor Agreement substantially in the form of Exhibit L, as it may be amended, supplemented or otherwise modified from time to time.
"INTEREST PAYMENT DATE" means with respect to (i) any Base Rate Loan, each March 31, June 30, September 30 and December 31 of each year, commencing on the first such date to occur after the Closing Date and the final maturity date of such Loan; and (ii) any Eurodollar Rate Loan, the last day of each Interest Period applicable to such Loan; provided, in the case of each Interest Period of longer than three months "Interest Payment Date" shall also include each date that is three months, or an integral multiple thereof, after the commencement of such Interest Period.
"INTEREST PERIOD" means, in connection with a Eurodollar Rate Loan, an interest period of one-, two-, three- or six-months, as selected by Company in the applicable Funding Notice or Conversion/Continuation Notice, (i) initially, commencing on the Credit Date or Conversion/Continuation Date thereof, as the case may be; and (ii) thereafter, commencing on the day on which the immediately preceding Interest Period expires; provided, (a) if an Interest Period would otherwise expire on a day that is not a Business Day, such Interest Period shall expire on the next succeeding Business Day unless no further Business Day occurs in such month, in which case such Interest Period shall expire on the immediately preceding Business Day; (b) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall, subject to clause (c) of this definition, end on the last Business Day of a calendar month and (c) no Interest Period with respect to any portion of any Term Loans shall extend beyond the Term Loan Maturity Date.
"INTEREST RATE AGREEMENT" means any interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, interest rate hedging agreement or other similar agreement or arrangement, each of which is for the purpose of hedging the interest rate
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exposure associated with Holdings' and its Subsidiaries' operations and not for speculative purposes.
"INTEREST RATE DETERMINATION DATE" means, with respect to any Interest Period, the date that is two Business Days prior to the first day of such Interest Period.
"INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as amended to the date hereof and from time to time hereafter, and any successor statute.
"INVESTMENT" means (i) any direct or indirect purchase or other acquisition by Holdings or any of its Subsidiaries of, or of a beneficial interest in, any of the Securities of any other Person (other than a Guarantor Subsidiary); (ii) any direct or indirect redemption, retirement, purchase or other acquisition for value, by any Subsidiary of Holdings from any Person (other than Holdings or any Guarantor Subsidiary), of any Capital Stock of such Person; and (iii) any direct or indirect loan, advance (other than advances to employees for moving, entertainment and travel expenses, drawing accounts and similar expenditures in the ordinary course of business) or capital contribution by Holdings or any of its Subsidiaries to any other Person (other than Holdings or any Guarantor Subsidiary), including all indebtedness and accounts receivable from that other Person that are not current assets or did not arise from sales to that other Person in the ordinary course of business. The amount of any Investment shall be the original cost of such Investment plus the cost of all additions thereto, without any adjustments for increases or decreases in value, or write-ups, write-downs or write-offs with respect to such Investment.
"INVESTOR NOTES" means, collectively, any unsecured promissory notes issued by Holdings to ARC Acquisition Co., L.L.C., in accordance with Section 6.1(c) of the Holdings Operating Agreement, which notes are expressly subordinated and made junior to the payment and performance in full of all the Obligations, each of which shall be substantially in the form of Exhibit B to the Holdings Operating Agreement, as such notes may be amended, restated, supplemented or otherwise modified from time to time to the extent permitted under Section 6.16.
"INVESTOR NOTE TAX BENEFIT AMOUNT" means with respect to the applicable period with respect to which a Permitted Tax Distribution is determined, the excess, if any, of (i) the amount that such Permitted Tax Distribution would be for such period had there never been any Investor Notes outstanding at any time over (ii) the actual Permitted Tax Distribution for such period.
"INVESTOR REGISTRATION RIGHTS AGREEMENT" means the Investor
Registration Rights Agreement, dated April 10, 2000 by and among Holdings, ARC Acquisition Co., L.L.C., GS Mezzanine Partners II, L.P., and GS Mezzanine Partners II Offshore, L.P. and certain other parties signatory thereto as in effect on the Closing Date and as such agreement may thereafter be amended, restated, supplemented or otherwise modified from time to time to the extent permitted under Section 6.15.
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"INVESTOR UNITHOLDERS AGREEMENT" means the Investor Unitholders Agreement dated April 10, 2000 by and among Holdings, ARC Acquisition Co., L.L.C., GS Mezzanine Partners II, L.P., and GS Mezzanine Partners II Offshore, L.P. as in effect on the Closing Date and as such agreement may thereafter be amended, restated, supplemented or otherwise modified from time to time to the extent permitted under Section 6.15.
"JOINT VENTURE" means a joint venture, partnership or other similar arrangement, whether in corporate, partnership or other legal form; provided, in no event shall any corporate Subsidiary of any Person be considered to be a Joint Venture to which such Person is a party.
"LANDLORD CONSENT AND ESTOPPEL" means, with respect to any Leasehold Property, a letter, certificate or other instrument in writing from the lessor under the related lease, pursuant to which, among other things, the landlord consents to the granting of a Mortgage on such Leasehold Property by the Credit Party tenant, such Landlord Consent and Estoppel to be in form and substance acceptable to Collateral Agent in its reasonable discretion, but in any event sufficient for Collateral Agent to obtain a Title Policy with respect to such Mortgage.
"LANDLORD PERSONAL PROPERTY COLLATERAL ACCESS AGREEMENT" means a Landlord Waiver and Consent Agreement substantially in the form of Exhibit K with such amendments or modifications as may be approved by Collateral Agent.
"LEAD ARRANGER" as defined in the preamble hereto.
"LEASEHOLD PROPERTY" means any leasehold interest of any Credit Party as lessee under any lease of real property, other than any such leasehold interest designated from time to time by Collateral Agent in its sole discretion as not being required to be included in the Collateral.
"LENDER" means each financial institution listed on the signature pages hereto as a Lender, and any other Person that becomes a party hereto pursuant to an Assignment Agreement.
"LEVERAGE RATIO" means the ratio as of the last day of any Fiscal Quarter of (i) Consolidated Total Debt as of such day to (ii) Consolidated Adjusted EBITDA for the four-Fiscal Quarter period ending on such date.
"LIEN" means (i) any lien, mortgage, pledge, assignment, security interest, charge or encumbrance of any kind (including any agreement to give any of the foregoing, any conditional sale or other title retention agreement, and any lease in the nature thereof) and any option, trust or other preferential arrangement having the practical effect of any of the foregoing and (ii) in the case of Securities, any purchase option, call or similar right of a third party with respect to such Securities.
"LOAN" means a Term Loan.
"MANAGEMENT AGREEMENT" means that certain Financial Advisory Services Agreement dated as of April 10, 2000 between CHS Management IV, L.P. and Holdings as in
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effect on the Closing Date and as such agreement may thereafter be amended, restated, supplemented or otherwise modified from time to time to the extent permitted under Section 6.15.
"MANAGEMENT FEES" means with respect to any fees payable by Holdings pursuant to the Management Agreement, an amount for any Fiscal Year not to exceed $1,000,000 plus the reasonable out-of-pocket expenses of Sponsor reimbursable thereunder.
"MARGIN STOCK" as defined in Regulation U of the Board of Governors of the Federal Reserve System as in effect from time to time.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on (i) the business, operations, properties, assets, condition (financial or otherwise) or prospects of Holdings and its Subsidiaries taken as a whole; (ii) the ability of any Credit Party to fully and timely perform its Obligations; (iii) the legality, validity, binding effect or enforceability against a Credit Party of a Credit Document to which it is a party; or (iv) the rights, remedies and benefits available to, or conferred upon, any Agent and any Lender or any Secured Party under any Credit Document.
"MATERIAL CONTRACT" means any contract or other arrangement to which Holdings or any of its Subsidiaries is a party (other than the Credit Documents) for which breach, nonperformance, cancellation or failure to renew could reasonably be expected to have a Material Adverse Effect.
"MATERIAL REAL ESTATE ASSET" means (i) (a) any fee-owned Real Estate Asset having a fair market value in excess of $500,000 as of the date of the acquisition thereof and (b) all Leasehold Properties other than those with respect to which the aggregate payments under the term of the lease are less than $250,000 per annum or (ii) any Real Estate Asset that the Requisite Lenders have determined is material to the business, operations, properties, assets, condition (financial or otherwise) or prospects of Holdings or any Subsidiary thereof, including Company.
"MOODY'S" means Moody's Investor Services, Inc.
"MORTGAGE" means a Mortgage substantially in the form of Exhibit J, as it may be amended, supplemented or otherwise modified from time to time.
"MULTIEMPLOYER PLAN" means any Employee Benefit Plan which is a "multiemployer plan" as defined in Section 3(37) of ERISA.
"NAIC" means The National Association of Insurance Commissioners, and any successor thereto.
"NARRATIVE REPORT" means, with respect to the financial statements for which such narrative report is required, a narrative report describing the operations of Holdings and its Subsidiaries in the form prepared for presentation to senior management thereof for the applicable month, Fiscal Quarter or Fiscal Year and for the period from the beginning of the then current Fiscal Year to the end of such period to which such financial statements relate.
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"NET ASSET SALE PROCEEDS" means, with respect to any Asset Sale, an amount equal to: (i) Cash payments (including any Cash received by way of deferred payment pursuant to, or by monetization of, a note receivable or otherwise, but only as and when so received) received by Holdings or any of its Subsidiaries from such Asset Sale, minus (ii) any bona fide direct costs incurred in connection with such Asset Sale, including (a) income or gains taxes payable by the seller as a result of any gain recognized in connection with such Asset Sale, (b) payment of the outstanding principal amount of, premium or penalty, if any, and interest on any Indebtedness (other than the Loans) that is secured by a Lien on the stock or assets in question and that is required to be repaid under the terms thereof as a result of such Asset Sale and (c) a reasonable reserve for any indemnification payments (fixed or contingent) attributable to seller's indemnities and representations and warranties to purchaser in respect of such Asset Sale undertaken by Holdings or any of its Subsidiaries in connection with such Asset Sale.
"NET INSURANCE/CONDEMNATION PROCEEDS" means an amount equal to: (i) any Cash payments or proceeds received by Holdings or any of its Subsidiaries
(a) under any casualty insurance policy in respect of a covered loss thereunder or (b) as a result of the taking of any assets of Holdings or any of its Subsidiaries by any Person pursuant to the power of eminent domain, condemnation or otherwise, or pursuant to a sale of any such assets to a purchaser with such power under threat of such a taking, minus (ii) (a) any actual and reasonable costs incurred by Holdings or any of its Subsidiaries in connection with the adjustment or settlement of any claims of Holdings or such Subsidiary in respect thereof, and (b) any bona fide direct costs incurred in connection with any sale of such assets as referred to in clause (i)(b) of this definition, including income taxes payable as a result of any gain recognized in connection therewith.
"NON-CONSENTING LENDER" as defined in Section 2.22.
"NON-US LENDER" as defined in Section 2.20(c).
"NOTE" means a Term Loan Note.
"NOTICE" means a Funding Notice or a Conversion/Continuation Notice.
"OBLIGATIONS" means all obligations of every nature of each Credit Party from time to time owed to the Agents (including former Agents), the Lenders or any of them, under any Credit Document, whether for principal, interest (including interest which, but for the filing of a petition in bankruptcy with respect to such Credit Party, would have accrued on any Obligation, whether or not a claim is allowed against such Credit Party for such interest in the related bankruptcy proceeding), fees, expenses, indemnification or otherwise.
"OBLIGEE GUARANTOR" as defined in Section 7.7.
"OFFER" as defined in Section 2.13(c).
"OFFER LOANS" as defined in Section 2.13(c).
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"ORGANIZATIONAL DOCUMENTS" means (i) with respect to any corporation, its certificate or articles of incorporation or organization, as amended, and its by-laws, as amended, (ii) with respect to any limited partnership, its certificate of limited partnership, as amended, and its partnership agreement, as amended, (iii) with respect to any general partnership, its partnership agreement, as amended, and (iv) with respect to any limited liability company, its articles of organization, as amended, and its operating agreement, as amended. In the event any term or condition of this Agreement or any other Credit Document requires any Organizational Document to be certified by a secretary of state or similar governmental official, the reference to any such "Organizational Document" shall only be to a document of a type customarily certified by such governmental official.
"PBGC" means the Pension Benefit Guaranty Corporation or any successor thereto.
"PARTICIPANT REGISTER" as defined in Section 10.6(b)(iii).
"PENSION PLAN" means any Employee Benefit Plan, other than a Multiemployer Plan, which is subject to Section 412 of the Internal Revenue Code or Section 302 of ERISA.
"PERMITTED ACQUISITION" means any acquisition by Company or any of its wholly-owned Subsidiaries, whether by purchase, merger or otherwise, of all or substantially all of the assets of, all of the Capital Stock of, or a business line or unit or a division of, any Person; provided,
(i) immediately prior to, and after giving effect thereto, no Default or Event of Default shall have occurred and be continuing or would result therefrom;
(ii) all transactions in connection therewith shall be consummated, in all material respects, in accordance with all applicable laws and in conformity with all applicable Governmental Authorizations;
(iii) in the case of the acquisition of Capital Stock, all of the Capital Stock (except for any such Securities in the nature of directors' qualifying shares required pursuant to applicable law) acquired or otherwise issued by such Person or any newly formed Subsidiary of Company in connection with such acquisition shall be owned 100% by Company or a Guarantor Subsidiary thereof, and Company shall have taken, or caused to be taken, as of the date such Person becomes a Subsidiary of Company, each of the actions set forth in Sections 5.10 and/or 5.11, as applicable;
(iv) if the consideration to be delivered in connection with the proposed acquisition includes any deferred consideration payable to any seller such as payment under a seller note, Additional Earn-Out Obligations, or extraordinary payments under consulting, employment or lease agreements with such seller or its Affiliates, such deferred consideration shall in all cases be expressly subordinated to payment of the Obligations pursuant to an Additional Seller Subordinated Note or a subordination agreement substantially in the form of Exhibit M (or an agreement containing
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substantially similar terms, in each case with such modifications thereto as may be consented to by Administrative Agent), as the case may be;
(v) Holdings and its Subsidiaries shall be in compliance with the financial covenants set forth in Section 6.8 on a pro forma basis after giving effect to such acquisition as of the last day of the Fiscal Quarter most recently ended (as determined in accordance with Section 6.8(b));
(vi) Company shall have delivered to Administrative Agent at least 10 Business Days prior to such proposed acquisition, (y) a Compliance Certificate evidencing compliance with Section 6.8 as required under clause (v) above, together with all relevant financial information with respect to such acquired assets, including, without limitation, the aggregate consideration for such acquisition and any other information required to demonstrate compliance with Section 6.8 and (z) copies of the definitive documentation relating to such proposed acquisition; and
(vii) any Person or assets or division as acquired in accordance herewith (y) shall be in same business or lines of business in which Company and/or its Subsidiaries are permitted to be engaged pursuant to Section 6.13 and (z) shall have generated positive Consolidated Adjusted EBITDA (after allowing for pro forma adjustments as may be permitted in Section 6.8(b)) for the most recently completed four-Fiscal Quarter period prior to the date of such acquisition.
"PERMITTED INVESTOR NOTE TAX DISTRIBUTION AMOUNT" as defined in
Section 6.5(d).
"PERMITTED LIENS" means each of the Liens permitted pursuant to
Section 6.2.
"PERMITTED PAYMENTS" as defined in Section 2.14(f).
"PERMITTED SALE-LEASEBACKS" as defined in Section 6.11.
"PERMITTED TAX DISTRIBUTIONS" means with respect to each (a) Fiscal Quarter of Holdings or other non-annual taxable period for which taxes are payable by the holders of Holdings' Capital Stock, cash distributions made to any of the holders of Holdings' Capital Stock, made at approximately the same time at which federal income tax installments with respect to income for such Fiscal Quarter or other taxable period are payable, in an amount sufficient to pay such holder's estimated federal, state and local income taxes on such holder's respective share of the taxable income of Holdings for such fiscal quarter or other taxable period, and (b) Fiscal Year of Holdings, cash distributions made to any of the holders of Holdings' Capital Stock, made after the end of such Fiscal Year and prior to the date one hundred (100) days after the end of such Fiscal Year, in an amount sufficient to pay such holder's federal, state and local income taxes on such holder's respective share of the taxable income of Holdings for such fiscal year, provided that (i) any cash distribution made under clause (b) with respect to a Fiscal Year for which quarterly distributions were made as provided in clause (a) shall be reduced by an amount equal to the sum of such quarterly distributions, and (ii) in the case of each of clauses (a) and (b) above distributions shall be made only to the extent such income
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exceeds the cumulative losses of Holdings allocated for tax purposes to its members in the aggregate for prior Fiscal Years that have not been utilized to reduce taxable income in prior Fiscal Years and that are available for use in the current Fiscal Year. Permitted Tax Distributions shall be made assuming the holders of Holdings' Capital Stock are subject to the higher of (x) federal, New York state, and New York City income taxes at the highest marginal rate, and (y) federal, California state, and any local income taxes to which any of the holders is subject at the highest marginal rate, taking into account any reduction in any one such tax referred to in either clause (x) or (y) on account of amounts paid or owing with respect to any other of such taxes.
"PERSON" means and includes natural persons, corporations, limited partnerships, general partnerships, limited liability companies, limited liability partnerships, joint stock companies, Joint Ventures, associations, companies, trusts, banks, trust companies, land trusts, business trusts or other organizations, whether or not legal entities, and Governmental Authorities.
"PHASE I REPORT" means, with respect to any Facility, a report that
(i) conforms to the ASTM Standard Practice for Environmental Site Assessments:
Phase I Environmental Site Assessment, E 1527-00 and (ii) was conducted no more than six months prior to the date such report is required to be delivered hereunder, by one or more environmental consulting firms reasonably satisfactory to Administrative Agent.
"PLEDGE AND SECURITY AGREEMENT" means the Pledge and Security Agreement to be executed by Company and each Guarantor substantially in the form of Exhibit I, as it may be amended, supplemented or otherwise modified from time to time.
"PRIME RATE" means the rate of interest quoted in The Wall Street Journal, Money Rates Section as the Prime Rate (currently defined as the base rate on corporate loans posted by at least 75% of the nation's thirty (30) largest banks), as in effect from time to time. The Prime Rate is a reference rate and does not necessarily represent the lowest or best rate actually charged to any customer. Agent or any other Lender may make commercial loans or other loans at rates of interest at, above or below the Prime Rate.
"PRINCIPAL OFFICE" means, for Administrative Agent, such Person's "Principal Office" as set forth on Appendix B, or such other office as such Person may from time to time designate in writing to Company, Administrative Agent and each Lender.
"PROJECTIONS" as defined in Section 4.8.
"PRO RATA SHARE" means the percentage obtained by dividing (a) the Term Loan Exposure of that Lender by (b) the aggregate Term Loan Exposure of all Lenders.
"REAL ESTATE ASSET" means, at any time of determination, any interest (fee, leasehold or otherwise) then owned by any Credit Party in any real property.
"RECORD DOCUMENT" means, with respect to any Leasehold Property, (i) the lease evidencing such Leasehold Property or a memorandum thereof, executed and acknowledged by
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the owner of the affected real property, as lessor, or (ii) if such Leasehold Property was acquired or subleased from the holder of a Recorded Leasehold Interest, the applicable assignment or sublease document, executed and acknowledged by such holder, in each case in form sufficient to give such constructive notice upon recordation and otherwise in form reasonably satisfactory to Collateral Agent.
"RECORDED LEASEHOLD INTEREST" means a Leasehold Property with respect to which a Record Document has been recorded in all places necessary or desirable, in Administrative Agent's reasonable judgment, to give constructive notice of such Leasehold Property to third-party purchasers and encumbrances of the affected real property.
"REFINANCING" as defined in the second recital hereto.
"REGISTER" as defined in Section 2.7(b).
"REGISTERED LOAN" as defined in Section 10.6(b)(i).
"REGULATION D" means Regulation D of the Board of Governors of the Federal Reserve System, as in effect from time to time.
"RELATED AGREEMENTS" means, collectively, the Management Agreement, the Holdings Operating Agreement, the Investor Notes, the Company Operating Agreement, the Warrant Agreement, the Warrants, the Investor Unitholders Agreement, the Investor Registration Rights Agreement and any other document pursuant to which any other Subordinated Indebtedness is issued or otherwise incurred.
"RELATED ASSIGNEE" as defined in Section 10.6(c)(i).
"RELATED FUND" means, with respect to any Lender that is an investment fund or similar investment vehicle, any other investment fund or similar investment vehicle that makes or invests in commercial loans and that is managed or advised by the same investment advisor as such Lender or by an Affiliate of such investment advisor.
"RELEASE" means any release, spill, emission, leaking, pumping, pouring, injection, escaping, deposit, disposal, discharge, dispersal, dumping, leaching or migration of any Hazardous Material into the indoor or outdoor environment (including the abandonment or disposal of any barrels, containers or other closed receptacles containing any Hazardous Material).
"REPLACEMENT LENDER" as defined in Section 2.22.
"REQUISITE LENDERS" means, at any time of determination, Lenders holding more than 50% of the aggregate Term Loan Exposure of all Lenders.
"RESTRICTED JUNIOR PAYMENT" means (i) any dividend or other distribution, direct or indirect, on account of any Capital Stock of Holdings or Company now or hereafter outstanding, except a dividend payable solely in shares of that class of Capital Stock to the
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holders of that class; (ii) any redemption, retirement, sinking fund or similar payment, purchase or other acquisition for value, direct or indirect, of any shares of any class of Capital Stock of Holdings or Company now or hereafter outstanding; (iii) any payment made to retire, or to obtain the surrender of, any outstanding warrants, options or other rights to acquire shares of any class of Capital Stock of Holdings or Company now or hereafter outstanding; (iv) management or similar fees payable to Sponsor or any of its Affiliates and (v) any payment or prepayment of principal of, premium, if any, or interest on, or redemption, purchase, retirement, defeasance (including in-substance or legal defeasance), sinking fund or similar payment with respect to, any Subordinated Indebtedness..
"REVOLVING LOANS" as defined in the First Lien Credit Agreement.
"S&P" means Standard & Poor's Ratings Group, a division of The McGraw Hill Corporation.
"SALE-LEASEBACK" as defined in Section 6.11.
"SECOND PRIORITY" means, with respect to any Lien purported to be created in any Collateral pursuant to any Collateral Document, that such Lien is second in priority only to the Liens created under the First Lien Credit Agreement, other than any Permitted Lien.
"SECURED PARTIES" has the meaning assigned to that term in the Pledge and Security Agreement.
"SECURITIES" means any stock, shares, partnership interests, membership interests, voting trust certificates, certificates of interest or participation in any profit-sharing agreement or arrangement, options, warrants, bonds, debentures, notes, or other evidences of indebtedness, secured or unsecured, convertible, subordinated or otherwise, or in general any instruments commonly known as "securities" or any certificates of interest, shares or participations in temporary or interim certificates for the purchase or acquisition of, or any right to subscribe to, purchase or acquire, any of the foregoing.
"SECURITIES ACT" means the Securities Act of 1933, as amended from time to time, and any successor statute.
"SELLER SUBORDINATED NOTES" means, collectively, the Existing Seller Subordinated Notes and any Additional Seller Subordinated Notes.
"SENIOR NOTE INDENTURES" means each of (i) that certain Indenture dated as of April 10, 2000 by and among Company, the Subsidiaries of Company party thereto, and Wilmington Trust Company, as trustee and (ii) that certain Indenture dated as of April 10, 2000 by and among Holdings and Wilmington Trust Company, as trustee, in each case as such indentures may have been amended, restated, supplemented or otherwise modified from time to time.
"SOLVENT" means, with respect to any Credit Party, that as of the date of determination, both (i) (a) the sum of such Credit Party's debt
(including contingent liabilities)
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does not exceed the present fair saleable value of such Credit Party's present assets; (b) such Credit Party's capital is not unreasonably small in relation to its business or any transaction contemplated or undertaken after the Closing Date; and (c) such Person has not incurred and does not intend to incur, or believe (nor should it reasonably believe) that it will incur, debts beyond its ability to pay such debts as they become due (whether at maturity or otherwise); and (ii) such Person is "solvent" within the meaning given that term and similar terms under applicable laws relating to fraudulent transfers and conveyances. For purposes of this definition, the amount of any contingent liability at any time shall be computed as the amount that, in light of all of the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability (irrespective of whether such contingent liabilities meet the criteria for accrual under Statement of Financial Accounting Standard No.5).
"SPONSOR" means Code Hennessy & Simmons IV, L.P..
"SUBORDINATED INDEBTEDNESS" means (i) Indebtedness of Company or any of its Subsidiaries under any Seller Subordinated Notes and under any Earn-Out Obligations, (ii) Indebtedness of Holdings under any Investor Notes, and (iii) other Indebtedness of Holdings or any of its Subsidiaries subordinated in right of payment to the Obligations pursuant to documentation containing maturities, amortization schedules, covenants, defaults, remedies, subordination provisions and other material terms in form and substance satisfactory to Administrative Agent and Requisite Lenders.
"SUBSIDIARY" means, with respect to any Person, any corporation, partnership, limited liability company, association, joint venture or other business entity of which more than 50% of the total voting power of shares of stock or other ownership interests entitled (without regard to the occurrence of any contingency) to vote in the election of the Person or Persons (whether directors, managers, trustees or other Persons performing similar functions) having the power to direct or cause the direction of the management and policies thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof; provided, in determining the percentage of ownership interests of any Person controlled by another Person, no ownership interest in the nature of a "qualifying share" of the former Person shall be deemed to be outstanding.
"SWING LINE LOANS" as defined in the First Lien Credit Agreement.
"SYNDICATION AGENT" as defined in the preamble hereto.
"TAX" means any present or future tax, levy, impost, duty, assessment, charge, fee, deduction or withholding of any nature and whatever called, by whomsoever, on whomsoever and wherever imposed, levied, collected, withheld or assessed; provided, "Tax on the overall net income" of a Person shall be construed as a reference to a tax imposed by the jurisdiction in which that Person is organized or in which that Person's applicable principal office (and/or, in the case of a Lender, its lending office) is located or in which that Person (and/or, in the case of a Lender, its lending office) is deemed to be doing business on all or part of the net income, profits or gains (whether worldwide, or only insofar as such income, profits or gains are
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considered to arise in or to relate to a particular jurisdiction, or otherwise) of that Person (and/or, in the case of a Lender, its applicable lending office).
"TERM LOAN" means a Term Loan made by a Lender to Company pursuant to Section 2.1(a).
"TERM LOAN COMMITMENT" means the commitment of a Lender to make or otherwise fund a Term Loan and "TERM LOAN COMMITMENTS" means such commitments of all Lenders in the aggregate. The amount of each Lender's Term Loan Commitment, if any, is set forth on Appendix A-1 or in the applicable Assignment Agreement, subject to any adjustment or reduction pursuant to the terms and conditions hereof. The aggregate amount of the Term Loan Commitments as of the Closing Date is $225,000,000.
"TERM LOAN EXPOSURE" means, with respect to any Lender, as of any date of determination, the outstanding principal amount of the Term Loans of such Lender; provided, at any time prior to the making of the Term Loans, the Term Loan Exposure of any Lender shall be equal to such Lender's Term Loan Commitment.
"TERM LOAN MATURITY DATE" means the earlier of (i) December 18, 2009, and (ii) the date that all Term Loans shall become due and payable in full hereunder, whether by acceleration or otherwise.
"TERM LOAN NOTE" means a promissory note in the form of Exhibit B-1, as it may be amended, supplemented or otherwise modified from time to time.
"TERMINATED LENDER" as defined in Section 2.22.
"TITLE POLICY" as defined in Section 3.1(i).
"TRANSACTION COSTS" means the fees, costs and expenses payable by Holdings, Company or any of Company's Subsidiaries on or before the Closing Date in connection with the transactions contemplated by the Credit Documents.
"TYPE OF LOAN" means a Base Rate Loan or a Eurodollar Rate Loan.
"UCC" means the Uniform Commercial Code (or any similar or equivalent legislation) as in effect in any applicable jurisdiction.
"WARRANT AGREEMENT" means the Warrant Agreement dated as of April 10, 2000 among Holdings, GS Mezzanine Partners II, L.P. and GS Mezzanine Partners II Offshore, L.P., as amended on September 8, 2000, and as such agreement may be further amended, restated, supplemented or otherwise modified from time to time to the extent permitted under Section 6.15.
"WARRANTS" means the warrants to acquire 3,896.14 common units of Holdings issued by Company to GS Mezzanine Partners II, L.P., GS Mezzanine Partners II Offshore, L.P., Stone Street Fund 2000, L.P. and Bridge Street Special Opportunities Fund 2000, L.P. and any
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additional warrants to acquire common units of Holdings pursuant to the Warrant Agreement, as such warrants are in effect on the dates of their respective issuances and as such warrants may thereafter be amended, restated, supplemented or otherwise modified from time to time to the extent permitted under Section 6.15.
1.2. ACCOUNTING TERMS. Except as otherwise expressly provided herein, all accounting terms not otherwise defined herein shall have the meanings assigned to them in conformity with GAAP. Financial statements and other information required to be delivered by Holdings to Lenders pursuant to Section 5.1(b) and 5.1(c) shall be prepared in accordance with GAAP as in effect at the time of such preparation (and delivered together with the reconciliation statements provided for in Section 5.1(e), if applicable). Subject to the foregoing, calculations in connection with the definitions, covenants and other provisions hereof shall utilize accounting principles and policies in conformity with those used to prepare the Historical Financial Statements.
1.3. INTERPRETATION, ETC. Any of the terms defined herein may, unless the context otherwise requires, be used in the singular or the plural, depending on the reference. References herein to any Section, Appendix, Schedule or Exhibit shall be to a Section, an Appendix, a Schedule or an Exhibit, as the case may be, hereof unless otherwise specifically provided. The use herein of the word "include" or "including", when following any general statement, term or matter, shall not be construed to limit such statement, term or matter to the specific items or matters set forth immediately following such word or to similar items or matters, whether or not no limiting language (such as "without limitation" or "but not limited to" or words of similar import) is used with reference thereto, but rather shall be deemed to refer to all other items or matters that fall within the broadest possible scope of such general statement, term or matter.
SECTION 2. LOANS
2.1. TERM LOANS.
(a) Loan Commitments. Subject to the terms and conditions hereof, each Lender severally agrees to make, on the Closing Date, a Term Loan to the Company in an amount equal to such Lender's Term Loan Commitment, less a one-percent (1.0%) discount to the face amount thereof. Company may make only one borrowing under the Term Loan Commitment which shall be on the Closing Date. Any amount borrowed under this Section 2.1(a) and subsequently repaid or prepaid may not be reborrowed. Subject to Sections 2.13(a) and 2.14, all amounts owed hereunder with respect to the Term Loans shall be paid in full no later than the Term Loan Maturity Date. Each Lender's Term Loan Commitment shall terminate immediately and without further action on the Closing Date after giving effect to the funding of such Lender's Term Loan Commitment on such date.
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(b) Borrowing Mechanics for Term Loans.
(i) Company shall deliver to Administrative Agent a fully executed Funding Notice no later than one (1) day prior to the Closing Date. Promptly upon receipt by Administrative Agent of such Certificate, Administrative Agent shall notify each Lender of the proposed borrowing.
(ii) Each Lender shall make its Term Loan available to Administrative Agent not later than 12:00 p.m. (New York City time) on the Closing Date (net of a 1.0% discount referred to in subsection 2.1(a)), by wire transfer of same day funds in Dollars, at Administrative Agent's Principal Office. Upon satisfaction or waiver of the conditions precedent specified herein, Administrative Agent shall make the proceeds of the Term Loans available to Company on the Closing Date by causing an amount of same day funds in Dollars equal to the proceeds of all such Loans received by Administrative Agent from Lenders to be credited to the account of Company at Administrative Agent's Principal Office or to such other account as may be designated in writing to Administrative Agent by Company.
2.2. RESERVED.
2.3. RESERVED.
2.4. RESERVED.
2.5. PRO RATA SHARES; AVAILABILITY OF FUNDS.
(a) Pro Rata Shares. All Loans shall be made by Lenders simultaneously and proportionately to their respective Pro Rata Shares (net of a 1.0% discount referred to in subsection 2.1(a)), it being understood that no Lender shall be responsible for any default by any other Lender in such other Lender's obligation to make a Loan requested hereunder nor shall any Term Loan Commitment of any Lender be increased or decreased as a result of a default by any other Lender in such other Lender's obligation to make a Loan requested hereunder.
(b) Availability of Funds. Unless Administrative Agent shall have been notified by any Lender prior to the Closing Date that such Lender does not intend to make available to Administrative Agent the amount of such Lender's Loan, Administrative Agent may assume that such Lender has made such amount available to Administrative Agent on the Closing Date (net of a 1.0% discount referred to in subsection 2.1(a)) and Administrative Agent may, in its sole discretion, but shall not be obligated to, make available to Company a corresponding amount on
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the Closing Date. If such corresponding amount is not in fact made available to Administrative Agent by such Lender, Administrative Agent shall be entitled to recover such corresponding amount on demand from such Lender together with interest thereon, for each day from the Closing Date until the date such amount is paid to Administrative Agent, at the customary rate set by Administrative Agent for the correction of errors among banks for three Business Days and thereafter at the Base Rate. If such Lender does not pay such corresponding amount forthwith upon Administrative Agent's demand therefore, Administrative Agent shall promptly notify Company and Company shall immediately pay such corresponding amount to Administrative Agent together with interest thereon, for each day from the Closing Date until the date such amount is paid to Administrative Agent, at the rate payable hereunder for Base Rate Loans. Nothing in this Section 2.5(b) shall be deemed to relieve any Lender from its obligation to fulfill its Term Loan Commitments hereunder or to prejudice any rights that Company may have against any Lender as a result of any default by such Lender hereunder.
2.6. USE OF PROCEEDS. The proceeds of the Term Loan shall be applied by Company to fund the Refinancing and Transaction Costs. No portion of the proceeds of the Term Loans shall be used in any manner to purchase or carry any Margin Stock or to extend credit to others for the purpose of purchasing or carrying any Margin Stock or for any purpose that causes or might cause such Term Loan or the application of such proceeds to violate Regulation T, Regulation U or Regulation X of the Board of Governors of the Federal Reserve System or any other regulation thereof or to violate the Exchange Act.
2.7. EVIDENCE OF DEBT; REGISTER; LENDERS' BOOKS AND RECORDS; NOTES.
(a) Lenders' Evidence of Debt. Each Lender shall maintain on its internal records an account or accounts evidencing the Obligations of Company to such Lender, including the amounts of the Loans made by it and each repayment and prepayment in respect thereof. Any such recordation shall be conclusive and binding on Company, absent demonstrable error; provided, that the failure to make any such recordation, or any error in such recordation, shall not affect Company's Obligations in respect of any applicable Loans; and provided further, in the event of any inconsistency between the Register and any Lender's records, the recordation in the Register shall govern.
(b) Register. Administrative Agent shall maintain at its Principal Office a register for the recordation of the names and addresses of Lenders Loans of each Lender from time to time (the "REGISTER"). The Register shall be available for inspection by Company or any Lender at any reasonable time and from time to time upon reasonable prior notice. Administrative Agent shall record in the Register the Loans, and each repayment or prepayment in respect of the principal amount of the Loans, and any such recordation shall be conclusive and binding on Company and each Lender, absent demonstrable error; provided, failure to make any such recordation, or any error in such recordation, shall not affect Company's Obligations in respect of any Loan. Company hereby designates GSCP to serve as Company's agent solely for
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purposes of maintaining the Register as provided in this Section 2.7, and Company hereby agrees that, to the extent GSCP serves in such capacity, GSCP and its officers, directors, employees, agents and affiliates shall constitute "Indemnitees." In the case of an assignment or transfer by a Lender to any Affiliate of such Lender or any Related Fund that is not reflected in the Register, the assigning Lender shall maintain a comparable register on behalf of the Administrative Agent, provided however that Company and Administrative Agent shall be entitled to rely solely on the Register maintained by the Administrative Agent.
(c) Notes. If so requested by any Lender by written notice to Company (with a copy to Administrative Agent) at least two Business Days prior to the Closing Date, or at any time thereafter, Company shall execute and deliver to such Lender (and/or, if applicable and if so specified in such notice, to any Person who is an assignee of such Lender pursuant to Section 10.6) on the Closing Date (or, if such notice is delivered after the Closing Date, promptly after Company's receipt of such notice) a Note or Notes to evidence such Lender's Term Loan.
2.8. INTEREST ON LOANS.
(a) Except as otherwise set forth herein, each Loan shall bear interest on the unpaid principal amount thereof from the date made through repayment (whether by acceleration or otherwise) thereof as follows:
(i) if a Base Rate Loan, at the Base Rate plus (x) 5.875% per annum if the Leverage Ratio is (I) less than 4.8:1.0 or (II) less than 4.25:1.0 if the Leverage Ratio as of a prior date of determination had been equal to or greater than 4.8:1.0 without having subsequently been less than 4.25:1.00, or (y) 6.875% per annum if the Leverage Ratio is (I) greater than or equal to 4.8:1.0 or (II) greater than or equal to 4.25:1.0, if the Leverage Ratio as of a prior date of determination had been equal to or greater than 4.8:1.0 without having subsequently been less than 4.25:1.00; or
(ii) if a Eurodollar Rate Loan, at the Adjusted Eurodollar Rate plus (x) 6.875% per annum if the Leverage Ratio is (I) less than 4.8:1.0 or (II) less than 4.25:1.0 if the Leverage Ratio as of a prior date of determination had been equal to or greater than 4.8:1.0 without having subsequently been less than 4.25:1.00, or (y) 7.875% per annum if the Leverage Ratio is (I) greater than or equal to 4.8:1.0 or (II) greater than or equal to 4.25:1.0, if the Leverage Ratio as of a prior date of determination had been equal to or greater than 4.8:1.0 without having subsequently been less than 4.25:1.00.
(iii) No change in the rate of interest as calculated in clauses (a)(i) and (ii) above shall be effective until three Business Days after the date on which Administrative Agent shall have received the applicable financial statements and a Compliance Certificate pursuant to
Section 5.1(d) calculating the Leverage Ratio. At any time Company has not submitted to Administrative Agent the applicable information as and when required under Section 5.1(d) (other than during the period commencing on the Closing Date to and including the date on which the Compliance Certificate is to be delivered for the Fiscal Quarter ending December 31, 2003) (a "FAILURE EVENT"), the
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rate of interest shall be determined as if the Leverage Ratio were in excess of 4.8:1.00. Following the cure of a Failure Event by providing a Compliance Certificate, such rate of interest shall be determined by reference to the Leverage Ratio set forth on the first Compliance Certificate submitted to Administrative Agent after such Failure Event. Within one Business Day of receipt of the applicable information under
Section 5.1(d), Administrative Agent shall give each Lender telefacsimile or telephonic notice (confirmed in writing) of the applicable rate of interest in effect from such date.
(b) The basis for determining the rate of interest with respect to any Loan, and the Interest Period with respect to any Eurodollar Rate Loan, shall be selected by Company and notified to Administrative Agent and Lenders pursuant to the Funding Notice or Conversion/Continuation Notice, as the case may be; provided, until the date that Syndication Agent notifies Company that the primary syndication of the Loans has been completed, as determined by Syndication Agent, the Term Loans shall be maintained as either (1) Eurodollar Rate Loans having an Interest Period of no longer than one month or (2) Base Rate Loans. If on any day a Loan is outstanding with respect to which a Conversion/Continuation Notice has not been delivered to Administrative Agent in accordance with the terms hereof specifying the applicable basis for determining the rate of interest, then for that day such Loan shall be a Base Rate Loan.
(c) In connection with Eurodollar Rate Loans there shall be no more than eight (8) Interest Periods outstanding at any time. In the event Company fails to specify between a Base Rate Loan or a Eurodollar Rate Loan in the applicable Funding Notice or Conversion/Continuation Notice, such Loan (if outstanding as a Eurodollar Rate Loan) will be automatically converted into a Base Rate Loan on the last day of the then-current Interest Period for such Loan (or if outstanding as a Base Rate Loan will remain as, or (if not then outstanding) will be made as, a Base Rate Loan). In the event Company fails to specify an Interest Period for any Eurodollar Rate Loan in the applicable Funding Notice or Conversion/Continuation Notice, Company shall be deemed to have selected an Interest Period of one month. As soon as practicable after 10:00 a.m. (New York City time) on each Interest Rate Determination Date, Administrative Agent shall determine (which determination shall, absent demonstrable error, be final, conclusive and binding upon all parties) the interest rate that shall apply to the Eurodollar Rate Loans for which an interest rate is then being determined for the applicable Interest Period and shall promptly give notice thereof (in writing or by telephone confirmed in writing) to Company and each Lender.
(d) Interest payable pursuant to Section 2.8(a) shall be computed
(i) in the case of Base Rate Loans on the basis of a 365-day or 366-day year, as the case may be, and (ii) in the case of Eurodollar Rate Loans, on the basis of a 360-day year, in each case for the actual number of days elapsed in the period during which it accrues. In computing interest on any Loan, the date of the making of such Loan or the first day of an Interest Period applicable to such Loan or, with respect to a Base Rate Loan being converted from a Eurodollar Rate Loan, the date of conversion of such Eurodollar Rate Loan to such Base Rate Loan, as the case may be, shall be included, and the date of payment of such Loan or the expiration date of an Interest Period applicable to such Loan or, with respect to a Base Rate Loan being converted to a Eurodollar Rate Loan, the date of conversion of such Base Rate Loan to such Eurodollar Rate Loan, as the
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case may be, shall be excluded; provided, if a Loan is repaid on the same day on which it is made, one day's interest shall be paid on that Loan.
(e) Except as otherwise set forth herein, interest on each Loan shall be payable in arrears on and to (i) each Interest Payment Date applicable to that Loan; (ii) upon any prepayment of that Loan, whether voluntary or mandatory, to the extent accrued on the amount being prepaid; and (iii) at maturity, including final maturity; provided, however, with respect to any voluntary prepayment of a Base Rate Loan, accrued interest shall instead be payable on the applicable Interest Payment Date.
2.9. CONVERSION/CONTINUATION.
(a) Subject to Section 2.18 and so long as no Default or Event of Default shall have occurred and then be continuing, Company shall have the option:
(i) to convert at any time all or any part of any Term Loan equal to $1,000,000 and integral multiples of $250,000 in excess of that amount from one Type of Loan to another Type of Loan; provided, a Eurodollar Rate Loan may only be converted on the expiration of the Interest Period applicable to such Eurodollar Rate Loan unless Company shall pay all amounts due under Section 2.18 in connection with any such conversion; or
(ii) upon the expiration of any Interest Period applicable to any Eurodollar Rate Loan, to continue all or any portion of such Loan equal to $1,000,000 and integral multiples of $250,000 in excess of that amount as a Eurodollar Rate Loan.
(b) Company shall deliver a Conversion/Continuation Notice to Administrative Agent no later than 10:00 a.m. (New York City time) at least one Business Day in advance of the proposed conversion date (in the case of a conversion to a Base Rate Loan) and at least three Business Days in advance of the proposed conversion/continuation date (in the case of a conversion to, or a continuation of, a Eurodollar Rate Loan). Except as otherwise provided herein, a Conversion/Continuation Notice for conversion to, or continuation of, any Eurodollar Rate Loans (or telephonic notice in lieu thereof) shall be irrevocable on and after the related Interest Rate Determination Date, and Company shall be bound to effect a conversion or continuation in accordance therewith.
2.10. DEFAULT INTEREST. Upon the occurrence and during the continuance of an Event of Default, the principal amount of all Loans outstanding and, to the extent permitted by applicable law, any interest payments on the Loans or any fees or other amounts owed hereunder not paid when due, shall thereafter bear interest (including post-petition interest in any proceeding under the Bankruptcy Code or other applicable bankruptcy laws) payable on demand at a rate that is 2% per annum in excess of the
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interest rate otherwise payable hereunder with respect to the applicable Loans (or, in the case of any such fees and other amounts, at a rate which is 2% per annum in excess of the interest rate otherwise payable hereunder for Base Rate Loans); provided, in the case of Eurodollar Rate Loans, upon the expiration of the Interest Period in effect at the time any such increase in interest rate is effective such Eurodollar Rate Loans shall thereupon become Base Rate Loans and shall thereafter bear interest payable upon demand at a rate which is 2% per annum in excess of the interest rate otherwise payable hereunder for Base Rate Loans. Payment or acceptance of the increased rates of interest provided for in this Section 2.10 is not a permitted alternative to timely payment and shall not constitute a waiver of any Event of Default or otherwise prejudice or limit any rights or remedies of Administrative Agent or any Lender.
2.11. FEES. Company agrees to pay to Agents such fees in the amounts and at the times separately agreed upon.
2.12. REPAYMENT. The Company shall repay the entire principal amount of the outstanding Term Loans, together with all other amounts owed by Company hereunder with respect thereto, no later than the Term Loan Maturity Date.
2.13. VOLUNTARY PREPAYMENTS/COMMITMENT REDUCTIONS.
(a) Voluntary Prepayments.
(i) Subject to the terms of 2.13(b) below, so long as no amounts are owed under the First Lien Credit Agreement (or any permitted refinancings thereof) and no Letters of Credit (as defined therein), commitments to extend credit or obligations to make payments remain outstanding under the First Lien Credit Agreement that have not been fully cash collateralized or is otherwise consented to by requisite lenders thereunder, the Company may:
(1) with respect to Base Rate Loans, Company may prepay any such Loans on any Business Day in whole or in part, in an aggregate minimum amount of $500,000 and integral multiples of $100,000 in excess of that amount;
(2) with respect to Eurodollar Rate Loans, Company may prepay, any such Loans on any Business Day in whole or in part in an aggregate minimum amount of $1,000,000 and integral multiples of $250,000 in excess of that amount.
(ii) All such prepayments shall be made:
(1) upon not less than one Business Day's prior written or telephonic notice in the case of Base Rate Loans;
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(2) upon not less than three Business Days' prior written or telephonic notice in the case of Eurodollar Rate Loans;
in each case given to Administrative Agent by 12:00 p.m. (New York City time) on the date required and, if given by telephone, promptly confirmed in writing to Administrative Agent (and Administrative Agent will promptly transmit such telephonic or original notice for Term Loans by telefacsimile or telephone to each Lender). Upon the giving of any such notice, the principal amount of the Loans specified in such notice shall become due and payable on the prepayment date specified therein. Any such voluntary prepayment shall be applied as specified in Section 2.15. For the avoidance of doubt, any quarterly payments of Permitted Payments paid pursuant to Section 2.14(e) shall not be considered a voluntary prepayment under this Section 2.13; provided, however, the excess of any such amounts over an aggregate $67,500,000 (inclusive of Permitted Payments paid under Section 2.14(c)) shall be subject to Section 2.13(b) below.
(b) Term Loan Call Protection. Other than with respect to Permitted Payments to which this Section 2.13(b) shall not apply, in the event that the Term Loans are prepaid or repaid in whole or in part prior to the third anniversary of the Closing Date, the Company shall pay to Lenders having Term Loan Exposure a prepayment premium on the amount so prepaid or repaid as follows:

                                        PREPAYMENT PREMIUM AS
                                         A PERCENTAGE OF THE
                                          AMOUNT SO PREPAID
          RELEVANT PERIOD                     OR REPAID
          ---------------               ---------------------
On or prior to the first anniversary
       of the Closing Date                      11.0%

     On or prior to the second
  anniversary of the Closing Date
 but after the first anniversary of
          the Closing Date                       7.5%

       On or prior to the third
   anniversary of the Closing Date
  but after the second anniversary
       of the Closing Date                       2.5%	

(c) Certain Permitted Term Loan Repurchases.
Notwithstanding anything to the contrary contained in this
Section 2.13 or any other provision of this Agreement, so long as (i) there is no Default, (ii) there is no Event of Default, (iii) no Default or Event of Default would result therefrom and (iv) there are no amounts outstanding under the First Lien Credit Agreement, all commitments thereunder have been terminated and all letters of credit issued under the First Lien Credit Agreement shall have been
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cash collateralized or is otherwise consented to by requisite lenders thereunder, Company may repurchase outstanding Term Loans on the following basis:
(i) Company may repurchase all or any portion of the Term Loans of one or more Lenders, at the sole discretion of such Lender or Lenders, pursuant to an Assignment Agreement, between Company and such Lender or Lenders in an aggregate principal amount not to exceed (y) 5.0% of the initial aggregate principal amount of Term Loans with respect to all such repurchases pursuant to this clause (i) and (z) $5,000,000 in any Fiscal Year; provided that, with respect to such repurchases, Company shall simultaneously provide a copy of such Assignment Agreement and any other agreements between Company and such Lender with respect to such repurchase to Administrative Agent and Syndication Agent;
(ii) In addition, Company may make one or more offers (each, an "OFFER") to repurchase all or any portion of the Term Loans (such Term Loans, the "OFFER LOANS") of Lenders, at the sole discretion of such Lenders,, provided, (A) Company delivers a notice of such Offer to Administrative Agent and all Lenders no later than noon (New York City time) at least five Business Days in advance of a proposed consummation date of such Offer indicating (1) the last date on which such Offer may be accepted, (2) the maximum dollar amount of the Offer, (3) the repurchase price per dollar of principal amount of such Offer Loans at which Company is willing to repurchase the Offer Loans and (4) the instructions, consistent with this Section 2.13(c) with respect to the Offer (which shall be reasonably acceptable to Company, Administrative Agent and the Syndication Agent), that a Lender must follow in order to have its Offer Loans repurchased; (B) the maximum dollar amount of the Offer shall be no less than an aggregate $1,000,000; (C) Company shall hold the Offer open for a minimum period of two Business Days; (D) a Lender who elects to participate in the Offer may choose to tender all or part of such Lender's Offer Loans; and (E) the Offer shall be made to Lenders holding the Offer Loans on a pro rata basis in accordance with their Pro Rata Shares; provided, further that, if any Lender elects not to participate in the Offer, either in whole or in part, the amount of such Lender's Offer Loans not being tendered shall be excluded in calculating the pro rata amount applicable to the balance of such Offer Loans;
(iii) With respect to all repurchases made by Company pursuant to this Section 2.13(c), (A) Company shall pay all accrued and unpaid interest, if any, on the repurchased Term Loans to the date of repurchase of such Term Loans (B) the repurchase of such Term Loans by Company shall not be taken into account in the calculation of Consolidated Excess Cash Flow, (C) Company shall have provided to all Lenders all information that, together with any previously provided information, would satisfy the requirements of Rule 10b-5 of the Exchange Act with respect to an offer by Company to repurchase securities registered under the Securities Act of 1933 (whether or not such securities are outstanding) as if such offer was being made as of the date of such repurchase of Term Loans from a Lender, (D) such repurchases shall not be deemed to be voluntary prepayments pursuant to this Section 2.13, Section 2.15 or 2.16 hereunder except that the amount of the Loans so repurchased shall be applied on a pro rata basis to
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reduce the scheduled remaining principal amount on such Term Loan and (E) immediately following consummation of any such repurchase, Company shall provide notice of such repurchase to Administrative Agent which notice shall include (1) the identity of each Lender party to such repurchase and the amount of each Term Loan being repurchased, (2) the accrued interest thereon, (3) the date of repurchase and (4) any other information Administrative Agent may reasonably request in connection with such repurchase;
(iv) Following repurchase by Company pursuant to this Section 2.13(c), the Term Loans so repurchased shall be deemed cancelled for all purposes and no longer outstanding (and may not be resold by Company), for all purposes of this Agreement and all other Credit Documents, including, but not limited to (A) the making of, or the application of, any payments to the Lenders under this Agreement or any other Credit Document, (B) the making of any request, demand, authorization, direction, notice, consent or waiver under this Agreement or any other Credit Document or (C) the determination of Requisite Lenders, or for any similar or related purpose, under this Agreement or any other Credit Document. Any payment made by Company in connection with a repurchase permitted by this Section 2.13(c) shall not be subject to the provisions of either Section 2.16(a) or
Section 2.17. Failure by Company to make any payment to a Lender required by an agreement permitted by this Section 2.13(c) shall not constitute an Event of Default under Section 8.1(a); and
Notwithstanding any of the provisions set forth in this Agreement to the contrary, Company, the Lenders and Agents hereby agree that nothing in this Agreement shall be understood to mean or suggest that the Term Loans constitute "securities" for purposes of either the Securities Act or the Exchange Act.
2.14. MANDATORY PREPAYMENTS/COMMITMENT REDUCTIONS. Subject to the provisions of Section 2.14(f) below, the Term Loans shall be repaid in the manner provided in subsections 2.14(a) through 2.14(e) below.
(a) Asset Sales. No later than three (3) Business Days following the date of receipt by Holdings or any of its Subsidiaries of any Net Asset Sale Proceeds (excluding any Net Asset Sale Proceeds received in connection with the sale or disposition of inventory or used equipment in the ordinary course of business), Company shall prepay the Loans as set forth in Section 2.15 in an aggregate amount equal to such Net Asset Sale Proceeds; provided, (i) so long as no Default or Event of Default shall have occurred and be continuing, and (ii) to the extent that aggregate Net Asset Sale Proceeds from the Closing Date through the applicable date of determination do not exceed $5,000,000, Company shall have the option, directly or through one or more of its Subsidiaries, to invest Net Asset Sale Proceeds in long-term productive assets of the general type used in the business of Company and its Subsidiaries that are reinvested or identified for reinvestment within one hundred eighty days of receipt thereof and subsequently reinvested within two hundred seventy days of receipt thereof.
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(b) Insurance/Condemnation Proceeds. No later than three (3) Business Days following the date of receipt by Holdings or any of its Subsidiaries, or Administrative Agent as loss payee, of any Net Insurance/Condemnation Proceeds, Company shall prepay the Loans as set forth in
Section 2.15 in an aggregate amount equal to such Net Insurance/Condemnation Proceeds; provided, (i) so long as no Default or Event of Default shall have occurred and be continuing, and (ii) to the extent that aggregate Net Insurance/Condemnation Proceeds from the Closing Date through the applicable date of determination do not exceed $5,000,000, Company shall have the option, directly or through one or more of its Subsidiaries to invest such Net Insurance/Condemnation Proceeds in long-term productive assets of the general type used in the business of Company and its Subsidiaries that are reinvested or identified for reinvestment within one hundred eighty days of receipt thereof and subsequently reinvested within two hundred seventy days of receipt thereof, which investment may include the repair, restoration or replacement of the applicable assets thereof.
(c) Issuance of Equity Securities. No later than three (3) Business Days following the date of receipt by Holdings of any Cash proceeds from a capital contribution to, or the issuance of any Capital Stock of, Holdings or any of its Subsidiaries (other than pursuant to any employee stock or stock option compensation plan or a Permitted Acquisition or warrants or options in existence as of the Closing Date), Company shall prepay the Loans in an aggregate amount equal to 75% of such net proceeds (net of underwriting discounts and commissions and other reasonable costs and expenses associated therewith, including reasonable legal fees and expenses); provided, during any period in which the Leverage Ratio (determined for any such period by reference to the most recent Compliance Certificate delivered pursuant to Section 5.1(d) calculating the Leverage Ratio) shall be 3.0:1.00 or less, Company shall only be required to make the prepayments and/or reductions otherwise required hereby in an amount equal to 50% of such net proceeds.
(d) Issuance of Debt. No later than three (3) Business Days following the date of receipt by Holdings or any of its Subsidiaries of any Cash proceeds from the incurrence of any Indebtedness of Holdings or any of its Subsidiaries (other than with respect to any Indebtedness permitted to be incurred pursuant to Section 6.1(a) through 6.1(q)), Company shall prepay the Loans as set forth in Section 2.15 in an aggregate amount equal to 100% of such proceeds, net of underwriting discounts and commissions and other reasonable costs and expenses associated therewith, including reasonable legal fees and expenses.
(e) Consolidated Excess Cash Flow. In the event that there shall be Consolidated Excess Cash Flow for any Fiscal Year (commencing with Fiscal Year 2004), Company shall, no later than the earlier of (i) one hundred twenty (120) days after the end of such Fiscal Year or (ii) the date filing of Holding's or the Company's required public filings, prepay the Loans as set forth in Section 2.15 in an aggregate amount equal to 75% of such Consolidated Excess Cash Flow; provided, however, that the Company shall be required, no later than sixty (60) days after the end of the Second Fiscal Quarter of Fiscal Year 2004, to make a prepayment pursuant to this Section 2.14(e) with respect to the first two Fiscal Quarters of Fiscal Year 2004. Notwithstanding anything to the contrary set forth above, the Company may make such payments at the end of each Fiscal Quarter prior to the end of such Fiscal Year and, in the event that the aggregate sum of such quarterly payments is less than the required prepayment
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amount hereunder, the Company shall pay the balance thereof in accordance with the terms hereof. In no event shall any Lender be required to refund any amounts prepaid.
(f) Restriction on Prepayments. Notwithstanding the forgoing provisions of this Section 2.14, except as set forth in the proviso at the end of this sentence, no mandatory prepayment of the Term Loans shall be made pursuant to this Section 2.14 until such time as no amounts are owed under the First Lien Credit Agreement (or any permitted refinancings thereof) and no Letters of Credit (as defined therein), commitments to extend credit or obligations to make payments remain outstanding under the First Lien Credit Agreement that have not been fully cash collateralized or is otherwise consented to by requisite lenders thereunder; provided, however, the Company shall prepay amounts required to be made pursuant to clauses (c) and (e) of this Section 2.14 prior to making payments under the corresponding Sections 2.14(c) and (e) of the First Lien Credit Agreement in an aggregate amount not to exceed $67,500,000 (such payments, the "PERMITTED PAYMENTS").
(g) Prepayment Premium. Any prepayments made pursuant to this
Section 2.14, except for the Permitted Payments, shall be subject to the Term Loan Call Protection provisions of Section 2.13(b).
(h) Prepayment Certificate. Concurrently with any prepayment of the Loans pursuant to Sections 2.14(a) through 2.14(e), Company shall deliver to Administrative Agent a certificate of an Authorized Officer demonstrating the calculation of the amount of the applicable net proceeds or Consolidated Excess Cash Flow, as the case may be. In the event that Company shall subsequently determine that the actual amount received exceeded the amount set forth in such certificate, Company shall promptly make an additional prepayment of the Loans in an amount equal to such excess, and Company shall concurrently therewith deliver to Administrative Agent a certificate of an Authorized Officer demonstrating the derivation of such excess.
2.15. APPLICATION OF PREPAYMENTS. Application of Prepayments of Loans to Base Rate Loans and Eurodollar Rate Loans. Any prepayment of Loans shall be applied first to Base Rate Loans to the full extent thereof before application to Eurodollar Rate Loans, in each case in a manner which minimizes the amount of any payments required to be made by Company pursuant to Section 2.18(c).
2.16. GENERAL PROVISIONS REGARDING PAYMENTS.
(a) All payments by Company of principal, interest, fees and other Obligations shall be made in Dollars in same day funds, without defense, setoff or counterclaim, free of any restriction or condition, and delivered to Administrative Agent not later than 12:00 p.m. (New York City time) on the date due at Administrative Agent's Principal Office for the account of Lenders; funds received by Administrative Agent after that time on such due date shall be deemed to have been paid by Company on the next succeeding Business Day.
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(b) All payments in respect of the principal amount of any Loan shall be accompanied by payment of accrued interest on the principal amount being repaid or prepaid.
(c) Administrative Agent shall promptly distribute to each Lender at such address as such Lender shall indicate in writing, such Lender's applicable Pro Rata Share of all payments and prepayments of principal and interest due hereunder, together with all other amounts due thereto, including, without limitation, all fees payable with respect thereto, to the extent received by Administrative Agent.
(d) Notwithstanding the foregoing provisions hereof, if any Conversion/Continuation Notice is withdrawn as to any Affected Lender or if any Affected Lender makes Base Rate Loans in lieu of its Pro Rata Share of any Eurodollar Rate Loans, Administrative Agent shall give effect thereto in apportioning payments received thereafter.
(e) Subject to the provisos set forth in the definition of "Interest Period", whenever any payment to be made hereunder shall be stated to be due on a day that is not a Business Day, such payment shall be made on the next succeeding Business Day and such extension of time shall be included in the computation of the payment of interest hereunder.
(f) Company hereby authorizes Administrative Agent to charge Company's accounts with Administrative Agent in order to cause timely payment to be made to Administrative Agent of all principal, interest, fees and expenses due hereunder (subject to sufficient funds being available in its accounts for that purpose).
(g) Administrative Agent shall deem any payment by or on behalf of Company hereunder that is not made in same day funds prior to 12:00 p.m. (New York City time) to be a non-conforming payment. Any such payment shall not be deemed to have been received by Administrative Agent until the later of (i) the time such funds become available funds, and (ii) the applicable next Business Day. Administrative Agent shall give prompt telephonic notice to Company and each applicable Lender (confirmed in writing) if any payment is non-conforming. Any non-conforming payment may constitute or become a Default or Event of Default in accordance with the terms of Section 8.1(a). Interest shall continue to accrue on any principal as to which a non-conforming payment is made until such funds become available funds (but in no event less than the period from the date of such payment to the next succeeding applicable Business Day) at the rate determined pursuant to Section 2.10 from the date such amount was due and payable until the date such amount is paid in full.
(h) Subject to the terms of the Intercreditor Agreement, if an Event of Default shall have occurred and not otherwise been waived, and the maturity of the Obligations shall have been accelerated pursuant to Section 8.1, all payments or proceeds received by Agents hereunder in respect of any of the Obligations, shall be applied in accordance with the application arrangements described in Section 7.2 of the Pledge and Security Agreement.
2.17. RATABLE SHARING. Subject to the terms of the Intercreditor Agreement, Lenders hereby agree among themselves that, except as otherwise provided in the Collateral Documents with respect to
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amounts realized from the exercise of rights with respect to Liens on the Collateral, if any of them shall, whether by voluntary payment (other than a voluntary prepayment of Loans made and applied in accordance with the terms hereof), through the exercise of any right of set-off or banker's lien, by counterclaim or cross action or by the enforcement of any right under the Credit Documents or otherwise, or as adequate protection of a deposit treated as cash collateral under the Bankruptcy Code, receive payment or reduction of a proportion of the aggregate amount of principal, interest, fees and other amounts then due and owing to such Lender hereunder or under the other Credit Documents (collectively, the "AGGREGATE AMOUNTS DUE" to such Lender) which is greater than the proportion received by any other Lender in respect of the Aggregate Amounts Due to such other Lender, then the Lender receiving such proportionately greater payment shall (a) notify Administrative Agent and each other Lender of the receipt of such payment and (b) apply a portion of such payment to purchase participations (which it shall be deemed to have purchased from each seller of a participation simultaneously upon the receipt by such seller of its portion of such payment) in the Aggregate Amounts Due to the other Lenders so that all such recoveries of Aggregate Amounts Due shall be shared by all Lenders in proportion to the Aggregate Amounts Due to them; provided, if all or part of such proportionately greater payment received by such purchasing Lender is thereafter recovered from such Lender upon the bankruptcy or reorganization of Company or otherwise, those purchases shall be rescinded and the purchase prices paid for such participations shall be returned to such purchasing Lender ratably to the extent of such recovery, but without interest. Company expressly consents to the foregoing arrangement and agrees that any holder of a participation so purchased may exercise any and all rights of banker's lien, set-off or counterclaim with respect to any and all monies owing by Company to that holder with respect thereto as fully as if that holder were owed the amount of the participation held by that holder.
2.18. MAKING OR MAINTAINING EURODOLLAR RATE LOANS.
(a) Inability to Determine Applicable Interest Rate. In the event that Administrative Agent shall have determined (which determination shall be final and conclusive and binding upon all parties hereto), on any Interest Rate Determination Date with respect to any Eurodollar Rate Loans, that by reason of circumstances affecting the London interbank market adequate and fair means do not exist for ascertaining the interest rate applicable to such Loans on the basis provided for in the definition of Adjusted Eurodollar Rate, Administrative Agent shall on such date give notice (by telefacsimile or by telephone confirmed in writing) to Company and each Lender of such determination, whereupon (i) no Loans may be made as, or converted to, Eurodollar Rate Loans until such time as Administrative Agent notifies Company and Lenders that the circumstances giving rise to such notice no longer exist, and (ii) any Funding Notice or Conversion/Continuation Notice given by Company with respect to the Loans in respect of which such determination was made shall be deemed to be rescinded by Company.
(b) Illegality or Impracticability of Eurodollar Rate Loans. In the event that on any date any Lender shall have determined (which determination shall be final and conclusive and binding upon all parties hereto but shall be made only after consultation with Company and Administrative Agent) that the making, maintaining or continuation of its Eurodollar Rate Loans
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(i) has become unlawful as a result of compliance by such Lender in good faith with any law, treaty, governmental rule, regulation, guideline or order (or would conflict with any such treaty, governmental rule, regulation, guideline or order not having the force of law even though the failure to comply therewith would not be unlawful), or (ii) has become impracticable, as a result of contingencies occurring after the date hereof which materially and adversely affect the London interbank market or the position of such Lender in that market, then, and in any such event, such Lender shall be an "AFFECTED LENDER" and it shall on that day give notice (by telefacsimile or by telephone confirmed in writing) to Company and Administrative Agent of such determination (which notice Administrative Agent shall promptly transmit to each other Lender). Thereafter (1) the obligation of the Affected Lender to make Loans as, or to convert Loans to, Eurodollar Rate Loans shall be suspended until such notice shall be withdrawn by the Affected Lender, (2) to the extent such determination by the Affected Lender relates to a Eurodollar Rate Loan then being requested by Company pursuant to a Funding Notice or a Conversion/Continuation Notice, the Affected Lender shall make such Loan as (or continue such Loan as or convert such Loan to, as the case may be) a Base Rate Loan, (3) the Affected Lender's obligation to maintain its outstanding Eurodollar Rate Loans (the "AFFECTED LOANS") shall be terminated at the earlier to occur of the expiration of the Interest Period then in effect with respect to the Affected Loans or when required by law, and (4) the Affected Loans shall automatically convert into Base Rate Loans on the date of such termination. Notwithstanding the foregoing, to the extent a determination by an Affected Lender as described above relates to a Eurodollar Rate Loan then being requested by Company pursuant to a Funding Notice or a Conversion/Continuation Notice, Company shall have the option, subject to the provisions of Section 2.18(c), to rescind such Funding Notice or Conversion/Continuation Notice as to all Lenders by giving notice (by telefacsimile or by telephone confirmed in writing) to Administrative Agent of such rescission on the date on which the Affected Lender gives notice of its determination as described above (which notice of rescission Administrative Agent shall promptly transmit to each other Lender). Except as provided in the immediately preceding sentence, nothing in this Section 2.18(b) shall affect the obligation of any Lender other than an Affected Lender to make or maintain Loans as, or to convert Loans to, Eurodollar Rate Loans in accordance with the terms hereof.
(c) Compensation for Breakage or Non-Commencement of Interest Periods. Company shall compensate each Lender, upon written request by such Lender (which request shall set forth the basis for requesting such amounts), for all reasonable losses, expenses and liabilities (including any interest paid by such Lender to Lenders of funds borrowed by it to make or carry its Eurodollar Rate Loans and any loss, expense or liability sustained by such Lender in connection with the liquidation or re-employment of such funds but excluding loss of anticipated profits) which such Lender may sustain: (i) if for any reason (other than a default by such Lender) a borrowing of any Eurodollar Rate Loan does not occur on a date specified therefor in a Funding Notice or a telephonic request for borrowing, or a conversion to or continuation of any Eurodollar Rate Loan does not occur on a date specified therefore in a Conversion/Continuation Notice or a telephonic request for conversion or continuation; (ii) if any prepayment or other principal payment of, or any conversion of, any of its Eurodollar Rate Loans occurs on a date prior to the last day of an Interest Period applicable to that Loan (including, without limitation, pursuant to Section 2.13(c) hereof); or (iii) if any prepayment of any of its Eurodollar Rate Loans is not made on any date specified in a notice of prepayment given by Company.
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(d) Booking of Eurodollar Rate Loans. Any Lender may make, carry or transfer Eurodollar Rate Loans at, to, or for the account of any of its branch offices or the office of an Affiliate of such Lender.
(e) Assumptions Concerning Funding of Eurodollar Rate Loans. Calculation of all amounts payable to a Lender under this Section 2.18 and under
Section 2.19 shall be made as though such Lender had actually funded each of its relevant Eurodollar Rate Loans through the purchase of a Eurodollar deposit bearing interest at the rate obtained pursuant to clause (i) of the definition of Adjusted Eurodollar Rate in an amount equal to the amount of such Eurodollar Rate Loan and having a maturity comparable to the relevant Interest Period and through the transfer of such Eurodollar deposit from an offshore office of such Lender to a domestic office of such Lender in the United States of America; provided, however, each Lender may fund each of its Eurodollar Rate Loans in any manner it sees fit and the foregoing assumptions shall be utilized only for the purposes of calculating amounts payable under this Section 2.18 and under
Section 2.19.
2.19. INCREASED COSTS; CAPITAL ADEQUACY.
(a) Compensation For Increased Costs and Taxes. Subject to the provisions of Section 2.20 (which shall be controlling with respect to the matters covered thereby), in the event that any Lender shall determine (which determination shall, absent demonstrable error, be final and conclusive and binding upon all parties hereto) that any law, treaty or governmental rule, regulation or order, or any change therein or in the interpretation, administration or application thereof (including the introduction of any new law, treaty or governmental rule, regulation or order), or any determination of a court or governmental authority, in each case that becomes effective after the date hereof, or compliance by such Lender with any guideline, request or directive issued or made after the date hereof by any central bank or other governmental or quasi-governmental authority (whether or not having the force of law): (i) subjects such Lender (or its applicable lending office) to any additional Tax (other than any Tax on the overall net income of such Lender) with respect to this Agreement or any of the other Credit Documents or any of its obligations hereunder or thereunder or any payments to such Lender (or its applicable lending office) of principal, interest, fees or any other amount payable hereunder; (ii) imposes, modifies or holds applicable any reserve (including any marginal, emergency, supplemental, special or other reserve), special deposit, compulsory loan, FDIC insurance or similar requirement against assets held by, or deposits or other liabilities in or for the account of, or advances or loans by, or other credit extended by, or any other acquisition of funds by, any office of such Lender (other than any such reserve or other requirements with respect to Eurodollar Rate Loans that are reflected in the definition of Adjusted Eurodollar Rate); or (iii) imposes any other condition (other than with respect to a Tax matter) on or affecting such Lender (or its applicable lending office) or its obligations hereunder or the London interbank market; and the result of any of the foregoing is to increase the cost to such Lender of agreeing to make, making or maintaining Loans hereunder or to reduce any amount received or receivable by such Lender (or its applicable lending office) with respect thereto; then, in any such case, Company shall promptly pay to such Lender, upon receipt of the statement referred to in the next sentence, such
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additional amount or amounts (in the form of an increased rate of, or a different method of calculating, interest or otherwise as such Lender in its sole discretion shall determine) as may be necessary to compensate such Lender for any such increased cost or reduction in amounts received or receivable hereunder. Such Lender shall deliver to Company (with a copy to Administrative Agent) a written statement, setting forth in reasonable detail the basis for calculating the additional amounts owed to such Lender under this Section 2.19(a), which statement shall be conclusive and binding upon all parties hereto absent demonstrable error.
(b) Capital Adequacy Adjustment. In the event that any Lender shall have determined that the adoption, effectiveness, phase-in or applicability after the Closing Date of any law, rule or regulation (or any provision thereof) regarding capital adequacy, or any change therein or in the interpretation or administration thereof by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Lender (or its applicable lending office) with any guideline, request or directive regarding capital adequacy (whether or not having the force of law) of any such Governmental Authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on the capital of such Lender or any corporation controlling such Lender as a consequence of, or with reference to, such Lender's Loans or other obligations hereunder with respect to the Loans to a level below that which such Lender or such controlling corporation could have achieved but for such adoption, effectiveness, phase-in, applicability, change or compliance (taking into consideration the policies of such Lender or such controlling corporation with regard to capital adequacy), then from time to time, within five Business Days after receipt by Company from such Lender of the statement referred to in the next sentence, Company shall pay to such Lender such additional amount or amounts as will compensate such Lender or such controlling corporation on an after-tax basis for such reduction. Such Lender shall deliver to Company (with a copy to Administrative Agent) a written statement, setting forth in reasonable detail the basis for calculating the additional amounts owed to Lender under this Section 2.19(b), which statement shall be conclusive and binding upon all parties hereto absent demonstrable error.
2.20. TAXES; WITHHOLDING, ETC.
(a) Payments to Be Free and Clear. All sums payable by any Credit Party hereunder and under the other Credit Documents shall (except to the extent required by law) be paid free and clear of, and without any deduction or withholding on account of, any Tax (other than a Tax on the overall net income of any Lender) imposed, levied, collected, withheld or assessed by or within the United States of America or any political subdivision in or of the United States of America or any other jurisdiction from or to which a payment is made by or on behalf of any Credit Party or by any federation or organization of which the United States of America or any such jurisdiction is a member at the time of payment.
(b) Withholding of Taxes. If any Credit Party or any other Person is required by law to make any deduction or withholding on account of any such Tax from any sum paid or payable by any Credit Party to Administrative Agent or any Lender under any of the Credit Documents: (i) Company shall notify Administrative Agent of any such requirement or any change in any such requirement as soon as Company becomes aware of it; (ii) Company shall
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pay any such Tax before the date on which penalties attach thereto, such payment to be made (if the liability to pay is imposed on any Credit Party) for its own account or (if that liability is imposed on Administrative Agent or such Lender, as the case may be) on behalf of and in the name of Administrative Agent or such Lender; (iii) the sum payable by such Credit Party in respect of which the relevant deduction, withholding or payment is required shall be increased to the extent necessary to ensure that, after the making of that deduction, withholding or payment, Administrative Agent or such Lender, as the case may be, receives on the due date a net sum equal to what it would have received had no such deduction, withholding or payment been required or made; and (iv) within thirty days after paying any sum from which it is required by law to make any deduction or withholding, and within thirty days after the due date of payment of any Tax which it is required by clause (ii) above to pay, Company shall deliver to Administrative Agent evidence satisfactory to the other affected parties of such deduction, withholding or payment and of the remittance thereof to the relevant taxing or other authority; provided, no such additional amount shall be required to be paid to any Lender under clause (iii) above except to the extent that any change after the date hereof (in the case of each Lender listed on the signature pages hereof on the Closing Date) or after the effective date of the Assignment Agreement pursuant to which such Lender became a Lender (in the case of each other Lender) in any such requirement for a deduction, withholding or payment as is mentioned therein shall result in an increase in the rate of such deduction, withholding or payment from that in effect at the date hereof or at the date of such Assignment Agreement, as the case may be, in respect of payments to such Lender.
(c) Evidence of Exemption From U.S. Withholding Tax. Each Lender that is not a United States Person (as such term is defined in Section 7701(a)(30) of the Internal Revenue Code) for U.S. federal income tax purposes (a "NON-US LENDER") shall deliver to Administrative Agent and the Company, on or prior to the Closing Date (in the case of each Lender listed on the signature pages hereof on the Closing Date) or on or prior to the date of the Assignment Agreement pursuant to which it becomes a Lender (in the case of each other Lender), and at such other times as may be necessary in the determination of Company or Administrative Agent (each in the reasonable exercise of its discretion), (i) two original copies of Internal Revenue Service Form W-8BEN or W-8ECI (or any successor forms), properly completed and duly executed by such Lender, and such other documentation required under the Internal Revenue Code and reasonably requested by Company to establish that such Lender is not subject to deduction or withholding of United States federal income tax with respect to any payments to such Lender of principal, interest, fees or other amounts payable under any of the Credit Documents, or (ii) if such Lender is not a "bank" or other Person described in Section 881(c)(3) of the Internal Revenue Code and cannot deliver either Internal Revenue Service Form W-8BEN or W-8ECI pursuant to clause (i) above, a Certificate re Non-Bank Status together with two original copies of Internal Revenue Service Form W-8 (or any successor form), properly completed and duly executed by such Lender, and such other documentation required under the Internal Revenue Code and reasonably requested by Company to establish that such Lender is not subject to deduction or withholding of United States federal income tax with respect to any payments to such Lender of interest payable under any of the Credit Documents. Each Lender required to deliver any forms, certificates or other evidence with respect to United States federal income tax withholding matters pursuant to this Section 2.20(c) hereby agrees, from time to time after the initial delivery by such Lender of such forms,
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certificates or other evidence, whenever a lapse in time or change in circumstances renders such forms, certificates or other evidence obsolete or inaccurate in any material respect, that such Lender shall promptly deliver to Administrative Agent and the Company two new original copies of Internal Revenue Service Form W-8BEN or W-8ECI , or a Certificate re Non-Bank Status and two original copies of Internal Revenue Service Form W-8, as the case may be, properly completed and duly executed by such Lender, and such other documentation required under the Internal Revenue Code and reasonably requested by Company to confirm or establish that such Lender is not subject to deduction or withholding of United States federal income tax with respect to payments to such Lender under the Credit Documents, or notify Administrative Agent and Company of its inability to deliver any such forms, certificates or other evidence. Company shall not be required to pay any additional amount to any Non-US Lender under Section 2.20(b)(iii) if such Lender shall have failed (1) to deliver the forms, certificates or other evidence referred to in the second sentence of this Section 2.20(c), or (2) to notify Administrative Agent and Company of its inability to deliver any such forms, certificates or other evidence, as the case may be; provided, if such Lender shall have satisfied the requirements of the first sentence of this Section 2.20(c) on the Closing Date or on the date of the Assignment Agreement pursuant to which it became a Lender, as applicable, nothing in this last sentence of Section 2.20(c) shall relieve Company of its obligation to pay any additional amounts pursuant this Section 2.20 in the event that, as a result of any change in any applicable law, treaty or governmental rule, regulation or order, or any change in the interpretation, administration or application thereof, such Lender is no longer properly entitled to deliver forms, certificates or other evidence at a subsequent date establishing the fact that such Lender is not subject to withholding as described herein.
2.21. OBLIGATION TO MITIGATE. Each Lender agrees that, as promptly as practicable after the officer of such Lender responsible for administering its Loans becomes aware of the occurrence of an event or the existence of a condition that would cause such Lender to become an Affected Lender or that would entitle such Lender to receive payments under Section 2.18, 2.19 or 2.20, it will, to the extent not inconsistent with the internal policies of such Lender and any applicable legal or regulatory restrictions, use reasonable efforts to (a) make, issue, fund or maintain its Credit Extensions, including any Affected Loans, through another office of such Lender, or (b) take such other measures as such Lender may deem reasonable, if as a result thereof the circumstances which would cause such Lender to be an Affected Lender would cease to exist or the additional amounts which would otherwise be required to be paid to such Lender pursuant to Section 2.18, 2.19 or 2.20 would be materially reduced and if, as determined by such Lender in its sole discretion, the making, issuing, funding or maintaining of such Loans through such other office or in accordance with such other measures, as the case may be, would not otherwise adversely affect such Loans or the interests of such Lender; provided, such Lender will not be obligated to utilize such other office pursuant to this
Section 2.21 unless Company agrees to pay all incremental expenses incurred by such Lender as a result of utilizing such other office as described in clause
(i) above. A certificate as to the amount of any such expenses payable by Company pursuant to this Section 2.21 (setting forth in reasonable detail the basis for requesting such amount) submitted by such Lender to Company (with a copy to Administrative Agent) shall be conclusive absent demonstrable error.
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2.22. REMOVAL OR REPLACEMENT OF A LENDER. Anything contained herein to the contrary notwithstanding, in the event that: (a) (i) any Lender (an "INCREASED-COST LENDER") shall give notice to Company that such Lender is an Affected Lender or that such Lender is entitled to receive payments under
Section 2.18, 2.19 or 2.20, (ii) the circumstances which have caused such Lender to be an Affected Lender or which entitle such Lender to receive such payments shall remain in effect, and (iii) such Lender shall fail to withdraw such notice within five Business Days after Company's request for such withdrawal; or (b) in connection with any proposed amendment, modification, termination, waiver or consent with respect to any of the provisions hereof as contemplated by Section 10.5(b), the consent of Requisite Lenders shall have been obtained but the consent of one or more of such other Lenders (each a "NON-CONSENTING LENDER") whose consent is required shall not have been obtained; then, with respect to each such Increased-Cost Lender or Non-Consenting Lender (the "TERMINATED LENDER"), Company may, by giving written notice to Administrative Agent and any Terminated Lender of its election to do so, elect to cause such Terminated Lender (and such Terminated Lender hereby irrevocably agrees) to assign its outstanding Loans, if any, in full to one or more Eligible Assignees (each a "REPLACEMENT LENDER") in accordance with the provisions of Section 10.6 and Terminated Lender shall pay any fees payable thereunder in connection with such assignment; provided, (1) on the date of such assignment, the Replacement Lender shall pay to Terminated Lender an amount equal to the sum of (A) an amount equal to the principal of, and all accrued interest on, all outstanding Loans of the Terminated Lender and (B) an amount equal to all accrued, but theretofore unpaid fees owing to such Terminated Lender pursuant to Section 2.11; (2) on the date of such assignment, Company shall pay any amounts payable to such Terminated Lender pursuant to Section 2.18(c), 2.19 or 2.20; or otherwise as if it were a prepayment and (3) in the event such Terminated Lender is a Non-Consenting Lender, each Replacement Lender shall consent, at the time of such assignment, to each matter in respect of which such Terminated Lender was a Non-Consenting Lender. Upon the prepayment of all amounts owing to any Terminated Lender, if any, such Terminated Lender shall no longer constitute a "Lender" for purposes hereof; provided, any rights of such Terminated Lender to indemnification hereunder shall survive as to such Terminated Lender.
SECTION 3. CONDITIONS PRECEDENT
3.1. CLOSING DATE. The obligation of any Lender to make Term Loans on the Closing Date is subject to the satisfaction, or waiver in accordance with
Section 10.5, of the following conditions on or before the Closing Date:
(a) Credit Documents. Administrative Agent shall have received sufficient copies of each Credit Document in a form satisfactory to the Administrative Agent originally executed and delivered by each applicable Credit Party for each Lender.
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(b) Organizational Documents; Incumbency. Administrative Agent shall have received (i) sufficient copies of each Organizational Document executed and delivered by each Credit Party, as applicable, and, to the extent applicable, certified as of a recent date by the appropriate governmental official, for each Lender, each dated the Closing Date or a recent date prior thereto; (ii) signature and incumbency certificates of the officers of such Person executing the Credit Documents to which it is a party; (iii) resolutions of the Board of Directors or similar governing body of each Credit Party approving and authorizing the execution, delivery and performance of this Agreement and the other Credit Documents and the Related Agreements to which it is a party or by which it or its assets may be bound as of the Closing Date, certified as of the Closing Date by its secretary or an assistant secretary as being in full force and effect without modification or amendment; (iv) a good standing certificate from the applicable Governmental Authority of each Credit Party's jurisdiction of incorporation, organization or formation and in each jurisdiction in which it is qualified as a foreign corporation or other entity to do business, each dated a recent date prior to the Closing Date; and (v) such other documents as Administrative Agent may reasonably request.
(c) Organizational and Capital Structure. The organizational structure and capital structure of Holdings and its Subsidiaries shall be as set forth on Schedule 4.1.
(d) Capitalization of Holdings and Company; Related Financings. On or before the Closing Date:
(i) Administrative Agent and Syndication Agent shall be satisfied in all respects with Holdings' capital structure; and
(ii) the transactions contemplated by the First Lien Credit Agreement shall have been consummated.
(e) Related Agreements. Syndication Agent and Administrative Agent shall each have received a fully executed or conformed copy of each Related Agreement and any documents executed in connection therewith, together with copies of each of the opinions of counsel delivered to the parties under the Related Agreements, accompanied by a letter from each such counsel (to the extent not inconsistent with such counsel's established internal policies) authorizing Lenders to rely upon such opinion to the same extent as though it were addressed to Lenders. There shall be no defaults or events of default (as may be defined in the applicable Related Agreement) under any Related Agreements and each Related Agreement shall be in full force and effect, and no provision thereof shall have been modified or waived in any respect determined by Syndication Agent or Administrative Agent to be material, in each case without the consent of Syndication Agent and Administrative Agent.
(f) Existing Indebtedness. (I) There shall be no material defaults or material events of default under the Existing Indebtedness and (II) on the Closing Date, Holdings and its Subsidiaries shall have (i) repaid in full all Existing Indebtedness (other than Indebtedness under the Existing Seller Subordinated Notes), (ii) terminated any commitments to lend or make other extensions of credit thereunder, (iii) delivered to Syndication Agent and Administrative Agent all documents or instruments necessary to release all Liens securing Existing Indebtedness or other
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obligations of Holdings and its Subsidiaries thereunder being repaid on the Closing Date, (iv) made arrangements satisfactory to Syndication Agent and Administrative Agent with respect to the cancellation of any letters of credit outstanding thereunder or the issuance of letters of credit under the First Lien Credit Agreement to support the obligations of Holdings and its Subsidiaries with respect thereto, and (v) delivered to Syndication Agent and Administrative Agent (1) a fully executed or conformed copy of each document evidencing the Existing Seller Subordinated Notes and the Existing Earn-Out Obligations and (2) a certificate from an Authorized Officer of each applicable Credit Party, in form and substance satisfactory to Syndication Agent and Administrative Agent, with respect thereto.
(g) Transaction Costs. On or prior to the Closing Date, Company shall have delivered to Administrative Agent Company's reasonable best estimate of the Transactions Costs (other than fees payable to any Agent).
(h) Governmental Authorizations and Consents. Each Credit Party shall have obtained all Governmental Authorizations and all consents of other Persons, in each case that are necessary or advisable in connection with the transactions contemplated by the Credit Documents and the Related Agreements and each of the foregoing shall be in full force and effect and in form and substance reasonably satisfactory to Syndication Agent and Administrative Agent. All applicable waiting periods shall have expired without any action being taken or threatened by any competent authority which would restrain, prevent or otherwise impose adverse conditions on the transactions contemplated by the Credit Documents or the Related Agreements or the financing thereof and no action, request for stay, petition for review or rehearing, reconsideration, or appeal with respect to any of the foregoing shall be pending, and the time for any applicable agency to take action to set aside its consent on its own motion shall have expired.
(i) Real Estate Assets. In order to create in favor of Collateral Agent, for the benefit of Secured Parties, a valid and, subject to any filing and/or recording referred to herein, perfected Second Priority security interest in certain Real Estate Assets, Collateral Agent shall have received from Company and each applicable Guarantor:
(i) fully executed and notarized Mortgages, in proper form for recording in all appropriate places in all applicable jurisdictions, encumbering each Real Estate Asset listed in Schedule 3.1(i) (each, a "CLOSING DATE MORTGAGED PROPERTY ");
(ii) an opinion of counsel (which counsel shall be reasonably satisfactory to Collateral Agent) in each state in which a Closing Date Mortgaged Property is located with respect to the enforceability of the form(s) of Mortgages to be recorded in such state and such other matters as Collateral Agent may reasonably request, in each case in form and substance reasonably satisfactory to Collateral Agent;
(iii) in the case of each Leasehold Property, if any, that is a Closing Date Mortgaged Property, (1) a Landlord Consent and Estoppel and
(2) evidence that such Leasehold Property is a Recorded Leasehold Interest;
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(iv) (a) ALTA mortgagee title insurance policies or unconditional commitments therefore issued by one or more title companies reasonably satisfactory to Collateral Agent with respect to each Closing Date Mortgaged Property (each, a "TITLE POLICY"), in amounts not less than the fair market value of each Closing Date Mortgaged Property, together with a title report issued by a title company with respect thereto, dated not more than thirty days prior to the Closing Date and copies of all recorded documents listed as exceptions to title or otherwise referred to therein, each in form and substance reasonably satisfactory to Collateral Agent and (b) evidence satisfactory to Collateral Agent that such Credit Party has paid to the title company or to the appropriate Governmental Authorities all expenses and premiums of the title company and all other sums required in connection with the issuance of each Title Policy and all recording and stamp taxes (including mortgage recording and intangible taxes) payable in connection with recording the Mortgages for each Closing Date Mortgaged Property in the appropriate real estate records; and
(v) evidence of flood insurance with respect to each Flood Hazard Property that is located in a community that participates in the National Flood Insurance Program, in each case in compliance with any applicable regulations of the Board of Governors of the Federal Reserve System, in form and substance reasonably satisfactory to Collateral Agent.
(j) Personal Property Collateral. In order to create in favor of Collateral Agent, for the benefit of Secured Parties, a valid, perfected Second Priority security interest in the personal property Collateral, Collateral Agent shall have received:
(i) evidence satisfactory to Collateral Agent of the compliance by each Credit Party of their obligations under the Pledge and Security Agreement and the other Collateral Documents (including, without limitation, their obligations to execute and deliver UCC financing statements, originals of securities, instruments and chattel paper and any agreements governing deposit and/or securities accounts as provided therein);
(ii) A completed Collateral Questionnaire dated the Closing Date and executed by an Authorized Officer of each Credit Party, together with all attachments contemplated thereby, including (A) the results of a recent search, by a Person satisfactory to Collateral Agent, of all effective UCC financing statements (or equivalent filings) made with respect to any personal or mixed property of any Credit Party in the jurisdictions specified in the Collateral Questionnaire, together with copies of all such filings disclosed by such search, and (B) UCC termination statements (or similar documents) duly executed by all applicable Persons for filing in all applicable jurisdictions as may be necessary to terminate any effective UCC financing statements (or equivalent filings) disclosed in such search (other than any such financing statements in respect of Permitted Liens);
(iii) opinions of counsel (which counsel shall be reasonably satisfactory to Collateral Agent) with respect to the creation and perfection of the security interests in favor of Collateral Agent in such Collateral and such other matters governed by the laws
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of each jurisdiction in which any Credit Party or any personal property Collateral is located as Collateral Agent may reasonably request, in each case in form and substance reasonably satisfactory to Collateral Agent; and
(iv) evidence that each Credit Party shall have taken or caused to be taken any other action, executed and delivered or caused to be executed and delivered any other agreement, document and instrument (including, without limitation, any intercompany notes evidencing Indebtedness permitted to be incurred pursuant to Section 6.1(b)) and made or caused to be made any other filing and recording (other than as set forth herein) reasonably required by Collateral Agent.
(k) Environmental Reports. Syndication Agent and Administrative Agent shall have received reports and other information, in form, scope and substance satisfactory to Syndication Agent and Administrative Agent, regarding environmental matters relating to the Facilities, which reports shall include a Phase I Report for each of the Facilities specified by the Syndication Agent and Administrative Agent.
(l) Financial Statements; Projections. Lenders shall have received from Holdings (i) the Historical Financial Statements, (ii) pro forma consolidated and consolidating balance sheets of Holdings and its Subsidiaries as of October 31, 2003, and reflecting the consummation of the Refinancing, the related financings and the other transactions contemplated by the Credit Documents to occur on or prior to the Closing Date, which pro forma financial statements shall be in form and substance satisfactory to Administrative Agent and Syndication Agent, and (iii) the Projections.
(m) Evidence of Insurance. Collateral Agent shall have received a certificate from Company's insurance broker or other evidence satisfactory to it that all insurance required to be maintained pursuant to Section 5.5 is in full force and effect and that Collateral Agent, for the benefit of Lenders has been named as additional insured and loss payee thereunder to the extent required under Section 5.5.
(n) Opinions of Counsel to Credit Parties. Lenders and their respective counsel shall have received originally executed copies of the favorable written opinions of those counsel for Credit Parties set forth in Schedule 3.1(n), in the form of Exhibit D and as to such other matters as Administrative Agent or Syndication Agent may reasonably request, dated as of the Closing Date and otherwise in form and substance reasonably satisfactory to Administrative Agent and Syndication Agent (and each Credit Party hereby instructs such counsel to deliver such opinions to Agents and Lenders).
(o) Opinions of Counsel to Syndication Agent. Lenders shall have received originally executed copies of one or more favorable written opinions of Skadden, Arps, Slate, Meagher & Flom LLP, counsel to Syndication Agent, dated as of the Closing Date, in form and substance reasonably satisfactory to Syndication Agent.
(p) Fees. Company shall have paid to Syndication Agent and Administrative Agent, the fees payable on the Closing Date referred to in
Section 2.11.
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(q) Closing Date Certificate. Holdings and Company shall have delivered to Syndication Agent and Administrative Agent an originally executed Closing Date Certificate, together with all attachments thereto.
(r) Credit Rating. The credit facilities provided for under this Agreement shall have been assigned a credit rating by either S&P and/or Moody's of not less than B in the case of S&P or B3 in the case of Moody's.
(s) Closing Date. Lenders shall have made the Term Loans to Company on or before January 31, 2004.
(t) No Litigation. There shall not exist any action, suit, investigation, litigation or proceeding or other legal or regulatory developments, pending or threatened in any court or before any arbitrator or Governmental Authority that, in the reasonable opinion of Administrative Agent and Syndication Agent, singly or in the aggregate, materially impairs the Refinancing or any of the other transactions contemplated by the Credit Documents or the Related Agreements, or that could reasonably be expected to have a Material Adverse Effect.
(u) Completion of Proceedings. All partnership, corporate and other proceedings taken or to be taken in connection with the transactions contemplated hereby and all documents incidental thereto not previously found acceptable by Administrative Agent or Syndication Agent and its counsel shall be satisfactory in form and substance to Administrative Agent and Syndication Agent and such counsel, and Administrative Agent, Syndication Agent and such counsel shall have received all such counterpart originals or certified copies of such documents as Administrative Agent or Syndication Agent may reasonably request.
Each Lender, by delivering its signature page to this Agreement and funding a Loan on the Closing Date, shall be deemed to have acknowledged receipt of, and consented to and approved, each Credit Document and each other document required to be approved by any Agent, Requisite Lenders or Lenders, as applicable on the Closing Date.
3.2. FURTHER CONDITIONS TO ALL TERM LOANS.
(a) Conditions Precedent. The obligation of each Lender to make any Loan on the Closing Date, is subject to the satisfaction, or waiver in accordance with Section 10.5, of the following conditions precedent:
(i) Administrative Agent shall have received a fully executed and delivered Funding Notice;
(ii) the representations and warranties contained herein and in the other Credit Documents shall be true and correct in all material respects on and as of the Closing Date; and
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(iii) no event shall have occurred and be continuing or would result from the consummation of the Credit Extension that would constitute an Event of Default or a Default.
Any Agent or Requisite Lenders shall be entitled, but not obligated to, request and receive, prior to the making of any Term Loan, additional information reasonably satisfactory to the requesting party confirming the satisfaction of any of the foregoing if, in the good faith judgment of such Agent or Requisite Lender such request is warranted under the circumstances.
(b) Notices. Any Notice shall be executed by an Authorized Officer in a writing delivered to Administrative Agent. In lieu of delivering a Notice, Company may give Administrative Agent telephonic notice by the required time of any proposed borrowing or conversion/continuation, as the case may be; provided each such notice shall be promptly confirmed in writing by delivery of the applicable Notice to Administrative Agent on or before the applicable date of continuation/conversion. Neither Administrative Agent nor any Lender shall incur any liability to Company in acting upon any telephonic notice referred to above that Administrative Agent believes in good faith to have been given by a duly authorized officer or other person authorized on behalf of Company or for otherwise acting in good faith.
SECTION 4. REPRESENTATIONS AND WARRANTIES
In order to induce Lenders to enter into this Agreement and to make the Credit Extensions, each Credit Party represents and warrants to each Lender on the Closing Date that the following statements are true and correct (it being understood and agreed that the representations and warranties made on the Closing Date are deemed to be made concurrently with the consummation of the Refinancing contemplated hereby):
4.1. ORGANIZATION; REQUISITE POWER AND AUTHORITY; QUALIFICATION. Each of Holdings and its Subsidiaries (a) is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization as identified in Schedule 4.1, (b) has all requisite power and authority to own and operate its properties, to carry on its business as now conducted and as proposed to be conducted, to enter into the Credit Documents to which it is a party and to carry out the transactions contemplated thereby, and (c) is qualified to do business and in good standing in every jurisdiction where its assets are located and wherever necessary to carry out its business and operations, except in jurisdictions where the failure to be so qualified or in good standing has not had, and could not be reasonably expected to have, a Material Adverse Effect.
4.2. CAPITAL STOCK AND OWNERSHIP. The Capital Stock of each of Holdings and its Subsidiaries has been duly authorized and validly issued and is fully paid and non-assessable. Except as set forth on Schedule 4.2, as of the date hereof, there is no existing option, warrant, call, right, commitment or other agreement to which Holdings or any of its Subsidiaries is a party requiring, and there is no Capital Stock of Holdings or any of its Subsidiaries outstanding which upon conversion or
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exchange would require, the issuance by Holdings or any of its Subsidiaries of any additional Capital Stock of Holdings or any of its Subsidiaries or other Securities convertible into, exchangeable for or evidencing the right to subscribe for or purchase, Capital Stock of Holdings or any of its Subsidiaries. Schedule 4.2 correctly sets forth the ownership interest of Holdings and each of its Subsidiaries in their respective Subsidiaries as of the Closing Date.
4.3. DUE AUTHORIZATION. The execution, delivery and performance of the Credit Documents have been duly authorized by all necessary action on the part of each Credit Party that is a party thereto.
4.4. NO CONFLICT. The execution, delivery and performance by Credit Parties of the Credit Documents to which they are parties and the consummation of the transactions contemplated by the Credit Documents do not and will not (a) violate any provision of any law or any governmental rule or regulation applicable to Holdings or any of its Subsidiaries, any of the Organizational Documents of Holdings or any of its Subsidiaries, or any order, judgment or decree of any court or other agency of government binding on Holdings or any of its Subsidiaries except to the extent such violation could not be reasonably expected to have a Material Adverse Effect; (b) conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any Contractual Obligation of Holdings or any of its Subsidiaries except to the extent such conflict, breach or default could not reasonably be expected to have a Material Adverse Effect; (c) result in or require the creation or imposition of any Lien upon any of the properties or assets of Holdings or any of its Subsidiaries (other than any Liens created under any of the Credit Documents in favor of Collateral Agent, on behalf of Secured Parties and the Liens securing obligations under the First Lien Credit Agreement pursuant to subsection 6.2(p)); or (d) require any approval of stockholders, members or partners or any approval or consent of any Person under any Contractual Obligation of Holdings or any of its Subsidiaries, except for such approvals or consents which will be obtained on or before the Closing Date and disclosed in writing to Lenders and except for any such approvals or consents the failure of which to obtain will not have a Material Adverse Effect.
4.5. GOVERNMENTAL CONSENTS. The execution, delivery and performance by Credit Parties of the Credit Documents to which they are parties and the consummation of the transactions contemplated by the Credit Documents do not and will not require any registration with, consent or approval of, or notice to, or other action to, with or by, any Governmental Authority except for filings and recordings with respect to the Collateral to be made, or otherwise delivered to Collateral Agent for filing and/or recordation, as of the Closing Date.
4.6. BINDING OBLIGATION. Each Credit Document has been duly executed and delivered by each Credit Party that is a party thereto and is the legally valid and binding obligation of such Credit Party, enforceable against such Credit Party in accordance with its respective terms, except as may be limited by
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bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors' rights generally or by equitable principles relating to enforceability.
4.7. HISTORICAL FINANCIAL STATEMENTS. The Historical Financial Statements were prepared in conformity with GAAP and fairly present, in all material respects, the financial position, on a consolidated basis, of the Persons described in such financial statements as at the respective dates thereof and the results of operations and cash flows, on a consolidated basis, of the entities described therein for each of the periods then ended, subject, in the case of any such unaudited financial statements, to changes resulting from audit and normal year-end adjustments. As of the Closing Date, neither Holdings nor any of its Subsidiaries has any contingent liability or liability for taxes, long-term lease or unusual forward or long-term commitment that is not reflected in the Historical Financial Statements or the notes thereto and which in any such case is material in relation to the business, operations, properties, assets, condition (financial or otherwise) or prospects of Holdings and any of its Subsidiaries taken as a whole.
4.8. PROJECTIONS. On and as of the Closing Date, the projected financial information of Holdings and its Subsidiaries for the period Fiscal Year 2004 through and including Fiscal Year 2009 (the "PROJECTIONS") are based on good faith estimates and assumptions made by the management of Holdings; provided, the Projections are not to be viewed as facts and that actual results during the period or periods covered by the Projections may differ from such Projections and that the differences may be material; provided further, as of the Closing Date, management of Holdings believed that the Projections were reasonable and attainable.
4.9. NO MATERIAL ADVERSE CHANGE. Since December 31, 2002, no event, circumstance or change has occurred that has caused or evidences, either in any case or in the aggregate, a Material Adverse Effect.
4.10. NO RESTRICTED JUNIOR PAYMENTS. Since September 30, 2003, neither Holdings nor any of its Subsidiaries has directly or indirectly declared, ordered, paid or made, or set apart any sum or property for, any Restricted Junior Payment or agreed to do so except as permitted pursuant to Section 6.5.
4.11. ADVERSE PROCEEDINGS, ETC. There are no Adverse Proceedings, individually or in the aggregate, that could reasonably be expected to have a Material Adverse Effect. Neither Holdings nor any of its Subsidiaries (a) is in violation of any applicable laws (including Environmental Laws) that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect, or (b) is subject to or in default with respect to any final judgments, writs, injunctions, decrees, rules or regulations of any court or any federal, state, municipal or other governmental
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department, commission, board, bureau, agency or instrumentality, domestic or foreign, that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect.
4.12. PAYMENT OF TAXES. Except as otherwise permitted under Section 5.3, all tax returns and reports of Holdings and its Subsidiaries required to be filed by any of them have been timely filed, and all taxes shown on such tax returns to be due and payable and all assessments, fees and other governmental charges upon Holdings and its Subsidiaries and upon their respective properties, assets, income, businesses and franchises which are due and payable have been paid when due and payable. Holdings knows of no proposed tax assessment against Holdings or any of its Subsidiaries which is not being actively contested by Holdings or such Subsidiary in good faith and by appropriate proceedings; provided, such reserves or other appropriate provisions, if any, as shall be required in conformity with GAAP shall have been made or provided therefore.
4.13. PROPERTIES.
(a) Title. Each of Holdings and its Subsidiaries has (i) good, sufficient and legal title to (in the case of fee interests in real property),
(ii) valid leasehold interests in (in the case of leasehold interests in real or personal property), and (iii) good title to (in the case of all other personal property), all of their respective properties and assets reflected in their respective Historical Financial Statements referred to in Section 4.7 and in the most recent financial statements delivered pursuant to Section 5.1, in each case except for assets disposed of since the date of such financial statements in the ordinary course of business or as otherwise permitted under Section 6.9. Except as permitted by this Agreement, all such properties and assets are free and clear of Liens.
(b) Real Estate. As of the Closing Date, Schedule 4.13 contains a true, accurate and complete list of (i) all Real Estate Assets, and (ii) all leases, subleases or assignments of leases (together with all amendments, modifications, supplements, renewals or extensions of any thereof) affecting each Real Estate Asset of any Credit Party, regardless of whether such Credit Party is the landlord or tenant (whether directly or as an assignee or successor in interest) under such lease, sublease or assignment. Each agreement listed in Schedule 4.13 is in full force and effect and Holdings does not have knowledge of any default that has occurred and is continuing thereunder, and each such agreement constitutes the legally valid and binding obligation of each applicable Credit Party, enforceable against such Credit Party in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors' rights generally or by equitable principles.
4.14. ENVIRONMENTAL MATTERS. Neither Holdings nor any of its Subsidiaries nor any of their respective Facilities or operations are subject to any outstanding written order, consent decree or settlement agreement with any Person relating to any Environmental Law, any Environmental Claim, or any Hazardous Materials Activity that, individually or in the aggregate, could reasonably be expected
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to have a Material Adverse Effect. Neither Holdings nor any of its Subsidiaries has received any letter or request for information under Section 104 of the Comprehensive Environmental Response, Compensation, and Liability Act (42 U.S.C.
Section 9604) or any comparable state law. There are and, to each of Holdings' and its Subsidiaries' knowledge, have been, no conditions, occurrences, or Hazardous Materials Activities which could reasonably be expected to form the basis of an Environmental Claim against Holdings or any of its Subsidiaries that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. Neither Holdings nor any of its Subsidiaries nor, to any Credit Party's knowledge, any predecessor of Holdings or any of its Subsidiaries has filed any notice under any Environmental Law indicating past or present treatment of Hazardous Materials at any Facility, and none of Holdings' or any of its Subsidiaries' operations involves the generation, transportation, treatment, storage or disposal of hazardous waste, as defined under 40 C.F.R. Parts 260-270 or any state equivalent in violation of law. Compliance with all current or reasonably foreseeable future requirements pursuant to or under Environmental Laws could not be reasonably expected to have, individually or in the aggregate, a Material Adverse Effect. No event or condition has occurred or is occurring with respect to Holdings or any of its Subsidiaries relating to any Environmental Law, any Release of Hazardous Materials, or any Hazardous Materials Activity which individually or in the aggregate has had, or could reasonably be expected to have, a Material Adverse Effect.
4.15. NO DEFAULTS. Neither Holdings nor any of its Subsidiaries is in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any of its Contractual Obligations, and no condition exists which, with the giving of notice or the lapse of time or both, could constitute such a default, except where the consequences, direct or indirect, of such default or defaults, if any, could not reasonably be expected to have a Material Adverse Effect.
4.16. MATERIAL CONTRACTS. Schedule 4.16 contains a true, correct and complete list of all the Material Contracts in effect on the Closing Date, and except as described thereon, all such Material Contracts are in full force and effect and no defaults in any material respect currently exist thereunder.
4.17. GOVERNMENTAL REGULATION. Neither Holdings nor any of its Subsidiaries is subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act or the Investment Company Act of 1940 or under any other federal or state statute or regulation which may limit its ability to incur Indebtedness or which may otherwise render all or any portion of the Obligations unenforceable. Neither Holdings nor any of its Subsidiaries is a "registered investment company" or a company "controlled" by a "registered investment company" or a "principal underwriter" of a "registered investment company" as such terms are defined in the Investment Company Act of 1940.
4.18. MARGIN STOCK. Neither Holdings nor any of its Subsidiaries is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying any Margin Stock. No part of the proceeds of the Loans made to such Credit Party will be used to purchase or carry any such margin stock or to extend credit to others for the purpose of purchasing or carrying any such margin stock or for any purpose that violates, or is inconsistent with, the provisions of Regulation T, U or X of said Board of Governors.
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4.19. EMPLOYEE MATTERS. Neither Holdings nor any of its Subsidiaries is engaged in any unfair labor practice that could reasonably be expected to have a Material Adverse Effect. There is (a) no unfair labor practice complaint pending against Holdings or any of its Subsidiaries, or to the best knowledge of Holdings and Company, threatened against any of them before the National Labor Relations Board and no grievance or arbitration proceeding arising out of or under any collective bargaining agreement that is so pending against Holdings or any of its Subsidiaries or to the best knowledge of Holdings and Company, threatened against any of them, (b) no strike or work stoppage in existence or threatened involving Holdings or any of its Subsidiaries that could reasonably be expected to have a Material Adverse Effect, and (c) to the best knowledge of Holdings and Company, no union representation question existing with respect to the employees of Holdings or any of its Subsidiaries and, to the best knowledge of Holdings and Company, no union organization activity that is taking place, except (with respect to any matter specified in clause (a), (b) or (c) above, either individually or in the aggregate) such as is not reasonably likely to have a Material Adverse Effect.
4.20. EMPLOYEE BENEFIT PLANS. Holdings, each of its Subsidiaries and each of their respective ERISA Affiliates are in substantial compliance with all applicable provisions and requirements of ERISA and the Internal Revenue Code and the regulations and published interpretations thereunder with respect to each Employee Benefit Plan, and have substantially performed all their obligations under each Employee Benefit Plan. Each Employee Benefit Plan which is intended to qualify under Section 401(a) of the Internal Revenue Code has received a favorable determination letter from the Internal Revenue Service indicating that such Employee Benefit Plan is so qualified and nothing has occurred subsequent to the issuance of such determination letter which would cause such Employee Benefit Plan to lose its qualified status. No liability to the PBGC (other than required premium payments), the Internal Revenue Service, any Employee Benefit Plan or any trust established under Title IV of ERISA has been or is expected to be incurred by Holdings, any of its Subsidiaries or any of their ERISA Affiliates other than contribution and expense reimbursement in the ordinary course. No ERISA Event has occurred or is reasonably expected to occur. Except to the extent disclosed on Schedule 4.20 or as required under
Section 4980B of the Internal Revenue Code or similar state laws, no Employee Benefit Plan provides health or welfare benefits (through the purchase of insurance or otherwise) for any retired or former employee of Holdings, any of its Subsidiaries or any of their respective ERISA Affiliates. The present value of the aggregate benefit liabilities under each Pension Plan sponsored or maintained by Holdings, any of its Subsidiaries or any of their ERISA Affiliates, (determined as of the end of the most recent plan year on the basis of the actuarial assumptions specified for
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funding purposes in the most recent actuarial valuation for such Pension Plan), did not exceed the aggregate current value of the assets of such Pension Plan. As of the most recent valuation date for each Multiemployer Plan for which the actuarial report is available, the potential liability of Holdings, its Subsidiaries and their respective ERISA Affiliates for a complete withdrawal from such Multiemployer Plan (within the meaning of Section 4203 of ERISA), when aggregated with such potential liability for a complete withdrawal from all Multiemployer Plans, based on information available pursuant to Section 4221(e) of ERISA, does not exceed $1,500,000. Holdings, each of its Subsidiaries and each of their ERISA Affiliates have complied with the requirements of Section 515 of ERISA with respect to each Multiemployer Plan and are not in material "default" (as defined in Section 4219(c)(5) of ERISA) with respect to payments to a Multiemployer Plan.
4.21. CERTAIN FEES. No broker's or finder's fee or commission will be payable with respect hereto or any of the transactions contemplated hereby.
4.22. SOLVENCY. Each Credit Party is and, upon the incurrence of any Obligation by such Credit Party on any date on which this representation and warranty is made, will be, Solvent.
4.23. RELATED AGREEMENTS.
(a) Delivery. Holdings and Company have delivered to Syndication Agent and Administrative Agent complete and correct copies of (i) each Related Agreement and of all exhibits and schedules thereto as of the date hereof and
(ii) copies of any material amendment, restatement, supplement or other modification to or waiver of each Related Agreement entered into after the date hereof.
(b) Representations and Warranties. Except to the extent otherwise expressly set forth herein or in the schedules hereto, and subject to the qualifications set forth therein, each of the representations and warranties given by any Credit Party in any Related Agreement is true and correct in all material respects as of the Closing Date (or as of any earlier date to which such representation and warranty specifically relates). Notwithstanding anything in the Related Agreement to the contrary, the representations and warranties of each Credit Party set forth in this Section 4.23 shall, solely for purposes hereof, survive the Closing Date for the benefit of Lenders.
(c) Governmental Approvals. All Governmental Authorizations and all other authorizations, approvals and consents of any other Person required by the Related Agreements or to consummate the Refinancing have been obtained and are in full force and effect.
(d) Conditions Precedent. On the Closing Date, (i) all of the conditions to effecting or consummating the Refinancing set forth in the Related Agreements have been duly
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satisfied or, with the consent of Administrative Agent and Syndication Agent, waived, and (ii) the Refinancing has been consummated in accordance with the Related Agreements and all applicable laws.
4.24. COMPLIANCE WITH STATUTES, ETC. Each of Holdings and its Subsidiaries is in compliance with all applicable statutes, regulations and orders of, and all applicable restrictions imposed by, all Governmental Authorities, in respect of the conduct of its business and the ownership of its property (including compliance with all applicable Environmental Laws with respect to any Real Estate Asset or governing its business and the requirements of any permits issued under such Environmental Laws with respect to any such Real Estate Asset or the operations of Holdings or any of its Subsidiaries), except such non-compliance that could not reasonably be expected to result in a Material Adverse Effect.
4.25. DISCLOSURE. No representation or warranty of any Credit Party contained in any Credit Document or in any other documents, certificates or written statements furnished to Lenders by or on behalf of Holdings or any of its Subsidiaries for use in connection with the transactions contemplated hereby contains any untrue statement of a material fact or omits to state a material fact (known to Holdings or Company, in the case of any document not furnished by either of them) necessary in order to make the statements contained herein or therein not misleading in light of the circumstances in which the same were made. Any projections and pro forma financial information contained in such materials are based upon good faith estimates and assumptions believed by Holdings or Company to be reasonable at the time made, it being recognized by Lenders that such projections as to future events are not to be viewed as facts and that actual results during the period or periods covered by any such projections may differ from the projected results. There are no facts known (or which should upon the reasonable exercise of diligence be known) to Holdings or Company (other than matters of a general economic nature) that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect and that have not been disclosed herein or in such other documents, certificates and statements furnished to Lenders for use in connection with the transactions contemplated hereby.
4.26. EXISTING SELLER SUBORDINATED NOTES AND EXISTING EARN-OUT OBLIGATIONS. Holdings and Company have delivered to Syndication Agent and Administrative Agent complete and correct copies of (i) each document evidencing the Existing Seller Subordinated Notes and the Existing Earn-Out Obligations and
(ii) copies of any amendment, restatement, supplement or other modification to or waiver of any such document entered into after the date hereof.
SECTION 5. AFFIRMATIVE COVENANTS
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Each Credit Party covenants and agrees that so long as any Term Loan Commitment is in effect and until payment in full of all Obligations, each Credit Party shall perform, and shall cause each of its Subsidiaries to perform, all covenants in this Section 5.
5.1. FINANCIAL STATEMENTS AND OTHER REPORTS. Holdings will deliver to Administrative Agent and Lenders:
(a) Reserved;
(b) Quarterly Financial Statements. As soon as available, and in any event within forty-five (45) days after the end of each of the first three Fiscal Quarters of each Fiscal Year, the consolidated and consolidating balance sheets of Holdings and its Subsidiaries as at the end of such Fiscal Quarter and the related consolidated (and with respect to statements of income, consolidating) statements of income, members' equity and cash flows of Holdings and its Subsidiaries for such Fiscal Quarter and for the period from the beginning of the then current Fiscal Year to the end of such Fiscal Quarter, setting forth in each case in comparative form the corresponding figures for the corresponding periods of the previous Fiscal Year and the corresponding figures from the Financial Plan for the current Fiscal Year, all in reasonable detail, together with a Financial Officer Certification and a Narrative Report with respect thereto;
(c) Annual Financial Statements. As soon as available, and in any event within ninety (90) days after the end of each Fiscal Year, (i) the consolidated and consolidating balance sheets of Holdings and its Subsidiaries as at the end of such Fiscal Year and the related consolidated (and with respect to statements of income, consolidating) statements of income, members' equity and cash flows of Holdings and its Subsidiaries for such Fiscal Year, setting forth in each case in comparative form the corresponding figures for the previous Fiscal Year and the corresponding figures from the Financial Plan for the Fiscal Year covered by such financial statements, in reasonable detail, together with a Financial Officer Certification and a Narrative Report with respect thereto; and (ii) with respect such consolidated financial statements a report thereon of PricewaterhouseCoopers LLP or other independent certified public accountants of recognized national standing selected by Holdings, and reasonably satisfactory to Administrative Agent (which report shall be unqualified as to going concern and scope of audit, and shall state that such consolidated financial statements fairly present, in all material respects, the consolidated financial position of Holdings and its Subsidiaries as at the dates indicated and the results of their operations and their cash flows for the periods indicated in conformity with GAAP applied on a basis consistent with prior years (except as otherwise disclosed in such financial statements) and that the examination by such accountants in connection with such consolidated financial statements has been made in accordance with generally accepted auditing standards) together with a written statement by such independent certified public accountants stating (1) that their audit examination has included a review of the terms of the Credit Documents, (2) whether, in connection therewith, any condition or event that constitutes a Default or an Event of Default has come to their attention and, if such a condition or event has come to their attention, specifying the nature and period of existence thereof, and (3) that nothing has come to their attention that causes them to believe that the information contained in any
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Compliance Certificate is not correct or that the matters set forth in such Compliance Certificate are not stated in accordance with the terms hereof;
(d) Compliance Certificate. Together with each delivery of financial statements of Holdings and its Subsidiaries pursuant to Sections 5.1(b) and 5.1(c), a duly executed and completed Compliance Certificate;
(e) Statements of Reconciliation after Change in Accounting Principles. If, as a result of any change in accounting principles and policies from those used in the preparation of the Historical Financial Statements, the consolidated financial statements of Holdings and its Subsidiaries delivered pursuant to Section 5.1(b) or 5.1(c) will differ in any material respect from the consolidated financial statements that would have been delivered pursuant to such subdivisions had no such change in accounting principles and policies been made, then, together with the first delivery of such financial statements after such change, one or more statements of reconciliation for all such prior financial statements in form and substance satisfactory to Administrative Agent;
(f) Notice of Default. Promptly upon any officer of Holdings or Company obtaining knowledge (i) of any condition or event that constitutes a Default or an Event of Default or that notice has been given to Holdings or Company with respect thereto; (ii) that any Person has given any notice to Holdings or any of its Subsidiaries or taken any other action with respect to any event or condition set forth in Section 8.1(b); or (iii) of the occurrence of any event or change that has caused or evidences, either in any case or in the aggregate, a Material Adverse Effect, a certificate of its Authorized Officers specifying the nature and period of existence of such condition, event or change, or specifying the notice given and action taken by any such Person and the nature of such claimed Event of Default, Default, default, event or condition, and what action Company has taken, is taking and proposes to take with respect thereto;
(g) Notice of Litigation. Promptly upon any officer of Holdings or Company obtaining knowledge of (i) the institution of, or non-frivolous threat of, any Adverse Proceeding not previously disclosed in writing by Company to Lenders, or (ii) any material development in any Adverse Proceeding that, in the case of either (i) or (ii) if adversely determined, could be reasonably expected to have a Material Adverse Effect, or seeks to enjoin or otherwise prevent the consummation of, or to recover any damages or obtain relief as a result of, the transactions contemplated hereby, written notice thereof together with such other information as may be reasonably available to Holdings or Company to enable Lenders and their counsel to evaluate such matters;
(h) ERISA. (i) Promptly upon becoming aware of the occurrence of or forthcoming occurrence of any ERISA Event, a written notice specifying the nature thereof, what action Holdings, any of its Subsidiaries or any of their respective ERISA Affiliates has taken, is taking or proposes to take with respect thereto and, when known, any action taken or threatened by the Internal Revenue Service, the Department of Labor or the PBGC with respect thereto; and
(ii) with reasonable promptness, copies of (1) each Schedule B (Actuarial Information) to the annual report (Form 5500 Series) filed by Holdings, any of its Subsidiaries or any of their respective ERISA Affiliates with the Internal Revenue Service with respect to each Pension Plan; (2) all notices received by Holdings, any of its Subsidiaries or any of their
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respective ERISA Affiliates from a Multiemployer Plan sponsor concerning an ERISA Event; and (3) copies of such other documents or governmental reports or filings relating to any Employee Benefit Plan as Administrative Agent shall reasonably request;
(i) Financial Plan. As soon as practicable and in any event no later than thirty (30) days after the beginning of each Fiscal Year, a consolidated plan and financial forecast for such Fiscal Year and each Fiscal Year (or portion thereof) through the final maturity date of the Loans (a "FINANCIAL PLAN"), including (i) a forecasted consolidated balance sheet and forecasted consolidated statements of income and cash flows of Holdings and its Subsidiaries for each such Fiscal Year, together with pro forma Compliance Certificates for each such Fiscal Year and an explanation of the assumptions on which such forecasts are based, (ii) forecasted consolidated statements of income and cash flows of Holdings and its Subsidiaries for each month of such Fiscal Year, (iii) forecasts demonstrating projected compliance with the requirements of Section 6.8 through the final maturity date of the Loans and
(iv) forecasts demonstrating adequate liquidity through the final maturity date of the Loans without giving effect to any additional debt or equity offerings not reflected in the Projections, together, in each case, with an explanation of the assumptions on which such forecasts are based all in form and substance reasonably satisfactory to Agents;
(j) Insurance Report. As soon as practicable and in any event by the last day of each Fiscal Year, a report in form and substance satisfactory to Administrative Agent outlining all material insurance coverage maintained as of the date of such report by Holdings and its Subsidiaries and all material insurance coverage planned to be maintained by Holdings and its Subsidiaries in the immediately succeeding Fiscal Year;
(k) Notice of Change in Managers or Board of Advisors. With reasonable promptness, written notice of any change in the managers or board of advisors (or similar governing body) of Holdings or Company;
(l) Notice Regarding Material Contracts. Promptly, and in any event within ten Business Days (i) after any Material Contract of Holdings or any of its Subsidiaries is terminated or amended in a manner that is materially adverse to Holdings or such Subsidiary, as the case may be, or (ii) any new Material Contract is entered into, a written statement describing such event, with copies of such material amendments or new contracts, delivered to Administrative Agent (to the extent such delivery is permitted by the terms of any such Material Contract, provided, no such prohibition on delivery shall be effective if it were bargained for by Holdings or its applicable Subsidiary with the intent of avoiding compliance with this Section 5.1(l));
(m) Environmental Reports and Audits. As soon as practicable following receipt thereof, copies of all environmental audits and reports with respect to environmental matters at any Facility or which relate to any environmental liabilities of Holdings or its Subsidiaries which, in any such case, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect;
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(n) Information Regarding Collateral. (a) Company will furnish to Collateral Agent prompt written notice of any change (i) in any Credit Party's corporate name, (ii) in any Credit Party's identity or corporate structure or
(iii) in any Credit Party's Federal Taxpayer Identification Number. Company agrees not to effect or permit any change referred to in the preceding sentence unless all filings have been made under the Uniform Commercial Code or otherwise that are required in order for Collateral Agent to continue at all times following such change to have a valid, legal and perfected security interest in all the Collateral and for the Collateral at all times following such change to have a valid, legal and perfected security interest as contemplated in the Collateral Documents. Company also agrees promptly to notify Collateral Agent if any material portion of the Collateral is damaged or destroyed;
(o) Annual Collateral Verification. Each year, at the time of delivery of annual financial statements with respect to the preceding Fiscal Year pursuant to Section 5.1(c), Company shall deliver to Collateral Agent an Officer's Certificate (i) either confirming that there has been no material change in such information since the date of the Collateral Questionnaire delivered on the Closing Date or the date of the most recent certificate delivered pursuant to this Section and/or identifying such changes and (ii) certifying that all Uniform Commercial Code financing statements (including fixtures filings, as applicable) or other appropriate filings, recordings or registrations, have been filed of record in each governmental, municipal or other appropriate office in each jurisdiction identified pursuant to clause (i) above to the extent necessary to protect and perfect the security interests under the Collateral Documents for a period of not less than 18 months after the date of such certificate (except as noted therein with respect to any continuation statements to be filed within such period); and
(p) Other Information. (A) Promptly upon their becoming available, copies of (i) all financial statements, reports, notices and proxy statements sent or made available generally by Holdings to its security holders acting in such capacity or by any Subsidiary of Holdings to its security holders other than Holdings or another Subsidiary of Holdings, (ii) all regular and periodic reports and all registration statements and prospectuses, if any, filed by Holdings or any of its Subsidiaries with any securities exchange or with the Securities and Exchange Commission or any governmental or private regulatory authority, (iii) all press releases and other statements made available generally by Holdings or any of its Subsidiaries to the public concerning material developments in the business of Holdings or any of its Subsidiaries, and (B) such other information and data with respect to Holdings or any of its Subsidiaries as from time to time may be reasonably requested by Administrative Agent or any Lender.
5.2. EXISTENCE. Except as otherwise permitted under Section 6.9, each Credit Party will, and will cause each of its Subsidiaries to, at all times preserve and keep in full force and effect its existence and all rights and franchises, licenses and permits material to its business; provided, no Credit Party or any of its Subsidiaries shall be required to preserve any such existence, right or franchise, licenses and permits if such Person's board of directors (or similar governing body) shall determine that the preservation thereof is no longer desirable in the conduct of the business of such Person, and that the loss thereof is not disadvantageous in any material respect to such Person or to Lenders.
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5.3. PAYMENT OF TAXES AND CLAIMS. Each Credit Party will, and will cause each of its Subsidiaries to, pay all Taxes imposed upon it or any of its properties or assets or in respect of any of its income, businesses or franchises before any penalty or fine accrues thereon, and all claims (including claims for labor, services, materials and supplies) for sums that have become due and payable and that by law have or may become a Lien upon any of its properties or assets, prior to the time when any penalty or fine shall be incurred with respect thereto; provided, no such Tax or claim need be paid if it is being contested in good faith by appropriate proceedings promptly instituted and diligently conducted, so long as (a) adequate reserve or other appropriate provision, as shall be required in conformity with GAAP shall have been made therefore, and (b) in the case of a Tax or claim which has or may become a Lien against any of the Collateral, such contest proceedings conclusively operate to stay the sale of any portion of the Collateral to satisfy such Tax or claim. No Credit Party will, nor will it permit any of its Subsidiaries to, file or consent to the filing of any consolidated income tax return with any Person (other than Holdings or any of its Subsidiaries).
5.4. MAINTENANCE OF PROPERTIES. Each Credit Party will, and will cause each of its Subsidiaries to, maintain or cause to be maintained in good repair, working order and condition, ordinary wear and tear excepted, all material properties used or useful in the business of Holdings and its Subsidiaries and from time to time will make or cause to be made all appropriate repairs, renewals and replacements thereof.
5.5. INSURANCE. Holdings will maintain or cause to be maintained, with financially sound and reputable insurers, such public liability insurance, third party property damage insurance, business interruption insurance and casualty insurance with respect to liabilities, losses or damage in respect of the assets, properties and businesses of Holdings and its Subsidiaries as may customarily be carried or maintained under similar circumstances by Persons of established reputation engaged in similar businesses, in each case in such amounts (giving effect to self-insurance), with such deductibles, covering such risks and otherwise on such terms and conditions as shall be customary for such Persons. Without limiting the generality of the foregoing, Holdings will maintain or cause to be maintained (a) flood insurance with respect to each Flood Hazard Property that is located in a community that participates in the National Flood Insurance Program, in each case in compliance with any applicable regulations of the Board of Governors of the Federal Reserve System, and (b) replacement value casualty insurance on the Collateral under such policies of insurance, with such insurance companies, in such amounts, with such deductibles, and covering such risks as are at all times carried or maintained under similar circumstances by Persons of established reputation engaged in similar businesses. Each such policy of insurance shall (i) name Administrative Agent, on behalf of Lenders as an additional insured thereunder as its interests may appear and (ii) in the case of each casualty insurance policy, contain a loss payable clause or endorsement, satisfactory in form and substance to Administrative Agent, that names Administrative Agent, on behalf of Lenders as the
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loss payee thereunder and provides for at least thirty days' prior written notice to Administrative Agent of any modification or cancellation of such policy.
5.6. INSPECTIONS. Each Credit Party will, and will cause each of its Subsidiaries to, permit any authorized representatives designated by any Lender to visit and inspect any of the properties of any Credit Party and any of its respective Subsidiaries, to inspect, copy and take extracts from its and their financial and accounting records, and to discuss its and their affairs, finances and accounts with its and their officers and independent public accountants, all upon reasonable notice and at such reasonable times during normal business hours and as often as may reasonably be requested.
5.7. LENDERS MEETINGS. Holdings and Company will, upon the request of Administrative Agent or Requisite Lenders, participate in a meeting of Administrative Agent and Lenders once during each Fiscal Year to be held at Company's corporate offices (or at such other location as may be agreed to by Company and Administrative Agent) at such time as may be agreed to by Company and Administrative Agent.
5.8. COMPLIANCE WITH LAWS. Each Credit Party will comply, and shall cause each of its Subsidiaries and all other Persons, if any, on or occupying any Facilities to comply, with the requirements of all applicable laws, rules, regulations and orders of any Governmental Authority (including all Environmental Laws), noncompliance with which could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.
5.9. ENVIRONMENTAL.
(a) Environmental Disclosure. Holdings will deliver to Administrative Agent and Lenders:
(i) as soon as practicable following receipt thereof, copies of all environmental audits, investigations, analyses and reports of any kind or character, whether prepared by personnel of Holdings or any of its Subsidiaries or by independent consultants, Governmental Authorities or any other Persons, with respect to environmental matters at any Facility which could reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect or with respect to any Environmental Claims which could reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect;
(ii) promptly upon the occurrence thereof, written notice describing in reasonable detail (1) any Release required to be reported to any federal, state or local governmental or regulatory agency under any applicable Environmental Laws, (2) any
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remedial action taken by Holdings or any other Person in response to (A) any Hazardous Materials Activities the existence of which has a reasonable possibility of resulting in one or more Environmental Claims having, individually or in the aggregate, a Material Adverse Effect, or (B) any Environmental Claims that, individually or in the aggregate, have a reasonable possibility of resulting in a Material Adverse Effect, and (3) Holdings or Company's discovery of any occurrence or condition on any real property adjoining or in the vicinity of any Facility that could cause such Facility or any part thereof to be subject to any material restrictions on the ownership, occupancy, transferability or use thereof under any Environmental Laws;
(iii) as soon as practicable following the sending or receipt thereof by Holdings or any of its Subsidiaries, a copy of any and all written communications with respect to (1) any Environmental Claims that, individually or in the aggregate, have a reasonable possibility of giving rise to a Material Adverse Effect, (2) any Release required to be reported to any federal, state or local governmental or regulatory agency, and (3) any request for information from any governmental agency that suggests such agency is investigating whether Holdings or any of its Subsidiaries may be potentially responsible for any material Hazardous Materials Activity;
(iv) prompt written notice describing in reasonable detail (1) any proposed acquisition of stock, assets, or property by Holdings or any of its Subsidiaries that could reasonably be expected to (A) expose Holdings or any of its Subsidiaries to, or result in, Environmental Claims that could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect or (B) affect the ability of Holdings or any of its Subsidiaries to maintain in full force and effect all material Governmental Authorizations required under any Environmental Laws for their respective operations and (2) any proposed action to be taken by Holdings or any of its Subsidiaries to modify current operations in a manner that could reasonably be expected to subject Holdings or any of its Subsidiaries to any additional material obligations or requirements under any Environmental Laws; and
(v) with reasonable promptness, such other documents and information as from time to time may be reasonably requested by Administrative Agent in relation to any matters disclosed pursuant to this
Section 5.9(a).
(b) Hazardous Materials Activities, Etc. Each Credit Party shall promptly take, and shall cause each of its Subsidiaries promptly to take, any and all actions necessary to (i) cure any violation of applicable Environmental Laws by such Credit Party or its Subsidiaries that could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, and (ii) make an appropriate response to any Environmental Claim against such Credit Party or any of its Subsidiaries and discharge any obligations it may have to any Person thereunder where failure to do so could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.
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5.10. SUBSIDIARIES. In the event that any Person becomes a Domestic Subsidiary of Company, Company shall (a) promptly cause such Domestic Subsidiary to become a Guarantor hereunder and a Grantor under the Pledge and Security Agreement by executing and delivering to Administrative Agent and Collateral Agent a Counterpart Agreement, and (b) take all such actions and execute and deliver, or cause to be executed and delivered, all such documents, instruments, agreements, and certificates as are similar to those described in Sections 3.1(b), 3.1(i) (with respect to a Material Real Estate Asset), 3.1(j), 3.1(k) and 3.1(n). In the event that any Person becomes a Foreign Subsidiary of Company, and the ownership interests of such Foreign Subsidiary are owned by Company or by any Domestic Subsidiary thereof, Company shall, or shall cause such Domestic Subsidiary to, deliver, all such documents, instruments, agreements, and certificates as are similar to those described in Sections 3.1(b), and Company shall take, or shall cause such Domestic Subsidiary to take, all of the actions referred to in Section 3.1(j)(i) necessary to grant and to perfect a Second Priority Lien in favor of Collateral Agent, for the benefit of Secured Parties, under the Pledge and Security Agreement in 65% of such ownership interests. With respect to each such Subsidiary, Company shall promptly send to Administrative Agent written notice setting forth with respect to such Person (i) the date on which such Person became a Subsidiary of Company, and (ii) all of the data required to be set forth in Schedules 4.1 and 4.2 with respect to all Subsidiaries of Company; provided, such written notice shall be deemed to supplement Schedule 4.1 and 4.2 for all purposes hereof.
5.11. ADDITIONAL MATERIAL REAL ESTATE ASSETS. In the event that any Credit Party acquires a Material Real Estate Asset or a Real Estate Asset owned or leased on the Closing Date becomes a Material Real Estate Asset and such interest has not otherwise been made subject to the Lien of the Collateral Documents in favor of Collateral Agent, for the benefit of Secured Parties, then such Credit Party, contemporaneously with acquiring such Material Real Estate Asset, shall take all such actions and execute and deliver, or cause to be executed and delivered, all such mortgages, documents, instruments, agreements, opinions and certificates similar to those described in Sections 3.1(i), 3.1(j) and 3.1(k) with respect to each such Material Real Estate Asset that Collateral Agent shall reasonably request to create in favor of Collateral Agent, for the benefit of Secured Parties, a valid and, subject to any filing and/or recording referred to herein, perfected Second Priority security interest in such Material Real Estate Assets. In addition to the foregoing, Company shall, at the request of Requisite Lenders, deliver, from time to time, to Administrative Agent such appraisals as are required by law or regulation of Real Estate Assets with respect to which Collateral Agent has been granted a Lien.
5.12. FURTHER ASSURANCES. At any time or from time to time upon the request of Administrative Agent, each Credit Party will, at its expense, promptly execute, acknowledge and deliver such further documents and do such other acts and things as Administrative Agent or Collateral Agent may reasonably request in order to effect fully the purposes of the Credit Documents, including providing Lenders with any information requested pursuant to Section 10.20. In furtherance and not in limitation of the foregoing, each Credit Party shall take such actions as Administrative Agent or Collateral Agent may reasonably request from time to time to ensure that the Obligations are
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guarantied by the Guarantors and are secured by substantially all of the assets of Holdings, and its Subsidiaries and all of the outstanding Capital Stock of Company and its Subsidiaries (subject to limitations contained in the Credit Documents with respect to Foreign Subsidiaries).
SECTION 6. NEGATIVE COVENANTS
Each Credit Party covenants and agrees that, so long as any Term Loan Commitment is in effect and until payment in full of all Obligations, such Credit Party shall perform, and shall cause each of its Subsidiaries to perform, all covenants in this Section 6.
6.1. INDEBTEDNESS. No Credit Party shall, nor shall it permit any of its Subsidiaries to, directly or indirectly, create, incur, assume or guaranty, or otherwise become or remain directly or indirectly liable with respect to any Indebtedness; provided, however, that any Credit Party shall be permitted to incur any such Indebtedness if, on the date of such incurrence, and after giving pro forma effect thereto, (i) no Default or Event of Default shall have occurred and be continuing or would occur after giving effect to such incurrence, and
(ii) the Leverage Ratio as of the date of such incurrence or issuance is less than 2.0:1.0; provided, further, notwithstanding the first part of this sentence, Credit Parties may create, incur, assume or guaranty the following types of Indebtedness:
(a) the Obligations;
(b) (x) Indebtedness of any Guarantor Subsidiary to Company or to any other Guarantor Subsidiary, or of Company to any Guarantor Subsidiary; provided, (i) all such Indebtedness shall be evidenced by promissory notes and all such notes shall be subject to a Second Priority Lien pursuant to the Pledge and Security Agreement, (ii) all such Indebtedness shall be unsecured and subordinated in right of payment to the payment in full of the Obligations pursuant to the terms of the applicable promissory notes or an intercompany subordination agreement that in any such case, is reasonably satisfactory to Administrative Agent, and (iii) any payment by any such Guarantor Subsidiary under any guaranty of the Obligations shall result in a pro tanto reduction of the amount of any Indebtedness owed by such Subsidiary to Company or to any of its Subsidiaries for whose benefit such payment is made; and (y) Indebtedness of any Subsidiary of Company which is not a Guarantor Subsidiary to any other Subsidiary of Company that is not a Guarantor Subsidiary;
(c) (i) Indebtedness of Company or any of its Subsidiaries under any Seller Subordinated Notes and under any Earn-Out Obligations and (ii) Indebtedness of Holdings under any Investor Notes;
(d) Indebtedness incurred by Holdings or any of its Subsidiaries arising from agreements providing for indemnification, adjustment of purchase price or similar obligations, or from guaranties or letters of credit, surety bonds or performance bonds securing the performance of Company or any such Subsidiary pursuant to such agreements, in connection with Permitted
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Acquisitions or permitted dispositions of any business, assets or Subsidiary of Holdings or any of its Subsidiaries;
(e) Indebtedness which may be deemed to exist pursuant to any guaranties, performance, surety, statutory, appeal or similar obligations incurred in the ordinary course of business;
(f) Indebtedness in respect of netting services, overdraft protections and otherwise in connection with deposit accounts;
(g) guaranties in the ordinary course of business of the obligations of suppliers, customers, franchisees and licensees of Holdings and its Subsidiaries;
(h) guaranties by Company of Indebtedness of a Guarantor Subsidiary or guaranties by a Subsidiary of Company of Indebtedness of Company or a Guarantor Subsidiary with respect, in each case, to Indebtedness otherwise permitted to be incurred pursuant to this Section 6.1;
(i) Indebtedness described in Schedule 6.1, but not any extensions, renewals or replacements of such Indebtedness;
(j) Indebtedness with respect to Capital Leases in an aggregate amount not to exceed at any time $40,000,000;
(k) purchase money Indebtedness in an aggregate amount not to exceed at any time $4,000,000 (including any Indebtedness acquired in connection with a Permitted Acquisition); provided, any such Indebtedness (i) shall be secured only to the asset acquired in connection with the incurrence of such Indebtedness, and (ii) shall constitute not less than 100% of the aggregate consideration paid with respect to such asset;
(l) (i) Indebtedness of Company with respect to Additional Seller Subordinated Notes in an aggregate amount not to exceed at any time (x) for so long as the Leverage Ratio is greater than or equal to 3.0:1.0, $30,000,000 and
(y) at any time after the Leverage Ratio (calculated on a pro forma basis giving effect to such Additional Seller Subordinated Notes) has fallen below 3.0:1.0, $40,000,000 and (ii) Indebtedness of Company and ARC Acquisition Corporation with respect to the Existing Seller Subordinated Notes;
(m) (i) Indebtedness of Company with respect to Additional Earn-Out Obligations; provided that such Additional Earn-Out Obligations also conform to the requirements of clause (iv) of the definition of Permitted Acquisition and
(ii) Indebtedness of Company and ARC Acquisition Corporation with respect to Existing Earn-Out Obligations;
(n) Indebtedness owed under the First Lien Credit Agreement in an aggregate principal amount not to exceed $130,000,000, and Indebtedness incurred to refinance such Indebtedness; provided that any refinancing thereof shall be in an aggregate amount not to exceed the greater of (i) the aggregate amount of all Obligations (as defined in the First Lien Credit Agreement) outstanding and available Commitments (as defined in the First Lien Credit
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Agreement) under the First Lien Credit Agreement at the time of such refinancing and (ii) $50,000,000;
(o) Indebtedness of Holdings with respect to any Investor Notes;
(p) at any time during which the Leverage Ratio is less than 3.50:1.00, Indebtedness of the Company which is secured equally and ratably with the Obligations; provided, however, after giving pro forma effect to the incurrence of such additional Indebtedness, the Leverage Ratio does not exceed 3.75:1.00; and
(q) other unsecured Indebtedness of Holdings and its Subsidiaries in an aggregate amount not to exceed at any time $4,000,000.
6.2. LIENS. No Credit Party shall, nor shall it permit any of its Subsidiaries to, directly or indirectly, create, incur, assume or permit to exist any Lien on or with respect to any property or asset of any kind (including any document or instrument in respect of goods or accounts receivable) of Holdings or any of its Subsidiaries, whether now owned or hereafter acquired, or any income or profits therefrom, or file or permit the filing of, or permit to remain in effect, any financing statement or other similar notice of any Lien with respect to any such property, asset, income or profits under the UCC of any State or under any similar recording or notice statute, except:
(a) Subject to the Intercreditor Agreement, Liens in favor of Collateral Agent for the benefit of Secured Parties granted pursuant to any Credit Document;
(b) Liens for Taxes if obligations with respect to such Taxes are being contested in good faith by appropriate proceedings promptly instituted and diligently conducted, so long as such reserves or other appropriate provisions, if any, as shall be required by GAAP shall have been made for any such contested amounts;
(c) statutory Liens of landlords, banks (and rights of set-off), of carriers, warehousemen, mechanics, repairmen, workmen and materialmen, and other Liens imposed by law (other than any such Lien imposed pursuant to Section 401
(a)(29) or 412(n) of the Internal Revenue Code or by ERISA), in each case incurred in the ordinary course of business (i) for amounts not yet overdue or
(ii) for amounts that are overdue and that (in the case of any such amounts overdue for a period in excess of five days) are being contested in good faith by appropriate proceedings, so long as such reserves or other appropriate provisions, if any, as shall be required by GAAP shall have been made for any such contested amounts;
(d) Liens incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security, or to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, leases, government contracts, trade contracts, performance and return-of-money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money or other Indebtedness), so long as no foreclosure, sale or similar proceedings have been commenced with respect to any portion of the Collateral on account thereof;
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(e) easements, rights-of-way, restrictions, encroachments, and other minor defects or irregularities in title, in each case which do not and will not interfere in any material respect with the ordinary conduct of the business of Holdings or any of its Subsidiaries;
(f) any interest or title of a lessor or sublessor under any lease of real estate permitted hereunder;
(g) Liens solely on any cash earnest money deposits made by Holdings or any of its Subsidiaries in connection with any letter of intent or purchase agreement permitted hereunder;
(h) purported Liens evidenced by the filing of precautionary UCC financing statements relating solely to operating and capital leases of personal property entered into in the ordinary course of business;
(i) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods;
(j) any zoning or similar law or right reserved to or vested in any governmental office or agency to control or regulate the use of any real property;
(k) licenses of patents, trademarks and other intellectual property rights granted by Holdings or any of its Subsidiaries in the ordinary course of business and not interfering in any respect with the ordinary conduct of the business of Company or such Subsidiary;
(l) Liens incurred in connection with the purchase or shipping of goods or assets on the related assets and proceeds thereof in favor of the seller or shipper of such goods or assets;
(m) Liens described in Schedule 6.2 or on a title report delivered pursuant to Section 3.1(i)(iv);
(n) Liens securing Indebtedness permitted pursuant to 6.1(i) and in existence as of the Closing Date;
(o) Liens securing Indebtedness permitted pursuant to 6.1(k); provided, any such Lien shall encumber only the asset acquired with the proceeds of such Indebtedness;
(p) Liens on the collateral securing obligations under the First Lien Credit Agreement;
(q) Liens securing Indebtedness permitted pursuant to 6.1(p); and
(r) other Liens on assets other than the Collateral securing Indebtedness in an aggregate amount not to exceed $500,000 at any time outstanding.
6.3. EQUITABLE LIEN. If any Credit Party or any of its Subsidiaries shall create or assume any Lien upon any of its properties or assets, whether now owned or hereafter acquired, other than Permitted Liens, it shall make or cause to be made effective provisions whereby the Obligations will be secured by such Lien equally and ratably with any and all other Indebtedness secured thereby as long as any such Indebtedness shall be so secured; provided, notwithstanding the foregoing, this covenant shall not be construed as a consent by Requisite Lenders to the creation or assumption of any such Lien not otherwise permitted hereby.
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6.4. NO FURTHER NEGATIVE PLEDGES. Except (a) with respect to specific property encumbered to secure payment of particular Indebtedness or to be sold pursuant to an executed agreement with respect to a permitted Asset Sale, (b) with respect to restrictions by reason of customary provisions restricting assignments, subletting or other transfers contained in leases, licenses and similar agreements entered into in the ordinary course of business (provided that such restrictions are limited to the property or assets secured by such Liens or the property or assets subject to such leases, licenses or similar agreements, as the case may be) and (c) as otherwise provided herein or in the First Lien Credit Agreement, no Credit Party nor any of its Subsidiaries shall enter into any agreement prohibiting the creation or assumption of any Lien upon any of its properties or assets, whether now owned or hereafter acquired.
6.5. RESTRICTED JUNIOR PAYMENTS. No Credit Party shall, nor shall it permit any of its Subsidiaries or Affiliates through any manner or means or through any other Person to, directly or indirectly, declare, order, pay, make or set apart, or agree to declare, order, pay, make or set apart, any sum for any Restricted Junior Payment except the following shall be permitted:
(a) Company may make regularly scheduled payments in respect of any Subordinated Indebtedness of Company and its Subsidiaries in accordance with the terms of, and only to the extent required by, and subject to the subordination provisions contained in, the indenture or other agreement pursuant to which such Subordinated Indebtedness was issued or is otherwise subject;
(b) the Company may make required payments of principal and interest in respect of the Indebtedness incurred under the First Lien Credit Agreement and any refinancing thereof permitted thereunder and hereunder;
(c) Company may make Restricted Junior Payments to Holdings to permit the payment of Management Fees so long as Holdings applies the amount of any such Restricted Junior Payment for such purpose; provided, that at the time of such Restricted Junior Payment and immediately after giving effect thereto, no Event of Default shall have occurred and be continuing under Section 8.1(a) or as a result of the failure of any Credit Party to perform or comply with any term or condition contained in Section 6.5; provided, further, that any payments of Management Fees which were not permitted to be made as a result of the application of the immediately preceding proviso or this proviso shall accrue and may be paid upon the waiver or
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cure of the applicable Events of Default related thereto provided that at the time of such Restricted Junior Payment and immediately after giving effect thereto, no Event of Default shall have occurred and be continuing under Section 8.1(a) or as a result of the failure of any Credit Party to perform or comply with any term or condition contained in Section 6.5;
(d) with respect to periods during which (i) both Company and Holdings are treated as partnerships within the meaning of the Internal Revenue Code, (not including publicly traded partnerships taxable as corporations) or
(ii) Company is disregarded as an entity separate from Holdings for federal income tax purposes pursuant to Treas. Reg. Section 301.7701-3 (or any successor provision) (x) Company may make Restricted Junior Payments to Holdings to the extent required to permit Holdings to, and Holdings may, make the Permitted Tax Distributions to Holdings' members so long as Holdings applies the amount of any such Restricted Junior Payment for such purpose; and (y) on each date on which a Permitted Tax Distribution to Holdings' members is made, Company may make Restricted Junior Payments to Holdings to the extent required to permit the payment by Holdings of cash in respect of interest on the Investor Notes in accordance with the terms of the Investor Notes so long as Holdings applies the amount of any such Restricted Junior Payment for such purpose and Holdings may make such payments; provided that the amount of any Restricted Junior Payment made pursuant to this clause (y) shall not exceed the Investor Note Tax Benefit Amount (the amount of any Restricted Junior Payment made under this clause (y), the "PERMITTED INVESTOR NOTE TAX DISTRIBUTION AMOUNT");
(e) so long as no Default or Event of Default shall have occurred and be continuing or shall be caused thereby, Company may make Restricted Junior Payments to Holdings (i) in an aggregate amount not to exceed $100,000 in any Fiscal Year, to the extent necessary to permit Holdings to pay general administrative costs and expenses;
(f) Company may make Restricted Junior Payments to Holdings to the extent required to permit Holdings to repurchase its Capital Stock, in each case from deceased, disabled, terminated or retired officers, directors, consultants or employees of Holdings and its Subsidiaries, so long as Holdings applies the amount of such Restricted Junior Payment for such purpose; provided, that (x) at the time of each such Restricted Junior Payment and immediately after giving effect thereto, no Default or Event of Default shall have occurred and be continuing and (y) the aggregate amount of Restricted Junior Payments made pursuant to this clause (f) shall not exceed $2,000,000 in any Fiscal Year; and
(g) Company may make Restricted Junior Payments with respect to cash payments in respect of Additional Earn-Out Obligations in an aggregate amount not to exceed in any Fiscal Year the aggregate amount corresponding to such Fiscal Year set forth on Schedule 6.5(g) in accordance with the terms of, and only to the extent required by, and subject to the subordination provisions contained in, the agreement pursuant to which such Additional Earn-Out Obligation is subject.
In addition to the above, Company or Holdings may make a Restricted Payment so long as: (1) no Default or Event of Default shall have occurred and be continuing (or would result therefrom); (2) the Company would be permitted to issue an additional $1.00 of Indebtedness pursuant to clause (ii) of the lead-in paragraph of Section 6.1 after giving pro forma effect to
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such Restricted Payment; and (3) the aggregate amount of such Restricted Payment and all other Restricted Payments since the Closing Date would not exceed the sum of: (A) $8,000,000 plus (B) 50% of the Consolidated Net Income accrued during the period (treated as one accounting period) from the beginning of the first full fiscal quarter commencing after March 31, 2004 to the end of the most recent fiscal quarter for which financial statements are available (or, in case such Consolidated Net Income shall be a deficit, minus 100% of such deficit) to the extent such Restricted Payment is not used to redeem, repurchase, retire or otherwise acquire Capital Stock or any Indebtedness of the Company or any Restricted Subsidiary.
6.6. RESTRICTIONS ON SUBSIDIARY DISTRIBUTIONS. Except as provided herein, no Credit Party shall, nor shall it permit any of its Subsidiaries to, create or otherwise cause or suffer to exist or become effective any consensual encumbrance or restriction of any kind on the ability of any Subsidiary of Company to (a) pay dividends or make any other distributions on any of such Subsidiary's Capital Stock owned by Company or any other Subsidiary of Company,
(b) repay or prepay any Indebtedness owed by such Subsidiary to Company or any other Subsidiary of Company, (c) make loans or advances to Company or any other Subsidiary of Company, or (d) transfer any of its property or assets to Company or any other Subsidiary of Company other than restrictions (i) in agreements evidencing Indebtedness permitted by Section 6.1(k) that impose restrictions on the property so acquired and (ii) by reason of customary provisions restricting assignments, subletting or other transfers contained in leases, licenses, joint venture agreements and similar agreements entered into in the ordinary course of business, and (iii) that are or were created by virtue of any transfer of, agreement to transfer or option or right with respect to any property, assets or Capital Stock not otherwise prohibited under this Agreement.
6.7. INVESTMENTS. No Credit Party shall, nor shall it permit any of its Subsidiaries to, directly or indirectly, make or own any Investment in any Person, including without limitation any Joint Venture, except:
(a) Investments in Cash and Cash Equivalents;
(b) equity Investments owned as of the Closing Date in any Subsidiary and Investments made after the Closing Date in wholly-owned Subsidiaries of Company;
(c) Investments (i) in accounts receivable arising and trade credit granted, in each case, in the ordinary course of business and in any Securities received in satisfaction or partial satisfaction thereof from financially troubled account debtors and (ii) deposits, prepayments and other credits to suppliers made in the ordinary course of business consistent with the past practices of Holdings and its Subsidiaries;
(d) intercompany loans to the extent permitted under Section 6.1(b);
(e) reserved;
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(f) loans and advances to employees of Holdings and its Subsidiaries made in the ordinary course of business in an aggregate principal amount not to exceed at any time $2,000,000 outstanding in the aggregate;
(g) Investments made in connection with Permitted Acquisitions permitted pursuant to Section 6.9;
(h) Investments described in Schedule 6.7; and
(i) other Investments in an aggregate amount not to exceed at any time $2,000,000.
Notwithstanding the foregoing, in no event shall any Credit Party make any Investment which results in or facilitates in any manner any Restricted Junior payment not otherwise permitted under the terms of Section 6.5.
6.8. FINANCIAL COVENANTS.
(a) Leverage Ratio. Holdings shall not permit the Leverage Ratio as of the last day of any Fiscal Quarter, beginning with the Fiscal Quarter ending December 31, 2003, to exceed 5.30:1.00.
(b) Certain Calculations. With respect to any period during which a Permitted Acquisition or an Asset Sale has occurred, for purposes of determining compliance with (i) the financial covenant set forth in this Section 6.8 and
(ii) clause "vii" of the definition of Permitted Acquisition, and Consolidated Adjusted EBITDA shall be calculated with respect to such period on a pro forma basis (including pro forma adjustments arising out of events which are directly attributable to a specific transaction, are factually supportable and are expected to have a continuing impact, in each case determined on a basis consistent with Article 11 of Regulation S-X promulgated under the Securities Act and as interpreted by the staff of the Securities and Exchange Commission, which would include cost savings resulting from head count reduction, closure of facilities and similar restructuring charges, which pro forma adjustments shall be certified by the chief financial officer of Holdings) using the historical audited financial statements of any business so acquired or to be acquired or sold or to be sold and the consolidated financial statements of Holdings and its Subsidiaries which shall be reformulated as if such Permitted Acquisition or Asset Sale, as the case may be, and any Indebtedness incurred or repaid in connection therewith, had been consummated or incurred or repaid at the beginning of such period (and assuming that such Indebtedness bears interest during any portion of the applicable measurement period prior to the relevant acquisition at the weighted average of the interest rates applicable to outstanding Loans incurred during such period).
6.9. FUNDAMENTAL CHANGES; DISPOSITION OF ASSETS; ACQUISITIONS. No Credit Party shall, nor shall it permit any of its Subsidiaries to, enter into any transaction of merger or consolidation, or liquidate, wind-up or dissolve itself (or suffer any
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liquidation or dissolution), or convey, sell, lease or sub-lease (as lessor or sublessor), exchange, transfer or otherwise dispose of, in one transaction or a series of transactions, all or any part of its business, assets or property of any kind whatsoever, whether real, personal or mixed and whether tangible or intangible, whether now owned or hereafter acquired, or acquire by purchase or otherwise (other than purchases or other acquisitions of inventory, materials and equipment and capital expenditures in the ordinary course of business) the business, property or fixed assets of, or stock or other evidence of beneficial ownership of, any Person or any division or line of business or other business unit of any Person, except:
(a) any Subsidiary of Holdings may be merged with or into Company or any Guarantor Subsidiary, or be liquidated, wound up or dissolved, or all or any part of its business, property or assets may be conveyed, sold, leased, transferred or otherwise disposed of, in one transaction or a series of transactions, to Company or any Guarantor Subsidiary; provided, in the case of such a merger, Company or such Guarantor Subsidiary, as applicable shall be the continuing or surviving Person;
(b) sales or other dispositions of assets that do not constitute Asset Sales;
(c) Asset Sales (excluding Asset Sales under Section 6.9(g)), the proceeds of which (valued at the principal amount thereof in the case of non-Cash proceeds consisting of notes or other debt Securities and valued at fair market value in the case of other non-Cash proceeds) (i) are less than $500,000 with respect to any single Asset Sale or series of related Asset Sales and (ii) when aggregated with the proceeds of all other Asset Sales made within the same Fiscal Year, are less than $3,000,000; provided (1) the consideration received for such assets shall be in an amount at least equal to the fair market value thereof (determined in good faith by the board of directors of Company (or similar governing body)), (2) no less than 80% thereof shall be paid in Cash, and (3) the Net Asset Sale Proceeds thereof shall be applied as required by
Section 2.14(a);
(d) disposals of obsolete, worn out or surplus property;
(e) (i) Permitted Acquisitions permitted under the First Lien Credit Agreement and (ii) after such time as no amounts are owed under the First Lien Credit Agreement (or any permitted refinancings thereof) and no Letters of Credit (as defined therein), commitments to extend credit or obligations to make payments remain outstanding under the First Lien Credit Agreement that have not been fully cash collateralized, Permitted Acquisitions the cash consideration for which constitutes less than $25,000,000 in any Fiscal Year;
(f) Investments made in accordance with Section 6.7; and
(g) Asset Sales of equipment in connection with Permitted Sale-Leasebacks, provided that the proceeds of any such Permitted Sale-Leaseback shall be entirely in cash and shall not be less than 100% of the fair market value of the equipment being sold (determined in good faith by the board of advisors of Company (or similar governing body)).
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6.10. DISPOSAL OF SUBSIDIARY INTERESTS. Except for any sale of all of its interests in the Capital Stock of any of its Subsidiaries in compliance with the provisions of Section 6.9 and except with respect to Liens securing the Obligations hereunder or the First Lien Obligations, no Credit Party shall, nor shall it permit any of its Subsidiaries to, (a) directly or indirectly sell, assign, pledge or otherwise encumber or dispose of any Capital Stock of any of its Subsidiaries, except to qualify directors if required by applicable law; or
(b) permit any of its Subsidiaries directly or indirectly to sell, assign, pledge or otherwise encumber or dispose of any Capital Stock of any of its Subsidiaries, except to another Credit Party (subject to the restrictions on such disposition otherwise imposed hereunder), or to qualify directors if required by applicable law.
6.11. SALES AND LEASE-BACKS. No Credit Party shall, nor shall it permit any of its Subsidiaries to, directly or indirectly, become or remain liable as lessee or as a guarantor or other surety with respect to any lease (a "SALE-LEASEBACK") of any property (whether real, personal or mixed), whether now owned or hereafter acquired, which such Credit Party (a) has sold or transferred or is to sell or to transfer to any other Person (other than Holdings or any of its Subsidiaries), or (b) intends to use for substantially the same purpose as any other property which has been or is to be sold or transferred by such Credit Party to any Person (other than Holdings or any of its Subsidiaries) in connection with such lease; provided, however, that Company and its Subsidiaries may enter into Sale-Leasebacks which are in the ordinary course of Company's or such Subsidiary's business, consistent with past practice and at market rates and subject to compliance with Section 6.9(g), with respect to equipment acquired by Company and its Subsidiaries after the Closing Date ("PERMITTED SALE-LEASEBACKS"). For avoidance of doubt, Sale-Leasebacks that result in Capital Leases shall be treated as Indebtedness for all purposes of this Agreement.
6.12. TRANSACTIONS WITH SHAREHOLDERS AND AFFILIATES. No Credit Party shall, nor shall it permit any of its Subsidiaries to, directly or indirectly, enter into or permit to exist any transaction (including the purchase, sale, lease or exchange of any property or the rendering of any service) with any holder of 5% or more of any class of Capital Stock of Holdings or any of its Subsidiaries or with any Affiliate of Holdings or of any such holder, on terms that are less favorable to Holdings or that Subsidiary, as the case may be, than those that might be obtained at the time from a Person who is not such a holder or Affiliate; provided, the foregoing restriction shall not apply to (a) any transaction between Company and any Guarantor Subsidiary; (b) reasonable and customary fees paid to members of the board of directors (or similar governing body) of Holdings and its Subsidiaries; (c) compensation arrangements for officers and other employees of Holdings and its Subsidiaries entered into in the ordinary course of business; and (d) transactions described in Schedule 6.12.
6.13. CONDUCT OF BUSINESS. From and after the Closing Date, no Credit Party shall, nor shall it permit any of its Subsidiaries to, engage in any business other than (i) the businesses engaged in by such Credit Party on the Closing Date and similar or related businesses and (ii) such other lines of business as may be consented to by Requisite Lenders.
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6.14. PERMITTED ACTIVITIES OF HOLDINGS. Holdings shall not (a) incur, directly or indirectly, any Indebtedness or any other obligation or liability whatsoever other than the Indebtedness and obligations under the Related Agreements; (b) create or suffer to exist any Lien upon any property or assets now owned or hereafter acquired by it other than the Liens created under the Collateral Documents to which it is a party or permitted pursuant to Section 6.2; (c) engage in any business or activity or own any assets other than (i) holding 100% of the Capital Stock of Company, (ii) performing its obligations and activities incidental thereto under the Credit Documents, and to the extent not inconsistent therewith, the Related Agreements; (iii) paying general administrative costs and expenses in the ordinary course of business; (iv) making Restricted Junior Payments and Investments to the extent permitted by this Agreement; and (v) holding the Capital Stock of American Reprographics Midco, LLC ("MIDCO") provided that Midco shall not own any assets and thereafter shall not engage in any business or other activity; (d) consolidate with or merge with or into, or convey, transfer or lease all or substantially all its assets to, any Person; (e) sell or otherwise dispose of any Capital Stock of any of its Subsidiaries; (f) create or acquire any Subsidiary or make or own any Investment in any Person other than Company; or (g) fail to hold itself out to the public as a legal entity separate and distinct from all other Persons.
6.15. AMENDMENTS OR WAIVERS OF CERTAIN RELATED AGREEMENTS. Except as set forth in Section 6.16, no Credit Party shall nor shall it permit any of its Subsidiaries to, agree to any material amendment, restatement, supplement or other modification to, or waiver of, any of its material rights under any Related Agreement after the Closing Date which may adversely affect the interests of any of the Agents or the Lenders without in each case obtaining the prior written consent of Requisite Lenders to such amendment, restatement, supplement or other modification or waiver.
6.16. AMENDMENTS OR WAIVERS WITH RESPECT TO SUBORDINATED INDEBTEDNESS AND FIRST LIEN CREDIT AGREEMENT. (a) No Credit Party shall, nor shall it permit any of its Subsidiaries to, amend or otherwise change the terms of any Subordinated Indebtedness or make any payment consistent with an amendment thereof or change thereto, if the effect of such amendment or change is to increase the interest rate applicable to such Subordinated Indebtedness, change (to earlier dates) any dates upon which payments of principal or interest are due thereon, change any event of default or condition to an event of default with respect thereto (other than to eliminate any such event of default or increase any grace period related thereto), change the redemption, prepayment or defeasance provisions thereof, change the subordination provisions of such Subordinated Indebtedness (or of any guaranty thereof), or if the effect of such amendment or change, together with all other amendments or changes made, is to increase materially the obligations of the obligor thereunder or to confer any additional rights on the holders of such Subordinated Indebtedness (or a trustee or other representative on their behalf) which would be adverse to any Credit Party or Lenders.
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(a) No Credit Party shall, nor shall it permit any of its Subsidiaries to, amend or otherwise change the terms of the First Lien Credit Agreement or make any payment consistent with an amendment thereof or change thereto, if the effect of such amendment or change is to increase the maximum principal amount of Indebtedness under the First Lien Credit Agreement, except as may otherwise be permitted in the Intercreditor Agreement.
6.17. FISCAL YEAR. No Credit Party shall, nor shall it permit any of its Subsidiaries to change its Fiscal Year-end from December 31.
SECTION 7. GUARANTY
7.1. GUARANTY OF THE OBLIGATIONS. Subject to the provisions of Section 7.2 and the Intercreditor Agreement, Guarantors jointly and severally hereby irrevocably and unconditionally guaranty to Administrative Agent for the ratable benefit of the Beneficiaries the due and punctual payment in full of all Obligations when the same shall become due, whether at stated maturity, by required prepayment, declaration, acceleration, demand or otherwise (including amounts that would become due but for the operation of the automatic stay under
Section 362(a) of the Bankruptcy Code, 11 U.S.C. Section 362(a)) (collectively, the "GUARANTEED OBLIGATIONS").
7.2. CONTRIBUTION BY GUARANTORS. All Guarantors desire to allocate among themselves (collectively, the "CONTRIBUTING GUARANTORS"), in a fair and equitable manner, their obligations arising under this Guaranty. Accordingly, in the event any payment or distribution is made on any date by a Guarantor (a "FUNDING GUARANTOR") under this Guaranty such that its Aggregate Payments exceeds its Fair Share as of such date, such Funding Guarantor shall be entitled to a contribution from each of the other Contributing Guarantors in an amount sufficient to cause each Contributing Guarantor's Aggregate Payments to equal its Fair Share as of such date. "FAIR SHARE" means, with respect to a Contributing Guarantor as of any date of determination, an amount equal to (a) the ratio of (i) the Fair Share Contribution Amount with respect to such Contributing Guarantor to (ii) the aggregate of the Fair Share Contribution Amounts with respect to all Contributing Guarantors multiplied by (b) the aggregate amount paid or distributed on or before such date by all Funding Guarantors under this Guaranty in respect of the obligations Guaranteed. "FAIR SHARE CONTRIBUTION AMOUNT" means, with respect to a Contributing Guarantor as of any date of determination, the maximum aggregate amount of the obligations of such Contributing Guarantor under this Guaranty that would not render its obligations hereunder or thereunder subject to avoidance as a fraudulent transfer or conveyance under Section 548 of Title 11 of the United States Code or any comparable applicable provisions of state law; provided, solely for purposes of calculating the "FAIR SHARE CONTRIBUTION AMOUNT" with respect to any Contributing Guarantor for purposes of this Section 7.2, any assets or liabilities of such Contributing Guarantor arising by virtue of any rights to subrogation, reimbursement or indemnification or any rights to or obligations of contribution hereunder shall not be considered
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as assets or liabilities of such Contributing Guarantor. "AGGREGATE PAYMENTS" means, with respect to a Contributing Guarantor as of any date of determination, an amount equal to (1) the aggregate amount of all payments and distributions made on or before such date by such Contributing Guarantor in respect of this Guaranty (including, without limitation, in respect of this Section 7.2), minus
(2) the aggregate amount of all payments received on or before such date by such Contributing Guarantor from the other Contributing Guarantors as contributions under this Section 7.2. The amounts payable as contributions hereunder shall be determined as of the date on which the related payment or distribution is made by the applicable Funding Guarantor. Notwithstanding anything herein to the contrary, the allocation among Contributing Guarantors of their obligations as set forth in this Section 7.2 shall not be construed in any way to limit the liability of any Contributing Guarantor hereunder. Each Guarantor is a third party beneficiary to the contribution agreement set forth in this Section 7.2.
7.3. PAYMENT BY GUARANTORS. Subject to Section 7.2 and the Intercreditor Agreement, Guarantors hereby jointly and severally agree, in furtherance of the foregoing and not in limitation of any other right which any Beneficiary may have at law or in equity against any Guarantor by virtue hereof, that upon the failure of Company to pay any of the Guaranteed Obligations when and as the same shall become due, whether at stated maturity, by required prepayment, declaration, acceleration, demand or otherwise (including amounts that would become due but for the operation of the automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C. Section 362(a)), Guarantors will upon demand pay, or cause to be paid, in Cash, to Administrative Agent for the ratable benefit of Beneficiaries, an amount equal to the sum of the unpaid principal amount of all Guaranteed Obligations then due as aforesaid, accrued and unpaid interest on such Guaranteed Obligations (including interest which, but for Company's becoming the subject of a case under the Bankruptcy Code, would have accrued on such Guaranteed Obligations, whether or not a claim is allowed against Company for such interest in the related bankruptcy case) and all other Guaranteed Obligations then owed to Beneficiaries as aforesaid.
7.4. LIABILITY OF GUARANTORS ABSOLUTE. Each Guarantor agrees that its obligations hereunder are irrevocable, absolute, independent and unconditional and shall not be affected by any circumstance which constitutes a legal or equitable discharge of a guarantor or surety other than payment in full of the Guaranteed Obligations. In furtherance of the foregoing and without limiting the generality thereof, each Guarantor agrees as follows:
(a) this Guaranty is a guaranty of payment when due and not of collectability. This Guaranty is a primary obligation of each Guarantor and not merely a contract of surety;
(b) Administrative Agent may enforce this Guaranty upon the occurrence of an Event of Default notwithstanding the existence of any dispute between Company and any Beneficiary with respect to the existence of such Event of Default;
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(c) the obligations of each Guarantor hereunder are independent of the obligations of Company and the obligations of any other guarantor (including any other Guarantor) of the obligations of Company, and a separate action or actions may be brought and prosecuted against such Guarantor whether or not any action is brought against Company or any of such other guarantors and whether or not Company is joined in any such action or actions;
(d) payment by any Guarantor of a portion, but not all, of the Guaranteed Obligations shall in no way limit, affect, modify or abridge any Guarantor's liability for any portion of the Guaranteed Obligations which has not been paid. Without limiting the generality of the foregoing, if Administrative Agent is awarded a judgment in any suit brought to enforce any Guarantor's covenant to pay a portion of the Guaranteed Obligations, such judgment shall not be deemed to release such Guarantor from its covenant to pay the portion of the Guaranteed Obligations that is not the subject of such suit, and such judgment shall not, except to the extent satisfied by such Guarantor, limit, affect, modify or abridge any other Guarantor's liability hereunder in respect of the Guaranteed Obligations;
(e) any Beneficiary, upon such terms as it deems appropriate, without notice or demand and without affecting the validity or enforceability hereof or giving rise to any reduction, limitation, impairment, discharge or termination of any Guarantor's liability hereunder, from time to time may (i) renew, extend, accelerate, increase the rate of interest on, or otherwise change the time, place, manner or terms of payment of the Guaranteed Obligations; (ii) settle, compromise, release or discharge, or accept or refuse any offer of performance with respect to, or substitutions for, the Guaranteed Obligations or any agreement relating thereto and/or subordinate the payment of the same to the payment of any other obligations; (iii) request and accept other guaranties of the Guaranteed Obligations and take and hold security for the payment hereof or the Guaranteed Obligations; (iv) release, surrender, exchange, substitute, compromise, settle, rescind, waive, alter, subordinate or modify, with or without consideration, any security for payment of the Guaranteed Obligations, any other guaranties of the Guaranteed Obligations, or any other obligation of any Person (including any other Guarantor) with respect to the Guaranteed Obligations; (v) enforce and apply any security now or hereafter held by or for the benefit of such Beneficiary in respect hereof or the Guaranteed Obligations and direct the order or manner of sale thereof, or exercise any other right or remedy that such Beneficiary may have against any such security, in each case as such Beneficiary in its discretion may determine consistent herewith and any applicable security agreement, including foreclosure on any such security pursuant to one or more judicial or nonjudicial sales, whether or not every aspect of any such sale is commercially reasonable, and even though such action operates to impair or extinguish any right of reimbursement or subrogation or other right or remedy of any Guarantor against Company or any security for the Guaranteed Obligations; and (vi) exercise any other rights available to it under the Credit Documents; and
(f) this Guaranty and the obligations of Guarantors hereunder shall be valid and enforceable and shall not be subject to any reduction, limitation, impairment, discharge or termination for any reason (other than payment in full of the Guaranteed Obligations), including the occurrence of any of the following, whether or not any Guarantor shall have had notice or knowledge of any of them: (i) any failure or omission to assert or enforce or agreement or election not to assert or enforce, or the stay or enjoining, by order of court, by operation of law or
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otherwise, of the exercise or enforcement of, any claim or demand or any right, power or remedy (whether arising under the Credit Documents, at law, in equity or otherwise) with respect to the Guaranteed Obligations or any agreement relating thereto, or with respect to any other guaranty of or security for the payment of the Guaranteed Obligations; (ii) any rescission, waiver, amendment or modification of, or any consent to departure from, any of the terms or provisions (including provisions relating to events of default) hereof, any of the other Credit Documents, or any agreement or instrument executed pursuant thereto, or of any other guaranty or security for the Guaranteed Obligations, in each case whether or not in accordance with the terms hereof or such Credit Document, or any agreement relating to such other guaranty or security; (iii) the Guaranteed Obligations, or any agreement relating thereto, at any time being found to be illegal, invalid or unenforceable in any respect; (iv) the application of payments received from any source (other than payments received pursuant to the other Credit Documents or from the proceeds of any security for the Guaranteed Obligations, except to the extent such security also serves as collateral for indebtedness other than the Guaranteed Obligations) to the payment of indebtedness other than the Guaranteed Obligations, even though any Beneficiary might have elected to apply such payment to any part or all of the Guaranteed Obligations; (v) any Beneficiary's consent to the change, reorganization or termination of the corporate structure or existence of Holdings or any of its Subsidiaries and to any corresponding restructuring of the Guaranteed Obligations; (vi) any failure to perfect or continue perfection of a security interest in any collateral which secures any of the Guaranteed Obligations; (vii) any defenses, set-offs or counterclaims which Company may allege or assert against any Beneficiary in respect of the Guaranteed Obligations, including failure of consideration, breach of warranty, payment, statute of frauds, statute of limitations, accord and satisfaction and usury; and (viii) any other act or thing or omission, or delay to do any other act or thing, which may or might in any manner or to any extent vary the risk of any Guarantor as an obligor in respect of the Guaranteed Obligations.
7.5. WAIVERS BY GUARANTORS. Each Guarantor hereby waives, for the benefit of Beneficiaries: (a) any right to require any Beneficiary, as a condition of payment or performance by such Guarantor, to (i) proceed against Company, any other guarantor (including any other Guarantor) of the Guaranteed Obligations or any other Person, (ii) proceed against or exhaust any security held from Company, any such other guarantor or any other Person, (iii) proceed against or have resort to any balance of any Deposit Account or credit on the books of any Beneficiary in favor of Company or any other Person, or (iv) pursue any other remedy in the power of any Beneficiary whatsoever; (b) any defense arising by reason of the incapacity, lack of authority or any disability or other defense of Company or any other Guarantor including any defense based on or arising out of the lack of validity or the unenforceability of the Guaranteed Obligations or any agreement or instrument relating thereto or by reason of the cessation of the liability of Company or any other Guarantor from any cause other than payment in full of the Guaranteed Obligations; (c) any defense based upon any statute or rule of law which provides that the obligation of a surety must be neither larger in amount nor in other respects more burdensome than that of the principal; (d) any defense based upon any Beneficiary's errors or omissions in the administration of the Guaranteed Obligations, except behavior which amounts to bad faith; (e) (i) any principles or provisions of law, statutory or otherwise, which are or might be in conflict with the terms hereof and any legal or equitable discharge of such Guarantor's obligations hereunder, (ii) the benefit of
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any statute of limitations affecting such Guarantor's liability hereunder or the enforcement hereof, (iii) any rights to set-offs, recoupments and counterclaims, and (iv) promptness, diligence and any requirement that any Beneficiary protect, secure, perfect or insure any security interest or lien or any property subject thereto; (f) notices, demands, presentments, protests, notices of protest, notices of dishonor and notices of any action or inaction, including acceptance hereof, notices of default hereunder, or any agreement or instrument related thereto, notices of any renewal, extension or modification of the Guaranteed Obligations or any agreement related thereto, notices of any extension of credit to Company and notices of any of the matters referred to in Section 7.4 and any right to consent to any thereof; and (g) any defenses or benefits that may be derived from or afforded by law which limit the liability of or exonerate guarantors or sureties, or which may conflict with the terms hereof.
7.6. GUARANTORS' RIGHTS OF SUBROGATION, CONTRIBUTION, ETC. Until the Guaranteed Obligations shall have been indefeasibly paid in full, each Guarantor hereby waives any claim, right or remedy, direct or indirect, that such Guarantor now has or may hereafter have against Company or any other Guarantor or any of its assets in connection with this Guaranty or the performance by such Guarantor of its obligations hereunder, in each case whether such claim, right or remedy arises in equity, under contract, by statute, under common law or otherwise and including without limitation (a) any right of subrogation, reimbursement or indemnification that such Guarantor now has or may hereafter have against Company with respect to the Guaranteed Obligations, (b) any right to enforce, or to participate in, any claim, right or remedy that any Beneficiary now has or may hereafter have against Company, and (c) any benefit of, and any right to participate in, any collateral or security now or hereafter held by any Beneficiary. In addition, until the Guaranteed Obligations shall have been indefeasibly paid in full, each Guarantor shall withhold exercise of any right of contribution such Guarantor may have against any other guarantor (including any other Guarantor) of the Guaranteed Obligations, including, without limitation, any such right of contribution as contemplated by Section
7.2. Each Guarantor further agrees that, to the extent the waiver or agreement to withhold the exercise of its rights of subrogation, reimbursement, indemnification and contribution as set forth herein is found by a court of competent jurisdiction to be void or voidable for any reason, any rights of subrogation, reimbursement or indemnification such Guarantor may have against Company or against any collateral or security, and any rights of contribution such Guarantor may have against any such other guarantor, shall be junior and subordinate to any rights any Beneficiary may have against Company, to all right, title and interest any Beneficiary may have in any such collateral or security, and to any right any Beneficiary may have against such other guarantor. If any amount shall be paid to any Guarantor on account of any such subrogation, reimbursement, indemnification or contribution rights at any time when all Guaranteed Obligations shall not have been finally and indefeasibly paid in full, such amount shall be held in trust for Administrative Agent on behalf of Beneficiaries and shall forthwith be paid over to Administrative Agent for the benefit of Beneficiaries to be credited and applied against the Guaranteed Obligations, whether matured or unmatured, in accordance with the terms hereof.
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7.7. SUBORDINATION OF OTHER OBLIGATIONS. Any Indebtedness of Company or any Guarantor now or hereafter held by any Guarantor (the "OBLIGEE GUARANTOR") is hereby subordinated in right of payment to the Guaranteed Obligations, and any such indebtedness collected or received by the Obligee Guarantor after an Event of Default has occurred and is continuing shall be held in trust for Administrative Agent on behalf of Beneficiaries and shall forthwith be paid over to Administrative Agent for the benefit of Beneficiaries to be credited and applied against the Guaranteed Obligations but without affecting, impairing or limiting in any manner the liability of the Obligee Guarantor under any other provision hereof.
7.8. CONTINUING GUARANTY. This Guaranty is a continuing guaranty and shall remain in effect until all of the Guaranteed Obligations shall have been paid in full. Each Guarantor hereby irrevocably waives any right to revoke this Guaranty as to future transactions giving rise to any Guaranteed Obligations.
7.9. AUTHORITY OF GUARANTORS OR COMPANY. It is not necessary for any Beneficiary to inquire into the capacity or powers of any Guarantor or Company or the officers, directors or any agents acting or purporting to act on behalf of any of them.
7.10. FINANCIAL CONDITION OF COMPANY. Any Credit Extension may be made to Company or continued from time to time, in each case without notice to or authorization from any Guarantor regardless of the financial or other condition of Company at the time of any such grant or continuation. No Beneficiary shall have any obligation to disclose or discuss with any Guarantor its assessment, or any Guarantor's assessment, of the financial condition of Company. Each Guarantor has adequate means to obtain information from Company on a continuing basis concerning the financial condition of Company and its ability to perform its obligations under the Credit Documents, and each Guarantor assumes the responsibility for being and keeping informed of the financial condition of Company and of all circumstances bearing upon the risk of nonpayment of the Guaranteed Obligations. Each Guarantor hereby waives and relinquishes any duty on the part of any Beneficiary to disclose any matter, fact or thing relating to the business, operations or conditions of Company now known or hereafter known by any Beneficiary.
7.11. BANKRUPTCY, ETC. (a) So long as any Guaranteed Obligations remain outstanding, no Guarantor shall, without the prior written consent of Administrative Agent acting pursuant to the instructions of Requisite Lenders, commence or join with any other Person in commencing any bankruptcy, reorganization or insolvency case or proceeding of or against Company or any other Guarantor. The obligations of Guarantors hereunder shall not be reduced, limited, impaired, discharged, deferred, suspended or terminated by any case or proceeding, voluntary or involuntary, involving the bankruptcy, insolvency, receivership, reorganization, liquidation or arrangement of Company or any other Guarantor or by any defense which Company or any other Guarantor may have by
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reason of the order, decree or decision of any court or administrative body resulting from any such proceeding.
(b) Each Guarantor acknowledges and agrees that any interest on any portion of the Guaranteed Obligations which accrues after the commencement of any case or proceeding referred to in clause (a) above (or, if interest on any portion of the Guaranteed Obligations ceases to accrue by operation of law by reason of the commencement of such case or proceeding, such interest as would have accrued on such portion of the Guaranteed Obligations if such case or proceeding had not been commenced) shall be included in the Guaranteed Obligations because it is the intention of Guarantors and Beneficiaries that the Guaranteed Obligations which are guaranteed by Guarantors pursuant hereto should be determined without regard to any rule of law or order which may relieve Company of any portion of such Guaranteed Obligations. Guarantors will permit any trustee in bankruptcy, receiver, debtor in possession, assignee for the benefit of creditors or similar person to pay Administrative Agent, or allow the claim of Administrative Agent in respect of, any such interest accruing after the date on which such case or proceeding is commenced.
(c) In the event that all or any portion of the Guaranteed Obligations are paid by Company, the obligations of Guarantors hereunder shall continue and remain in full force and effect or be reinstated, as the case may be, in the event that all or any part of such payment(s) are rescinded or recovered directly or indirectly from any Beneficiary as a preference, fraudulent transfer or otherwise, and any such payments which are so rescinded or recovered shall constitute Guaranteed Obligations for all purposes hereunder.
7.12. DISCHARGE OF GUARANTY UPON SALE OF GUARANTOR. If all of the Capital Stock of any Guarantor or any of its successors in interest hereunder shall be sold or otherwise disposed of (including by merger or consolidation) in accordance with the terms and conditions hereof, the Guaranty of such Guarantor or such successor in interest, as the case may be, hereunder shall automatically be discharged and released without any further action by any Beneficiary or any other Person effective as of the time of such Asset Sale.
SECTION 8. EVENTS OF DEFAULT; CHANGE OF CONTROL
8.1. EVENTS OF DEFAULT. If any one or more of the following conditions or events shall occur:
(a) Failure to Make Payments When Due. Failure by Company to pay (i) when due any installment of principal of any Loan, whether at stated maturity, by acceleration, by notice of voluntary prepayment, by mandatory prepayment or otherwise; or (ii) any interest on any Loan or any fee or any other amount due hereunder within five days after the date due; or
(b) Default in Other Agreements. (i) Failure of any Credit Party or any of their respective Subsidiaries to pay when due any principal of or interest on or any other amount payable in respect of one or more items of Indebtedness (other than Indebtedness referred to in
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Section 8.1(a)) with an aggregate principal amount of $2,500,000 or more, beyond the grace period, if any, provided therefore; or (ii) breach or default by any Credit Party with respect to any other material term of (1) one or more items of Indebtedness in the individual or aggregate principal amounts referred to in clause (i) above or (2) any loan agreement, mortgage, indenture or other agreement relating to such item(s) of Indebtedness, in each case beyond the grace period, if any, provided therefore, if the effect of such breach or default is to cause, or to permit the holder or holders of that Indebtedness (or a trustee on behalf of such holder or holders), to cause, that Indebtedness to become or be declared due and payable (or redeemable) prior to its stated maturity or the stated maturity of any underlying obligation, as the case may be; provided, however, with respect to any failure to pay or breach or default under the First Lien Credit Agreement, such event shall only constitute an Event of Default hereunder to the extent there is an Event of Default (as defined in the First Lien Credit Agreement) under subsections 8.1(a), (f) or (g) of the First Lien Credit Agreement; or
(c) Breach of Certain Covenants. Failure of any Credit Party to perform or comply with any term or condition contained in Section 2.6, Section 5.2 or Section 6; or
(d) Breach of Representations, etc. Any representation, warranty, certification or other statement made or deemed made by any Credit Party in any Credit Document or in any statement or certificate at any time given by any Credit Party or any of its Subsidiaries in writing pursuant hereto or thereto or in connection herewith or therewith shall be false in any material respect as of the date made or deemed made; or
(e) Other Defaults Under Credit Documents. Any Credit Party shall default in the performance of or compliance with any term contained herein or any of the other Credit Documents, other than any such term referred to in any other Section of this Section 8.1, and such default shall not have been remedied or waived within thirty days after the earlier of (i) an officer of such Credit Party becoming aware of such default or (ii) receipt by Company of notice from Administrative Agent or any Lender of such default; or
(f) Involuntary Bankruptcy; Appointment of Receiver, etc.. (i) A court of competent jurisdiction shall enter a decree or order for relief in respect of Holdings or any of its Subsidiaries in an involuntary case under the Bankruptcy Code or under any other applicable bankruptcy, insolvency or similar law now or hereafter in effect, which decree or order is not stayed; or any other similar relief shall be granted under any applicable federal or state law; or (ii) an involuntary case shall be commenced against Holdings or any of its Subsidiaries under the Bankruptcy Code or under any other applicable bankruptcy, insolvency or similar law now or hereafter in effect; or a decree or order of a court having jurisdiction in the premises for the appointment of a receiver, liquidator, sequestrator, trustee, custodian or other officer having similar powers over Holdings or any of its Subsidiaries, or over all or a substantial part of its property, shall have been entered; or there shall have occurred the involuntary appointment of an interim receiver, trustee or other custodian of Holdings or any of its Subsidiaries for all or a substantial part of its property; or a warrant of attachment, execution or similar process shall have been issued against any substantial part of the property of Holdings or any of its Subsidiaries, and any such event described in this clause (ii) shall continue for sixty days without having been dismissed, bonded or discharged; or
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(g) Voluntary Bankruptcy; Appointment of Receiver, etc.. (i) Holdings or any of its Subsidiaries shall have an order for relief entered with respect to it or shall commence a voluntary case under the Bankruptcy Code or under any other applicable bankruptcy, insolvency or similar law now or hereafter in effect, or shall consent to the entry of an order for relief in an involuntary case, or to the conversion of an involuntary case to a voluntary case, under any such law, or shall consent to the appointment of or taking possession by a receiver, trustee or other custodian for all or a substantial part of its property; or Holdings or any of its Subsidiaries shall make any assignment for the benefit of creditors; or (ii) Holdings or any of its Subsidiaries shall be unable, or shall fail generally, or shall admit in writing its inability, to pay its debts as such debts become due; or the board of directors (or similar governing body) of Holdings or any of its Subsidiaries (or any committee thereof) shall adopt any resolution or otherwise authorize any action to approve any of the actions referred to herein or in Section 8.1(f); or
(h) Judgments and Attachments. Any money judgment, writ or warrant of attachment or similar process involving in the aggregate at any time an amount in excess of $1,500,000 (in any case to the extent not adequately covered by insurance as to which a solvent and unaffiliated insurance company has acknowledged coverage) shall be entered or filed against Holdings or any of its Subsidiaries or any of their respective assets and shall remain undischarged, unvacated, unbonded or unstayed for a period of sixty days (or in any event later than five days prior to the date of any proposed sale thereunder); or
(i) Dissolution. Any order, judgment or decree shall be entered against any Credit Party decreeing the dissolution or split up of such Credit Party and such order shall remain undischarged or unstayed for a period in excess of thirty days; or
(j) Employee Benefit Plans. (i) There shall occur one or more ERISA Events which individually or in the aggregate results in or might reasonably be expected to result in liability of Holdings, any of its Subsidiaries or any of their respective ERISA Affiliates in excess of $1,500,000 during the term hereof; or (ii) there exists any fact or circumstance that reasonably could be expected to result in the imposition of a Lien or security interest under
Section 412(n) of the Internal Revenue Code or under ERISA; or
(k) Guaranties, Collateral Documents and other Credit Documents. At any time after the execution and delivery thereof, (i) the Guaranty for any reason, other than the satisfaction in full of all Obligations, shall cease to be in full force and effect (other than in accordance with its terms) or shall be declared to be null and void or any Guarantor shall repudiate its obligations thereunder, (ii) this Agreement or any Collateral Document ceases to be in full force and effect (other than by reason of a release of Collateral in accordance with the terms hereof or thereof or the satisfaction in full of the Obligations in accordance with the terms hereof) or shall be declared null and void, or Collateral Agent shall not have or shall cease to have a valid and perfected Lien in any Collateral purported to be covered by the Collateral Documents with the priority required by the relevant Collateral Document, in each case for any reason other than the failure of Collateral Agent or any Secured Party to take any action within its control, or (iii) any Credit Party shall contest the validity or enforceability of any Credit Document in writing or deny in writing that it has any further liability, including with respect to future advances by Lenders, under any Credit Document to which it is a party;
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THEN, (1) upon the occurrence of any Event of Default described in Section 8.1(f) or 8.1(g), automatically, and (2) upon the occurrence of (x) any other Event of Default or (y) an acceleration of all First Lien Obligations under the First Lien Credit Agreement, then at the request of (or with the consent of) Requisite Lenders, upon notice to Company by Administrative Agent, (A) each of the following shall immediately become due and payable, in each case without presentment, demand, protest or other requirements of any kind, all of which are hereby expressly waived by each Credit Party: (I) the unpaid principal amount of and accrued interest on the Loans, and (II) all other Obligations; and (B) Administrative Agent or Requisite Lenders may cause Collateral Agent to enforce any and all Liens and security interests created pursuant to Collateral Documents.
8.2. CHANGE OF CONTROL.
(a) Upon a Change of Control, each Lender shall have the right to require that the Company repurchase all or any portion of the Term Loans of each Lenders pursuant to an Assignment Agreement, at a purchase price in cash equal to 101% of the principal amount thereof plus accrued and unpaid interest to the date of purchase (subject to the right of Lenders of record on the relevant record date to receive interest due on the relevant interest payment date), in accordance with the terms contemplated in Section 8.2(b); provided that, with respect to such repurchases, Company shall simultaneously provide a copy of such Assignment Agreement and any other agreements between Company and each Lender with respect to such repurchase to Administrative Agent and Syndication Agent. In the event that at the time of such Change of Control the terms of the First Lien Credit Agreement restrict or prohibit the repurchase of Loans pursuant to this Section 8.2, then prior to the mailing of the notice to Lenders provided for in Section 8.2(b) below but in any event within 30 days following the date the Company obtains actual knowledge of any Change of Control, the Company shall
(i) repay in full all Indebtedness under the First Lien Credit Agreement or (ii) obtain the requisite consent under the First Lien Credit Agreement to permit the repurchase of the Loans as provided for in Section 8.2(b).
(b) Within 30 days following the date the Company obtains actual knowledge of any Change of Control, the Company shall mail a notice to Administrative Agent and all Lenders (the "CHANGE OF CONTROL OFFER") stating:
(i) that a Change of Control has occurred and that each Lender has the right to require the Company to purchase all or a portion of such Lender's outstanding Loans at a purchase price in cash equal to 101% of the principal amount thereof, plus accrued and unpaid interest to the date of purchase (subject to the right of Lenders of record on the relevant record date to receive interest on the relevant interest payment date);
(ii) the circumstances and relevant facts and financial information regarding such Change of Control;
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(iii) the purchase date (which shall be no earlier than 30 days nor later than 90 days from the date such notice is mailed); and
(iv) the instructions determined by the Company (which shall be reasonably acceptable to Administrative Agent and the Syndication Agent), consistent with this Section 8.2, that a Lender must follow in order to have its outstanding Loans purchased.
(c) With respect to all repurchases made by Company pursuant to this
Section 8.2, (i) Company shall pay all accrued and unpaid interest, if any, on the repurchased Term Loans to the date of repurchase of such Term Loans together with all amounts due under Section 2.18, (ii) the repurchase of such Term Loans by Company shall not be taken into account in the calculation of Consolidated Excess Cash Flow, (iii) Company shall have provided to all Lenders all information that, together with any previously provided information, would satisfy the requirements of Rule 10b-5 of the Exchange Act with respect to an offer by Company to repurchase securities registered under the Securities Act of 1933 (whether or not such securities are outstanding) as if such offer was being made as of the date of such repurchase of Term Loans from a Lender, (iv) Lenders shall be entitled to withdraw their election if the Company receives not later than one Business Day prior to the repurchase date a telegram, telex, facsimile transmission or letter setting forth the name of the Lender, the principal amount of the outstanding Loan which was elected for repurchase by the Lender and a statement that such Lender is withdrawing his election to have such Loan repurchased and (v) such repurchases shall not be deemed to be voluntary prepayments pursuant to Sections 2.13, Section 2.15 or 2.16.
(d) Prior to any Change of Control Offer, the Company shall deliver to the Administrative Agent on behalf of all Lenders an Officers' Certificate stating that all conditions precedent contained herein to the right of the Company to make such Change of Control Offer have been complied with.
(e) Following repurchase by Company pursuant to this Section 8.2, the Term Loans so repurchased shall be deemed cancelled for all purposes and no longer outstanding (and may not be resold by Company), for all purposes of this Agreement and all other Credit Documents, including, but not limited to (i) the making of, or the application of, any payments to the Lenders under this Agreement or any other Credit Document, (ii) the making of any request, demand, authorization, direction, notice, consent or waiver under this Agreement or any other Credit Document or (iii) the determination of Requisite Lenders, or for any similar or related purpose, under this Agreement or any other Credit Document.
(f) Notwithstanding the foregoing provisions of this Section, the Company shall not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in Section 8.2(b) applicable to a Change of Control Offer made by the Company and purchases all outstanding Loans validly tendered and not withdrawn under such Change of Control Offer.
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Notwithstanding any of the provisions set forth in this Agreement to the contrary, Company, the Lenders and Agents hereby agree that nothing in this Agreement shall be understood to mean or suggest that the Term Loans constitute "securities" for purposes of either the Securities Act or the Exchange Act.
SECTION 9. AGENTS
9.1. APPOINTMENT OF AGENTS. GSCP is hereby appointed Syndication Agent hereunder, and each Lender hereby authorizes Syndication Agent to act as its agent in accordance with the terms hereof and the other Credit Documents. GSCP is hereby appointed Administrative Agent hereunder and under the other Credit Documents and each Lender hereby authorizes Administrative Agent to act as its agent in accordance with the terms hereof and the other Credit Documents. GSCP is hereby appointed Collateral Agent hereunder and under the other Credit Documents and each Lender hereby authorizes Collateral Agent to act as its agent in accordance with the terms hereof and the other Credit Documents. Each Agent hereby agrees to act upon the express conditions contained herein and the other Credit Documents, as applicable. The provisions of this Section 9 are solely for the benefit of Agents and Lenders and no Credit Party shall have any rights as a third party beneficiary of any of the provisions thereof. In performing its functions and duties hereunder, each Agent shall act solely as an agent of Lenders and does not assume and shall not be deemed to have assumed any obligation towards or relationship of agency or trust with or for Holdings or any of its Subsidiaries. Syndication Agent, without consent of or notice to any party hereto, may assign any and all of its rights or obligations hereunder to any of its Affiliates. As of the Closing Date, GSCP, in its capacity as Syndication Agent, shall not have any obligations but shall be entitled to all benefits of this Section 9.
9.2. POWERS AND DUTIES. Each Lender irrevocably authorizes each Agent to take such action on such Lender's behalf and to exercise such powers, rights and remedies hereunder and under the other Credit Documents as are specifically delegated or granted to such Agent by the terms hereof and thereof, together with such powers, rights and remedies as are reasonably incidental thereto. Each Agent shall have only those duties and responsibilities that are expressly specified herein and the other Credit Documents. Each Agent may exercise such powers, rights and remedies and perform such duties by or through its agents or employees. No Agent shall have, by reason hereof or any of the other Credit Documents, a fiduciary relationship in respect of any Lender; and nothing herein or any of the other Credit Documents, expressed or implied, is intended to or shall be so construed as to impose upon any Agent any obligations in respect hereof or any of the other Credit Documents except as expressly set forth herein or therein.
9.3. GENERAL IMMUNITY.
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(a) No Responsibility for Certain Matters. No Agent shall be responsible to any Lender for the execution, effectiveness, genuineness, validity, enforceability, collectability or sufficiency hereof or any other Credit Document or for any representations, warranties, recitals or statements made herein or therein or made in any written or oral statements or in any financial or other statements, instruments, reports or certificates or any other documents furnished or made by any Agent to Lenders or by or on behalf of any Credit Party to any Agent or any Lender in connection with the Credit Documents and the transactions contemplated thereby or for the financial condition or business affairs of any Credit Party or any other Person liable for the payment of any Obligations, nor shall any Agent be required to ascertain or inquire as to the performance or observance of any of the terms, conditions, provisions, covenants or agreements contained in any of the Credit Documents or as to the use of the proceeds of the Loans or as to the existence or possible existence of any Event of Default or Default or to make any disclosures with respect to the foregoing. Anything contained herein to the contrary notwithstanding, Administrative Agent shall not have any liability arising from confirmations of the amount of outstanding Loans.
(b) Exculpatory Provisions. No Agent nor any of its officers, partners, directors, employees or agents shall be liable to Lenders for any action taken or omitted by any Agent under or in connection with any of the Credit Documents except to the extent caused by such Agent's gross negligence or willful misconduct. Each Agent shall be entitled to refrain from any act or the taking of any action (including the failure to take an action) in connection with this Agreement or any of the other Loan Documents or from the exercise of any power, discretion or authority vested in it hereunder or thereunder unless and until such Agent, in the case of any Agent other than the Collateral Agent, shall have received instructions in respect thereof from Requisite Lenders (or such other Lenders as may be required to give such instructions under subsection 10.5) or, in the case of the Collateral Agent, in accordance with the Pledge and Security Agreement, Intercreditor Agreement or other applicable Collateral Document, and, upon receipt of such instructions from Requisite Lenders (or such other Lenders, as the case may be) or in accordance with the Pledge and Security Agreement, Intercreditor Agreement or other applicable Collateral Document, as the case may be, such Agent shall be entitled to act or (where so instructed) refrain from acting, or to exercise such power, discretion or authority, in accordance with such instructions. In no event shall any Agent be liable for punitive, special, consequential, incidental, exemplary or other similar damages. Without prejudice to the generality of the foregoing, (i) each Agent shall be entitled to rely, and shall be fully protected in relying, upon any communication, instrument or document believed by it to be genuine and correct and to have been signed or sent by the proper Person or Persons, and shall be entitled to rely and shall be protected in relying on opinions and judgments of attorneys (who may be attorneys for Holdings and its Subsidiaries), accountants, experts and other professional advisors selected by it; and (ii) no Lender shall have any right of action whatsoever against any Agent as a result of such Agent acting or (where so instructed) refraining from acting under this Agreement or any of the other Loan Documents, in the case of any Agent other than the Collateral Agent, in accordance with the instructions of Requisite Lenders (or such other Lenders as may be required to give such instructions under subsection 10.5) or, in the case of the Collateral Agent, in accordance with the Pledge and Security Agreement, Intercreditor Agreement or other applicable Collateral Document.
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9.4. AGENTS ENTITLED TO ACT AS LENDER. The agency hereby created shall in no way impair or affect any of the rights and powers of, or impose any duties or obligations upon, any Agent in its individual capacity as a Lender hereunder. With respect to its participation in the Loans, each Agent shall have the same rights and powers hereunder as any other Lender and may exercise the same as if it were not performing the duties and functions delegated to it hereunder, and the term "Lender" shall, unless the context clearly otherwise indicates, include each Agent in its individual capacity. Any Agent and its Affiliates may accept deposits from, lend money to, own securities of, and generally engage in any kind of banking, trust, financial advisory or other business with Holdings or any of its Affiliates as if it were not performing the duties specified herein, and may accept fees and other consideration from Company for services in connection herewith and otherwise without having to account for the same to Lenders.
9.5. LENDERS' REPRESENTATIONS, WARRANTIES AND ACKNOWLEDGMENT.
(a) Each Lender represents and warrants that it has made its own independent investigation of the financial condition and affairs of Holdings and its Subsidiaries in connection with Credit Extensions hereunder and that it has made and shall continue to make its own appraisal of the creditworthiness of Holdings and its Subsidiaries. No Agent shall have any duty or responsibility, either initially or on a continuing basis, to make any such investigation or any such appraisal on behalf of Lenders or to provide any Lender with any credit or other information with respect thereto, whether coming into its possession before the making of the Loans or at any time or times thereafter, and no Agent shall have any responsibility with respect to the accuracy of or the completeness of any information provided to Lenders.
(b) Each Lender, by delivering its signature page to this Agreement and funding its Term Loan on the Closing Date, shall be deemed to have acknowledged receipt of, and consented to and approved, each Credit Document and each other document required to be approved by any Agent, Requisite Lenders or Lenders, as applicable on the Closing Date. Notwithstanding anything herein to the contrary, each Lender also acknowledges that the lien and security interest granted to the Collateral Agent pursuant to the Pledge and Security Agreement and the exercise of any right or remedy by the Collateral Agent thereunder are subject to the provisions of the Intercreditor Agreement. In the event of any conflict between the terms of the Intercreditor Agreement and the Pledge and Security Agreement, the terms of the Intercreditor Agreement shall govern and control.
9.6. RIGHT TO INDEMNITY. Each Lender, in proportion to its Pro Rata Share, severally agrees to indemnify each Agent, to the extent that such Agent shall not have been reimbursed by any Credit Party, for and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses (including counsel fees and disbursements) or disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted against such Agent in
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exercising its powers, rights and remedies or performing its duties hereunder or under the other Credit Documents or otherwise in its capacity as such Agent in any way relating to or arising out of this Agreement or the other Credit Documents; provided, no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from such Agent's gross negligence or willful misconduct. If any indemnity furnished to any Agent for any purpose shall, in the opinion of such Agent, be insufficient or become impaired, such Agent may call for additional indemnity and cease, or not commence, to do the acts indemnified against until such additional indemnity is furnished; provided, in no event shall this sentence require any Lender to indemnify any Agent against any liability, obligation, loss, damage, penalty, action, judgment, suit, cost, expense or disbursement in excess of such Lender's Pro Rata Share thereof; and provided further, this sentence shall not be deemed to require any Lender to indemnify any Agent against any liability, obligation, loss, damage, penalty, action, judgment, suit, cost, expense or disbursement described in the proviso in the immediately preceding sentence.
9.7. SUCCESSOR ADMINISTRATIVE AGENT AND/OR COLLATERAL AGENT. The Administrative Agent and/or Collateral Agent may at any time give notice of its resignation to the Lenders and the Company, and Administrative Agent and/or the Collateral Agent may be removed at any time with or without cause by an instrument or concurrent instruments in writing delivered to Company and Administrative Agent and signed by Requisite Lenders. Upon any such notice of resignation or any such removal, Requisite Lenders shall have the right, upon five Business Days' notice to Company and in consultation with the Company, to appoint a successor Administrative Agent and/or Collateral Agent, as applicable. Upon the acceptance of any appointment as Administrative Agent and/or Collateral Agent, as applicable, hereunder by a successor Administrative Agent and/or Collateral Agent, as applicable, that successor Administrative Agent and/or Collateral Agent, as applicable, shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring or removed Administrative Agent and/or Collateral Agent, as applicable, and the retiring or removed Administrative Agent and/or Collateral Agent, as applicable, shall promptly (i) transfer to such successor Administrative Agent and/or Collateral Agent, as applicable, all sums, Securities and other items of Collateral held under the Collateral Documents, together with all records and other documents necessary or appropriate in connection with the performance of the duties of the successor Administrative Agent and/or Collateral Agent, as applicable, under the Credit Documents, and (ii) execute and deliver to such successor Administrative Agent and/or Collateral Agent, as applicable, such amendments to financing statements, and take such other actions, as may be necessary or appropriate in connection with the assignment to such successor Administrative Agent and/or Collateral Agent, as applicable, of the security interests created under the Collateral Documents, whereupon such retiring or removed Administrative Agent and/or Collateral Agent, as applicable, shall be discharged from its duties and obligations hereunder. After any retiring or removed Administrative Agent's and/or Collateral Agent's, as applicable, resignation or removal hereunder as Administrative Agent and/or Collateral Agent, as applicable, the provisions of this Section 9 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent and/or Collateral Agent, as applicable hereunder.
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9.8. COLLATERAL DOCUMENTS AND GUARANTY.
(a) Agents under Collateral Documents and Guaranty. Each Lender hereby further authorizes Administrative Agent or Collateral Agent, as applicable, on behalf of and for the benefit of Lenders, to (i) be the agent for and representative of Lenders with respect to the Guaranty, the Collateral, and the other Collateral Documents and (ii) enter into the Intercreditor Agreement, and each Lender agrees to be bound by the terms of the Intercreditor Agreement. Subject to Section 10.5, without further written consent or authorization from Lenders, Administrative Agent or Collateral Agent, as applicable may execute any documents or instruments necessary to (i) release any Lien encumbering any item of Collateral that is the subject of a sale or other disposition of assets permitted hereby or to which Requisite Lenders (or such other Lenders as may be required to give such consent under Section 10.5) have otherwise consented or
(ii) release any Guarantor from the Guaranty pursuant to Section 7.12 or with respect to which Requisite Lenders (or such other Lenders as may be required to give such consent under Section 10.5) have otherwise consented; provided that Collateral Agent shall not enter into or consent to any material amendment, modification, termination or waiver of the Intercreditor Agreement without the prior consent of Requisite Lenders (or such other Lenders as may be required to give such instructions under subsection 10.5).
(b) Right to Realize on Collateral and Enforce Guaranty. Anything contained in any of the Credit Documents to the contrary notwithstanding, Company, Administrative Agent, Collateral Agent and each Lender hereby agree that (i) no Lender shall have any right individually to realize upon any of the Collateral or to enforce the Guaranty, it being understood and agreed that all powers, rights and remedies hereunder may be exercised solely by Administrative Agent, on behalf of Lenders in accordance with the terms hereof and all powers, rights and remedies under the Collateral Documents may be exercised solely by Collateral Agent, and (ii) in the event of a foreclosure by Collateral Agent on any of the Collateral pursuant to a public or private sale, Collateral Agent or any Lender may be the purchaser of any or all of such Collateral at any such sale and Collateral Agent, as agent for and representative of Secured Parties (but not any Lender or Lenders in its or their respective individual capacities unless Requisite Lenders shall otherwise agree in writing) shall be entitled, for the purpose of bidding and making settlement or payment of the purchase price for all or any portion of the Collateral sold at any such public sale, to use and apply any of the Obligations as a credit on account of the purchase price for any collateral payable by Collateral Agent at such sale.
SECTION 10. MISCELLANEOUS
10.1. NOTICES. Unless otherwise specifically provided herein, any notice or other communication herein required or permitted to be given to a Credit Party, Syndication Agent, Collateral Agent or Administrative Agent, shall be sent to such Person's address as set forth on Appendix B or in the other relevant Credit Document, and in the case of any Lender, the address as indicated on
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Appendix B or otherwise indicated to Administrative Agent in writing. Each notice hereunder shall be in writing and may be personally served, telexed or sent by telefacsimile or United States mail or courier service and shall be deemed to have been given when delivered in person or by courier service and signed for against receipt thereof, upon receipt of telefacsimile or telex, or three Business Days after depositing it in the United States mail with postage prepaid and properly addressed; provided, no notice to any Agent shall be effective until received by such Agent.
10.2. EXPENSES. Whether or not the transactions contemplated hereby shall be consummated, Company agrees to pay promptly (a) all the actual and reasonable costs and expenses of preparation of the Credit Documents and any consents, amendments, waivers or other modifications thereto; (b) all the costs of furnishing all opinions by counsel for Company and the other Credit Parties; (c) the reasonable fees, expenses and disbursements of counsel to Agents (in each case including allocated costs of internal counsel) in connection with the negotiation, preparation, execution and administration of the Credit Documents and any consents, amendments, waivers or other modifications thereto and any other documents or matters requested by Company; (d) all the actual costs and reasonable expenses of creating and perfecting Liens in favor of Collateral Agent, for the benefit of Lenders pursuant hereto, including filing and recording fees, expenses and taxes, stamp or documentary taxes, search fees, title insurance premiums and reasonable fees, expenses and disbursements of counsel to each Agent and of counsel providing any opinions that any Agent or Requisite Lenders may request in respect of the Collateral or the Liens created pursuant to the Collateral Documents; (e) all the actual costs and reasonable fees, expenses and disbursements of any auditors, accountants, consultants or appraisers; (f) all the actual costs and reasonable expenses (including the reasonable fees, expenses and disbursements of any appraisers, consultants, advisors and agents employed or retained by Collateral Agent and its counsel) in connection with the custody or preservation of any of the Collateral; (g) all other actual and reasonable costs and expenses incurred by each Agent in connection with the syndication of the Loans and Term Loan Commitments and the negotiation, preparation and execution of the Credit Documents and any consents, amendments, waivers or other modifications thereto and the transactions contemplated thereby; and (h) after the occurrence of a Default or an Event of Default, all costs and expenses, including reasonable attorneys' fees (including allocated costs of internal counsel) and costs of settlement, incurred by any Agent and Lenders in enforcing any Obligations of or in collecting any payments due from any Credit Party hereunder or under the other Credit Documents by reason of such Default or Event of Default (including in connection with the sale of, collection from, or other realization upon any of the Collateral or the enforcement of the Guaranty) or in connection with any refinancing or restructuring of the credit arrangements provided hereunder in the nature of a "work-out" or pursuant to any insolvency or bankruptcy cases or proceedings. At the reasonable request of the Company, Agents shall, in its sole discretion, use its commercially reasonable efforts to provide back-up documentation for any of the above reimbursable costs, fees and expenses; provided, however, the inability to provide such back-up documentation shall not be a reason for the any Credit Party to object to or refuse reimbursement of any such costs, fees and expenses.
10.3. INDEMNITY.
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(a) In addition to the payment of expenses pursuant to Section 10.2, whether or not the transactions contemplated hereby shall be consummated, each Credit Party agrees to defend (subject to Indemnitees' selection of counsel), indemnify, pay and hold harmless, each Agent and Lender and the officers, partners, directors, trustees, investment advisors, employees, agents and Affiliates of each Agent and each Lender (each, an "INDEMNITEE"), from and against any and all Indemnified Liabilities; provided, no Credit Party shall have any obligation to any Indemnitee hereunder with respect to any Indemnified Liabilities to the extent such Indemnified Liabilities arise from the gross negligence or willful misconduct of that Indemnitee. To the extent that the undertakings to defend, indemnify, pay and hold harmless set forth in this
Section 10.3 may be unenforceable in whole or in part because they are violative of any law or public policy, the applicable Credit Party shall contribute the maximum portion that it is permitted to pay and satisfy under applicable law to the payment and satisfaction of all Indemnified Liabilities incurred by Indemnitees or any of them.
(b) To the extent permitted by applicable law, no Credit Party shall assert, and each Credit Party hereby waives, any claim against Lenders, Agents and their respective Affiliates, directors, employees, attorneys or agents, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) (whether or not the claim therefore is based on contract, tort or duty imposed by any applicable legal requirement) arising out of, in connection with, arising out of, as a result of, or in any way related to, this Agreement or any Credit Document or any agreement or instrument contemplated hereby or thereby or referred to herein or therein, the transactions contemplated hereby or thereby, any Loan or the use of the proceeds thereof or any act or omission or event occurring in connection therewith, and Holdings and Company hereby waives, releases and agrees not to sue upon any such claim or any such damages, whether or not accrued and whether or not known or suspected to exist in its favor.
10.4. SET-OFF. Subject to the terms of the Intercreditor Agreement, in addition to any rights now or hereafter granted under applicable law and not by way of limitation of any such rights, upon the occurrence of any Event of Default each Lender is hereby authorized by each Credit Party at any time or from time to time subject to the consent of Administrative Agent (such consent not to be unreasonably withheld or delayed), without notice to any Credit Party or to any other Person (other than Administrative Agent), any such notice being hereby expressly waived, to set off and to appropriate and to apply any and all deposits (general or special, including Indebtedness evidenced by certificates of deposit, whether matured or unmatured, but not including trust accounts) and any other Indebtedness at any time held or owing by such Lender to or for the credit or the account of any Credit Party against and on account of the obligations and liabilities of any Credit Party to such Lender hereunder and under the other Credit Documents, including all claims of any nature or description arising out of or connected hereto or with any other Credit Document, irrespective of whether or not (a) such Lender shall have made any demand hereunder or (b) the principal of or the interest on the Loans or any other amounts due hereunder
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shall have become due and payable pursuant to Section 2 and although such obligations and liabilities, or any of them, may be contingent or unmatured.
10.5. AMENDMENTS AND WAIVERS.
(a) Requisite Lenders' Consent. Subject to Section 10.5(b) and 10.5(c), no amendment, modification, termination or waiver of any provision of the Credit Documents, or consent to any departure by any Credit Party therefrom, shall in any event be effective without the written concurrence of the Requisite Lenders.
(b) Affected Lenders' Consent. Without the written consent of each Lender that would be affected thereby, no amendment, modification, termination, or consent shall be effective if the effect thereof would:
(i) extend the scheduled final maturity of any Loan or Note;
(ii) waive, reduce or postpone any scheduled repayment or mandatory prepayment;
(iii) reduce the rate of interest on any Loan (other than any waiver of any increase in the interest rate applicable to any Loan pursuant to Section 2.10) or any fee payable hereunder or waive, amend or reduce any prepayment premium;
(iv) extend the time for payment of any such interest, fees or prepayment premium;
(v) reduce the principal amount of any Loan;
(vi) amend, modify, terminate or waive any provision of
Section 2.17, this Section 10.5(b) or Section 10.5(c);
(vii) amend the definition of "REQUISITE LENDERS" or "PRO RATA SHARE";
(viii) release all or substantially all of the Collateral or all or substantially all of the Guarantors from the Guaranty except as expressly provided in the Credit Documents; or
(ix) consent to the assignment or transfer by any Credit Party of any of its rights and obligations under any Credit Document.
(c) Other Consents. No amendment, modification, termination or waiver of any provision of the Credit Documents, or consent to any departure by any Credit Party therefrom, shall amend, modify, terminate or waive any provision of Section 9 as the same applies to any
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Agent, or any other provision hereof as the same applies to the rights or obligations of any Agent, in each case without the consent of such Agent.
(d) Execution of Amendments, etc. Administrative Agent may, but shall have no obligation to, with the concurrence of any Lender, execute amendments, modifications, waivers or consents on behalf of such Lender. Any waiver or consent shall be effective only in the specific instance and for the specific purpose for which it was given. No notice to or demand on any Credit Party in any case shall entitle any Credit Party to any other or further notice or demand in similar or other circumstances. Any amendment, modification, termination, waiver or consent effected in accordance with this Section 10.5 shall be binding upon each Lender at the time outstanding, each future Lender and, if signed by a Credit Party, on such Credit Party.
10.6. SUCCESSORS AND ASSIGNS; PARTICIPATIONS.
(a) Generally. This Agreement shall be binding upon the parties hereto and their respective successors and assigns and shall inure to the benefit of the parties hereto and the successors and assigns of Lenders. No Credit Party's rights or obligations hereunder nor any interest therein may be assigned or delegated by any Credit Party without the prior written consent of all Lenders. Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby and, to the extent expressly contemplated hereby, Affiliates and Related Funds of each of the Agents and Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement.
(b) Register.
(i) Company, Administrative Agent and Lenders shall deem and treat the Persons listed as Lenders in the Register as the holders and owners of the corresponding Loans (each a "REGISTERED LOAN") listed therein for all purposes hereof, and no assignment or transfer of any such Loan shall be effective (other than an assignment permitted by Section 10.6(c)(i)), in each case, unless and until an Assignment Agreement effecting the assignment or transfer thereof shall have been delivered to and accepted by Administrative Agent and recorded in the Register as provided in Section 10.6(e); provided that, in connection with an assignment or transfer permitted by Section 10.6(c)(i), the failure of an assignor Lender and such assignee to execute and deliver an Assignment Agreement shall not affect the legality, validity or binding effect of such assignment.. Prior to such recordation, all amounts owed with respect to the applicable Loan shall be owed to the Lender listed in the Register as the owner thereof, and any request, authority or consent of any Person who, at the time of making such request or giving such authority or consent, is listed in the Register as a Lender shall be conclusive and binding on any subsequent holder, assignee or transferee of the corresponding Loans. In the case of an assignment or transfer permitted by
Section 10.6(c)(i), the assigning Lender shall maintain a comparable Register on behalf of the Company; provided, however that Company and Administrative Agent shall be entitled to rely solely on the Register maintained by Administrative Agent.
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(ii) A Registered Loan (and the registered note, if any, evidencing the same) may be assigned or sold in whole or in part only by registration of such assignment or sale on the Register (and each registered note shall expressly so provide). Any assignment or sale of all or part of such Registered Loan (and the registered note, if any, evidencing the same) may be effected only by registration of such assignment or sale on Register, together with the surrender of the registered note, if any, evidencing the same duly endorsed by (or accompanied by a written instrument of assignment or sale duly executed by) the holder of such registered note, whereupon, at the request of the designated assignee(s) or transferee(s), one or more new registered notes in the same aggregate principal amount shall be issued to the designated assignee(s) or transferee(s). Prior to the registration of assignment or sale of any Registered Loan (and the registered note, if any, evidencing the same), the Administrative Agent shall treat the Person in whose name such Registered Loan (and the registered note, if any, evidencing the same) is registered as the owner thereof for the purpose of receiving all payments thereon and for all other purposes, notwithstanding notice to the contrary.
(iii) In the event that any Lender sells participations in a Registered Loan, such Lender shall maintain a register on which it enters the name of all participants in the Registered Loans held by it (the "PARTICIPANT REGISTER"). A Registered Loan (and the registered note, if any, evidencing the same) may be participated in whole or in part only by registration of such participation on the Participant Register (and each registered note shall expressly so provide). Any participation of such Registered Loan (and the registered note, if any, evidencing the same) may be effected only by the registration of such participation on the Participant Register.
(c) Right to Assign. Each Lender shall have the right at any time to sell, assign or transfer all or a portion of its rights and obligations under this Agreement, including, without limitation, all or a portion of its Loans owing to it or other Obligation (provided, however, that each such assignment shall be of a uniform, and not varying, percentage of all rights and obligations under and in respect of any Loan):
(i) to any Person meeting the criteria of clause (i) of the definition of the term of "Eligible Assignee" upon the giving of notice to Company and Administrative Agent (each, a "RELATED ASSIGNEE"); provided, however, that Company and Administrative Agent may continue to deal solely and directly with such assignor Lender in connection with the interest so assigned to such Related Assignee until such Lender and its Related Assignee have delivered to Company and Administrative Agent an Assignment Agreement pursuant to Section 10.6(b) hereof; and
(ii) to any Person meeting the criteria of clause (ii) of the definition of the term of "Eligible Assignee"; provided, further each such assignment pursuant to this Section 10.6(c)(ii) shall be in an aggregate amount of not less than $1,000,000 (or such lesser amount as may be agreed to by Company and Administrative Agent or as shall constitute the aggregate amount of the Term Loan of the assigning Lender).
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(d) Mechanics. The assigning Lender and the assignee thereof shall execute and deliver to Administrative Agent an Assignment Agreement, together with such forms, certificates or other evidence, if any, with respect to United States federal income tax withholding matters as the assignee under such Assignment Agreement may be required to deliver to Administrative Agent pursuant to Section 2.20(c); provided, however, that the assigning Lender and assignee shall not be obligated to deliver such Assignment Agreement and forms, certificates or other evidence with respect to withholding tax matters in connection with assignments or transfers permitted under Section 10.6(c)(i), but until such delivery, Company and Administrative Agent may continue to deal solely and directly with such assignor Lender in connection with the interest so assigned, and such assignment shall nonetheless be legal, valid and binding.
(e) Notice of Assignment. Upon its receipt of a duly executed and completed Assignment Agreement (and any forms, certificates or other evidence required by this Agreement in connection therewith), Administrative Agent shall record the information contained in such Assignment Agreement in the Register, shall give prompt notice thereof to Company and shall maintain a copy of such Assignment Agreement.
(f) Representations and Warranties of Assignee. Each Lender, upon execution and delivery hereof or upon executing and delivering an Assignment Agreement, as the case may be, represents and warrants as of the Closing Date or as of the applicable Effective Date (as defined in the applicable Assignment Agreement) that (i) it is an Eligible Assignee; (ii) it has experience and expertise in the making of or investing in commitments or loans such as the applicable Loans, as the case may be; and (iii) it will make or invest in, as the case may be, its Loans for its own account in the ordinary course of its business and without a view to distribution of such Loans within the meaning of the Securities Act or the Exchange Act or other federal securities laws (it being understood that, subject to the provisions of this Section 10.6, the disposition of such Loans or any interests therein shall at all times remain within its exclusive control).
(g) Effect of Assignment. Subject to the terms and conditions of this Section 10.6, as of the "Effective Date" specified in the applicable Assignment Agreement: (i) the assignee thereunder shall have the rights and obligations of a "Lender" hereunder to the extent such rights and obligations hereunder have been assigned to it pursuant to such Assignment Agreement and shall thereafter be a party hereto and a "Lender" for all purposes hereof; (ii) the assigning Lender thereunder shall, to the extent that rights and obligations hereunder have been assigned thereby pursuant to such Assignment Agreement, relinquish its rights (other than any rights which survive the termination hereof under Section 10.8) and be released from its obligations hereunder (and, in the case of an Assignment Agreement covering all or the remaining portion of an assigning Lender's rights and obligations hereunder, such Lender shall cease to be a party hereto; provided, anything contained in any of the Credit Documents to the contrary notwithstanding, such assigning Lender shall continue to be entitled to the benefit of all indemnities hereunder as specified herein with respect to matters arising out of the prior involvement of such assigning Lender as a Lender hereunder); and (iii) if any such assignment occurs after the issuance of any Note hereunder, the assigning Lender shall, upon the effectiveness of such assignment or as promptly thereafter as practicable, surrender its applicable Notes to Administrative Agent for cancellation, and thereupon Company shall issue and deliver
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new Notes, if so requested by the assignee and/or assigning Lender, to such assignee and/or to such assigning Lender, with appropriate insertions, to reflect the new outstanding Loans of the assignee and/or the assigning Lender.
(h) Participations. Each Lender shall have the right at any time to sell one or more participations to any Person (other than Holdings, any of its Subsidiaries or any of its Affiliates) in all or any part of its Loans or in any other Obligation. The holder of any such participation, other than an Affiliate or Related Fund of the Lender granting such participation, shall not be entitled to require such Lender to take or omit to take any action hereunder except with respect to any amendment, modification or waiver that would (i) extend the final scheduled maturity of any Loan or Note in which such participant is participating, or reduce the rate or extend the time of payment of interest or fees thereon (except in connection with a waiver of applicability of any post-default increase in interest rates) or reduce the principal amount thereof, or increase the amount of the participant's participation over the amount thereof then in effect (it being understood that a waiver of any Default or Event of Default shall not constitute a change in the terms of such participation, and that an increase in any Loan shall be permitted without the consent of any participant if the participant's participation is not increased as a result thereof), (ii) consent to the assignment or transfer by any Credit Party of any of its rights and obligations under this Agreement or (iii) release all or substantially all of the Collateral under the Collateral Documents (except as expressly provided in the Credit Documents) supporting the Loans hereunder in which such participant is participating. Company agrees that each participant shall be entitled to the benefits of Sections 2.18(c), 2.19 and 2.20 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to paragraph (c) of this Section; provided, (i) a participant shall not be entitled to receive any greater payment under Section 2.19 or 2.20 than the applicable Lender would have been entitled to receive with respect to the participation sold to such participant, unless the sale of the participation to such participant is made with Company's prior written consent and (ii) a participant that would be a Non-US Lender if it were a Lender shall not be entitled to the benefits of Section 2.20 unless Company is notified of the participation sold to such participant and such participant agrees, for the benefit of Company, to comply with Section 2.20 as though it were a Lender. To the extent permitted by law, each participant also shall be entitled to the benefits of Section 10.4 as though it were a Lender, provided such Participant agrees to be subject to Section 2.17 as though it were a Lender.
(i) Certain Other Assignments. In addition to any other assignment permitted pursuant to this Section 10.6, (i) any Lender may assign and/or pledge all or any portion of its Loans, the other Obligations owed by or to such Lender, and its Notes, if any, to secure obligations of such Lender including, without limitation, any Federal Reserve Bank as collateral security pursuant to Regulation A of the Board of Governors of the Federal Reserve System and any operating circular issued by such Federal Reserve Bank; provided, no Lender, as between Company and such Lender, shall be relieved of any of its obligations hereunder as a result of any such assignment and pledge, and provided further, in no event shall the applicable Federal Reserve Bank, pledgee or trustee be considered to be a "Lender" or be entitled to require the assigning Lender to take or omit to take any action hereunder.
10.7. INDEPENDENCE OF COVENANTS. All covenants hereunder shall be given independent effect so that if a particular action or condition is not permitted by any of such covenants, the fact that it would be permitted by an exception to, or would otherwise be within the limitations of, another covenant shall not avoid the occurrence of a Default or an Event of Default if such action is taken or condition exists.
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10.8. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. All representations, warranties and agreements made herein shall survive the execution and delivery hereof and the making of any Credit Extension. Notwithstanding anything herein or implied by law to the contrary, the agreements of each Credit Party set forth in Sections 2.18(c), 2.19, 2.20, 10.2, 10.3 and 10.4 and the agreements of Lenders set forth in Sections 2.17, 9.3(b) and 9.6 shall survive the payment of the Loans and the termination hereof.
10.9. NO WAIVER; REMEDIES CUMULATIVE. No failure or delay on the part of any Agent or any Lender in the exercise of any power, right or privilege hereunder or under any other Credit Document shall impair such power, right or privilege or be construed to be a waiver of any default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other power, right or privilege. The rights, powers and remedies given to each Agent and each Lender hereby are cumulative and shall be in addition to and independent of all rights, powers and remedies existing by virtue of any statute or rule of law or in any of the other Credit Documents. Any forbearance or failure to exercise, and any delay in exercising, any right, power or remedy hereunder shall not impair any such right, power or remedy or be construed to be a waiver thereof, nor shall it preclude the further exercise of any such right, power or remedy.
10.10. MARSHALLING; PAYMENTS SET ASIDE. Neither any Agent nor any Lender shall be under any obligation to marshal any assets in favor of any Credit Party or any other Person or against or in payment of any or all of the Obligations. To the extent that any Credit Party makes a payment or payments to Administrative Agent or Lenders (or to Administrative Agent, on behalf of Lenders), or Administrative Agent or Lenders enforce any security interests or exercise their rights of setoff, and such payment or payments or the proceeds of such enforcement or setoff or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside and/or required to be repaid to a trustee, receiver or any other party under any bankruptcy law, any other state or federal law, common law or any equitable cause, then, to the extent of such recovery, the obligation or part thereof originally intended to be satisfied, and all Liens, rights and remedies therefore or related thereto, shall be revived and continued in full force and effect as if such payment or payments had not been made or such enforcement or setoff had not occurred.
10.11. SEVERABILITY. In case any provision in or obligation hereunder or any Note shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining
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provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby.
10.12. OBLIGATIONS SEVERAL; INDEPENDENT NATURE OF LENDERS' RIGHTS. The obligations of Lenders hereunder are several and no Lender shall be responsible for the obligations of any other Lender hereunder. Nothing contained herein or in any other Credit Document, and no action taken by Lenders pursuant hereto or thereto, shall be deemed to constitute Lenders as a partnership, an association, a joint venture or any other kind of entity. The amounts payable at any time hereunder to each Lender shall be a separate and independent debt, and each Lender shall be entitled to protect and enforce its rights arising out hereof and it shall not be necessary for any other Lender to be joined as an additional party in any proceeding for such purpose.
10.13. HEADINGS. Section headings herein are included herein for convenience of reference only and shall not constitute a part hereof for any other purpose or be given any substantive effect.
10.14. APPLICABLE LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES THEREOF.
10.15. CONSENT TO JURISDICTION. ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST ANY CREDIT PARTY ARISING OUT OF OR RELATING HERETO OR ANY OTHER CREDIT DOCUMENT, OR ANY OF THE OBLIGATIONS, MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE, COUNTY AND CITY OF NEW YORK. BY EXECUTING AND DELIVERING THIS AGREEMENT, EACH CREDIT PARTY, FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, IRREVOCABLY (a) ACCEPTS GENERALLY AND UNCONDITIONALLY THE NONEXCLUSIVE JURISDICTION AND VENUE OF SUCH COURTS; (b) WAIVES ANY DEFENSE OF FORUM NON CONVENIENS; (c) AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN ANY SUCH COURT MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO THE APPLICABLE CREDIT PARTY AT ITS ADDRESS PROVIDED IN ACCORDANCE WITH SECTION 10.1; (d) AGREES THAT SERVICE AS PROVIDED IN CLAUSE (c) ABOVE IS SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER THE APPLICABLE CREDIT PARTY IN ANY SUCH PROCEEDING IN ANY SUCH COURT, AND OTHERWISE CONSTITUTES EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT; AND (e) AGREES AGENTS AND LENDERS RETAIN THE RIGHT TO SERVE PROCESS IN ANY
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OTHER MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST ANY CREDIT PARTY IN THE COURTS OF ANY OTHER JURISDICTION.
10.16. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY AGREES TO WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING HEREUNDER OR UNDER ANY OF THE OTHER CREDIT DOCUMENTS OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS LOAN TRANSACTION OR THE LENDER/COMPANY RELATIONSHIP THAT IS BEING ESTABLISHED. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS TRANSACTION, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. EACH PARTY HERETO ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH HAS ALREADY RELIED ON THIS WAIVER IN ENTERING INTO THIS AGREEMENT, AND THAT EACH WILL CONTINUE TO RELY ON THIS WAIVER IN ITS RELATED FUTURE DEALINGS. EACH PARTY HERETO FURTHER WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING (OTHER THAN BY A MUTUAL WRITTEN WAIVER SPECIFICALLY REFERRING TO THIS SECTION
10.16 AND EXECUTED BY EACH OF THE PARTIES HERETO), AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS HERETO OR ANY OF THE OTHER CREDIT DOCUMENTS OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE LOANS MADE HEREUNDER. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
10.17. CONFIDENTIALITY. Each Lender shall hold all non-public information regarding Company and its Subsidiaries and their businesses identified as such by Company and obtained by such Lender pursuant to the requirements hereof in accordance with such Lender's customary procedures for handling confidential information of such nature and in accordance with prudent lending or investing practices, it being understood and agreed by Company that, in any event, a Lender may make (i) disclosures of such information to Affiliates or Related Funds of such Lender and to their agents and advisors (and to other persons authorized by a Lender or Agent to organize, present or disseminate such information in connection with disclosures otherwise made in accordance with this Section 10.17), (ii) disclosures of such information reasonably required by any bona fide or potential assignee, transferee or participant in connection with the contemplated assignment, transfer or participation by such Lender of any Loans or any participations therein,
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(iii) disclosure to any rating agency when required by it, provided that, prior to any disclosure, such rating agency shall undertake in writing to preserve the confidentiality of any confidential information relating to the Credit Parties received by it from any of the Agents or any Lender, and (iv) disclosures required or requested by any governmental agency or representative thereof or by the NAIC or pursuant to legal or judicial process; provided, unless specifically prohibited by applicable law or court order, each Lender shall make reasonable efforts to notify Company of any request by any governmental agency or representative thereof (other than any such request in connection with any examination of the financial condition or other routine examination of such Lender by such governmental agency) for disclosure of any such non-public information prior to disclosure of such information. Notwithstanding anything to the contrary set forth herein, each party (and each of their respective employees, representatives or other agents) may disclose to any and all persons, without limitations of any kind, the tax treatment and tax structure of the transactions contemplated by this Agreement and all materials of any kind (including opinions and other tax analyses) that are provided to any such party relating to such tax treatment and tax structure. However, any information relating to the tax treatment or tax structure shall remain subject to the confidentiality provisions hereof (and the foregoing sentence shall not apply) to the extent reasonably necessary to enable the parties hereto, their respective Affiliates and Related Funds, and their and their respective Affiliates' and Related Funds' directors and employees to comply with applicable securities laws. For this purpose, "tax structure" means any facts relevant to the federal income tax treatment of the transactions contemplated by this Agreement but does not include information relating to the identity of any of the parties hereto or any of their respective Affiliates and Related Funds.
10.18. USURY SAVINGS CLAUSE. Notwithstanding any other provision herein, the aggregate interest rate charged with respect to any of the Obligations, including all charges or fees in connection therewith deemed in the nature of interest under applicable law shall not exceed the Highest Lawful Rate. If the rate of interest (determined without regard to the preceding sentence) under this Agreement at any time exceeds the Highest Lawful Rate, the outstanding amount of the Loans made hereunder shall bear interest at the Highest Lawful Rate until the total amount of interest due hereunder equals the amount of interest which would have been due hereunder if the stated rates of interest set forth in this Agreement had at all times been in effect. In addition, if when the Loans made hereunder are repaid in full the total interest due hereunder (taking into account the increase provided for above) is less than the total amount of interest which would have been due hereunder if the stated rates of interest set forth in this Agreement had at all times been in effect, then to the extent permitted by law, Company shall pay to Administrative Agent an amount equal to the difference between the amount of interest paid and the amount of interest which would have been paid if the Highest Lawful Rate had at all times been in effect. Notwithstanding the foregoing, it is the intention of Lenders and Company to conform strictly to any applicable usury laws. Accordingly, if any Lender contracts for, charges, or receives any consideration which constitutes interest in excess of the Highest Lawful Rate, then any such excess shall be cancelled automatically and, if previously paid, shall at such Lender's option be applied to the outstanding amount of the Loans made hereunder or be refunded to Company.
10.19. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument.
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10.20. USA PATRIOT ACT. Each Lender hereby notifies the Borrower that pursuant to the requirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the "ACT"), it is required to obtain, verify and record information that identifies the Company, which information includes the name and address of the Company and other information that will allow such Lender to identify the Company in accordance with the Act.
10.21. EFFECTIVENESS. This Agreement shall become effective upon the execution of a counterpart hereof by each of the parties hereto and receipt by Company and Administrative Agent of written or telephonic notification of such execution and authorization of delivery thereof.
[Remainder of page intentionally left blank]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above.
AMERICAN REPROGRAPHICS COMPANY, L.L.C.

By: /s/ Mark W. Legg
    ------------------------------------
Name: Mark W. Legg
Title: Chief Financial Officer	

AMERICAN REPROGRAPHICS HOLDINGS, L.L.C.

By: /s/ Mark W. Legg
    ------------------------------------
Name: Mark W. Legg
Title: Chief Financial Officer	

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GUARANTOR SUBSIDIARIES
ARC ACQUISITION CORPORATION

By: /s/ Mark W. Legg
    ------------------------------------
Name: Mark W. Legg
Title: Chief Financial Officer	

BLUE PRINT SERVICE COMPANY, INC.

By: /s/ Mark W. Legg
    ------------------------------------
Name: Mark W. Legg
Title: Chief Financial Officer	

INPRINT CORPORATION

By: /s/ Mark W. Legg
    ------------------------------------
Name: Mark W. Legg
Title: Chief Financial Officer	

RHODE ISLAND BLUEPRINT CO., INC.

By: /s/ Mark W. Legg
    ------------------------------------
Name: Mark W. Legg
Title: Chief Financial Officer	

OLYMPIC BLUEPRINT CO., INC.

By: /s/ Mark W. Legg
    ------------------------------------
Name: Mark W. Legg
Title: Chief Financial Officer	

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LEET-MELBROOK, INC.

By: /s/ Mark W. Legg
    ------------------------------------
Name: Mark W. Legg
Title: Chief Financial Officer	

PENINSULA BLUEPRINT, INC.

By: /s/ Mark W. Legg
    ------------------------------------
Name: Mark W. Legg
Title: Chief Financial Officer	

STRATO REPROGRAPHIX, INC.

By: /s/ Mark W. Legg
    ------------------------------------
Name: Mark W. Legg
Title: Chief Financial Officer	

QUALITY REPROGRAPHIC SERVICES, INC.

By: /s/ Mark W. Legg
    ------------------------------------
Name: Mark W. Legg
Title: Chief Financial Officer	

MIRROR PLUS TECHNOLOGIES, INC.

By: /s/ Mark W. Legg
    ------------------------------------
Name: Mark W. Legg
Title: Chief Financial Officer	

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E. PAVILION, L.L.C.

By: /s/ Mark W. Legg
    ------------------------------------
Name: Mark W. Legg
Title: Chief Financial Officer	

FRANKLIN GRAPHICS CORPORATION

By: /s/ Mark W. Legg
    ------------------------------------
Name: Mark W. Legg
Title: Chief Financial Officer	

ENGINEERING REPRO SYSTEMS, INC.

By: /s/ Mark W. Legg
    ------------------------------------
Name: Mark W. Legg
Title: Chief Financial Officer	

WEST SIDE REPROGRAPHICS, INC.

By: /s/ Mark W. Legg
    ------------------------------------
Name: Mark W. Legg
Title: Chief Financial Officer	

CITY BLUEPRINT AND SUPPLY CO.

By: /s/ Mark W. Legg
    ------------------------------------
Name:  Mark W. Legg
Title: Chief Financial Officer	

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DUNN BLUE PRINT COMPANY

By: /s/ Mark W. Legg
    ------------------------------------
Name: Mark W. Legg
Title: Chief Financial Officer	

TAMPA REPROGRAPHICS & SUPPLY COMPANY

By: /s/ Mark W. Legg
    ------------------------------------
Name: Mark W. Legg
Title: Chief Financial Officer	

OCB, LLC

By: /s/ Mark W. Legg
    ------------------------------------
Name: Mark W. Legg
Title: Chief Financial Officer	

COMMERCIAL GRAPHICS CORPORATION

By: /s/ Mark W. Legg
    ------------------------------------
Name: Mark W. Legg
Title:  Chief Financial Officer	

FORD S.F., L.L.C.

By: /s/ Mark W. Legg
    ------------------------------------
Name: Mark W. Legg
Title: Chief Financial Officer	

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A&E ARCHITECTURAL & ENGINEERING
SUPPLY COMPANY

By: /s/ Mark W. Legg
    ------------------------------------
Name: Mark W. Legg
Title: Chief Financial Officer	

APPLICAD GRAPHICS, L.L.C.

By: /s/ Mark W. Legg
    ------------------------------------
Name: Mark W. Legg
Title: Chief Financial Officer	

RIDGWAY'S, LTD.

By: /s/ Mark W. Legg
    ------------------------------------
Name: Mark W. Legg
Title: Chief Financial Officer	

SOUTHWESTERN REPROGRAPHICS, INC.

By: /s/ Mark W. Legg
    ------------------------------------
Name: Mark W. Legg
Title: Chief Financial Officer	

REPROGRAPHICS NORTHWEST, LLC

By: /s/ Mark W. Legg
    ------------------------------------
Name: Mark W. Legg
Title: Chief Financial Officer	

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WILCO REPROGRAPHICS, INC.

By: /s/ Mark W. Legg
    ------------------------------------
Name: Mark W. Legg
Title: Chief Financial Officer	

BPI REPRO, LLC

By: /s/ Mark W. Legg
    ------------------------------------
Name: Mark W. Legg
Title: Chief Financial Officer	

RIDGWAY'S GP, LLC

By: /s/ Mark W. Legg
    ------------------------------------
Name: Mark W. Legg
Title: Chief Financial Officer	

RIDGWAY'S LP, LLC

By: /s/ Mark W. Legg
    ------------------------------------
Name: Mark W. Legg
Title: Chief Financial Officer	

THE PEIR GROUP, LLC

By: /s/ Mark W. Legg
    ------------------------------------
Name: Mark W. Legg
Title: Chief Financial Officer	

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THE PEIR GROUP INTERNATIONAL, LLC

By: /s/ Mark W. Legg
    ------------------------------------
Name: Mark W. Legg
Title: Chief Financial Officer	

LICENSING SERVICES INTERNATIONAL, LLC

By: /s/ Mark W. Legg
    ------------------------------------
Name: Mark W. Legg
Title: Chief Financial Officer	

PLANWELL, LLC

By: /s/ Mark W. Legg
    ------------------------------------
Name: Mark W. Legg
Title: Chief Financial Officer	

AMERICAN REPROGRAPHICS MIDCO, L.L.C.

By: /s/ Mark W. Legg
    ------------------------------------
Name: Mark W. Legg
Title: Chief Financial Officer	

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LENDERS
GOLDMAN SACHS CREDIT PARTNERS L.P.,
as Lead Arranger, Sole Bookrunner, Syndication Agent, Administrative Agent, Collateral Agent and a Lender

By:   /s/  W. W. Archer
      ----------------------------------------
Name:         William Archer
              Authorized Signatory	

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APPENDIX A-1
TO CREDIT AND GUARANTY AGREEMENT
TERM LOAN COMMITMENTS

================================================================================
                                                                       PRO
            LENDER                     TERM LOAN COMMITMENT         RATA SHARE
================================================================================
Goldman Sachs Credit Partners L.P.       $225,000,000.00               100%
--------------------------------------------------------------------------------
    TOTAL                                $225,000,000.00               100%
================================================================================	

APPENDIX A-1
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APPENDIX B
TO CREDIT AND GUARANTY AGREEMENT
NOTICE ADDRESSES
AMERICAN REPROGRAPHICS COMPANY, L.L.C.
 700 North Central Avenue, Suite 550
Glendale, CA 91203
Attention: Chief Financial Officer
Telecopier: (626) 441-6649
AMERICAN REPROGRAPHICS HOLDINGS, L.L.C.
 700 North Central Avenue, Suite 550
Glendale, CA 91203
Attention: Chief Financial Officer
Telecopier: (626) 441-6649
FOR EACH GUARANTOR SUBSIDIARY:
 700 North Central Avenue, Suite 550
Glendale, CA 91203
Attention: Chief Financial Officer
Telecopier: (626) 441-6649
in each case, with a copy to:
CODE HENNESSY & SIMMONS
 10 South Wacker Drive, Suite 3175
Chicago, IL 60606
Attention: Thomas J. Formolo
Telecopier: (312) 876-3851
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GOLDMAN SACHS CREDIT PARTNERS L.P.,
 as Lead Arranger, Sole Bookrunner, Administrative Agent, Collateral Agents
Goldman Sachs Credit Partners L.P. 85 Broad Street
New York, New York 10004
Attention: Elizabeth Fischer
Telecopier: (212) 357-0932
with a copy to:
Goldman Sachs Credit Partners L.P. 85 Broad Street
New York, New York 10004
Attention: [Lisa Perrotto]
Telecopier: 212-346-2608
APPENDIX B-2
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CREDIT AND GUARANTY AGREEMENT
TERM LOAN NOTE
$[1] [__,___,___] December ___, 2003 New York, New York
FOR VALUE RECEIVED, AMERICAN REPROGRAPHICS COMPANY, L.L.C., A CALIFORNIA LIMITED LIABILITY COMPANY ("COMPANY"), promises to pay [NAME OF LENDER] ("PAYEE") or its registered assigns the principal amount of [DOLLARS] ($[l][__,___,__]) in the installments referred to below.
Company also promises to pay interest on the unpaid principal amount hereof, from the date hereof until paid in full, at the rates and at the times which shall be determined in accordance with the provisions of that certain Credit and Guaranty Agreement, dated as of December _, 2003 (as it may be amended, supplemented or otherwise modified, the "CREDIT AGREEMENT"; the terms defined therein and not otherwise defined herein being used herein as therein defined), by and among Company, AMERICAN REPROGRAPHICS HOLDINGS, L.L.C., certain Subsidiaries of Company, as Guarantors, the Lenders party thereto from time to time, GOLDMAN SACHS CREDIT PARTNERS L.P., as Lead Arranger, Sole Book Runner, Syndication Agent, Administrative Agent and as Collateral Agent.
Company shall make principal payments on this Note as set forth in
Section 2.12 of the Credit Agreement.
This Note is one of the "Term Loan Notes" in the aggregate principal amount of $225,000,000 and is issued pursuant to and entitled to the benefits of the Credit Agreement, to which reference is hereby made for a more complete statement of the terms and conditions under which the Term Loan evidenced hereby was made and is to be repaid and may be transferred or assigned.
All payments of principal and interest in respect of this Note shall be made in lawful money of the United States of America in same day funds at the Principal Office of Administrative Agent or at such other place as shall be designated in writing for such purpose in accordance with the terms of the Credit Agreement. Unless and until an Assignment Agreement effecting the assignment or transfer of the obligations evidenced hereby shall have been accepted by Administrative Agent and recorded in the Register, Company, each Agent and Lenders shall be entitled to deem and treat Payee as the owner and holder of this Note and the obligations evidenced hereby. Payee hereby agrees, by its acceptance hereof, that before disposing of this Note or any part hereof it will make a notation hereon of all principal payments previously made hereunder and of the date to which interest hereon has been paid; provided, the failure to make a notation of any payment made on this Note shall not limit or otherwise affect the obligations of Company hereunder with respect to payments of principal of or interest on this Note.

[1] Lender's Term Loan Commitment
EXHIBIT B-1-1
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This Note is subject to mandatory prepayment and to prepayment at the option of Company, each as provided in the Credit Agreement.
THIS NOTE AND THE RIGHTS AND OBLIGATIONS OF COMPANY AND PAYEE HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES THEREOF.
Upon the occurrence of an Event of Default, the unpaid balance of the principal amount of this Note, together with all accrued and unpaid interest thereon, may become, or may be declared to be, due and payable in the manner, upon the conditions and with the effect provided in the Credit Agreement.
The terms of this Note are subject to amendment only in the manner provided in the Credit Agreement.
No reference herein to the Credit Agreement and no provision of this Note or the Credit Agreement shall alter or impair the obligations of Company, which are absolute and unconditional, to pay the principal of and interest on this Note at the place, at the respective times, and in the currency herein prescribed.
Company promises to pay all costs and expenses, including reasonable attorneys' fees, all as provided in the Credit Agreement, incurred in the collection and enforcement of this Note. Company and any endorsers of this Note hereby consent to renewals and extensions of time at or after the maturity hereof, without notice, and hereby waive diligence, presentment, protest, demand notice of every kind and, to the full extent permitted by law, the right to plead any statute of limitations as a defense to any demand hereunder.
EXHIBIT B-1-2
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IN WITNESS WHEREOF, Company has caused this Note to be duly executed and delivered by its officer thereunto duly authorized as of the date and at the place first written above.
AMERICAN REPROGRAPHICS
COMPANY, L.L.C.
By:

Title:
EXHIBIT B-1-3
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PLEDGE AND SECURITY AGREEMENT
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PLEDGE AND SECURITY AGREEMENT
DATED AS OF DECEMBER 18, 2003
BETWEEN
EACH OF THE GRANTORS PARTY HERETO
AND
GOLDMAN SACHS CREDIT PARTNERS, L.P.,
AS THE COLLATERAL AGENT
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TABLE OF CONTENTS

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SECTION 1. DEFINITIONS; GRANT OF SECURITY....................................1
   1.1     General Definitions...............................................1
   1.2     Definitions; Interpretation.......................................8

SECTION 2. GRANT OF SECURITY.................................................9
   2.1     Grant of Security.................................................9
   2.2     Certain Limited Exclusions........................................9

SECTION 3. SECURITY FOR OBLIGATIONS; GRANTORS REMAIN LIABLE.................10
   3.1     Security for Obligations.........................................10
   3.2     Continuing Liability Under Collateral............................10

SECTION 4. REPRESENTATIONS AND WARRANTIES AND COVENANTS.....................10
   4.1     Generally........................................................10
   4.2     Equipment and Inventory..........................................14
   4.3     Receivables......................................................15
   4.4     Investment Related Property......................................17
   4.5     Material Contracts...............................................23
   4.6     Letter of Credit Rights..........................................25
   4.7     Intellectual Property............................................25
   4.8     Commercial Tort Claims...........................................28

SECTION 5. ACCESS; RIGHT OF INSPECTION AND FURTHER ASSURANCES; ADDITIONAL
GRANTORS....................................................................29
   5.1     Access; Right of Inspection......................................29
   5.2     Further Assurances...............................................29
   5.3     Additional Grantors..............................................30

SECTION 6. COLLATERAL AGENT APPOINTED ATTORNEY-IN-FACT......................30
   6.1     Power of Attorney................................................30
   6.2     No Duty on the Part of Collateral Agent or Secured Parties.......31

SECTION 7. REMEDIES.........................................................32
   7.1     Generally........................................................32
   7.2     Application of Proceeds..........................................33
   7.3     Sales on Credit..................................................34
   7.4     Deposit Accounts.................................................34
   7.5     Investment Related Property......................................34
   7.6     Intellectual Property............................................34
   7.7     Cash Proceeds....................................................36

SECTION 8. COLLATERAL AGENT.................................................37

SECTION 9. CONTINUING SECURITY INTEREST; TRANSFER OF LOANS..................37	

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SECTION 10. STANDARD OF CARE; COLLATERAL AGENT MAY PERFORM..................38

SECTION 11. MISCELLANEOUS...................................................38	

SCHEDULE 4.1 -- GENERAL INFORMATION
SCHEDULE 4.2 -- LOCATION OF EQUIPMENT AND INVENTORY
SCHEDULE 4.4 -- INVESTMENT RELATED PROPERTY
SCHEDULE 4.5 -- MATERIAL CONTRACTS
SCHEDULE 4.6 -- DESCRIPTION OF LETTERS OF CREDIT
SCHEDULE 4.7 -- INTELLECTUAL PROPERTY - EXCEPTIONS
SCHEDULE 4.8 -- COMMERCIAL TORT CLAIMS
EXHIBIT A -- PLEDGE SUPPLEMENT
EXHIBIT B -- UNCERTIFICATED SECURITIES CONTROL AGREEMENT
EXHIBIT C -- SECURITIES ACCOUNT CONTROL AGREEMENT
EXHIBIT D -- DEPOSIT ACCOUNT CONTROL AGREEMENT
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This SECOND LIEN PLEDGE AND SECURITY AGREEMENT, dated as of December 18, 2003 (this "Agreement"), between EACH OF THE UNDERSIGNED, whether as an original signatory hereto or as an Additional Grantor (as herein defined) (each, a "GRANTOR"), and GOLDMAN SACHS CREDIT PARTNERS, L.P., as collateral agent for the Secured Parties (as herein defined) (in such capacity as collateral agent, the "COLLATERAL AGENT").
RECITALS:
WHEREAS, reference is made to that certain Second Lien Credit and Guaranty Agreement, dated as of the date hereof (as it may be amended, restated, supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT"), by and among AMERICAN REPROGRAPHICS COMPANY, L.L.C., a California limited liability company ("COMPANY"), AMERICAN REPROGRAPHICS HOLDINGS, L.L.C., (f/k/a Ford Graphics Holdings, L.L.C.) a California limited liability company ("HOLDINGS"), CERTAIN SUBSIDIARIES OF COMPANY, the Lenders party thereto from time to time, the Collateral Agent, as Lead Arranger, Sole Book Runner, Syndication Agent and as Administrative Agent;
WHEREAS, in consideration of the extensions of credit and other accommodations of Lenders as set forth in the Credit Agreement, each Grantor has agreed to secure such Grantor's obligations under the Credit Documents as set forth herein; and
WHEREAS, in order to secure the obligations under the First Lien Credit Agreement (as defined herein), Grantors are concurrently granting to the collateral agent under the First Lien Credit Agreement (the "FIRST LIEN COLLATERAL AGENT"), for the benefit of the holders of obligations under the First Lien Credit Agreement, a first priority security interest in the Collateral (the "FIRST PRIORITY LIENS"), it being understood that the relative rights and priorities of the grantees in respect of the Collateral are governed by the Intercreditor Agreement, dated as of December 18, 2003 (as amended, restated, supplemented or otherwise modified from time to time, the "INTERCREDITOR AGREEMENT"), among Company, General Electric Capital Corporation, as First Lien Collateral Agent, Collateral Agent, as Second Lien Collateral Agent and certain other persons party or that may become party thereto from time to time.
NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein contained, each Grantor and the Collateral Agent agree as follows:
SECTION 1. DEFINITIONS; GRANT OF SECURITY.
1.1 GENERAL DEFINITIONS. In this Agreement, the following terms shall have the following meanings:
"ACCOUNT DEBTOR" shall mean each Person who is obligated on a Receivable or any Supporting Obligation related thereto.
"ACCOUNTS" shall mean all "accounts" as defined in Article 9 of the UCC.
"AGREEMENT" shall have the meaning set forth in the preamble.
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"ADDITIONAL GRANTORS" shall have the meaning assigned in
Section 5.3.
"ASSIGNED AGREEMENTS" shall mean all agreements and contracts to which such Grantor is a party as of the date hereof, or to which such Grantor becomes a party after the date hereof, including, without limitation, each Material Contract, as each such agreement may be amended, supplemented or otherwise modified from time to time.
"BANKRUPTCY CODE" as defined in the Credit Agreement.
"CAPITAL LEASE" as defined in the Credit Agreement.
"CAPITAL STOCK" as defined in the Credit Agreement.
"CASH PROCEEDS" shall have the meaning assigned in Section 7.7.
"CHATTEL PAPER" shall mean all "chattel paper" as defined in Article 9 of the UCC, including, without limitation, "electronic chattel paper" or "tangible chattel paper", as each term is defined in Article 9 of the UCC.
"COLLATERAL" shall have the meaning assigned in Section 2.1.
"COLLATERAL ACCOUNT" shall mean any account established by the Collateral Agent.
"COLLATERAL AGENT" shall have the meaning set forth in the preamble.
"COLLATERAL RECORDS" shall mean books, records, ledger cards, files, correspondence, customer lists, blueprints, technical specifications, manuals, computer software, computer printouts, tapes, disks and related data processing software and similar items that at any time evidence or contain information relating to any of the Collateral or are otherwise necessary or helpful in the collection thereof or realization thereupon.
"COLLATERAL SUPPORT" shall mean all property (real or personal) assigned, hypothecated or otherwise securing any Collateral and shall include any security agreement or other agreement granting a lien or security interest in such real or personal property.
"COMMERCIAL TORT CLAIMS" shall mean all "commercial tort claims" as defined in Article 9 of the UCC, including, without limitation, all commercial tort claims listed on Schedule 4.8 (as such schedule may be amended or supplemented from time to time).
"COMMODITIES ACCOUNTS" (i) shall mean all "commodity accounts" as defined in Article 9 of the UCC and (ii) shall include, without limitation, all of the accounts listed on Schedule 4.4 under the heading "COMMODITIES ACCOUNTS" (as such schedule may be amended or supplemented from time to time).
"COMPANY" shall have the meaning set forth in the preamble.
"CONTROLLED FOREIGN CORPORATION" shall mean "controlled foreign corporation" as defined in the Tax Code.
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"COPYRIGHT LICENSES" shall mean any and all agreements providing for the granting of any right in or to Copyrights (whether such Grantor is licensee or licensor thereunder) including, without limitation, each agreement referred to in Schedule 4.7(B) (as such schedule may be amended or supplemented from time to time).
"COPYRIGHTS" shall mean all United States, and foreign copyrights (including European Community designs), including but not limited to copyrights in software and databases, and all Mask Works (as defined under 17 U.S.C. 901 of the U.S. Copyright Act), whether registered or unregistered, and, with respect to any and all of the foregoing: (i) all registrations and applications therefor including, without limitation, the registrations and applications referred to in Schedule 4.7(A) (as such schedule may be amended or supplemented from time to time), (ii) all extensions and renewals thereof, (iii) all rights corresponding thereto throughout the world, (iv) all rights to sue for past, present and future infringements thereof, and (v) all Proceeds of the foregoing, including, without limitation, licenses, royalties, income, payments, claims, damages and proceeds of suit.
"CREDIT AGREEMENT" shall have the meaning set forth in the recitals.
"CREDIT DOCUMENTS" as defined in the Credit Agreement.
"DEPOSIT ACCOUNTS" (i) shall mean all "deposit accounts" as defined in Article 9 of the UCC and (ii) shall include, without limitation, all of the accounts listed on Schedule 4.4 under the heading "Deposit Accounts" (as such schedule may be amended or supplemented from time to time).
"DOCUMENTS" shall mean all "documents" as defined in Article 9 of the UCC.
"EQUIPMENT" shall mean: (i) all "equipment" as defined in Article 9 of the UCC, (ii) all machinery, manufacturing equipment, data processing equipment, computers, office equipment, furnishings, furniture, appliances, fixtures and tools (in each case, regardless of whether characterized as equipment under the UCC) and (iii) all accessions or additions thereto, all parts thereof, whether or not at any time of determination incorporated or installed therein or attached thereto, and all replacements therefor, wherever located, now or hereafter existing, including any fixtures.
"ERISA" as defined in the Credit Agreement.
"EVENT OF DEFAULT" as defined in the Credit Agreement.
"FIRST LIEN COLLATERAL AGENT" shall have the meaning set forth in the Recitals.
"FIRST LIEN CREDIT AGREEMENT" means the first lien Credit Agreement dated as of the date hereof among the Company as borrower, Holdings, certain subsidiaries of the Company, General Electric Capital Corporation, as administrative agent and collateral agent and the lenders party thereto, as it may be amended, restated, supplemented, or otherwise modified from time to time.
"FIRST PRIORITY LIENS" shall have the meaning set forth in the Recitals.
"GAAP" as defined in the Credit Agreement.
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"GENERAL INTANGIBLES" (i) shall mean all "general intangibles" as defined in Article 9 of the UCC, including "payment intangibles" also as defined in Article 9 of the UCC and (ii) shall include, without limitation, all interest rate or currency protection or hedging arrangements, all tax refunds, all licenses, permits, concessions and authorizations, all Assigned Agreements and all Intellectual Property (in each case, regardless of whether characterized as general intangibles under the UCC).
"GOODS" (i) shall mean all "goods" as defined in Article 9 of the UCC and (ii) shall include, without limitation, all Inventory and Equipment (in each case, regardless of whether characterized as goods under the UCC).
"GRANTORS" shall have the meaning set forth in the preamble.
"INDEBTEDNESS" as defined in the Credit Agreement.
"INDEMNITEE" shall mean the Collateral Agent, and its and its Affiliates' officers, partners, directors, trustees, employees, agents.
"INSTRUMENTS" shall mean all "instruments" as defined in Article 9 of the UCC.
"INSURANCE" shall mean (i) all insurance policies covering any or all of the Collateral (regardless of whether the Collateral Agent is the loss payee thereof) and (ii) any key man life insurance policies.
"INTELLECTUAL PROPERTY" shall mean, collectively, the Copyrights, the Copyright Licenses, the Patents, the Patent Licenses, the Trademarks, the Trademark Licenses, the Trade Secrets, and the Trade Secret Licenses.
"INTERCREDITOR AGREEMENT" shall have the meaning set forth in the Recitals.
"INVENTORY" shall mean (i) all "inventory" as defined in Article 9 of the UCC and (ii) all goods held for sale or lease or to be furnished under contracts of service or so leased or furnished, all raw materials, work in process, finished goods, and materials used or consumed in the manufacture, packing, shipping, advertising, selling, leasing, furnishing or production of such inventory or otherwise used or consumed in any Grantor's business; all goods in which any Grantor has an interest in mass or a joint or other interest or right of any kind; and all goods which are returned to or repossessed by any Grantor, all computer programs embedded in any goods and all accessions thereto and products thereof (in each case, regardless of whether characterized as inventory under the UCC).
"INVESTMENT ACCOUNTS" shall mean the Collateral Account, Securities Accounts, Commodities Accounts and Deposit Accounts.
"INVESTMENT RELATED PROPERTY" shall mean: (i) all "investment property" (as such term is defined in Article 9 of the UCC) and (ii) all of the following (regardless of whether classified as investment property under the UCC): all Pledged Equity Interests, Pledged Debt, the Investment Accounts and certificates of deposit.
"LENDER" shall have the meaning set forth in the recitals.
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"LETTER OF CREDIT RIGHT" shall mean "letter-of-credit right" as defined in Article 9 of the UCC.
"LIEN" as defined in the Credit Agreement.
"MATERIAL ADVERSE EFFECT" as defined in the Credit Agreement.
"MATERIAL CONTRACT" as defined in the Credit Agreement.
"MONEY" shall mean "money" as defined in the UCC.
"NON-ASSIGNABLE CONTRACT" shall mean any agreement, contract or license to which any the Grantor is a party that by its terms purport to restrict or prevent the assignment or granting of a security interest therein (either by its terms or by any federal or state statutory prohibition or otherwise irrespective of whether such prohibition or restriction is enforceable under Section 9-406 through 409 of the UCC).
"OBLIGATIONS" as defined in the Credit Agreement.
"PATENT LICENSES" shall mean all agreements providing for the granting of any right in or to Patents (whether such Grantor is licensee or licensor thereunder) including, without limitation, each agreement referred to in Schedule 4.7(D) (as such schedule may be amended or supplemented from time to time).
"PATENTS" shall mean all United States and foreign patents and certificates of invention, or similar industrial property rights, and applications for any of the foregoing, including, but not limited to: (i) each patent and patent application referred to in Schedule 4.7(C) hereto (as such schedule may be amended or supplemented from time to time), (ii) all reissues, divisions, continuations, continuations-in-part, extensions, renewals, and reexaminations thereof, (ii) all rights corresponding thereto throughout the world, (ii) all inventions and improvements described therein, (iv) all rights to sue for past, present and future infringements thereof, (v) all licenses, claims, damages, and proceeds of suit arising therefrom, and (v) all Proceeds of the foregoing, including, without limitation, licenses, royalties, income, payments, claims, damages, and proceeds of suit.
"PERMITTED LIEN" as defined in the Credit Agreement.
"PERMITTED SALE" shall mean those sales, transfers or assignments permitted by the Credit Agreement.
"PERMITTED TAX DISTRIBUTIONS" as defined in the Credit Agreement.
"PERSON" as defined in the Credit Agreement.
"PLEDGE SUPPLEMENT" shall mean any supplement to this agreement in substantially the form of Exhibit A.
"PLEDGED DEBT" shall mean all Indebtedness owed to such Grantor, including, without limitation, all Indebtedness described on Schedule 4.4(A) under the heading "Pledged Debt" (as such schedule may be amended or supplemented from time to time), issued by the obligors named therein, the instruments evidencing such Indebtedness, and all interest, cash,
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instruments and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such Indebtedness.
"PLEDGED EQUITY INTERESTS" shall mean all Pledged Stock, Pledged LLC Interests, Pledged Partnership Interests and Pledged Trust Interests.
"PLEDGED LLC INTERESTS" shall mean all interests in any limited liability company including, without limitation, all limited liability company interests listed on Schedule 4.4(A) under the heading "Pledged LLC Interests" (as such schedule may be amended or supplemented from time to time) and the certificates, if any, representing such limited liability company interests and any interest of such Grantor on the books and records of such limited liability company or on the books and records of any securities intermediary pertaining to such interest and all dividends, distributions, cash, warrants, rights, options, instruments, securities and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such limited liability company interests.
"PLEDGED PARTNERSHIP INTERESTS" shall mean all interests in any general partnership, limited partnership, limited liability partnership or other partnership including, without limitation, all partnership interests listed on Schedule 4.4(A) under the heading "Pledged Partnership Interests" (as such schedule may be amended or supplemented from time to time) and the certificates, if any, representing such partnership interests and any interest of such Grantor on the books and records of such partnership or on the books and records of any securities intermediary pertaining to such interest and all dividends, distributions, cash, warrants, rights, options, instruments, securities and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such partnership interests.
"PLEDGED STOCK" shall mean all shares of Capital Stock owned by such Grantor, including, without limitation, all shares of Capital Stock described on Schedule 4.4(A) under the heading "Pledged Stock" (as such schedule may be amended or supplemented from time to time), and the certificates, if any, representing such shares and any interest of such Grantor in the entries on the books of the issuer of such shares or on the books of any securities intermediary pertaining to such shares, and all dividends, distributions, cash, warrants, rights, options, instruments, securities and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such shares.
"PLEDGED TRUST INTERESTS" shall mean all interests in a Delaware business trust or other trust including, without limitation, all trust interests listed on Schedule 4.4(A) under the heading "Pledged Trust Interests" (as such schedule may be amended or supplemented from time to time) and the certificates, if any, representing such trust interests and any interest of such Grantor on the books and records of such trust or on the books and records of any securities intermediary pertaining to such interest and all dividends, distributions, cash, warrants, rights, options, instruments, securities and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such trust interests.
"PROCEEDS" shall mean: (i) all "proceeds" as defined in Article 9 of the UCC, (ii) payments or distributions made with respect to any Investment Related Property and (iii) whatever is receivable or received when Collateral or proceeds are sold, exchanged, collected or otherwise disposed of, whether such disposition is voluntary or involuntary.
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"RECEIVABLES" shall mean all rights to payment, whether or not earned by performance, for goods or other property sold, leased, licensed, assigned or otherwise disposed of, or services rendered or to be rendered, including, without limitation all such rights constituting or evidenced by any Account, Chattel Paper, Instrument, General Intangible or Investment Related Property, together with all of Grantor's rights, if any, in any goods or other property giving rise to such right to payment and all Collateral Support and Supporting Obligations related thereto and all Receivables Records.
"RECEIVABLES RECORDS" shall mean (i) all original copies of all documents, instruments or other writings or electronic records or other Records evidencing the Receivables, (ii) all books, correspondence, credit or other files, Records, ledger sheets or cards, invoices, and other papers relating to Receivables, including, without limitation, all tapes, cards, computer tapes, computer discs, computer runs, record keeping systems and other papers and documents relating to the Receivables, whether in the possession or under the control of Grantor or any computer bureau or agent from time to time acting for Grantor or otherwise, (iii) all evidences of the filing of financing statements and the registration of other instruments in connection therewith, and amendments, supplements or other modifications thereto, notices to other creditors or secured parties, and certificates, acknowledgments, or other writings, including, without limitation, lien search reports, from filing or other registration officers, (iv) all credit information, reports and memoranda relating thereto and (v) all other written or nonwritten forms of information related in any way to the foregoing or any Receivable.
"RECORD" shall have the meaning specified in Article 9 of the 
UCC.
"SECOND PRIORITY" means, with respect to any Lien purported to be created in any Collateral pursuant this Agreement or any other Credit Document, that such Lien is second in priority only to the Liens created under the First Lien Credit Agreement, other than any Permitted Lien.
"SECURED OBLIGATIONS" shall have the meaning assigned in
Section 3.1.
"SECURED PARTIES" shall mean the Lenders and shall include, without limitation, all former Lenders to the extent that any Obligations owing to such Persons were incurred while such Persons were Lenders and such Obligations have not been paid or satisfied in full.
"SECURITIES" as defined in the Credit Agreement.
"SECURITIES ACCOUNTS" (i) shall mean all "securities accounts" as defined in Article 8 of the UCC and (ii) shall include, without limitation, all of the accounts listed on Schedule 4.4(A) under the heading "Securities Accounts" (as such schedule may be amended or supplemented from time to time).
"SUPPORTING OBLIGATION" shall mean all "supporting obligations" as defined in Article 9 of the UCC.
"TAX CODE" shall mean the United States Internal Revenue Code of 1986, as amended from time to time.
"TRADEMARK LICENSES" shall mean any and all agreements providing for the granting of any right in or to Trademarks (whether such Grantor is licensee or licensor
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thereunder) including, without limitation, each agreement referred to in Schedule 4.7(F) (as such schedule may be amended or supplemented from time to time).
"TRADEMARKS" shall mean all United States, and foreign trademarks, trade names, corporate names, company names, business names, fictitious business names, Internet domain names, service marks, certification marks, collective marks, logos, other source or business identifiers, designs and general intangibles of a like nature, all registrations and applications for any of the foregoing including, but not limited to: (i) the registrations and applications referred to in Schedule 4.7(E) (as such schedule may be amended or supplemented from time to time), (ii) all extensions or renewals of any of the foregoing, (iii) all of the goodwill of the business connected with the use of and symbolized by the foregoing, (iv) the right to sue for past, present and future infringement or dilution of any of the foregoing or for any injury to goodwill, and (v) all Proceeds of the foregoing, including, without limitation, licenses, royalties, income, payments, claims, damages, and proceeds of suit.
"TRADE SECRET LICENSES" shall mean any and all agreements providing for the granting of any right in or to Trade Secrets (whether such Grantor is licensee or licensor thereunder) including, without limitation, each agreement referred to in Schedule 4.7(G) (as such schedule may be amended or supplemented from time to time).
"TRADE SECRETS" shall mean all trade secrets and all other confidential or proprietary information and know-how whether or not such Trade Secret has been reduced to a writing or other tangible form, including all documents and things embodying, incorporating, or referring in any way to such Trade Secret, including but not limited to: (i) the right to sue for past, present and future misappropriation or other violation of any Trade Secret, and
(ii) all Proceeds of the foregoing, including, without limitation, licenses, royalties, income, payments, claims, damages, and proceeds of suit.
"UCC" shall mean the Uniform Commercial Code as in effect from time to time in the State of New York or, when the context implies, the Uniform Commercial Code as in effect from time to time in any other applicable jurisdiction.
"UNITED STATES" shall mean the United States of America.
1.2 DEFINITIONS; INTERPRETATION. All capitalized terms used herein (including the preamble and recitals hereto) and not otherwise defined herein shall have the meanings ascribed thereto in the Credit Agreement or, if not defined therein, in the UCC. References to "Sections," "Exhibits" and "Schedules" shall be to Sections, Exhibits and Schedules, as the case may be, of this Agreement unless otherwise specifically provided. Section headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose or be given any substantive effect. Any of the terms defined herein may, unless the context otherwise requires, be used in the singular or the plural, depending on the reference. The use herein of the word "include" or "including", when following any general statement, term or matter, shall not be construed to limit such statement, term or matter to the specific items or matters set forth immediately following such word or to similar items or matters, whether or not nonlimiting language (such as "without limitation" or "but not limited to" or words of similar import) is used with reference thereto, but rather shall be deemed to refer to all other items or matters that fall within the broadest possible scope of such general statement, term or matter. If any conflict or
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inconsistency exists between this Agreement and the Credit Agreement, the Credit Agreement shall govern. All references herein to provisions of the UCC shall include all successor provisions under any subsequent version or amendment to any Article of the UCC.
SECTION 2. GRANT OF SECURITY.
2.1 GRANT OF SECURITY. Each Grantor hereby grants to the Collateral Agent a Second Priority security interest in and continuing lien on all of such Grantor's right, title and interest in, to and under all personal property of such Grantor including, but not limited to the following, in each case whether now owned or existing or hereafter acquired or arising and wherever located (all of which being hereinafter collectively referred to as the "COLLATERAL"):
(a) Accounts;
(b) Chattel Paper;
(c) Documents;
(d) General Intangibles;
(e) Goods;
(f) Instruments;
(g) Insurance;
(h) Intellectual Property;
(i) Investment Related Property;
(j) Letter of Credit Rights;
(k) Money;
(l) Receivables and Receivable Records;
(m) Commercial Tort Claims;
(n) to the extent not otherwise included above, all Collateral Records, Collateral Support and Supporting Obligations relating to any of the foregoing; and
(o) to the extent not otherwise included above, all Proceeds, products, accessions, rents and profits of or in respect of any of the foregoing.
2.2 CERTAIN LIMITED EXCLUSIONS. Notwithstanding anything herein to the contrary, in no event shall the security interest granted under Section 2.1 hereof attach to (a) any Intellectual Property, lease, license, contract, property rights or agreement to which any Grantor is a party or any of its rights or interests
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thereunder if and for so long as the grant of such security interest shall constitute or result in (i) the abandonment, invalidation or the rendering unenforceable of any right, title or interest of any Grantor therein or (ii) in a breach or termination pursuant to the terms of, or constitute a default under or termination of, any such lease, license, contract property rights or agreement (other than to the extent that any such term would be rendered ineffective pursuant to Sections 9-406, 9-407, 9-408 or 9-409 of the UCC (or any successor provision or provisions) of any relevant jurisdiction or any other applicable law (including the Bankruptcy Code) or principles of equity); provided, however that such security interest shall attach immediately at such time as the condition causing such abandonment, invalidation or unenforceability shall be remedied and to the extent severable, shall attach immediately to any portion of such lease, license, contract, property rights or agreement that does not result in any of the consequences specified in (i) or (ii) above; (b) any Permitted Tax Distributions; or (c) in any of the outstanding Capital Stock of a Controlled Foreign Corporation in excess of 65% of the voting power of all classes of Capital Stock of such Controlled Foreign Corporation entitled to vote; provided that immediately upon the amendment of the Tax Code to allow the pledge of a greater percentage of the voting power of Capital Stock in a Controlled Foreign Corporation without adverse tax consequences, the Collateral shall include, and the security interest granted by each Grantor shall attach to, such greater percentage of Capital Stock of each Controlled Foreign Corporation.
2.3 SECOND PRIORITY NATURE OF LIENS. Notwithstanding anything herein to the contrary, the lien and security interest granted to the Collateral Agent pursuant to this Agreement and the exercise of any right or remedy by the Collateral Agent hereunder are subject to the provisions of the Intercreditor Agreement. In the event of any conflict between the terms of the Intercreditor Agreement and this Agreement, the terms of the Intercreditor Agreement shall govern and control.
SECTION 3. SECURITY FOR OBLIGATIONS; GRANTORS REMAIN LIABLE.
3.1 SECURITY FOR OBLIGATIONS. This Agreement secures, and the Collateral is collateral security for, the prompt and complete payment or performance in full when due, whether at stated maturity, by required prepayment, declaration, acceleration, demand or otherwise (including the payment of amounts that would become due but for the operation of the automatic stay under Section 362(a) of the Bankruptcy Code, 11 U.S.C. Section 362(a) (and any successor provision thereof)), of all Obligations with respect to every Grantor (the "SECURED OBLIGATIONS").
3.2 CONTINUING LIABILITY UNDER COLLATERAL. Notwithstanding anything herein to the contrary, (i) each Grantor shall remain liable for all obligations under the Collateral and nothing contained herein is intended or shall be a delegation of duties to the Collateral Agent or any Secured Party, (ii) each Grantor shall remain liable under each of the agreements included in the Collateral, including, without limitation, any agreements relating to Pledged Partnership Interests or Pledged LLC Interests, to perform all of the obligations undertaken by it thereunder all in accordance with and pursuant to the terms and provisions thereof and neither the Collateral Agent nor any Secured Party shall have any obligation or liability under any of such agreements by reason of or arising out of this Agreement or any other document related thereto nor shall the Collateral Agent nor any Secured Party have any obligation to make any inquiry as to the nature or sufficiency of any payment received by it
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or have any obligation to take any action to collect or enforce any rights under any agreement included in the Collateral, including, without limitation, any agreements relating to Pledged Partnership Interests or Pledged LLC Interests, and (iii) the exercise by the Collateral Agent of any of its rights hereunder and in accordance with the Intercreditor Agreement shall not release any Grantor from any of its duties or obligations under the contracts and agreements included in the Collateral.
SECTION 4. REPRESENTATIONS AND WARRANTIES AND COVENANTS.
4.1 Generally.
(a) Representations and Warranties. Each Grantor hereby represents and warrants, on the Closing Date and on each Credit Date, that:
(i) it owns the Collateral purported to be owned by it or otherwise has the rights it purports to have in each item of Collateral and, as to all Collateral whether now existing or hereafter acquired, will continue to own or have such rights in each item of the Collateral, in each case free and clear of any and all Liens, rights or claims of all other Persons other than the First Priority Liens and Permitted Liens;
(ii) it has indicated on Schedule 4.1(A)(as such schedule may be amended or supplemented from time to time): (w) the type of organization of such Grantor, (x) the jurisdiction of organization of such Grantor, (y) its organizational identification number and (z) the jurisdiction where the chief executive office or its sole place of business is (or the principal residence if such Grantor is a natural person), and for the one-year period preceding the date hereof has been, located.
(iii) the full legal name of such Grantor is as set forth on Schedule 4.1(A) and it has not done in the last five (5) years, and does not do, business under any other name (including any trade-name or fictitious business name) except for those names set forth on Schedule
4.1(B) (as such schedule may be amended or supplemented from time to time);
(iv) except as provided on Schedule 4.1(C), it has not changed its name, jurisdiction of organization, chief executive office or sole place of business (or principal residence if such Grantor is a natural person) or its corporate structure in any way (e.g., by merger, consolidation, change in corporate form or otherwise) within the past five (5) years;
(v) other than with respect to the First Priority Liens, it has not within the last five (5) years become bound (whether as a result of merger or otherwise) as debtor under a security agreement entered into by another Person, which has not heretofore been terminated other than the agreements identified on Schedule 4.1(D) hereof (as such schedule may be amended or supplemented from time to time);
(vi) with respect to each agreement identified on Schedule 4.1(D), it has indicated on Schedule 4.1 (A) and Schedule 4.1(B) the information required pursuant to Section 4.1(a)(ii), (iii) and (iv) with respect to the debtor under each such agreement;
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(vii) upon the filing of all UCC financing statements (and the payment of any fees applicable thereto) naming each Grantor as "debtor" and the Collateral Agent as "secured party" and describing the Collateral in the filing offices set forth opposite such Grantor's name on Schedule 4.1(E) hereof (as such schedule may be amended or supplemented from time to time) and other filings delivered by each Grantor, upon execution of a control agreement in the form of Exhibit D hereto with respect to any Deposit Account, the balance of which exceeds $400,000, upon execution of a control agreement in the form of Exhibit C hereto with respect to any Securities Account carrying a positive balance, upon delivery by the applicable Grantor to the Collateral Agent any certificated Securities together with the applicable stock power, upon execution of a control agreement in the form of Exhibit B hereto with respect to any Uncertificated Securities, upon delivery by any bailee holding any Collateral of any Grantor, acknowledgment that it is holding such Collateral for the benefit of the Collateral Agent, upon consent of the issuer with respect to Letter of Credit Rights, and to the extent not subject to Article 9 of the UCC, upon recordation of the security interests granted hereunder in Patents, Trademarks and Copyrights in the applicable intellectual property registries, including but not limited to the United States Patent and Trademark Office and the United States Copyright Office, the security interests granted to the Collateral Agent hereunder constitute valid and perfected Second Priority Liens (subject in the case of priority only to the First Priority Liens, Permitted Liens and to the rights of the United States government (including any agency or department thereof) with respect to United States government Receivables) on all of the Collateral;
(viii) all actions and consents, including all filings, notices, registrations and recordings necessary for the exercise by the Collateral Agent of the voting or other rights provided for in this Agreement or the exercise of remedies in respect of the Collateral have been made or obtained;
(ix) other than the financing statements filed in favor of the Collateral Agent and the First Lien Collateral Agent, no effective UCC financing statement, fixture filing or other instrument similar in effect under any applicable law covering all or any part of the Collateral is on file in any filing or recording office except for (x) financing statements for which proper termination statements have been delivered to the Collateral Agent for filing and (y) financing statements filed in connection with Permitted Liens;
(x) no authorization, approval or other action by, and no notice to or filing with, any Governmental Authority or regulatory body is required for either (i) the pledge or grant by any Grantor of the Liens purported to be created in favor of the Collateral Agent hereunder or (ii) the exercise by Collateral Agent of any rights or remedies in respect of any Collateral (whether specifically granted or created hereunder or created or provided for by applicable law), except (A) for the filings contemplated by clause (vii) above and (B) as may be required, in connection with the disposition of any Investment Related Property, by laws generally affecting the offering and sale of Securities;
(xi) all written information supplied by any Grantor with respect to any of the Collateral (in each case taken as a whole with respect to any particular Collateral) is accurate and complete in all material respects;
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(xii) none of the Collateral constitutes, or is the Proceeds of, "farm products" (as defined in the UCC);
(xiii) it does not own any "as extracted collateral" (as defined in the UCC) or any timber to be cut;
(xiv) Except as described on Schedule 4.1(D) and with respect to the First Priority Liens, such Grantor has not become bound as a debtor, either by contract or by operation of law, by a security agreement previously entered into by another Person; and
(xv) Such Grantor has been duly organized as an entity of the type as set forth opposite such Grantor's name on Schedule 4.1(A) solely under the laws of the jurisdiction as set forth opposite such Grantor's name on Schedule 4.1(A) and remains duly existing as such. Such Grantor has not filed any certificates of domestication, transfer or continuance in any other jurisdiction.
(b) Covenants and Agreements. Each Grantor hereby covenants and agrees that:
(i) except for the security interest created by this Agreement, it shall not create or suffer to exist any Lien upon or with respect to any of the Collateral, except First Priority Liens and Permitted Liens, and such Grantor shall defend the Collateral against all Persons at any time claiming any interest therein;
(ii) it shall not produce, use or permit any Collateral to be used unlawfully or in violation of any provision of this Agreement or any applicable statute, regulation or ordinance or any policy of insurance covering the Collateral;
(iii) it shall not change such Grantor's name, identity, corporate structure (e.g., by merger, consolidation, change in corporate form or otherwise) sole place of business (or principal residence if such Grantor is a natural person), chief executive office, type of organization or jurisdiction of organization or establish any trade names unless it shall have (a) notified the Collateral Agent in writing, by executing and delivering to the Collateral Agent a completed Pledge Supplement, substantially in the form of Exhibit A attached hereto, together with all Supplements to Schedules thereto, at least thirty (30) days prior to any such change or establishment, identifying such new proposed name, identity, corporate structure, sole place of business (or principal residence if such Grantor is a natural person), chief executive office, jurisdiction of organization or trade name and providing such other information in connection therewith as the Collateral Agent may reasonably request and (b) taken all actions necessary or advisable to maintain the continuous validity, perfection and the same or better priority of the Collateral Agent's security interest in the Collateral intended to be granted and agreed to hereby;
(iv) if the Collateral Agent or any Secured Party gives value to enable Grantor to acquire rights in or the use of any Collateral, it shall use such value for such purposes and such Grantor further agrees that repayment of any Obligation shall apply on a "first-in, first-out" basis so that the portion of the value used to acquire rights
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in any Collateral shall be paid in the chronological order such Grantor acquired rights therein;
(v) it shall pay promptly when due all property and other taxes, assessments and governmental charges or levies imposed upon, and all claims (including claims for labor, materials and supplies) against, the Collateral, except to the extent the validity thereof is being contested in good faith; provided, such Grantor shall in any event pay such taxes, assessments, charges, levies or claims not later than five (5) days prior to the date of any proposed sale under any judgment, writ or warrant of attachment entered or filed against such Grantor or any of the Collateral as a result of the failure to make such payment;
(vi) upon such Grantor or any officer of such Grantor obtaining knowledge thereof, it shall promptly notify the Collateral Agent in writing of any event that may materially and adversely affect the value of the Collateral or any material portion thereof, the ability of any Grantor or the Collateral Agent to dispose of the Collateral or any material portion thereof, or the rights and remedies of the Collateral Agent in relation thereto, including, without limitation, the levy of any legal process against the Collateral or any portion thereof;
(vii) it shall not take or permit any action which could impair the Collateral Agent's rights in the Collateral; and
(viii) it shall not sell, transfer or assign (by operation of law or otherwise) any Collateral except as Permitted Sales; provided that in connection with any Permitted Sale the Collateral Agent shall release the Lien hereof encumbering the Collateral that is the subject of such Permitted Sale and the Collateral Agent shall execute each and every appropriate filing statement and/or recording document reasonably requested by any Grantor in connection with the foregoing. Any reasonable expense or cost incurred by the Collateral Agent in connection with any such release shall be for the account of the applicable Grantor.
4.2 EQUIPMENT AND INVENTORY.
(a) Representations and Warranties. Each Grantor represents and warrants, on the Closing Date and on each Credit Date, that:
(i) all of the Equipment and Inventory included in the Collateral has been kept for the past two (2) years only at the locations specified in Schedule 4.2;
(ii) any Goods now or hereafter produced by any Grantor included in the Collateral have been and will be produced in compliance with the requirements of the Fair Labor Standards Act, as amended; and
(iii) none of the Inventory or Equipment is in the possession of an issuer of a negotiable document (as defined in Section 7-104 of the UCC) therefor or otherwise in the possession of a bailee or a warehouseman.
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(b) Covenants and Agreements. Each Grantor covenants and agrees that:
(i) it shall keep the Equipment, Inventory and any Documents evidencing any Equipment and Inventory in the locations specified on Schedule 4.2 (as such schedule may be amended or supplemented from time to time) unless it shall have (a) notified the Collateral Agent in writing, by executing and delivering to the Collateral Agent a completed Pledge Supplement, substantially in the form of Exhibit A attached hereto, together with all Supplements to Schedules thereto, at least thirty (30) days prior to any change in locations, identifying such new locations and providing such other information in connection therewith as the Collateral Agent may reasonably request and (b) taken all actions necessary or advisable to maintain the continuous validity, perfection and the same or better priority of the Collateral Agent's security interest in the Collateral intended to be granted and agreed to hereby, or to enable the Collateral Agent to exercise and enforce its rights and remedies hereunder, with respect to such Equipment and Inventory;
(ii) it shall keep correct and accurate records of the Inventory, as is customarily maintained under similar circumstances by Persons of established reputation engaged in similar business, and in any event in conformity with GAAP;
(iii) it shall not deliver any Document evidencing any Equipment and Inventory to any Person other than the issuer of such Document to claim the Goods evidenced therefor or the Collateral Agent;
(iv) if any Equipment or Inventory having a value in excess of $250,000 in the aggregate is in possession or control of any third party, each Grantor shall join with the Collateral Agent in notifying the third party of the Collateral Agent's security interest and use its reasonable best efforts in obtaining an acknowledgment from the third party that it is holding the Equipment and Inventory for the benefit of the Collateral Agent; and
(v) with respect to any item of Equipment which is covered by a certificate of title under a statute of any jurisdiction under the law of which indication of a security interest on such certificate is required as a condition of perfection thereof, upon the reasonable request of the Collateral Agent execute and file with the registrar of motor vehicles or other appropriate authority in such jurisdiction an application or other document requesting the notation or other indication of the security interest created hereunder on such certificate of title, and, upon the reasonable request of the Collateral Agent, deliver to the Collateral Agent copies of all such applications or other documents filed during such calendar quarter and copies of all such certificates of title issued during such calendar quarter indicating the security interest created hereunder in the items of Equipment covered thereby.
4.3 RECEIVABLES.
(a) Representations and Warranties. Each Grantor represents and warrants, on the Closing Date and on each Credit Date, that:
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(i) each Receivable (a) is and will be the legal, valid and binding obligation of the Account Debtor in respect thereof, representing an unsatisfied obligation of such Account Debtor, (b) is and will be enforceable in accordance with its terms, (c) is not and will not be subject to any setoffs, defenses, taxes, counterclaims (except with respect to refunds, returns and allowances in the ordinary course of business with respect to damaged merchandise) and (d) is and will be in compliance with all applicable laws, whether federal, state, local or foreign;
(ii) none of the Account Debtors in respect of any Receivable in excess of $2,500,000 in the aggregate is the government of the United States, any agency or instrumentality thereof. No Receivable in excess of $2,500,000 in the aggregate requires the consent of the Account Debtor in respect thereof in connection with the pledge hereunder, except any consent which has been obtained; and
(iii) no Receivable is evidenced by, or constitutes, an Instrument or Chattel Paper which has not been delivered to, or otherwise subjected to the control of, the Collateral Agent to the extent required by, and in accordance with Section 4.3(c) and the terms of the Intercreditor Agreement.
(b) Covenants and Agreements: Each Grantor hereby covenants and agrees that:
(i) it shall keep and maintain at its own cost and expense satisfactory and complete records of the Receivables, including, but not limited to, the originals of all documentation with respect to all Receivables and records of all payments received and all credits granted on the Receivables, all merchandise returned and all other dealings therewith;
(ii) it shall, subject to the terms of the Intercreditor Agreement, mark conspicuously, in form and manner reasonably satisfactory to the Collateral Agent, all Chattel Paper, Instruments and other evidence of Receivables (other than any delivered to the Collateral Agent as provided herein) in each case provided such Chattel Paper, Instruments and other evidence of Receivables is in excess of $500,000, as well as the Receivables Records with an appropriate reference to the fact that the Collateral Agent has a security interest therein;
(iii) it shall perform in all material respects all of its obligations with respect to the Receivables;
(iv) it shall not amend, modify, terminate or waive any provision of any Receivable in excess of $250,000 individually in any manner which could reasonably be expected to have a Material Adverse Effect on the value of such Receivable as Collateral. Other than in the ordinary course of business as generally conducted by it on and prior to the date hereof, and except as otherwise provided in subsection (v) below and in the Intercreditor Agreement, following an Event of Default, such Grantor shall not (w) grant any extension or renewal of the time of payment of any Receivable, (x) compromise or settle any dispute, claim or legal proceeding with respect to any Receivable for less than the total unpaid balance thereof, (y) release, wholly or partially, any Person liable for the payment thereof, or (z) allow any credit or discount thereon;
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(v) except as otherwise provided in this subsection, each Grantor shall continue to collect all amounts due or to become due to such Grantor under the Receivables and any Supporting Obligation and diligently exercise each material right it may have under any Receivable any Supporting Obligation or Collateral Support, in each case, at its own expense, and in connection with such collections and exercise, such Grantor shall take such action as such Grantor or the Collateral Agent (upon notice to the applicable Grantor) may deem necessary or advisable. Notwithstanding the foregoing, the Collateral Agent shall have the right at any time, subject to the terms of the Intercreditor Agreement, to notify, or require any Grantor to notify, any Account Debtor of the Collateral Agent's security interest in the Receivables and any Supporting Obligation and, in addition, at any time following the occurrence and during the continuation of an Event of Default, the Collateral Agent may: (1) direct the Account Debtors under any Receivables to make payment of all amounts due or to become due to such Grantor thereunder directly to the Collateral Agent; (2) notify, or require any Grantor to notify, each Person maintaining a lockbox or similar arrangement to which Account Debtors under any Receivables have been directed to make payment to remit all amounts representing collections on checks and other payment items from time to time sent to or deposited in such lockbox or other arrangement directly to the Collateral Agent; and (3) enforce, at the expense of such Grantor, collection of any such Receivables and to adjust, settle or compromise the amount or payment thereof, in the same manner and to the same extent as such Grantor might have done. If the Collateral Agent notifies any Grantor that it has elected to collect the Receivables in accordance with the preceding sentence, any payments of Receivables received by such Grantor shall be forthwith (and in any event within two (2) Business Days) deposited by such Grantor in the exact form received, duly indorsed by such Grantor to the Collateral Agent if required, in the Collateral Account maintained under the sole dominion and control of the Collateral Agent, and until so turned over, all amounts and proceeds (including checks and other instruments) received by such Grantor in respect of the Receivables, any Supporting Obligation or Collateral Support shall be received in trust for the benefit of the Collateral Agent hereunder and shall be segregated from other funds of such Grantor and such Grantor shall not adjust, settle or compromise the amount or payment of any Receivable, or release wholly or partly any Account Debtor or obligor thereof, or allow any credit or discount thereon; and
(vi) it shall use its best efforts to keep in full force and effect any Supporting Obligation or Collateral Support relating to any Receivable.
(c) Delivery and Control of Receivables. Subject to the terms of the Intercreditor Agreement, with respect to any Receivable in excess of $250,000 individually that is evidenced by, or constitutes, Chattel Paper or Instruments, each Grantor shall cause each originally executed copy thereof to be delivered to the Collateral Agent (or its agent or designee) appropriately indorsed to the Collateral Agent or indorsed in blank: (i) with respect to any such Receivable in existence on the date hereof, on or prior to the date hereof and (ii) with respect to any such Receivable hereafter arising, within ten (10) days of such Grantor acquiring rights therein. Subject to the terms of the Intercreditor Agreement, with respect to any Receivable in excess of $250,000 individually which would constitute "electronic chattel paper" under Article 9 of the UCC, each Grantor shall take all steps necessary to give the Collateral Agent control over such Receivable (within the meaning of Section 9-105 of the UCC): (i) with respect to any such Receivable in existence on the date hereof, on or prior to the date hereof and (ii) with respect to any such Receivable hereafter arising, within ten (10) days of such Grantor acquiring rights
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therein. Any Receivable not otherwise required to be delivered or subjected to the control of the Collateral Agent in accordance with this subsection (c) shall be delivered or subjected to such control upon request of the Collateral Agent.
4.4 INVESTMENT RELATED PROPERTY
4.4.1. INVESTMENT RELATED PROPERTY GENERALLY
(a) Covenants and Agreements. Each Grantor hereby covenants and agrees that:
(i) in the event it acquires rights in any Investment Related Property after the date hereof, it shall deliver to the Collateral Agent a completed Pledge Supplement, substantially in the form of Exhibit A attached hereto, together with all Supplements to Schedules thereto, reflecting such new Investment Related Property and all other Investment Related Property. Notwithstanding the foregoing, it is understood and agreed that the security interest of the Collateral Agent shall attach to all Investment Related Property immediately upon any Grantor's acquisition of rights therein and shall not be affected by the failure of any Grantor to deliver a supplement to Schedule 4.4 as required hereby;
(ii) except as provided in the next sentence, in the event such Grantor receives any dividends, interest or distributions on any Investment Related Property, or any securities or other property upon the merger, consolidation, liquidation or dissolution of any issuer of any Investment Related Property, then (a) such dividends, interest or distributions and securities or other property shall be included in the definition of Collateral without further action and (b) such Grantor shall immediately take all steps, if any, necessary or advisable to ensure the validity, perfection, priority and, if applicable, control of the Collateral Agent over such Investment Related Property (including, without limitation, subject to the terms of the Intercreditor Agreement, delivery thereof to the Collateral Agent) and pending any such action such Grantor shall be deemed to hold such dividends, interest, distributions, securities or other property in trust for the benefit of the Collateral Agent and shall segregate such dividends, distributions, Securities or other property from all other property of such Grantor. Notwithstanding the foregoing, so long as no Event of Default shall have occurred and be continuing, the Collateral Agent authorizes each Grantor to retain all ordinary cash dividends and distributions paid in the normal course of the business of the issuer and consistent with the past practice of the issuer and all scheduled payments of interest;
(iii) each Grantor consents to the grant by each other Grantor of a security interest in all Investment Related Property to the Collateral Agent.
(b) Delivery and Control.
(i) Subject to the terms of the Intercreditor Agreement, each Grantor agrees that with respect to any Investment Related Property in which it currently has rights it shall comply with the provisions of this Section 4.4.1(b) on or before the Credit Date and with respect to any Investment Related Property hereafter acquired by such Grantor it shall comply with the provisions of this Section 4.4.1(b) immediately upon acquiring rights therein, in each case in form and substance satisfactory to the
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Collateral Agent. Subject to the terms of the Intercreditor Agreement, with respect to any Investment Related Property that is represented by a certificate or that is an "instrument" (other than any Investment Related Property credited to a Securities Account) it shall cause such certificate or instrument to be delivered to the Collateral Agent, indorsed in blank by an "effective indorsement" (as defined in Section 8-107 of the UCC), regardless of whether such certificate constitutes a "certificated security" for purposes of the UCC. Subject to the terms of the Intercreditor Agreement, with respect to any Investment Related Property that is an "uncertificated security" for purposes of the UCC (other than any "uncertificated securities" credited to a Securities Account), it shall cause the issuer of such uncertificated security to either (i) register the Collateral Agent as the registered owner thereof on the books and records of the issuer or (ii) execute an agreement substantially in the form of Exhibit B hereto, pursuant to which such issuer agrees to comply with the Collateral Agent's instructions with respect to such uncertificated security without further consent by such Grantor.
(c) Voting and Distributions.
(i) So long as no Event of Default shall have occurred and be continuing:
(1) except as otherwise provided under the covenants and agreements relating to investment related property in this Agreement or elsewhere herein or in the Credit Agreement, each Grantor shall be entitled to exercise or refrain from exercising any and all voting and other consensual rights pertaining to the Investment Related Property or any part thereof for any purpose not inconsistent with the terms of this Agreement or the Credit Agreement; provided, no Grantor shall exercise or refrain from exercising any such right if the Collateral Agent shall have notified such Grantor that, in the Collateral Agent's reasonable judgment, such action would have a Material Adverse Effect on the value of the Investment Related Property or any part thereof; and provided further, such Grantor shall give the Collateral Agent at least five (5) Business Days prior written notice of the manner in which it intends to exercise, or the reasons for refraining from exercising, any such right; it being understood, however, that neither the voting by such Grantor of any Pledged Stock for, or such Grantor's consent to, the election of directors (or similar governing body) at a regularly scheduled annual or other meeting of stockholders or with respect to incidental matters at any such meeting, nor such Grantor's consent to or approval of any action otherwise permitted under or not prohibited by this Agreement and the Credit Agreement, shall be deemed inconsistent with the terms of this Agreement or the Credit Agreement within the meaning of this Section 4.4(c)(i)(1), and no notice of any such voting or consent need be given to the Collateral Agent; and
(2) the Collateral Agent shall promptly execute and deliver (or cause to be executed and delivered) to each Grantor all proxies, and other instruments as such Grantor may from time to time reasonably request for the purpose of enabling such Grantor to exercise the voting and other consensual rights when and to the extent which it is entitled to exercise pursuant to clause (1) above;
(3) Subject to the terms of the Intercreditor Agreement, upon the occurrence and during the continuation of an Event of Default:
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(A) all rights of each Grantor to exercise or refrain from exercising the voting and other consensual rights which it would otherwise be entitled to exercise pursuant hereto shall cease and all such rights shall thereupon become vested in the Collateral Agent who shall thereupon have the sole right to exercise such voting and other consensual rights; and
(B) in order to permit the Collateral Agent to exercise the voting and other consensual rights which it may be entitled to exercise pursuant hereto and to receive all dividends and other distributions which it may be entitled to receive hereunder: (1) each Grantor shall promptly execute and deliver (or cause to be executed and delivered) to the Collateral Agent all proxies, dividend payment orders and other instruments as the Collateral Agent may from time to time reasonably request and (2) the each Grantor acknowledges that the Collateral Agent may utilize the power of attorney set forth in Section 6.1.
4.4.2 PLEDGED EQUITY INTERESTS
(a) Representations and Warranties. Each Grantor hereby represents and warrants, on the Closing Date and on each Credit Date, that:
(i) Schedule 4.4(A) (as such schedule may be amended or supplemented from time to time) sets forth under the headings "Pledged Stock, "Pledged LLC Interests," "Pledged Partnership Interests" and "Pledged Trust Interests," respectively, all of the Pledged Stock, Pledged LLC Interests, Pledged Partnership Interests and Pledged Trust Interests owned by any Grantor and such Pledged Equity Interests constitute the percentage of issued and outstanding shares of stock, percentage of membership interests, percentage of partnership interests or percentage of beneficial interest of the respective issuers thereof indicated on such Schedule;
(ii) it is the record and beneficial owner of the Pledged Equity Interests free of all Liens, rights or claims of other Persons other than the First Priority Liens and Permitted Liens and there are no outstanding warrants, options or other rights to purchase, or shareholder, voting trust or similar agreements outstanding with respect to, or property that is convertible into, or that requires the issuance or sale of, any Pledged Equity Interests;
(iii) without limiting the generality of Section 4.1(a)(v), no consent of any Person including any other general or limited partner, any other member of a limited liability company, any other shareholder or any other trust beneficiary is necessary or desirable in connection with the creation, perfection or first or second priority status, as applicable (in accordance with the terms of the Intercreditor Agreement), of the security interest of the Collateral Agent in any Pledged Equity Interests or the exercise by the Collateral Agent of the voting or other rights provided for in this Agreement or the exercise of remedies in respect thereof; and
(iv) none of the Pledged LLC Interests nor Pledged Partnership Interests are or represent interests in issuers that: (a) are registered as investment
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companies, (b) are dealt in or traded on securities exchanges or markets or (c) have opted to be treated as securities under the uniform commercial code of any jurisdiction.
(b) Covenants and Agreements. Each Grantor hereby covenants and agrees that:
(i) without the prior written consent of the Collateral Agent, it shall not vote to enable or take any other action to: (a) amend or terminate any partnership agreement, limited liability company agreement, certificate of incorporation, by-laws or other organizational documents in any way that materially changes the rights of such Grantor with respect to any Investment Related Property or adversely affects the validity, perfection or priority of the Collateral Agent's security interest, (b) permit any issuer of any Pledged Equity Interest to issue any additional stock, partnership interests, limited liability company interests or other equity interests of any nature or to issue securities convertible into or granting the right of purchase or exchange for any stock or other equity interest of any nature of such issuer, except, in each case, (i) the issuance of Securities by any Grantor pursuant to any outstanding options or warrants issued by such Grantor prior to the Closing Date,
(ii) the issuance of additional Securities of any Grantor pursuant to the Holdings' Unit Option Plan II dated January 1, 2001, as amended to the date hereof, and (iii) the issuance of any Securities by any Grantor in connection with any Permitted Acquisition, (c) other than as permitted under the Credit Agreement, permit any issuer of any Pledged Equity Interest to dispose of all or a material portion of their assets, (d) waive any default under or breach of any terms of organizational document relating to the issuer of any Pledged Equity Interest or the terms of any Pledged Debt, or (e) cause any issuer of any Pledged Partnership Interests or Pledged LLC Interests which are not Securities (for purposes of the UCC) on the Closing Date to elect or otherwise take any action to cause such Pledged Partnership Interests or Pledged LLC Interests to be treated as Securities for purposes of the UCC; provided, however, notwithstanding the foregoing, if any issuer of any Pledged Partnership Interests or Pledged LLC Interests takes any such action in violation of the foregoing in this clause (e), such Grantor shall promptly notify the Collateral Agent in writing of any such election or action and, in such event, shall take all steps necessary or advisable to establish, subject to the terms of the Intercreditor Agreement, the Collateral Agent's "control" thereof;
(ii) it shall comply with all of its obligations under any partnership agreement or limited liability company agreement relating to Pledged Partnership Interests or Pledged LLC Interests and shall enforce all of its rights with respect to any Investment Related Property;
(iii) subject to the terms of the Intercreditor Agreement, without the prior written consent of the Collateral Agent, it shall not permit any issuer of any Pledged Equity Interest to merge or consolidate unless (i) such issuer creates a security interest that is perfected by a filed financing statement (that is not effective solely under section 9-508 of the UCC) in collateral in which such new debtor has or acquires rights, and (ii) all the outstanding Capital Stock of the surviving or resulting corporation, limited liability company, partnership or other entity is, upon such merger or consolidation, pledged hereunder and no cash, Securities or other property is distributed in respect of the outstanding Capital Stock of any other constituent Grantor; provided that if the surviving or resulting Grantors upon any such merger or consolidation involving an issuer which is
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a Controlled Foreign Corporation, then such Grantor shall only be required to pledge Capital Stock in accordance with Section 2.2; and
(iv) each Grantor consents to the grant by each other Grantor of a security interest in all Investment Related Property to the Collateral Agent and, without limiting the foregoing, consents to the transfer, subject to the terms of the Intercreditor Agreement, of any Pledged Partnership Interest and any Pledged LLC Interest to the Collateral Agent or its nominee following an Event of Default and to the substitution of the Collateral Agent or its nominee as a partner in any partnership or as a member in any limited liability company with all the rights and powers related thereto.
(v) it shall notify the Collateral Agent of any default under any Pledged Debt that has caused, either in any case or in the aggregate, a Material Adverse Effect.
4.4.3 PLEDGED DEBT
(a) Representations and Warranties. Each Grantor hereby represents and warrants, on the Closing Date and each Credit Date, that:
(i) Schedule 4.4 (as such schedule may be amended or supplemented from time to time) sets forth under the heading "Pledged Debt" all of the Pledged Debt owned by any Grantor and all of such Pledged Debt has been duly authorized, authenticated or issued, and delivered and is the legal, valid and binding obligation of the issuers thereof and is not in default and constitutes all of the issued and outstanding inter-company Indebtedness;
(b) Covenants and Agreements. Each Grantor hereby covenants and agrees that:
(i) it shall notify the Collateral Agent of any default under any Pledged Debt that has caused, either in any individual case or in the aggregate, a Material Adverse Effect.
4.4.4 INVESTMENT ACCOUNTS
(a) Representations and Warranties. Each Grantor hereby represents and warrants, on the Closing Date and each Credit Date, that:
(i) Schedule 4.4 hereto (as such schedule may be amended or supplemented from time to time) sets forth under the headings "Securities Accounts" and "Commodities Accounts," respectively, all of the Securities Accounts and Commodities Accounts in which each Grantor has an interest. Each Grantor is the sole entitlement holder of each such Securities Account and Commodity Account, and, except with respect to the First Priority Liens, such Grantor has not consented to, and is not otherwise aware of, any Person (other than the Collateral Agent pursuant thereto) having "control" (within the meanings of Sections 8-106 and 9-106 of the UCC) over, or any other interest in, any such Securities Account or Commodity Account or securities or other property credited thereto;
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(ii) Schedule 4.4 hereto (as such schedule may be amended or supplemented from time to time) sets forth under the headings "Deposit Accounts" all of the Deposit Accounts in which each Grantor has an interest. Each Grantor is the sole account holder of each such Deposit Account and, except with respect to the First Priority Liens, such Grantor has not consented to, and is not otherwise aware of, any Person (other than the Collateral Agent pursuant thereto) having either sole dominion and control (within the meaning of common law) or "control" (within the meanings of Section 9-104 of the UCC) over, or any other interest in, any such Deposit Account or any money or other property deposited therein; and
(iii) subject to the terms of the Intercreditor Agreement, each Grantor has taken all actions necessary or desirable, including those specified in Section 4.4.4(c), to: (a) establish Collateral Agent's "control" (within the meanings of Sections 8-106 and 9-106 of the UCC) over any portion of the Investment Related Property constituting Certificated Securities, Uncertificated Securities, Securities Accounts, Securities Entitlements or Commodities Accounts (each as defined in the UCC) other than as separately listed on Schedule 4.4.4(a)(iii) hereto; (b) establish the Collateral Agent's "control" (within the meaning of Section 9-104 of the UCC) over all Deposit Accounts that have a balance in excess of $400,000; and (c) deliver all Instruments to the Collateral Agent.
(b) Covenant and Agreement. Subject to the terms of the Intercreditor Agreement, each Grantor hereby covenants and agrees with the Collateral Agent and each other Secured Party that it shall not close or terminate any Investment Account having a balance in excess of $400,000 without the prior consent of the Collateral Agent and unless a successor or replacement account has been established with the consent of the Collateral Agent with respect to which successor or replacement account a control agreement has been entered into by the appropriate Grantor, Collateral Agent and securities intermediary or depository institution at which such successor or replacement account is to be maintained in accordance with the provisions of Section 4.4.4(c).
(c) Delivery and Control
(i) Subject to the terms of the Intercreditor Agreement, with respect to any Investment Related Property consisting of Securities Accounts carrying a positive balance or Securities Entitlements set forth on Schedule 4.4, it shall cause the securities intermediary maintaining such Securities Account or Securities Entitlement to enter into an agreement substantially in the form of Exhibit C hereto pursuant to which it shall agree to comply with the Collateral Agent's "entitlement orders" without further consent by such Grantor. Subject to the terms of the Intercreditor Agreement, with respect to any Investment Related Property that is a "Deposit Account," having a balance in excess of $400,000, it shall cause the depositary institution maintaining such account to enter into an agreement substantially in the form of Exhibit D hereto, pursuant to which the Collateral Agent shall have both sole dominion and control over such Deposit Account (within the meaning of the common law) and "control" (within the meaning of Section 9-104 of the UCC) over such Deposit Account. Each Grantor shall have entered into such control agreement or agreements with respect to: (i) any Securities Accounts carrying a positive balance, Securities Entitlements or Deposit Accounts that exist on the Credit Date and that have a balance in excess of $400,000, as of or prior to the Credit Date and (ii) any Securities Accounts carrying a positive balance, Securities Entitlements
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or Deposit Accounts that are created or acquired after the Credit Date having a balance in excess of $400,000, as of or prior to the deposit or transfer of any such Securities Entitlements or funds, whether constituting moneys or investments, into such Securities Accounts or Deposit Accounts.
In addition to the foregoing, if any issuer of any Investment Related Property is located in a jurisdiction outside of the United States, each Grantor shall take such additional actions, including, without limitation, causing the issuer to register the pledge on its books and records or making such filings or recordings, in each case as may be necessary or advisable, under the laws of such issuer's jurisdiction to insure the validity, perfection and priority of the security interest of the Collateral Agent. Upon the occurrence of an Event of Default, subject to the terms of the Intercreditor Agreement, the Collateral Agent shall have the right, without notice to any Grantor, to transfer all or any portion of the Investment Related Property to its name or the name of its nominee or agent. In addition, the Collateral Agent shall have the right at any time, without notice to any Grantor, to exchange any certificates or instruments representing any Investment Related Property for certificates or instruments of smaller or larger denominations.
4.5 MATERIAL CONTRACTS.
(a) Representations and Warranties. Each Grantor hereby represents and warrants, on the Closing Date and on each Credit Date, that:
(i) Schedule 4.5 (as such schedule may be amended or supplemented from time to time) sets forth all of the Material Contracts to which such Grantor has rights; and
(ii) the Material Contracts, true and complete copies (including any amendments or supplements thereof) of which have been furnished to the Collateral Agent, have been duly authorized, executed and delivered by all parties thereto, are in full force and effect and are binding upon and enforceable against all parties thereto in accordance with their respective terms. There exists no default in any material respect under any Material Contract by any party thereto and neither such Grantor, nor to its best knowledge, any other Person party thereto is likely to become in default thereunder and no Person party thereto has any defenses, counterclaims or right of set-off with respect to any Material Contract.
(b) Covenants and Agreements. Each Grantor hereby covenants and agrees that:
(i) in addition to any rights under Section 4.3, the Collateral Agent may at any time notify, or require any Grantor to so notify, the counterparty on any Material Contract of the security interest of the Collateral Agent therein. In addition, after the occurrence and during the continuance of an Event of Default, the Collateral Agent may, subject to the terms of the Intercreditor Agreement, upon written notice to the applicable Grantor, notify, or require any Grantor to notify, the counterparty to make all payments under the Material Contracts directly to the Collateral Agent;
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(ii) each Grantor shall deliver promptly to the Collateral Agent a copy of each material demand, notice or document received by it relating in any way to any Material Contract;
(iii) each Grantor shall deliver promptly to the Collateral Agent, and in any event within ten (10) Business Days, after (1) any Material Contract of such Grantor is terminated or amended in a manner that is materially adverse to such Grantor or (2) any new Material Contract is entered into by such Grantor, a written statement describing such event, with copies of such material amendments or new contracts, delivered to the Collateral Agent (to the extent such delivery is permitted by the terms of any such Material Contract, provided, no prohibition on delivery shall be effective if it were bargained for by such Grantor with the intent of avoiding compliance with this Section 4.5(b)(iii)), and an explanation of any actions being taken with respect thereto;
(iv) it shall perform in all material respects all of its obligations with respect to the Material Contracts;
(v) it shall promptly and diligently exercise each material right (except the right of termination) it may have under any Material Contract, any Supporting Obligation or Collateral Support, in each case, at its own expense, and in connection with such collections and exercise, such Grantor shall take such action as such Grantor or the Collateral Agent (upon notice to the applicable Grantor) may deem necessary or advisable;
(vi) it shall use its diligent efforts to keep in full force and effect any Supporting Obligation or Collateral Support relating to any Material Contract;
(vii) each Grantor shall, within thirty (30) days of the date hereof with respect to any Non-Assignable Contract in effect on the date hereof and within thirty (30) days after entering into any Non-Assignable Contract after the Closing Date, request in writing the consent of the counterparty or counterparties to the Non-Assignable Contract pursuant to the terms of such Non-Assignable Contract or applicable law to the assignment or granting of a security interest in such Non-Assignable Contract to Secured Party and use its best efforts to obtain such consent as soon as practicable thereafter; and
(viii) each Grantor shall use its commercially reasonable efforts to prohibit anti-assignment provisions in any Material Contract after the date hereof.
4.6 LETTER OF CREDIT RIGHTS.
(a) Representations and Warranties. Each Grantor hereby represents and warrants, on the Closing Date and on each Credit Date, that:
(i) all material letters of credit to which such Grantor has rights is listed on Schedule 4.6 (as such schedule may be amended or supplemented from time to time) hereto; and
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(ii) it has obtained the consent of each issuer of any material letter of credit to the assignment of the proceeds of the letter of credit to the Collateral Agent.
(b) Covenants and Agreements. Each Grantor hereby covenants and agrees that with respect to any material letter of credit hereafter arising it shall obtain the consent of the issuer thereof to the assignment of the proceeds of the letter of credit to the Collateral Agent and shall deliver to the Collateral Agent a completed Pledge Supplement, substantially in the form of Exhibit A attached hereto, together with all Supplements to Schedules thereto.
4.7 INTELLECTUAL PROPERTY.
(a) Representations and Warranties. Except as disclosed in Schedule 4.7(H) (as such schedule may be amended or supplemented from time to time), each Grantor hereby represents and warrants, on the Closing Date and on each Credit Date, that:
(i) Schedule 4.7 (as such schedule may be amended or supplemented from time to time) sets forth a true and complete list of
(i) all United States, state and foreign registrations of and applications for Patents, Trademarks, and Copyrights owned by each Grantor and (ii) all Patent Licenses, Trademark Licenses, Trade Secret Licenses and Copyright Licenses material to the business of such Grantor (other than any licenses relating to "off-the-shelf software");
(ii) it is the sole and exclusive owner of the entire right, title, and interest in and to all Intellectual Property listed on Schedule 4.7 (as such schedule may be amended or supplemented from time to time), and owns or has the valid right to use all other Intellectual Property used in or necessary to conduct its business, free and clear of all Liens, claims, encumbrances and licenses, except for First Priority Liens and Permitted Liens and the licenses set forth on Schedule 4.7(B), (D), (F) and (G) (as each may be amended or supplemented from time to time);
(iii) all Intellectual Property is subsisting and has not been adjudged invalid or unenforceable, in whole or in part, and each Grantor has performed all acts and has paid all renewal, maintenance, and other fees and taxes required to maintain each and every registration and application of Copyrights, Patents and Trademarks necessary to conduct its business is, to the best of each Grantor's knowledge, in full force and effect;
(iv) all Intellectual Property included in the Collateral is, to the best of each Grantor's knowledge, valid and enforceable; no holding, decision, or judgment has been rendered in any action or proceeding before any court or administrative authority challenging the validity of, such Grantor's right to register, or such Grantor's rights to own or use, any Intellectual Property and no such action or proceeding is pending or, to the best of such Grantor's knowledge, threatened;
(v) all registrations and applications for Copyrights, Patents and Trademarks are standing in the name of each Grantor, and none of the Trademarks, Patents, Copyrights or Trade Secrets are currently licensed by any Grantor to any Affiliate or third party, except as disclosed in Schedule 4.7(B), (D), (F), or (G) (as each may be amended or supplemented from time to time);
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(vi) each Grantor has been using appropriate statutory notice of registration in connection with its use of registered Trademarks, proper marking practices in connection with the use of Patents, and appropriate notice of copyright in connection with the publication of Copyrights material to the business of such Grantor;
(vii) each Grantor uses adequate standards of quality in the manufacture, distribution, and sale of all products sold and in the provision of all services rendered under or in connection with all Trademarks and has taken all action necessary to insure that all licensees of the Trademarks owned by such Grantor use such adequate standards of quality;
(viii) to the best of each Grantor's knowledge, the conduct of such Grantor's business does not infringe upon or otherwise violate any trademark, patent, copyright, trade secret or other intellectual property right owned or controlled by a third party;
(ix) to the best of each Grantor's knowledge, no claim has been made that the use of any Intellectual Property owned or used by each Grantor (or any of its respective licensees) violates the asserted rights of any third party;
(x) to the best of each Grantor's knowledge, no third party is infringing upon or otherwise violating any rights in any Intellectual Property owned or used by such Grantor, or any of its respective licensees;
(xi) no settlement or consents, covenants not to sue, nonassertion assurances, or releases have been entered into by Grantor or to which Grantor is bound that adversely affect Grantor's rights to own or use any Intellectual Property; and
(xii) other than in the ordinary course of business, each Grantor has not made a previous assignment, sale, transfer or agreement constituting a present or future assignment, sale, transfer or agreement of any Intellectual Property that has not been terminated or released. There is no effective financing statement or other document or instrument now executed, or on file or recorded in any public office, granting a security interest in or otherwise encumbering any part of the Intellectual Property, other than in favor of the Collateral Agent or the First Lien Collateral Agent.
(b) Covenants and Agreements. Each Grantor hereby covenants and agrees as follows:
(i) it shall not do any act or omit to do any act whereby any of the Intellectual Property which is material to the business of Grantor may lapse, or become abandoned, dedicated to the public, or unenforceable, or which would adversely affect the validity, grant, or enforceability of the security interest granted therein;
(ii) it shall not, with respect to any Trademarks which are material to the business of any Grantor, cease the use of any of such Trademarks or fail to maintain the level of the quality of products sold and services rendered under any of such Trademark at a level at least substantially consistent with the quality of such products and services as of the date hereof, and each Grantor shall take all steps necessary to insure that licensees of such Trademarks use such consistent standards of quality;
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(iii) it shall, within thirty (30) days of the creation or acquisition of any Copyrightable work which is material to the business of Grantor in the United States, apply to register the Copyright in the United States Copyright Office, provided, however, that the Company may, in its prudent business judgment, decide that it shall not apply to register such Copyright in the United States Copyright Office;
(iv) it shall promptly notify the Collateral Agent if it knows or has reason to know that any item of the Intellectual Property that is material to the business of any Grantor is likely to become (a) abandoned or dedicated to the public or placed in the public domain,
(b) invalid or unenforceable, or (c) subject to any adverse determination or development (including the institution of proceedings) in any action or proceeding in the United States Patent and Trademark Office, the United States Copyright Office, any state registry, any foreign counterpart of the foregoing, or any court;
(v) it shall take all reasonable steps in the United States Patent and Trademark Office, the United States Copyright Office, any state registry or any foreign counterpart of the foregoing, to pursue any application and maintain any registration of each Trademark, Patent, and Copyright owned by any Grantor and material to its business which is now or shall become included in the Intellectual Property (except for such works with respect to which such Grantor has determined in the exercise of its commercially reasonable judgment that it shall not seek registration) including, but not limited to, those items on Schedule 4.7(A), (C) and (E) (as each may be amended or supplemented from time to time);
(vi) in the event that any Intellectual Property owned by or exclusively licensed to any Grantor is infringed, misappropriated, or diluted by a third party, such Grantor shall take all commercially reasonable actions to stop such infringement, misappropriation, or dilution and protect its rights in such Intellectual Property including, but not limited to, the initiation of a suit for injunctive relief and to recover damages;
(vii) it shall timely report to the Collateral Agent (i) the filing of any application to register any Intellectual Property with the United States Patent and Trademark Office, the United States Copyright Office, or any state registry or foreign counterpart of the foregoing (whether such application is filed by such Grantor or through any agent, employee, licensee, or designee thereof) and (ii) the registration of any Intellectual Property by any such office, in each case by executing and delivering to the Collateral Agent a completed Pledge Supplement, substantially in the form of Exhibit A attached hereto, together with all Supplements to Schedules thereto;
(viii) it shall, promptly upon the reasonable request of the Collateral Agent, execute and deliver to the Collateral Agent any document required to acknowledge, confirm, register, record, or perfect the Collateral Agent's interest in any part of the Intellectual Property, whether now owned or hereafter acquired;
(ix) except with the prior consent of the Collateral Agent, subject to the terms of the Intercreditor Agreement, or as permitted under the Credit Agreement, each Grantor shall not execute, and there will not be on file in any public office, any financing statement or other document or instruments, except financing statements or
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other documents or instruments filed or to be filed in favor of the Collateral Agent or the First Lien Collateral Agent and each Grantor shall not sell, assign, transfer, license, grant any option, or create or suffer to exist any Lien upon or with respect to the Intellectual Property, except for the Lien created by and under this Agreement and the other Credit Documents and the First Priority Liens;
(x) it shall hereafter use commercially reasonable efforts so as not to permit the inclusion in any contract to which it hereafter becomes a party of any provision that could or might in any way materially impair or prevent the creation of a security interest in, or the assignment of, such Grantor's rights and interests in any property included within the definitions of any Intellectual Property acquired under such contracts;
(xi) it shall take all steps reasonably necessary to protect the secrecy of all Trade Secrets necessary to conduct its business relating to the products and services sold or delivered under or in connection with the Intellectual Property Collateral, including, without limitation, entering into confidentiality agreements with employees and labeling and restricting access to secret information and documents in accordance with standard practices in the industry; and
(xii) it shall use its best efforts to use proper statutory notice in connection with its use of any of the Intellectual Property.
4.8 COMMERCIAL TORT CLAIMS
(a) Representations and Warranties. Each Grantor hereby represents and warrants, on the Closing Date and on each Credit Date, that Schedule 4.8 (as such schedule may be amended or supplemented from time to time) sets forth all Commercial Tort Claims of each Grantor in excess of $250,000 individually; and
(b) Covenants and Agreements. Each Grantor hereby covenants and agrees that with respect to any Commercial Tort Claim in excess of $250,000 individually hereafter arising it shall deliver to the Collateral Agent a completed Pledge Supplement, substantially in the form of Exhibit A attached hereto, together with all Supplements to Schedules thereto, identifying such new Commercial Tort Claims.
SECTION 5. ACCESS; RIGHT OF INSPECTION AND FURTHER ASSURANCES; ADDITIONAL GRANTORS.
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5.1 ACCESS; RIGHT OF INSPECTION. Upon reasonable notice, the Collateral Agent shall have full and free access during normal business hours to all the books, correspondence and records of each Grantor, and the Collateral Agent and its representatives may examine the same, take extracts therefrom and make photocopies thereof, and each Grantor agrees to render to the Collateral Agent, at such Grantor's cost and expense, such clerical and other assistance as may be reasonably requested with regard thereto. The Collateral Agent and its representatives shall at all times also have the right to enter any premises of each Grantor and inspect any property of each Grantor where any of the Collateral of such Grantor granted pursuant to this Agreement is located for the purpose of inspecting the same, observing its use or otherwise protecting its interests therein.
5.2 FURTHER ASSURANCES.
(a) Each Grantor agrees, to the extent not inconsistent with the terms of the Intercreditor Agreement, that from time to time, at the expense of such Grantor, that it shall promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or desirable, or that the Collateral Agent may reasonably request, in order to create and/or maintain the validity, perfection or priority of and protect any security interest granted hereby or to enable the Collateral Agent to exercise and enforce its rights and remedies hereunder with respect to any Collateral. Without limiting the generality of the foregoing, each Grantor shall, to the extent not inconsistent with the terms of the Intercreditor Agreement:
(i) file such financing or continuation statements, or amendments thereto, and execute and deliver such other agreements, instruments, endorsements, powers of attorney or notices, as may be necessary or desirable, or as the Collateral Agent may reasonably request, in order to perfect and preserve the security interests granted or purported to be granted hereby;
(ii) take all actions necessary to ensure the recordation of appropriate evidence of the liens and security interest granted hereunder in the Intellectual Property with any intellectual property registry in which said Intellectual Property is registered or in which an application for registration is pending including, without limitation, the United States Patent and Trademark Office, the United States Copyright Office, the various Secretaries of State, and the foreign counterparts on any of the foregoing;
(iii) at any reasonable time, upon request by the Collateral Agent, assemble the Collateral and allow inspection of the Collateral by the Collateral Agent, or persons designated by the Collateral Agent; and
(iv) at the Collateral Agent's reasonable request, appear in and defend any action or proceeding that may affect such Grantor's title to or the Collateral Agent's security interest in all or any material part of the Collateral.
(b) Each Grantor hereby authorizes the Collateral Agent to file a Record or Records, including, without limitation, financing or continuation statements, and amendments
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thereto, in any jurisdictions and with any filing offices as the Collateral Agent may determine, in its sole discretion, are necessary or advisable to perfect the security interest granted to the Collateral Agent herein. Such financing statements may describe the Collateral in the same manner as described herein or may contain an indication or description of collateral that describes such property in any other manner as the Collateral Agent may determine, in its sole discretion, is necessary, advisable or prudent to ensure the perfection of the security interest in the Collateral granted to the Collateral Agent herein, including, without limitation, describing such property as "all assets" or "all personal property, whether now owned or hereafter acquired." Each Grantor shall furnish to the Collateral Agent from time to time statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as the Collateral Agent may reasonably request, all in reasonable detail.
(c) Each Grantor hereby authorizes the Collateral Agent to modify this Agreement after obtaining such Grantor's approval of or signature to such modification by amending Schedule 4.7 (as such schedule may be amended or supplemented from time to time) to include reference to any right, title or interest in any existing Intellectual Property or any Intellectual Property acquired or developed by any Grantor after the execution hereof or to delete any reference to any right, title or interest in any Intellectual Property in which any Grantor no longer has or claims any right, title or interest.
5.3 ADDITIONAL GRANTORS. From time to time subsequent to the date hereof, additional Persons may become parties hereto as additional Grantors (each, an "Additional Grantor"), by executing a Counterpart Agreement. Upon delivery of any such counterpart agreement to the Collateral Agent, notice of which is hereby waived by Grantors, each Additional Grantor shall be a Grantor and shall be as fully a party hereto as if Additional Grantor were an original signatory hereto. Each Grantor expressly agrees that its obligations arising hereunder shall not be affected or diminished by the addition or release of any other Grantor hereunder, nor by any election of Collateral Agent not to cause any Subsidiary of Company to become an Additional Grantor hereunder. This Agreement shall be fully effective as to any Grantor that is or becomes a party hereto regardless of whether any other Person becomes or fails to become or ceases to be a Grantor hereunder.
SECTION 6. COLLATERAL AGENT APPOINTED ATTORNEY-IN-FACT.
6.1 POWER OF ATTORNEY. Subject to the terms of the Intercreditor Agreement, each Grantor hereby irrevocably appoints the Collateral Agent (such appointment being coupled with an interest) as such Grantor's attorney-in-fact, with full authority in the place and stead of such Grantor and in the name of such Grantor, the Collateral Agent or otherwise, from time to time in the Collateral Agent's discretion to, subject to the terms of the Intercreditor Agreement, take any action and to execute any instrument that the Collateral Agent may deem reasonably necessary or advisable to accomplish the purposes of this Agreement, including, without limitation, the following:
(a) upon the occurrence and during the continuance of any Event of Default, to obtain and adjust insurance required to be maintained by such Grantor or paid to the Collateral Agent pursuant to the Credit Agreement;
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(b) upon the occurrence and during the continuance of any Event of Default, to ask for, demand, collect, sue for, recover, compound, receive and give acquittance and receipts for moneys due and to become due under or in respect of any of the Collateral;
(c) upon the occurrence and during the continuance of any Event of Default, to receive, endorse and collect any drafts or other instruments, documents and chattel paper in connection with clause (b) above;
(d) upon the occurrence and during the continuance of any Event of Default, to file any claims or take any action or institute any proceedings that the Collateral Agent may deem necessary or desirable for the collection of any of the Collateral or otherwise to enforce the rights of the Collateral Agent with respect to any of the Collateral;
(e) to prepare and file any UCC financing statements against such Grantor as debtor (a copy of any such UCC financing statements shall be forwarded to such Grantor);
(f) to prepare, sign, and file for recordation in any intellectual property registry, appropriate evidence of the lien and security interest granted herein in the Intellectual Property in the name of such Grantor as debtor;
(g) to take or cause to be taken all actions necessary to perform or comply or cause performance or compliance with the terms of this Agreement, including, without limitation, access to pay or discharge taxes or Liens (other than the First Priority Liens and Permitted Liens) levied or placed upon or threatened against the Collateral, the legality or validity thereof and the amounts necessary to discharge the same to be determined by the Collateral Agent in its sole discretion, any such payments made by the Collateral Agent to become obligations of such Grantor to the Collateral Agent, due and payable immediately without demand; and
(h) generally to sell, transfer, pledge, make any agreement with respect to or otherwise deal with any of the Collateral as fully and completely as though the Collateral Agent were the absolute owner thereof for all purposes, and to do, at the Collateral Agent's option and such Grantor's expense, at any time or from time to time, all acts and things that the Collateral Agent deems reasonably necessary to protect, preserve or, upon the occurrence and during the continuation of an Event of Default, realize upon the Collateral and the Collateral Agent's security interest therein in order to effect the intent of this Agreement, all as fully and effectively as such Grantor might do.
6.2 NO DUTY ON THE PART OF COLLATERAL AGENT OR SECURED PARTIES. The powers conferred on the Collateral Agent hereunder are solely to protect the interests of the Secured Parties in the Collateral and shall not impose any duty upon the Collateral Agent or any Secured Party to exercise any such powers. The Collateral Agent and the Secured Parties shall be accountable only for amounts that they actually receive as a result of the exercise of such powers, and neither they nor any of their officers, directors, employees or agents shall be responsible to any Grantor for any act or failure to act hereunder, except for their own gross negligence or willful misconduct.
SECTION 7. REMEDIES.
7.1 GENERALLY.
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(a) Subject to the terms of the Intercreditor Agreement, if any Event of Default shall have occurred and be continuing, the Collateral Agent may exercise in respect of the Collateral, in addition to all other rights and remedies provided for herein or otherwise available to it at law or in equity, all the rights and remedies of the Collateral Agent on default under the UCC (whether or not the UCC applies to the affected Collateral) to collect, enforce or satisfy any Secured Obligations then owing, whether by acceleration or otherwise, and also may pursue any of the following separately, successively or simultaneously:
(i) require any Grantor to, and each Grantor hereby agrees that it shall at its expense and promptly upon request of the Collateral Agent forthwith, assemble all or part of the Collateral as directed by the Collateral Agent and make it available to the Collateral Agent at a place to be designated by the Collateral Agent that is reasonably convenient to both parties;
(ii) enter onto the property where any Collateral is located and take possession thereof with or without judicial process;
(iii) prior to the disposition of the Collateral, store, process, repair or recondition the Collateral or otherwise prepare the Collateral for disposition in any manner to the extent the Collateral Agent deems appropriate; and
(iv) without notice except as specified below or under the UCC, sell, assign, lease, license (on an exclusive or nonexclusive basis) or otherwise dispose of the Collateral or any part thereof in one or more parcels at public or private sale, at any of the Collateral Agent's offices or elsewhere, for cash, on credit or for future delivery, at such time or times and at such price or prices and upon such other terms as the Collateral Agent may deem commercially reasonable.
(b) The Collateral Agent or any Secured Party may be the purchaser of any or all of the Collateral at any public or private (to the extent to the portion of the Collateral being privately sold is of a kind that is customarily sold on a recognized market or the subject of widely distributed standard price quotations) sale in accordance with the UCC and the Collateral Agent, as collateral agent for and representative of the Secured Parties, shall be entitled, for the purpose of bidding and making settlement or payment of the purchase price for all or any portion of the Collateral sold at any such sale made in accordance with the UCC, to use and apply any of the Secured Obligations as a credit on account of the purchase price for any Collateral payable by the Collateral Agent at such sale. Each purchaser at any such sale shall hold the property sold absolutely free from any claim or right on the part of any Grantor, and each Grantor hereby waives (to the extent permitted by applicable law) all rights of redemption, stay and/or appraisal which it now has or may at any time in the future have under any rule of law or statute now existing or hereafter enacted. Each Grantor agrees that, to the extent notice of sale shall be required by law, at least ten (10) days notice to such Grantor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. The Collateral Agent shall not be obligated to make any sale of Collateral regardless of notice of sale having been given. The Collateral Agent may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. Each Grantor agrees that it would not be commercially unreasonable for the Collateral Agent to dispose of the Collateral or any portion thereof by using Internet sites that provide for the auction of assets of the types included in the Collateral or that have the reasonable capability of doing so, or that match buyers
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and sellers of assets. Each Grantor hereby waives any claims against the Collateral Agent arising by reason of the fact that the price at which any Collateral may have been sold at such a private sale was less than the price which might have been obtained at a public sale, even if the Collateral Agent accepts the first offer received and does not offer such Collateral to more than one offeree. If the proceeds of any sale or other disposition of the Collateral are insufficient to pay all the Secured Obligations, Grantors shall be liable for the deficiency and the fees of any attorneys employed by the Collateral Agent to collect such deficiency. Each Grantor further agrees that a breach of any of the covenants contained in this Section will cause irreparable injury to the Collateral Agent, that the Collateral Agent has no adequate remedy at law in respect of such breach and, as a consequence, that each and every covenant contained in this Section shall be specifically enforceable against such Grantor, and such Grantor hereby waives and agrees not to assert any defenses against an action for specific performance of such covenants except for a defense that no default has occurred giving rise to the Secured Obligations becoming due and payable prior to their stated maturities. Nothing in this
Section shall in any way alter the rights of the Collateral Agent hereunder.
(c) The Collateral Agent may sell the Collateral without giving any warranties as to the Collateral. The Collateral Agent may specifically disclaim or modify any warranties of title or the like. This procedure will not be considered to adversely affect the commercial reasonableness of any sale of the Collateral.
(d) The Collateral Agent shall have no obligation to marshal any of the Collateral.
7.2 APPLICATION OF PROCEEDS. Except as expressly provided elsewhere in this Agreement and in the Intercreditor Agreement, all proceeds received by the Collateral Agent in respect of any sale, any collection from, or other realization upon all or any part of the Collateral shall be applied in full or in part by the Collateral Agent against, the Secured Obligations in the following order of priority: first, to the payment of all costs and expenses of such sale, collection or other realization, including reasonable compensation to the Collateral Agent and its agents and counsel, and all other expenses, liabilities and advances made or incurred by the Collateral Agent in connection therewith, and all amounts for which the Collateral Agent is entitled to indemnification hereunder (in its capacity as the Collateral Agent and not as a Lender) and all advances made by the Collateral Agent hereunder for the account of the applicable Grantor, and to the payment of all costs and expenses paid or incurred by the Collateral Agent in connection with the exercise of any right or remedy hereunder or under the Credit Agreement, all in accordance with the terms hereof or thereof; second, to the extent of any excess of such proceeds, to the payment of all other Secured Obligations for the ratable benefit of the Lenders; and third, subject to the provisions of the Intercreditor Agreement, to the extent of any excess of such proceeds, to the payment to or upon the order of such Grantor or to whosoever may be lawfully entitled to receive the same or as a court of competent jurisdiction may direct.
7.3 SALES ON CREDIT. If Collateral Agent sells any of the Collateral on credit, Grantor will be credited only with payments actually made by purchaser and received by Collateral Agent and applied to indebtedness of the purchaser. In the event the purchaser fails to pay for the Collateral, Collateral Agent may resell the Collateral and Grantor shall be credited with proceeds of the sale.
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7.4 DEPOSIT ACCOUNTS. If any Event of Default shall have occurred and be continuing, subject to the terms of the Intercreditor Agreement, the Collateral Agent may apply the balance from any Deposit Account or instruct the bank at which any Deposit Account is maintained to pay the balance of any Deposit Account to or for the benefit of the Collateral Agent.
7.5 INVESTMENT RELATED PROPERTY. Each Grantor recognizes that, by reason of certain prohibitions contained in the Securities Act and applicable state securities laws, the Collateral Agent may be compelled, with respect to any sale of all or any part of the Investment Related Property conducted without prior registration or qualification of such Investment Related Property under the Securities Act and/or such state securities laws, to limit purchasers to those who will agree, among other things, to acquire the Investment Related Property for their own account, for investment and not with a view to the distribution or resale thereof. Each Grantor acknowledges that any such private sale may be at prices and on terms less favorable than those obtainable through a public sale without such restrictions (including a public offering made pursuant to a registration statement under the Securities Act) and, notwithstanding such circumstances, each Grantor agrees that any such private sale shall be deemed to have been made in a commercially reasonable manner and that the Collateral Agent shall have no obligation to engage in public sales and no obligation to delay the sale of any Investment Related Property for the period of time necessary to permit the issuer thereof to register it for a form of public sale requiring registration under the Securities Act or under applicable state securities laws, even if such issuer would, or should, agree to so register it. Subject to the terms of the Intercreditor Agreement, if the Collateral Agent determines to exercise its right to sell any or all of the Investment Related Property, upon written request, each Grantor shall and shall cause each issuer of any Pledged Stock to be sold hereunder, each partnership and each limited liability company from time to time to furnish to the Collateral Agent all such information as the Collateral Agent may request in order to determine the number and nature of interest, shares or other instruments included in the Investment Related Property which may be sold by the Collateral Agent in exempt transactions under the Securities Act and the rules and regulations of the Securities and Exchange Commission thereunder, as the same are from time to time in effect. Notwithstanding anything to the contrary set forth herein, no Grantor shall be required to register any such Collateral under federal or state securities laws.
7.6 INTELLECTUAL PROPERTY.
(a) Anything contained herein to the contrary notwithstanding but subject to the terms of the Intercreditor Agreement, upon the occurrence and during the continuation of an Event of Default:
(i) the Collateral Agent shall have the right (but not the obligation) to bring suit or otherwise commence any action or proceeding in the name of any Grantor, the Collateral Agent or otherwise, in the Collateral Agent's reasonable discretion, to enforce any Intellectual Property, in which event such Grantor shall, at the request of the Collateral Agent, do any and all lawful acts and execute any and all documents reasonably required by the Collateral Agent in aid of such enforcement and such Grantor shall promptly, upon demand, reimburse and indemnify the Collateral Agent as provided in Section 10 hereof in connection with the exercise of its rights under this Section, and, to the extent that the Collateral Agent shall elect not to bring suit to
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enforce any Intellectual Property as provided in this Section, each Grantor agrees to use all reasonable measures, whether by action, suit, proceeding or otherwise, to prevent the infringement or other violation of any of such Grantor's rights in the Intellectual Property by others and for that purpose agrees to diligently maintain any action, suit or proceeding against any Person so infringing as shall be necessary to prevent such infringement or violation;
(ii) upon written demand from the Collateral Agent, each Grantor shall grant, assign, convey or otherwise transfer to the Collateral Agent an absolute assignment of all of such Grantor's right, title and interest in and to the Intellectual Property and shall execute and deliver to the Collateral Agent such documents as are necessary or appropriate to carry out the intent and purposes of this Agreement;
(iii) each Grantor agrees that such an assignment and/or recording shall be applied to reduce the Secured Obligations outstanding only to the extent that the Collateral Agent (or any Secured Party) receives cash proceeds in respect of the sale of, or other realization upon, the Intellectual Property;
(iv) within five (5) Business Days after written notice from the Collateral Agent, each Grantor shall make available to the Collateral Agent, to the extent within such Grantor's power and authority, such personnel in such Grantor's employ on the date of such Event of Default as the Collateral Agent may reasonably designate, by name, title or job responsibility, to permit such Grantor to continue, directly or indirectly, to produce, advertise and sell the products and services sold or delivered by such Grantor under or in connection with the Trademarks, Trademark Licenses, such persons to be available to perform their prior functions on the Collateral Agent's behalf and to be compensated by the Collateral Agent at such Grantor's expense on a per diem, pro-rata basis consistent with the salary and benefit structure applicable to each as of the date of such Event of Default; and
(v) the Collateral Agent shall have the right to notify, or require each Grantor to notify, any obligors with respect to amounts due or to become due to such Grantor in respect of the Intellectual Property, of the existence of the security interest created herein, to direct such obligors to make payment of all such amounts directly to the Collateral Agent, and, upon such notification and at the expense of such Grantor, to enforce collection of any such amounts and to adjust, settle or compromise the amount or payment thereof, in the same manner and to the same extent as such Grantor might have done;
(1) all amounts and proceeds (including checks and other instruments) received by Grantor in respect of amounts due to such Grantor in respect of the Collateral or any portion thereof shall be received in trust for the benefit of the Collateral Agent hereunder, shall be segregated from other funds of such Grantor and shall be forthwith paid over or delivered to the Collateral Agent in the same form as so received (with any necessary endorsement) to be held as cash Collateral and applied as provided by Section 7.7 hereof; and
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(2) Grantor shall not adjust, settle or compromise the amount or payment of any such amount or release wholly or partly any obligor with respect thereto or allow any credit or discount thereon.
(b) Subject to the terms of the Intercreditor Agreement, if
(i) an Event of Default shall have occurred and, by reason of cure, waiver, modification, amendment or otherwise, no longer be continuing, (ii) no other Event of Default shall have occurred and be continuing, (iii) an assignment or other transfer to the Collateral Agent of any rights, title and interests in and to the Intellectual Property shall have been previously made and shall have become absolute and effective, and (iv) the Secured Obligations shall not have become immediately due and payable, upon the written request of any Grantor, the Collateral Agent shall promptly execute and deliver to such Grantor, at such Grantor's sole cost and expense, such assignments or other transfer as may be necessary to reassign to such Grantor any such rights, title and interests as may have been assigned to the Collateral Agent as aforesaid, subject to any disposition thereof that may have been made by the Collateral Agent; provided, after giving effect to such reassignment, the Collateral Agent's security interest granted pursuant hereto, as well as all other rights and remedies of the Collateral Agent granted hereunder, shall continue to be in full force and effect; and provided further, the rights, title and interests so reassigned shall be free and clear of all Liens other than Liens (if any) encumbering such rights, title and interest at the time of their assignment to the Collateral Agent and other than the First Priority Liens and Permitted Liens.
(c) Solely for the purpose of enabling the Collateral Agent to exercise rights and remedies under this Section 7 and at such time as the Collateral Agent shall be lawfully entitled to exercise such rights and remedies, each Grantor hereby grants to the Collateral Agent, to the extent it has the right to do so, an irrevocable, nonexclusive license (exercisable without payment of royalty or other compensation to such Grantor), subject, in the case of Trademarks, to sufficient rights to quality control and inspection in favor of such Grantor to avoid the risk of invalidation of said Trademarks, to use, operate under, license, or sublicense any Intellectual Property now owned or hereafter acquired by such Grantor, and wherever the same may be located.
7.7 CASH PROCEEDS. Subject to the terms of the Intercreditor Agreement, in addition to the rights of the Collateral Agent specified in Section 4.3 with respect to payments of Receivables, if an Event of Default shall occur and be continuing, all proceeds of any Collateral received by any Grantor consisting of cash, checks and other near-cash items (collectively, "CASH PROCEEDS") shall be held by such Grantor in trust for the Collateral Agent, segregated from other funds of such Grantor, and shall, forthwith upon receipt by such Grantor, unless otherwise provided pursuant to Section 4.4(a)(ii), be turned over to the Collateral Agent in the exact form received by such Grantor (duly indorsed by such Grantor to the Collateral Agent, if required) and held by the Collateral Agent in the Collateral Account. With respect to any Cash Proceeds received by the Collateral Agent (whether from a Grantor or otherwise): (i) if no Event of Default shall have occurred and be continuing, such Cash Proceeds shall be returned to the applicable Grantor and (ii) if an Event of Default shall have occurred and be continuing, may, in the sole discretion of the Collateral Agent, (A) be held by the Collateral Agent for the ratable benefit of the Secured Parties, as collateral security for the Secured Obligations (whether matured or unmatured) and/or (B) then or at any time thereafter may be applied by the Collateral Agent against the Secured Obligations then due and owing.
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SECTION 8. COLLATERAL AGENT.
The Collateral Agent has been appointed to act as Collateral Agent hereunder by Lenders and, by their acceptance of the benefits hereof, the other Secured Parties. The Collateral Agent shall be obligated, and shall have the right hereunder, to make demands, to give notices, to exercise or refrain from exercising any rights, and to take or refrain from taking any action (including, without limitation, the release or substitution of Collateral), solely in accordance with this Agreement, the Credit Agreement and the Intercreditor Agreement. In furtherance of the foregoing provisions of this Section, each Secured Party, by its acceptance of the benefits hereof, agrees that it shall have no right individually to realize upon any of the Collateral hereunder, it being understood and agreed by such Secured Party that all rights and remedies hereunder may be exercised solely by the Collateral Agent for the benefit of the Secured Parties in accordance with the terms of this Section. Collateral Agent may resign at any time by giving written notice thereof to Lenders and the Grantors, and Collateral Agent may be removed at any time with or without cause by an instrument or concurrent instruments in writing delivered to the Grantors and Collateral Agent signed by the Requisite Lenders. Upon any such notice of resignation or any such removal, Requisite Lenders shall have the right, upon five (5) Business Days' notice to the Collateral Agent, following receipt of the Grantors' consent (which shall not be unreasonably withheld or delayed and which shall not be required while an Event of Default exists), to appoint a successor Collateral Agent. Upon the acceptance of any appointment as Administrative Agent under the terms of the Credit Agreement by a successor Administrative Agent, that successor Administrative Agent shall thereby also be deemed the successor Collateral Agent and such successor Collateral Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring or removed Collateral Agent under this Agreement, and the retiring or removed Collateral Agent under this Agreement shall promptly (i) transfer to such successor Collateral Agent all sums, Securities and other items of Collateral held hereunder, together with all records and other documents necessary or appropriate in connection with the performance of the duties of the successor Collateral Agent under this Agreement, and (ii) execute and deliver to such successor Collateral Agent such amendments to financing statements, and take such other actions, as may be necessary or appropriate in connection with the assignment to such successor Collateral Agent of the security interests created hereunder, whereupon such retiring or removed Collateral Agent shall be discharged from its duties and obligations under this Agreement. After any retiring or removed Collateral Agent's resignation or removal hereunder as the Collateral Agent, the provisions of this Agreement shall inure to its benefit as to any actions taken or omitted to be taken by it under this Agreement while it was the Collateral Agent hereunder.
SECTION 9. CONTINUING SECURITY INTEREST; TRANSFER OF LOANS.
This Agreement shall create a continuing security interest in the Collateral and shall remain in full force and effect until the payment in full of all Secured Obligations, be binding upon each Grantor, its successors and assigns, and inure, together with the rights and remedies of the Collateral Agent hereunder, to the benefit of the Collateral Agent and its successors, transferees and assigns. Without limiting the generality of the foregoing, but subject to the terms of the Credit Agreement, any Lender may assign or otherwise transfer any Loans held by it to any other Person, and such other Person shall thereupon become vested with all the benefits in respect thereof granted to Lenders herein or otherwise. Upon the payment in full of all Secured Obligations, the security interest granted hereby shall terminate hereunder and of record and all rights to the Collateral shall revert to Grantors. Thereafter, subject to the terms of the Intercreditor Agreement, this Agreement shall be reinstated if at any time any payment of any of
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the Obligations is rescinded or must otherwise be returned upon the insolvency, bankruptcy or reorganization of any Grantor or any other Person or otherwise, all as though the payment had not been made.Upon any such termination the Collateral Agent shall, at Grantors' expense, execute and deliver to Grantors such documents as Grantors shall reasonably request in writing to evidence such termination.
SECTION 10. STANDARD OF CARE; COLLATERAL AGENT MAY PERFORM.
The powers conferred on the Collateral Agent hereunder are solely to protect its interest in the Collateral and shall not impose any duty upon it to exercise any such powers. Except for the exercise of reasonable care in the custody of any Collateral in its possession and the accounting for moneys actually received by it hereunder, the Collateral Agent shall have no duty as to any Collateral or as to the taking of any necessary steps to preserve rights against prior parties or any other rights pertaining to any Collateral. The Collateral Agent shall be deemed to have exercised reasonable care in the custody and preservation of Collateral in its possession if such Collateral is accorded treatment substantially equal to that which the Collateral Agent accords its own property. Neither the Collateral Agent nor any of its directors, officers, employees or agents shall be liable for failure to demand, collect or realize upon all or any part of the Collateral or for any delay in doing so or shall be under any obligation to sell or otherwise dispose of any Collateral upon the request of any Grantor or otherwise. If any Grantor fails to perform any agreement contained herein, the Collateral Agent may itself perform, or cause performance of, such agreement, and the expenses of the Collateral Agent incurred in connection therewith shall be payable by each Grantor under Section 10.2 of the Credit Agreement.
SECTION 11. MISCELLANEOUS.
Any notice required or permitted to be given under this Agreement shall be given in accordance with Section 10.1 of the Credit Agreement. No failure or delay on the part of the Collateral Agent in the exercise of any power, right or privilege hereunder or under any other Credit Document shall impair such power, right or privilege or be construed to be a waiver of any default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other power, right or privilege. All rights and remedies existing under this Agreement and the other Credit Documents are cumulative to, and not exclusive of, any rights or remedies otherwise available. In case any provision in or obligation under this Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. All covenants hereunder shall be given independent effect so that if a particular action or condition is not permitted by any of such covenants, the fact that it would be permitted by an exception to, or would otherwise be within the limitations of, another covenant shall not, subject to the terms of the Intercreditor Agreement, avoid the occurrence of a Default or an Event of Default if such action is taken or condition exists. This Agreement shall be binding upon and inure to the benefit of the Collateral Agent and Grantors and their respective successors and assigns. No Grantor shall, without the prior written consent of the Collateral Agent given in accordance with the Credit Agreement, assign any right, duty or obligation hereunder. This Agreement and the other Credit Documents embody the entire agreement and understanding between Grantors and the Collateral Agent and supersede all prior agreements and understandings between such parties relating to the subject matter hereof and thereof. Accordingly, the Credit Documents may not be contradicted by evidence of prior, contemporaneous or subsequent oral agreements of the parties. There are no unwritten oral agreements between the parties. This
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Agreement may be executed in one or more counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument; signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document.
THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO ITS CONFLICTS OF LAW PROVISIONS (OTHER THAN SECTION 5-1401 AND SECTION 5-1402 OF THE NEW YORK GENERAL OBLIGATION LAWS).
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IN WITNESS WHEREOF, each Grantor and the Collateral Agent have caused this Agreement to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above.
AMERICAN REPROGRAPHICS COMPANY, L.L.C.,
By:

Name:

Title:
AMERICAN REPROGRAPHICS HOLDINGS, L.L.C.,
By:

Name:

Title:
ARC ACQUISITION CORPORATION
By:

Name: Mark W. Legg Title: Chief Financial Officer
BLUE PRINT SERVICE COMPANY, INC.
By:

Name: Mark W. Legg Title: Chief Financial Officer

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INPRINT CORPORATION
By:

Name: Mark W. Legg Title: Chief Financial Officer
RHODE ISLAND BLUEPRINT CO.
By:

Name: Mark W. Legg Title: Chief Financial Officer
OLYMPIC BLUEPRINT CO., INC.
By:

Name: Mark W. Legg Title: Chief Financial Officer
LEET-MELBROOK, INC.
By:

Name: Mark W. Legg Title: Chief Financial Officer
PENINSULA BLUEPRINT, INC.
By:

Name: Mark W. Legg Title: Chief Financial Officer

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STRATO REPROGRAPHIX, INC.
By:

Name: Mark W. Legg Title: Chief Financial Officer
QUALITY REPROGRAPHIC SERVICES, INC.
By:

Name: Mark W. Legg Title: Chief Financial Officer
MIRROR PLUS TECHNOLOGIES, INC.
By:

Name: Mark W. Legg Title: Chief Financial Officer
E. PAVILION, L.L.C.
By:

Name: Mark W. Legg Title: Chief Financial Officer
FRANKLIN GRAPHICS CORPORATION
By:

Name: Mark W. Legg Title: Chief Financial Officer

S-3
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ENGINEERING REPRO SYSTEMS, INC.
By:

Name: Mark W. Legg Title: Chief Financial Officer
WEST SIDE REPROGRAPHICS, INC.
By:

Name: Mark W. Legg Title: Chief Financial Officer
CITY BLUEPRINT AND SUPPLY CO.
By:

Name: Mark W. Legg Title: Chief Financial Officer
DUNN BLUE PRINT COMPANY
By:

Name: Mark W. Legg Title: Chief Financial Officer
TAMPA REPROGRAPHICS & SUPPLY COMPANY
By:

Name:

Title:
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OCB, LLC
By:

Name: Mark W. Legg Title: Chief Financial Officer
COMMERCIAL GRAPHICS CORPORATION
By:

Name: Mark W. Legg Title: Chief Financial Officer
FORD S.F., L.L.C.
By:

Name: Mark W. Legg Title: Chief Financial Officer
A&E ARCHITECTURAL & ENGINEERING SUPPLY
COMPANY
By:

Name: Mark W. Legg Title: Chief Financial Officer
APPLICAD GRAPHICS, L.L.C.
By:

Name: Mark W. Legg Title: Chief Financial Officer

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RIDGWAY'S, LTD.
By:

Name: Mark W. Legg Title: Chief Financial Officer
SOUTHWESTERN REPROGRAPHICS, INC.
By:

Name: Mark W. Legg Title: Chief Financial Officer
REPROGRAPHICS NORTHWEST, LLC
By:

Name: Mark W. Legg Title: Chief Financial Officer
WILCO REPROGRAPHICS, INC.
By:

Name: Mark W. Legg Title: Chief Financial Officer
BPI REPRO, LLC
By:

Name: Mark W. Legg Title: Chief Financial Officer

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RIDGWAY'S GP, LLC
By:

Name: Mark W. Legg Title: Chief Financial Officer
RIDGWAY'S LP, LLC
By:

Name: Mark W. Legg Title: Chief Financial Officer
THE PEIR GROUP, LLC
By:

Name: Mark W. Legg Title: Chief Financial Officer
THE PEIR GROUP INTERNATIONAL, LLC
By:

Name: Mark W. Legg Title: Chief Financial Officer
LICENSING SERVICES INTERNATIONAL, LLC
By:

Name: Mark W. Legg Title: Chief Financial Officer

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PLANWELL, LLC
By:

Name: Mark W. Legg Title: Chief Financial Officer
AMERICAN REPROGRAPHICS MIDCO, L.L.C.
By:

Name: Mark W. Legg Title: Chief Financial Officer

S-8
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GOLDMAN SACHS CREDIT PARTNERS, L.P.,
as the Collateral Agent
By:

Name:

Title:
S-9
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EXHIBIT 10.3
INTERCREDITOR AGREEMENT
This INTERCREDITOR AGREEMENT, is dated as of December 18, 2003, and entered into by and among AMERICAN REPROGRAPHICS COMPANY, L.L.C., a California limited liability company (the "COMPANY"), and GENERAL ELECTRIC CAPITAL CORPORATION ("GECC"), in its capacity as collateral agent for the First Lien Obligations (as defined below, including its successors and assigns from time to time (the "FIRST LIEN COLLATERAL AGENT"), and GOLDMAN SACHS CREDIT PARTNERS L.P. ("GSCP"), in its capacity as collateral agent for the Second Lien Obligations (as defined below, including its successors and assigns from time to time (the "SECOND LIEN COLLATERAL AGENT"). Capitalized terms used herein but not otherwise defined herein have the meanings set forth in Section 1 below.
RECITALS
WHEREAS, the Company, American Reprographics Holdings, L.L.C. ("HOLDINGS"), certain Subsidiaries of Company, the lenders party thereto, GSCP, as Lead Arranger and Syndication Agent, and GECC, as Administrative Agent and Collateral Agent, have entered into that Credit and Guaranty Agreement dated as of the date hereof providing for a revolving credit facility and term loan (as amended, restated, supplemented, modified or Refinanced from time to time, the "FIRST LIEN CREDIT AGREEMENT");
WHEREAS, the Company, Holdings, certain Subsidiaries of Company, the lenders party thereto, and GSCP, as Administrative Agent, Collateral Agent and Syndication Agent, have entered into that Credit and Guaranty Agreement dated as of the date hereof providing for a term loan (as amended, restated, supplemented, modified or Refinanced from time to time, the "SECOND LIEN CREDIT AGREEMENT");
WHEREAS, the obligations of the Company under the First Lien Credit Agreement and any Hedge Agreements with the First Lien Lenders (or any of their affiliates) will be secured by substantially all the assets of the Company, Holdings and certain Subsidiaries (such Subsidiaries and any future Subsidiaries of the Company providing a guaranty thereof, the "GUARANTOR SUBSIDIARIES"), respectively, pursuant to the terms of the First Lien Collateral Documents;
WHEREAS, the obligations of the Company under the Second Lien Credit Agreement will be secured by substantially all the assets of the Company, Holdings and the Guarantor Subsidiaries, respectively, pursuant to the terms of the Second Lien Collateral Documents;
WHEREAS, the First Lien Credit Documents and the Second Lien Credit Documents provide, among other things, that the parties thereto shall set forth in this Agreement their respective rights and remedies with respect to the Collateral; and
WHEREAS, in order to induce the First Lien Collateral Agent and the First Lien Claimholders to consent to the Grantors incurring the Second Lien Obligations and to induce the First Lien Claimholders to extend credit and other financial accommodations and lend monies to or for the benefit of the Company, or any other Grantor, the Second Lien Collateral Agent on
1
behalf of the Second Lien Claimholders has agreed to the subordination, intercreditor and other provisions set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing, the mutual covenants and obligations herein set forth and for other good and valuable consideration, the sufficiency and receipt of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows:
SECTION 1. DEFINITIONS.
1.1 Defined Terms. As used in the Agreement, the following terms shall have the following meanings:
"AGREEMENT" means this Agreement, as amended, renewed, extended, supplemented or otherwise modified from time to time in accordance with the terms hereof.
"ASSET SALE" as defined in the First Lien Credit Agreement.
"BANKRUPTCY CODE" means Title 11 of the United States Code entitled "Bankruptcy," as now and hereafter in effect, or any successor statute.
"BANKRUPTCY LAW" means the Bankruptcy Code and any similar federal, state or foreign law for the relief of debtors.
"BUSINESS DAY" any day excluding Saturday, Sunday and any day which is a legal holiday under the laws of the State of New York or is a day on which banking institutions located in such state are authorized or required by law or other governmental action to close.
"COLLATERAL" means all of the assets and property of any Grantor, whether real, personal or mixed, constituting both First Lien Collateral and Second Lien Collateral.
"COMPARABLE SECOND LIEN COLLATERAL DOCUMENT" means, in relation to any Collateral subject to any Lien created under any First Lien Collateral Document, that Second Lien Credit Document which creates a Lien on the same Collateral, granted by the same Grantor.
"DISCHARGE OF FIRST LIEN OBLIGATIONS" means, except to the extent otherwise provided in Section 5.6, (a) payment in full in cash of the principal of and interest (including interest accruing on or after the commencement of any Insolvency or Liquidation Proceeding, whether or not such interest would be allowed in such Insolvency or Liquidation Proceeding) and premium, if any, on all Indebtedness outstanding under the First Lien Credit Documents, (b) payment in full of all other First Lien Obligations that are due and payable or otherwise accrued and owing at or prior to the time such principal and interest are paid, (c) termination or cash collateralization (in an amount reasonably satisfactory to the First Lien Collateral Agent) of all letters of credit issued under the First Lien Credit Documents and (d) termination of all other commitments of the First Lien Claimholders under the First Lien Credit Documents.
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"FIRST LIEN CLAIMHOLDERS" means, at any relevant time, the holders of First Lien Obligations at such time, including without limitation the First Lien Lenders and the agents under the First Lien Credit Agreement.
"FIRST LIEN COLLATERAL AGENT" has the meaning set forth in the Recitals hereto.
"FIRST LIEN COLLATERAL" means all of the assets and property of any Grantor, whether real, personal or mixed, with respect to which a Lien is granted as security for any First Lien Obligations.
"FIRST LIEN COLLATERAL DOCUMENTS" means the Collateral Documents (as defined in the First Lien Credit Agreement) and any other agreement, document or instrument pursuant to which a Lien is granted securing any First Lien Obligations or under which rights or remedies with respect to such Liens are governed.
"FIRST LIEN CREDIT AGREEMENT" has the meaning set forth in the recitals hereto.
"FIRST LIEN CREDIT DOCUMENTS" means the First Lien Credit Agreement and the Credit Documents (as defined in the First Lien Credit Agreement) and each of the other agreements, documents and instruments providing for or evidencing any other First Lien Obligation, and any other document or instrument executed or delivered at any time in connection with any First Lien Obligations, including any intercreditor or joinder agreement among holders of First Lien Obligations, to the extent such are effective at the relevant time, as each may be modified from time to time; provided that any such modification does not increase the principal amount thereof beyond the aggregate principal amount of First Lien Obligations permitted under the Second Lien Credit Agreement on the date hereof (as such amount may be increased from time).
"FIRST LIEN LENDERS" means the "Lenders" under and as defined in the First Lien Credit Agreement.
"FIRST LIEN MORTGAGES" means a collective reference to each mortgage, deed of trust and any other document or instrument under which any Lien on real property owned by any Grantor is granted to secure any First Lien Obligations or under which rights or remedies with respect to any such Liens are governed.
"FIRST LIEN OBLIGATIONS" means all Obligations outstanding under the First Lien Credit Agreement and the other First Lien Credit Documents, including, without limitation, Hedge Agreements entered into with any First Lien Lender (or any of their affiliates). To the extent any payment with respect to the First Lien Obligations (whether by or on behalf of any Grantor, as proceeds of security, enforcement of any right of set-off or otherwise) is declared to be fraudulent or preferential in any respect, set aside or required to be paid to a debtor in possession, trustee, receiver or similar Person, then the obligation or part thereof originally intended to be satisfied shall be deemed to be reinstated and outstanding as if such payment had not occurred. "First Lien Obligations" shall include all interest accrued or accruing (or which would, absent commencement of an Insolvency or Liquidation Proceeding, accrue) after commencement of an Insolvency or Liquidation Proceeding in accordance with the rate specified
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in the relevant First Lien Credit Document whether or not the claim for such interest is allowed as a claim in such Insolvency or Liquidation Proceeding.
"GOVERNMENTAL AUTHORITY" means any federal, state, municipal, national or other government, governmental department, commission, board, bureau, court, agency or instrumentality or political subdivision thereof or any entity or officer exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to any government or any court, in each case whether associated with a state of the United States, the United States, or a foreign entity or government.
"GRANTORS" means the Company, Holdings and each of the Guarantor Subsidiaries that have executed and delivered, or may from time to time hereafter execute and deliver, a First Lien Collateral Document or a Second Lien Collateral Document.
"GUARANTOR SUBSIDIARIES" has the meaning set forth in the recitals hereto.
"HEDGE AGREEMENTS" means all interest rate or currency swaps, caps or collar agreements or similar arrangements entered into by the Company, Holdings or any of its Subsidiaries providing for protection against fluctuations in interest rates or currency exchange rates or the exchange of nominal interest obligations, either generally or under specific contingencies.
"HEDGING OBLIGATION" of any Person means any obligation of such Person pursuant to any Hedge Agreements.
"HOLDINGS" has the meaning set forth in the recitals hereto.
"INDEBTEDNESS" means and includes all Obligations that constitute "Indebtedness" within the meaning of the First Lien Credit Agreement or the Second Lien Credit Agreement.
"INSOLVENCY OR LIQUIDATION PROCEEDING" means (a) any voluntary or involuntary case or proceeding under the Bankruptcy Code with respect to any Grantor, (b) any other voluntary or involuntary insolvency, reorganization or bankruptcy case or proceeding, or any receivership, liquidation, reorganization or other similar case or proceeding with respect to any Grantor or with respect to a material portion of their respective assets, (c) any liquidation, dissolution, reorganization or winding up of any Grantor whether voluntary or involuntary and whether or not involving insolvency or bankruptcy or (d) any assignment for the benefit of creditors or any other marshalling of assets and liabilities of any Grantor.
"LIEN" means any lien, mortgage, pledge, assignment, security interest, charge or encumbrance of any kind (including any agreement to give any of the foregoing, any conditional sale or other title retention agreement, and any lease in the nature thereof) and any option, trust or other preferential arrangement having the practical effect of any of the foregoing.
"OBLIGATIONS" means any and all obligations with respect to the payment of (a) any principal of or interest or premium on any indebtedness, including any reimbursement obligation in respect of any letter of credit, or any other liability, including, without limitation,
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interest accruing after the filing of a petition initiating any proceeding under the Bankruptcy Code, (b) any fees, indemnification obligations, expense reimbursement obligations or other liabilities payable under the documentation governing any indebtedness, (c) any obligation to post cash collateral in respect of letters of credit or any other obligations or (d) any Hedging Obligations.
"PERSON" means and includes natural persons, corporations, limited partnerships, general partnerships, limited liability companies, limited liability partnerships, joint stock companies, joint ventures, associations, companies, trusts, banks, trust companies, land trusts, business trusts or other organizations, whether or not legal entities, and Governmental Authorities.
"PLEDGED COLLATERAL" has the meaning set forth in Section 5.5 hereof.
"RECOVERY" has the meaning set forth in Section 6.5 hereof.
"REFINANCE" means, in respect of any indebtedness, to refinance, extend, renew, defease, amend, modify, supplement, restructure, replace, refund or repay, or to issue other indebtedness, in exchange or replacement for, such indebtedness. "REFINANCED" and "REFINANCING" shall have correlative meanings.
"SECOND LIEN CLAIMHOLDERS" means, at any relevant time, the holders of Second Lien Obligations at such time, including without limitation the Second Lien Lenders and the agents under the Second Lien Credit Agreement.
"SECOND LIEN COLLATERAL" means all of the assets and property of any Grantor, whether real, personal or mixed, with respect to which a Lien is granted as security for any Second Lien Obligations.
"SECOND LIEN COLLATERAL AGENT" has the meaning set forth in the preamble hereof.
"SECOND LIEN COLLATERAL DOCUMENTS" means the Collateral Documents (as defined in the Second Lien Credit Agreement) and any other agreement, document or instrument pursuant to which a Lien is granted securing any Second Lien Obligations or under which rights or remedies with respect to such Liens are governed.
"SECOND LIEN CREDIT AGREEMENT" has the meaning set forth in the Recitals hereto.
"SECOND LIEN CREDIT DOCUMENTS" means the Second Lien Credit Agreement and the Loan Documents (as defined in the Second Lien Credit Agreement) and each of the other agreements, documents and instruments providing for or evidencing any other Second Lien Obligation, and any other document or instrument executed or delivered at any time in connection with any Second Lien Obligations, as the same may be modified from time to time; provided that any such modification does not increase the principal amount thereof beyond the limit set forth in the First Lien Credit Agreement and is otherwise in accordance with the provisions of the First Lien Credit Agreement.
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"SECOND LIEN LENDERS" means the "Lenders" under and as defined in the Second Lien Credit Agreement.
"SECOND LIEN MORTGAGES" means a collective reference to each mortgage, deed of trust and any other document or instrument under which any Lien on real property owned by any Grantor is granted to secure any Second Lien Obligations or under which rights or remedies with respect to any such Liens are governed.
"SECOND LIEN OBLIGATIONS" means all Obligations outstanding under the Second Lien Credit Agreement and the other Second Lien Credit Documents. To the extent any payment with respect to the Second Lien Obligations (whether by or on behalf of any Grantor, as proceeds of security, enforcement of any right of set-off or otherwise) is declared to be fraudulent or preferential in any respect, set aside or required to be paid to a debtor in possession, trustee, receiver or similar Person, then the obligation or part thereof originally intended to be satisfied shall be deemed to be reinstated and outstanding as if such payment had not occurred. "Second Lien Obligations" shall include all interest accrued or accruing (or which would, absent commencement of an Insolvency or Liquidation Proceeding, accrue) after commencement of an Insolvency or Liquidation Proceeding in accordance with the rate specified in the relevant Second Lien Credit Document whether or not the claim for such interest is allowed as a claim in such Insolvency or Liquidation Proceeding.
"STANDSTILL PERIOD" has the meaning set forth in Section 3.1 hereof.
"SUBSIDIARY" means, with respect to any Person, any corporation, partnership, limited liability company, association, joint venture or other business entity of which more than 50% of the total voting power of shares of stock or other ownership interests entitled (without regard to the occurrence of any contingency) to vote in the election of the Person or Persons (whether directors, managers, trustees or other Persons performing similar functions) having the power to direct or cause the direction of the management and policies thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof; provided, in determining the percentage of ownership interests of any Person controlled by another Person, no ownership interest in the nature of a "qualifying share" of the former Person shall be deemed to be outstanding.
"UNIFORM COMMERCIAL CODE" or "UCC" means the Uniform Commercial Code (or any similar or equivalent legislation) as in effect in any applicable jurisdiction.
1.2 Terms Generally. 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 (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified, (b) any reference herein to any Person shall be construed to include such Person's successors and assigns, (c) the words "herein", "hereof' and "hereunder", and words of similar
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import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (d) all references herein to Exhibits or Sections shall be construed to refer to Exhibits or Sections of this Agreement and (e) 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.
SECTION 2. LIEN PRIORITIES.
2.1 Relative Priorities. Notwithstanding the date, manner or order of grant, attachment or perfection of any Liens securing the Second Lien Obligations granted on the Collateral or of any Liens securing the First Lien Obligations granted on the Collateral and notwithstanding any provision of the UCC, or any applicable law or the Second Lien Credit Documents or any other circumstance whatsoever, the Second Lien Collateral Agent, on behalf of itself and the Second Lien Claimholders, hereby agrees that: (a) any Lien on the Collateral securing any First Lien Obligations now or hereafter held by or on behalf of the First Lien Collateral Agent or any First Lien Claimholders or any agent or trustee therefor, regardless of how acquired, whether by grant, possession, statute, operation of law, subrogation or otherwise, shall be senior in all respects and prior to any Lien on the Collateral securing any of the Second Lien Obligations; and (b) any Lien on the Collateral now or hereafter held by or on behalf of the Second Lien Collateral Agent, any Second Lien Claimholders or any agent or trustee therefor regardless of how acquired, whether by grant, possession, statute, operation of law, subrogation or otherwise, shall be junior and subordinate in all respects to all Liens on the Collateral securing any First Lien Obligations. All Liens on the Collateral securing any First Lien Obligations shall be and remain senior in all respects and prior to all Liens on the Collateral securing any Second Lien Obligations for all purposes, whether or not such Liens securing any First Lien Obligations are subordinated to any Lien securing any other obligation of the Company, any other Grantor or any other Person.
2.2 Prohibition on Contesting Liens. Each of the Second Lien Collateral Agent, for itself and on behalf of each Second Lien Claimholder, and the First Lien Collateral Agent, for itself and on behalf of each First Lien Claimholder, agrees that it shall not (and hereby waives any right to) contest or support any other Person in contesting, in any proceeding (including any Insolvency or Liquidation Proceeding), the priority, validity or enforceability of a Lien held by or on behalf of any of the First Lien Claimholders in the First Lien Collateral or by or on behalf of any of the Second Lien Claimholders in the Collateral, as the case may be; provided that nothing in this Agreement shall be construed to prevent or impair the rights of the First Lien Collateral Agent or any First Lien Claimholder to enforce this Agreement, including the priority of the Liens securing the First Lien Obligations as provided in Sections 2.1 and 3.1.
2.3 No New Liens. So long as the Discharge of First Lien Obligations has not occurred, the parties hereto agree that the Company shall not, and shall not permit any Guarantor Subsidiary to, (i) grant or permit any additional Liens on any asset or property to secure any Second Lien Obligation unless it has granted a Lien on such asset or property to secure the First Lien Obligations, and (ii) grant or permit any additional Liens on any asset to secure any First Lien Obligations unless it has granted a Lien on such asset to secure the Second Lien Obligations. To the extent that the foregoing provisions are not complied with for any reason, without limiting any other rights and remedies available to the First Lien Collateral Agent and/or
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the First Lien Claimholders, Second Lien Collateral Agent, on behalf of Second Lien Claimholders, agrees that any amounts received by or distributed to any of them pursuant to or as a result of Liens granted in contravention of this
Section 2.3 shall be subject to Section 4.2.
2.4 Similar Liens and Agreements. The parties hereto agree that it is their intention that the First Lien Collateral and the Second Lien Collateral be identical. In furtherance of the foregoing and of Section 8.10, the parties hereto agree, subject to the other provisions of this Agreement:
(a) upon request by the First Lien Collateral Agent or the Second Lien Collateral Agent, to cooperate in good faith (and to direct their counsel to cooperate in good faith) from time to time in order to determine the specific items included in the First Lien Collateral and the Second Lien Collateral and the steps taken to perfect their respective Liens thereon and the identity of the respective parties obligated under the First Lien Credit Documents and the Second Lien Credit Documents; and
(b) that the documents and agreements creating or evidencing the First Lien Collateral and the Second Lien Collateral and guarantees for the First Lien Obligations and the Second Lien Obligations shall be in all material respects the same forms of documents other than with respect to the First Lien and the Second Lien nature of the Obligations thereunder.
SECTION 3. ENFORCEMENT.
3.1 Exercise of Remedies. (a) So long as the Discharge of First Lien Obligations has not occurred, whether or not any Insolvency or Liquidation Proceeding has been commenced by or against the Company or any other Grantor:
(i) (x) the Second Lien Collateral Agent and the Second Lien Claimholders will not exercise or seek to exercise any rights or remedies (including setoff) with respect to any Collateral (including, without limitation, the exercise of any right under any lockbox agreement, control account agreement, landlord waiver or bailee's letter or similar agreement or arrangement to which the Second Lien Collateral Agent or any Second Lien Claimholder is a party) or institute any action or proceeding with respect to such rights or remedies (including any action of foreclosure); provided, however, that the Second Lien Collateral Agent may exercise any or all such rights after the passage of a period of 180 days from the date of delivery of a notice in writing to the First Lien Collateral Agent of its intention to exercise its right to take such actions (the "STANDSTILL PERIOD"); provided, further, however, notwithstanding anything herein to the contrary, in no event shall the Second Lien Collateral Agent or any Second Lien Claimholder exercise any rights or remedies with respect to the Collateral if, notwithstanding the expiration of the Standstill Period, the First Lien Collateral Agent or First Lien Claimholders shall have commenced the exercise of any of their rights or remedies with respect the Collateral and (y) will not contest, protest or object to any foreclosure proceeding or action brought by the First Lien Collateral Agent or any First Lien Claimholder or any other exercise by the First Lien Collateral Agent or any First Lien Claimholder, of any rights and remedies relating to the Collateral under the First Lien Credit Documents or otherwise, or (z) subject to its rights under clause (i)(x) above, object to the forbearance by the First Lien Collateral Agent or the First Lien Claimholders from bringing or pursuing any foreclosure proceeding or action or any other exercise of any rights or remedies relating to the Collateral, in each case so long as the respective interests of the Second Lien Claimholders attach to the
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proceeds thereof subject to the relative priorities described in Section 2 hereof and (ii) the First Lien Collateral Agent and the First Lien Claimholders shall have the exclusive right to enforce rights, exercise remedies (including set-off and the right to credit bid their debt) and make determinations regarding the release, disposition, or restrictions with respect to the Collateral without any consultation with or the consent of the Second Lien Collateral Agent or any Second Lien Claimholder; provided, that (A) in any Insolvency or Liquidation Proceeding commenced by or against the Company or any other Grantor, the Second Lien Collateral Agent may file a claim or statement of interest with respect to the Second Lien Obligations, (B) the Second Lien Collateral Agent may take any action (not adverse to the prior Liens on the Collateral securing the First Lien Obligations, or the rights of any First Lien Collateral Agent or the First Lien Claimholders to exercise remedies in respect thereof) in order to preserve or protect its Lien on the Collateral, (C) the Second Lien Claimholders shall be entitled to file any necessary responsive or defensive pleadings in opposition to any motion, claim, adversary proceeding or other pleading made by any person objecting to or otherwise seeking the disallowance of the claims of the Second Lien Claimholders, including without limitation any claims secured by the Collateral, if any, in each case in accordance with the terms of this Agreement (D) the Second Lien Claimholders shall be entitled to file any pleadings, objections, motions or agreements which assert rights or interests available to unsecured creditors of the Grantors arising under either the Bankruptcy Law or applicable non-bankruptcy law, in each case in accordance with the terms of this Agreement, (E) the Second Lien Claimholders shall be entitled to file any proof of claim and other filings and make any arguments and motions that are, in each case, in accordance with the terms of this Agreement, with respect to the Second Lien Obligations and the Collateral and (F) the Second Lien Collateral Agent or any Second Lien Claimholder may exercise any of its rights or remedies with respect to the Collateral after the termination of the Standstill Period in accordance with clause (i)(x) above. In exercising rights and remedies with respect to the Collateral, the First Lien Collateral Agent and the First Lien Claimholders may enforce the provisions of the First Lien Credit Documents and exercise remedies thereunder, all in such order and in such manner as they may determine in the exercise of their sole discretion. Such exercise and enforcement shall include the rights of an agent appointed by them to sell or otherwise dispose of Collateral upon foreclosure, to incur expenses in connection with such sale or disposition, and to exercise all the rights and remedies of a secured creditor under the Uniform Commercial Code of any applicable jurisdiction and of a secured creditor under Bankruptcy Laws of any applicable jurisdiction. Notwithstanding anything to the contrary set forth above, in the event that items (a), (b) and (c) of the definition of "Discharge of First Lien Obligations" have been satisfied but First Lien Claimholders have outstanding commitments under the First Lien Credit Agreement that have not been terminated, then the provisions of this Section 3.1(a) shall not be applicable.
(b) The Second Lien Collateral Agent, on behalf of itself and the Second Lien Claimholders, agrees that, it will not take or receive any Collateral or any proceeds of Collateral in connection with the exercise of any right or remedy (including setoff) with respect to any Collateral, unless and until the Discharge of First Lien Obligations has occurred (other than pursuant to clause (d) of the definition thereof), except as expressly provided in the proviso in clause (ii) of Section 3.1(a) of this Agreement. Without limiting the generality of the foregoing, unless and until the Discharge of First Lien Obligations has occurred, except as expressly provided in the proviso in clause
(ii) of Section 3.1(a) of this Agreement, the sole right of the Second Lien Collateral Agent and the Second Lien Claimholders with respect to the Collateral is
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to hold a Lien on the Collateral pursuant to the Second Lien Collateral Documents for the period and to the extent granted therein and to receive a share of the proceeds thereof, if any, after the Discharge of the First Lien Obligations has occurred in accordance with the terms of the Second Lien Credit Documents and applicable law. Notwithstanding anything to the contrary set forth above, in the event that items (a), (b) and (c) of the definition of "Discharge of First Lien Obligations" have been satisfied but First Lien Claimholders have outstanding commitments under the First Lien Credit Agreement that have not been terminated, then the provisions of this Section 3.1(b) shall not be applicable
(c) Subject to the proviso in clause (ii) of Section 3.1(a) of this Agreement, (i) the Second Lien Collateral Agent, for itself and on behalf of the Second Lien Claimholders, agrees that the Second Lien Collateral Agent and the Second Lien Claimholders will not take any action that would hinder any exercise of remedies under the First Lien Credit Documents, including any sale, lease, exchange, transfer or other disposition of the Collateral, whether by foreclosure or otherwise, and (ii) the Second Lien Collateral Agent, for itself and on behalf of the Second Lien Claimholders, hereby waives any and all rights it or the Second Lien Claimholders may have as a junior lien creditor or otherwise to object to the manner in which the First Lien Collateral Agent or the First Lien Claimholders seek to enforce or collect the First Lien Obligations or the Liens granted in any of the First Lien Collateral, regardless of whether any action or failure to act by or on behalf of the First Lien Collateral Agent or First Lien Claimholders is adverse to the interest of the Second Lien Claimholders.
(d) The Second Lien Collateral Agent hereby acknowledges and agrees that no covenant, agreement or restriction contained in the Second Lien Collateral Documents or any other Second Lien Credit Document shall be deemed to restrict in any way the rights and remedies of the First Lien Collateral Agent or the First Lien Claimholders with respect to the Collateral as set forth in this Agreement and the First Lien Credit Documents.
3.2 Cooperation. Subject to its rights after the expiration of the Standstill Period and subject to the proviso in clause (ii) of Section 3.1(a) of this Agreement, the Second Lien Collateral Agent, on behalf of itself and the Second Lien Claimholders, agrees that, unless and until the Discharge of First Lien Obligations has occurred, it will not commence, or join with any Person in commencing, any enforcement, collection, execution, levy or foreclosure action or proceeding (including, without limitation, any Insolvency or Liquidation Proceeding) with respect to any Lien held by it under the Second Lien Collateral Documents or any other Second Lien Credit Document or otherwise.
SECTION 4. PAYMENTS.
4.1 Application of Proceeds. So long as the Discharge of First Lien Obligations has not occurred, any proceeds of Collateral received in connection with the sale or other disposition of, or collection on, such Collateral upon the exercise of remedies, shall be applied by the First Lien Collateral Agent to the First Lien Obligations in such order as specified in the relevant First Lien Credit Documents. Upon the Discharge of the First Lien Obligations, the First Lien Collateral Agent shall deliver to the Second Lien Collateral Agent any proceeds of Collateral held by it in the same form as received, with any necessary endorsements or as a court of competent jurisdiction may otherwise direct to be applied by the Second Lien Collateral Agent to
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the Second Lien Obligations in such order as specified in the Second Lien Collateral Documents. Notwithstanding anything to the contrary set forth above, in the event that items (a), (b) and (c) of the definition of "Discharge of First Lien Obligations" have been satisfied but First Lien Claimholders have outstanding commitments under the First Lien Credit Agreement that have not been terminated, then the provision of this Section 4.1 shall not be applicable.
4.2 Payments Over. So long as the Discharge of First Lien Obligations has not occurred, any Collateral or proceeds thereof (together with assets or proceeds subject to Liens referred to in the final sentence of Section 2.3) received by the Second Lien Collateral Agent or any Second Lien Claimholders in connection with the exercise of any right or remedy (including set-off) relating to the Collateral in contravention of this Agreement shall be segregated and held in trust and forthwith paid over to the First Lien Collateral Agent for the benefit of the First Lien Claimholders in the same form as received, with any necessary endorsements or as a court of competent jurisdiction may otherwise direct. The First Lien Collateral Agent is hereby authorized to make any such endorsements as agent for the Second Lien Collateral Agent or any such Second Lien Claimholders. This authorization is coupled with an interest and is irrevocable until such time as this Agreement is terminated in accordance with its terms.
SECTION 5. OTHER AGREEMENTS.
5.1 Releases.
(a) If, in connection with:
(i) the exercise of any First Lien Collateral Agent's remedies in respect of the Collateral provided for in Section 3.1, including any sale, lease, exchange, transfer or other disposition of any such Collateral;
(ii) any sale, lease, exchange, transfer or other disposition of any Collateral permitted under the terms of the First Lien Credit Documents (whether or not an event of default thereunder, and as defined therein, has occurred and is continuing); or
(iii) any agreement (not contravening the First Lien Credit Documents) between the First Lien Collateral Agent and the Company or any other Grantor to release the First Lien Collateral Agent's Lien on any portion of the Collateral or to release any Grantor from its obligations under its guaranty of the First Lien Obligations; provided that no such release shall be made pursuant to this clause (iii) by First Lien Collateral Agent of Collateral valued in excess of an aggregate $5,000,000 per annum without the consent of the Second Lien Collateral Agent which the Second Lien Collateral Agent agrees, for itself and (after due consideration of the interests of Second Lien Claimholders only) on behalf of the Second Lien Claimholders shall not be unreasonably withheld or delayed,
the First Lien Collateral Agent, for itself or on behalf of any of the First Lien Claimholders, releases any of its Liens on any part of the Collateral, or releases any Grantor from its obligations under its guaranty of the First Lien Obligations, in each case other than (i) in connection with the Discharge of First Lien Obligations and (ii) after the occurrence and during the continuance of any Event of Default under the Second Lien Credit Agreement, then the Liens, if any, of the Second Lien Collateral Agent, for itself or for the benefit of the Second Lien Claimholders, on
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such Collateral, and the obligations of such Grantor under its guaranty of the Second Lien Obligations, shall be automatically, unconditionally and simultaneously released and the Second Lien Collateral Agent, for itself or on behalf of any such Second Lien Claimholders, promptly shall execute and deliver to the First Lien Collateral Agent or such Grantor such termination statements, releases and other documents as the First Lien Collateral Agent or such Grantor may request to effectively confirm such release.
(b) Until the Discharge of First Lien Obligations occurs, the Second Lien Collateral Agent, for itself and on behalf of the Second Lien Claimholders, hereby irrevocably constitutes and appoints the First Lien Collateral Agent and any officer or agent of the First Lien Collateral Agent, with full power of substitution, as its true and lawful attorney-in-fact with full irrevocable power and authority in the place and stead of the Second Lien Collateral Agent or such holder or in the First Lien Collateral Agent's own name, from time to time in the First Lien Collateral Agent's discretion, for the purpose of carrying out the terms of this Section 5.1, to take any and all appropriate action and to execute any and all documents and instruments which may be necessary or desirable to accomplish the purposes of this Section 5.1, including any endorsements or other instruments of transfer or release.
(c) In the event that First Lien Obligations at any date of determination no longer constitute at least 15% of the total outstanding First Lien Obligations plus the Second Lien Obligations of the Grantors, then any agreement provided for in Section 5.1(a)(iii) above (except for releases given in connection with an Assets Sale) shall require the consent of First Lien Claimholders and Second Lien Claimholders representing in the aggregate more than 50% of the sum of the First Lien Obligations plus the Second Lien Obligations.
(d) Until the Discharge of First Lien Obligations occurs, to the extent that the First Lien Claimholders (i) have released any Lien on Collateral or any Grantor from its obligation under its guaranty and any such Liens or guaranty are later reinstated or (ii) obtain any, new first priority liens or additional guarantys from Grantors, then the Second Lien Claimholders shall be granted a second priority lien on any such Collateral and an additional guaranty, as the case may be.
5.2 Insurance. Unless and until the Discharge of First Lien Obligations has occurred, the First Lien Collateral Agent and the First Lien Claimholders shall have the sole and exclusive right, subject to the rights of the Grantors under the First Lien Credit Documents, to adjust settlement for any insurance policy covering the Collateral in the event of any loss thereunder and to approve any award granted in any condemnation or similar proceeding (or any deed in lieu of condemnation) affecting the Collateral. Unless and until the Discharge of First Lien Obligations has occurred, and subject to the rights of the Grantors under the First Lien Collateral Documents, all proceeds of any such policy and any such award (or any payments with respect to a deed in lieu of condemnation) if in respect to the Collateral shall be paid to the First Lien Collateral Agent for the benefit of the First Lien Claimholders pursuant to the terms of the First Lien Credit Documents (including, without limitation, for purposes of cash collateralization of commitments, letters of credit and Hedge Agreements) and thereafter, to the extent no First Lien Obligations are outstanding, to the Second Lien Collateral Agent for the benefit of the Second Lien Claimholders to the extent required under the Second Lien Collateral Documents and then, to the extent no Second Lien Obligations are outstanding, to the owner of the subject property,
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such other Person as may be entitled thereto or as a court of competent jurisdiction may otherwise direct. Until the Discharge of First Lien Obligations has occurred, if the Second Lien Collateral Agent or any Second Lien Claimholders shall, at any time, receive any proceeds of any such insurance policy or any such award or payment in contravention of this Agreement, it shall pay such proceeds over to the First Lien Collateral Agent in accordance with the terms of Section 4.2 of this Agreement.
5.3 Amendments to Second Lien Collateral Documents.
(a) Without the prior written consent of the First Lien Collateral Agent, no Second Lien Collateral Document may be amended, supplemented or otherwise modified or entered into to the extent such amendment, supplement or modification, or the terms of any new Second Lien Collateral Document, would contravene the provisions of this Agreement. The Company agrees that each Second Lien Collateral Document shall include the following language (or language to similar effect approved by the First Lien Collateral Agent):
"Notwithstanding anything herein to the contrary, the lien and security interest granted to the Second Lien Collateral Agent pursuant to this Agreement and the exercise of any right or remedy by the Second Lien Collateral Agent hereunder are subject to the provisions of the Intercreditor Agreement, dated as of December 18, 2003 (as amended, restated, supplemented or otherwise modified from time to time, the "INTERCREDITOR AGREEMENT"), among American Reprographics Company, L.L.C., General Electric Capital Corporation, as First Lien Collateral Agent, Goldman Sachs Credit Partners L.P., as Second Lien Collateral Agent and certain other persons party or that may become party thereto from time to time. In the event of any conflict between the terms of the Intercreditor Agreement and this Agreement, the terms of the Intercreditor Agreement shall govern and control."
In addition, the Company agrees that each Second Lien Mortgage covering any Collateral shall contain such other language as the First Lien Collateral Agent may reasonably request to reflect the subordination of such Second Lien Mortgage to the First Lien Collateral Document covering such Collateral.
(b) In the event any First Lien Collateral Agent or the First Lien Claimholders and the relevant Grantor enter into any amendment, waiver or consent in respect of any of the First Lien Collateral Documents for the purpose of adding to, or deleting from, or waiving or consenting to any departures from any provisions of, any First Lien Collateral Document or changing in any manner the rights of the First Lien Collateral Agent, such First Lien Claimholders, the Company or any other Grantor thereunder, then such amendment, waiver or consent shall apply automatically to any comparable provision of the Second Lien Credit Agreement and the Comparable Second Lien Collateral Document without the consent of the Second Lien Collateral Agent or the Second Lien Claimholders and without any action by the Second Lien Collateral Agent, the Company or any other Grantor, provided, that (A) no such amendment, waiver or consent shall have the effect of (i) removing assets subject to the Lien of
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the Second Lien Collateral Documents, except to the extent that a release of such Lien is permitted by Section 5.1 of this Agreement and provided that there is a corresponding release of the Lien securing the First Lien Obligations, (ii) imposing duties on the Second Lien Collateral Agent without its consent, (iii) permitting other liens on the Collateral not permitted under the terms of the Second Lien Credit Documents or Section 6 hereof or (iv) increasing the aggregate amount of the First Lien Obligations in excess of the amount permitted by Section 6.1(n) of the Second Lien Credit Agreement and (B) notice of such amendment, waiver or consent shall have been given to the Second Lien Collateral Agent within ten (10) Business Days after the effective date of such amendment, waiver or consent.
5.4 Rights As Unsecured Creditors. Except as otherwise set forth in
Section 2.1 of this Agreement, the Second Lien Collateral Agent and the Second Lien Claimholders may exercise rights and remedies as unsecured creditors against the Company or any Guarantor Subsidiary that has guaranteed the Second Lien Obligation in accordance with the terms of the Second Lien Credit Documents and applicable law. Except as otherwise set forth in Section 2.1 of this Agreement, nothing in this Agreement shall prohibit the receipt by the Second Lien Collateral Agent or any Second Lien Claimholders of the required payments of interest and principal so long as such receipt is not the direct or indirect result of the exercise by the Second Lien Collateral Agent or any Second Lien Claimholders of rights or remedies as a secured creditor (including set-off) or enforcement in contravention of this Agreement of any Lien held by any of them. Nothing in this Agreement impairs or otherwise adversely affects any rights or remedies the First Lien Collateral Agent or the First Lien Claimholders may have with respect to the First Lien Collateral.
5.5 Bailee for Perfection.
(a) The First Lien Collateral Agent agrees to hold that part of the Collateral that is in its possession or control (or in the possession or control of its agents or bailees) to the extent that possession thereof is taken to perfect a Lien thereon under the Uniform Commercial Code (such Collateral being the "PLEDGED COLLATERAL") as bailee for the First Lien Claimholders and the Second Lien Collateral Agent and any assignee solely for the purpose of perfecting the security interest granted under the First Lien Credit Documents and the Second Lien Credit Documents, subject to the terms and conditions of this Section 5.5.
(b) Subject to the terms of this Agreement, until the Discharge of First Lien Obligations has occurred, the First Lien Collateral Agent shall be entitled to deal with the Pledged Collateral in accordance with the terms of the First Lien Credit Documents as if the Liens of the Second Lien Collateral Agent under the Second Lien Collateral Documents did not exist. The rights of the Second Lien Collateral Agent shall at all times be subject to the terms of this Agreement and to the First Lien Collateral Agent's rights under the First Lien Credit Documents.
(c) The First Lien Collateral Agent shall have no obligation whatsoever to the First Lien Claimholders and the Second Lien Collateral Agent or any Second Lien Claimholder to ensure that the Pledged Collateral is genuine or owned by any of the Grantors or to preserve rights or benefits of any Person except as expressly set forth in this Section 5.5. The duties or
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responsibilities of the First Lien Collateral Agent under this Section 5.5 shall be limited solely to holding the Pledged Collateral as bailee in accordance with this Section 5.5.
(d) The First Lien Collateral Agent acting pursuant to this Section 5.5 shall not have by reason of the First Lien Collateral Documents, the Second Lien Collateral Documents, this Agreement or any other document a fiduciary relationship in respect of the First Lien Claimholders, the Second Lien Collateral Agent or any Second Lien Claimholder.
(e) Upon the Discharge of the First Lien Obligations under the First Lien Credit Documents to which the First Lien Collateral Agent is a party, the First Lien Collateral Agent shall deliver the remaining Pledged Collateral (if any) together with any necessary endorsements, first, to the Second Lien Collateral Agent to the extent Second Lien Obligations remain outstanding, and second, to the Company to the extent no First Lien Obligations or Second Lien Obligations remain outstanding (in each case, so as to allow such Person to obtain control of such Pledged Collateral). The First Lien Collateral Agent further agrees to take all other action reasonably requested by such Person in connection with such Person obtaining a first-priority interest in the Collateral or as a court of competent jurisdiction may otherwise direct.
5.6 When Discharge of First Lien Obligations Deemed to Not Have Occurred. If at any time after the Discharge of First Lien Obligations has occurred the Company immediately thereafter enters into any refinancing or replacement of any First Lien Credit Document evidencing a First Lien Obligation, then such Discharge of First Lien Obligations shall automatically be deemed not to have occurred for all purposes of this Agreement (other than with respect to any actions taken prior to the date of such designation as a result of the occurrence of such first Discharge of First Lien Obligations), and the obligations under such refinancing/replacement First Lien Credit Document shall automatically be treated as First Lien Obligations for all purposes of this Agreement, including for purposes of the Lien priorities and rights in respect of Collateral set forth herein, and the First Lien Collateral Agent under such First Lien Credit Documents shall be a First Lien Collateral Agent for all purposes of this Agreement. Upon receipt of a notice stating that the Company has entered into a new First Lien Credit Document (which notice shall include the identity of the new collateral agent, such agent, the "NEW AGENT"), the Second Lien Collateral Agent shall promptly (a) enter into such documents and agreements (including amendments or supplements to this Agreement) as the Company or such New Agent shall reasonably request in order to provide to the New Agent the rights contemplated hereby, in each case consistent in all material respects with the terms of this Agreement and (b) deliver to the New Agent the Pledged Collateral together with any necessary endorsements (or otherwise allow the New Agent to obtain control of such Pledged Collateral). If the new First Lien Obligations under the new First Lien Credit Documents are secured by assets of the Grantors of the type constituting Collateral that do not also secure the Second Lien Obligations, then the Second Lien Obligations shall be secured at such time by a second priority Lien on such assets to the same extent provided in the Second Lien Collateral Documents.
5.7 Purchase Right. Without prejudice to the enforcement of the First Lien Claimholders remedies, the First Lien Claimholders agree at any time following an acceleration of the First Lien Obligations in accordance with the terms of the First Lien Credit Agreement, the First Lien Claimholders will offer the Second Lien Claimholders the option to purchase the
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aggregate amount of outstanding First Lien Obligations at par, without warranty or representation or recourse, on a pro rata basis across First Lien Claimholders. The Second Lien Claimholders shall accept or reject such offer within ten (10) Business Days of the receipt thereof and the parties shall endeavor to close promptly thereafter. If the Second Lien Claimholders accept such offer, it shall be exercised pursuant to documentation mutually acceptable to each of the First Lien Collateral Agent and the Second Lien Collateral Agent. If the Second Lien Claimholders reject such offer, the First Lien Claimholders shall have no further obligations pursuant to this Section 5.7 and may take any further actions in its sole discretion in accordance with the First Lien Credit Documents and this Agreement.
SECTION 6. INSOLVENCY OR LIQUIDATION PROCEEDINGS.
6.1 Finance and Sale Issues. Until the Discharge of First Lien Obligations has occurred, if the Company or any other Grantor shall be subject to any Insolvency or Liquidation Proceeding and the First Lien Collateral Agent shall desire to permit the use of cash collateral on which the First Lien Collateral Agent or any other creditor has a Lien or to permit the Company or any other Grantor to obtain financing, whether from the First Lien Claimholders or any other entity under Section 363 or Section 364 of Title 11 of the United States Code or any similar Bankruptcy Law (each, a "DIP FINANCING"), then the Second Lien Collateral Agent, on behalf of itself and the Second Lien Claimholders, agrees that it will raise no objection to such use of cash collateral or DIP Financing and will not request adequate protection or any other relief in connection therewith (except, as expressly agreed by the First Lien Collateral Agent or to the extent permitted by Section 6.3) and, to the extent the Liens securing the First Lien Obligations are subordinated or pari passu with such DIP Financing, the Second Lien Collateral Agent will subordinate its Liens in the Collateral to the Liens securing such DIP Financing (and all Obligations relating thereto). The Second Lien Claimholders Agent on behalf of the Second Lien Claimholders, agrees that it will raise no objection or oppose a sale or other disposition of any Collateral free and clear of its Liens or other claims under Section 363 of the Bankruptcy Code if the First Lien Claimholders have consented to such sale or disposition of such assets.
6.2 Relief from the Automatic Stay. Until the Discharge of First Lien Obligations has occurred, the Second Lien Collateral Agent, on behalf of itself and the Second Lien Claimholders, agrees that none of them shall seek relief from the automatic stay or any other stay in any Insolvency or Liquidation Proceeding in respect of the Collateral, without the prior written consent of the First Lien Collateral Agent.
6.3 Adequate Protection. The Second Lien Collateral Agent, on behalf of itself and the Second Lien Claimholders, agrees that none of them shall contest (or support any other person contesting) (a) any request by the First Lien Collateral Agent or the First Lien Claimholders for adequate protection or (b) any objection by the First Lien Collateral Agent or the First Lien Claimholders to any motion, relief, action or proceeding based on the First Lien Collateral Agent or the First Lien Claimholders claiming a lack of adequate protection. Notwithstanding the foregoing provisions in this Section 6.3, in any Insolvency or Liquidation Proceeding, (i) if the First Lien Claimholders (or any subset thereof) are granted adequate protection in the form of additional collateral in connection with any DIP Financing, then the Second Lien Collateral Agent, on behalf of itself or any of the Second Lien Claimholders, may seek or request adequate protection in the form of a Lien on such additional collateral, which
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Lien will be subordinated to the Liens securing the First Lien Obligations and such DIP Financing (and all Obligations relating thereto) on the same basis as the other Liens securing the Second Lien Obligations are so subordinated to the First Lien Obligations under this Agreement, and (ii) in the event the Second Lien Collateral Agent, on behalf of itself and the Second Lien Claimholders, seeks or requests adequate protection in respect of Second Lien Obligations and such adequate protection is granted in the form of additional collateral, then the Second Lien Collateral Agent, on behalf of itself or any of the Second Lien Claimholders, agrees that the First Lien Collateral Agent shall also be granted a senior Lien on such additional collateral as security for the First Lien Obligations and for any such DIP Financing provided by the First Lien Claimholders and that any Lien on such additional collateral securing the Second Lien Obligations shall be subordinated to the Liens on such collateral securing the First Lien Obligations and any such DIP Financing provided by the First Lien Claimholders (and all Obligations relating thereto) and to any other Liens granted to the First Lien Claimholders as adequate protection on the same basis as the other Liens securing the Second Lien Obligations are so subordinated to such First Lien Obligations under this Agreement.
6.4 No Waiver. Subject to the proviso in clause (ii) of Section 3.1(a) of this Agreement, nothing contained herein shall prohibit or in any way limit the First Lien Collateral Agent or any First Lien Claimholder from objecting in any Insolvency or Liquidation Proceeding or otherwise to any action taken by the Second Lien Collateral Agent or any of the Second Lien Claimholders, including the seeking by the Second Lien Collateral Agent or any Second Lien Claimholders of adequate protection or the asserting by the Second Lien Collateral Agent or any Second Lien Claimholders of any of its rights and remedies under the Second Lien Credit Documents or otherwise.
6.5 Avoidance Issues. If any First Lien Claimholder is required in any Insolvency or Liquidation Proceeding or otherwise to turn over or otherwise pay to the estate of the Company or any other Grantor any amount (a "RECOVERY"), then such First Lien Claimholders shall be entitled to a reinstatement of First Lien Obligations with respect to all such recovered amounts. If this Agreement shall have been terminated prior to such Recovery, this Agreement shall be reinstated in full force and' effect, and such prior termination shall not diminish, release, discharge, impair or otherwise affect the obligations of the parties hereto from such date of reinstatement.
6.6 Reorganization Securities. If, in any Insolvency or Liquidation Proceeding, debt obligations of the reorganized debtor secured by Liens upon any property of the reorganized debtor are distributed, pursuant to a plan of reorganization or similar dispositive restructuring plan, both on account of First Lien Obligations and on account of Second Lien Obligations, then, to the extent the debt obligations distributed on account of the First Lien Obligations and on account of the Second Lien Obligations are secured by Liens upon the same property, the provisions of this Agreement will survive the distribution of such debt obligations pursuant to such plan and will apply with like effect to the Liens securing such debt obligations.
6.7 Post-Petition Interest.
(a) Neither the Second Lien Collateral Agent nor any Second Lien Claimholder shall oppose or seek to challenge any claim by the First Lien Collateral Agent or
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any First Lien Claimholder for allowance in any Insolvency or Liquidation Proceeding of First Lien Obligations consisting of post-petition interest, fees or expenses to the extent of the value of the First Lien Claimholder's Lien, without regard to the existence of the Lien of the Second Lien Collateral Agent on behalf of the Second Lien Claimholders on the Collateral.
(b) Neither the First Lien Collateral Agent nor any other First Lien Claimholder shall oppose or seek to challenge any claim by the Second Lien Collateral Agent or any Second Lien Claimholder for allowance in any Insolvency or Liquidation Proceeding of Second Lien Obligations consisting of post-petition interest, fees or expenses to the extent of the value of the Lien of the Second Lien Collateral Agent on behalf of the Second Lien Claimholders on the Collateral (after taking into account the First Lien Collateral).
6.8 Waiver. The Second Lien Collateral Agent, for itself and on behalf of the Second Lien Claimholders, waives any claim it may hereafter have against any First Lien Claimholder arising out of the election of any First Lien Claimholder of the application of Section 1111(b)(2) of the Bankruptcy Code, and/or out of any cash collateral or financing arrangement or out of any grant of a security interest in connection with the Collateral in any Insolvency or Liquidation Proceeding.
SECTION 7. RELIANCE; WAIVERS; ETC.
7.1 Reliance. Other than any reliance on the terms of this Agreement, the First Lien Collateral Agent, on behalf of itself and the First Lien Claimholders under its First Lien Credit Documents, acknowledges that it and such First Lien Claimholders have, independently and without reliance on the Second Lien Collateral Agent or any Second Lien Claimholders, and based on documents and information deemed by them appropriate, made their own credit analysis and decision to enter into such First Lien Credit Documents and be bound by the terms of this Agreement and they will continue to make their own credit decision in taking or not taking any action under the First Lien Credit Agreement or this Agreement. The Second Lien Collateral Agent, on behalf of itself and the Second Lien Claimholders, acknowledges that it and the Second Lien Claimholders have, independently and without reliance on the First Lien Collateral Agent or any First Lien Claimholder, and based on documents and information deemed by them appropriate, made their own credit analysis and decision to enter into each of the Second Lien Credit Documents and be bound by the terms of this Agreement and they will continue to make their own credit decision in taking or not taking any action under the Second Lien Credit Documents or this Agreement.
7.2 No Warranties or Liability. The First Lien Collateral Agent, on behalf of itself and the First Lien Claimholders under its First Lien Credit Documents, acknowledges and agrees that each of the Second Lien Collateral Agent and the Second Lien Claimholders have made no express or implied representation or warranty, including with respect to the execution, validity, legality, completeness, collectibility or enforceability of any of the Second Lien Credit Documents, the ownership of any Collateral or the perfection or priority of any Liens thereon. The Second Lien Claimholders will be entitled to manage and supervise their respective loans and extensions of credit under the Second Lien Credit Documents in accordance with law and as they may otherwise, in their sole discretion, deem appropriate. The Second Lien Collateral Agent, on behalf of itself and the Second Lien Obligations, acknowledges and agrees that the
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First Lien Collateral Agent and the First Lien Claimholders have made no express or implied representation or warranty, including with respect to the execution, validity, legality, completeness, collectibility or enforceability of any of the First Lien Documents, the ownership of any Collateral or the perfection or priority of any Liens thereon. The First Lien Claimholders will be entitled to manage and supervise their respective loans and extensions of credit under their respective First Lien Documents in accordance with law and as they may otherwise, in their sole discretion, deem appropriate. The Second Lien Collateral Agent and the Second Lien Claimholders shall have no duty to the First Lien Collateral Agent or any of the First Lien Claimholders, and the First Lien Collateral Agent and the First Lien Claimholders shall have no duty to the Second Lien Collateral Agent or any of the Second Lien Claimholders, to act or refrain from acting in a manner which allows, or results in, the occurrence or continuance of an event of default or default under any agreements with the Company or any Guarantor Subsidiary (including the First Lien Credit Documents and the Second Lien Credit Documents), regardless of any knowledge thereof which they may have or be charged with.
7.3 No Waiver of Lien Priorities.
(a) No right of the First Lien Claimholders, the First Lien Collateral Agent or any of them to enforce any provision of this Agreement or any First Lien Credit Document shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company or any other Grantor or by any act or failure to act by any First Lien Claimholder or the First Lien Collateral Agent, or by any noncompliance by any Person with the terms, provisions and covenants of this Agreement, any of the First Lien Credit Documents or any of the Second Lien Credit Documents, regardless of any knowledge thereof which the First Lien Collateral Agent or the First Lien Claimholders, or any of them, may have or be otherwise charged with;
(b) Without in any way limiting the generality of the foregoing paragraph (but subject to the rights of the Company and the other Grantors under the First Lien Credit Documents and subject to the provisions of Section 5.3(b)), the First Lien Claimholders, the First Lien Collateral Agent and any of them may, at any time and from time to time in accordance with the First Lien Credit Documents and/or applicable law, without the consent of, or notice to, the Second Lien Collateral Agent or any Second Lien Claimholders, without incurring any liabilities to the Second Lien Collateral Agent or any Second Lien Claimholders and without impairing or releasing the Lien priorities and other benefits provided in this Agreement (even if any right of subrogation or other right or remedy of the Second Lien Collateral Agent or any Second Lien Claimholders is affected, impaired or extinguished thereby) do any one or more of the following:
(i) change the manner, place or terms of payment or change or extend the time of payment of, or amend, renew, exchange, increase or alter, the terms of any of the First Lien Obligations or any Lien on any First Lien Collateral or guaranty thereof or any liability of the Company or any other Grantor, or any liability incurred directly or indirectly in respect thereof (including any increase in or extension of the First Lien Obligations, without any restriction as to the amount, tenor or terms of any such increase or extension) or otherwise amend, renew, exchange, extend, modify or supplement in any manner any Liens held by the
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First Lien Collateral Agent or any of the First Lien Claimholders, the First Lien Obligations or any of the First Lien Credit Documents;
(ii) sell, exchange, release, surrender, realize upon, enforce or otherwise deal with in any manner and in any order any part of the First Lien Collateral or any liability of the Company or any other Grantor to the First Lien Claimholders or the First Lien Collateral Agent, or any liability incurred directly or indirectly in respect thereof;
(iii) settle or compromise any First Lien Obligation or any other liability of the Company or any other Grantor or any security therefor or any liability incurred directly or indirectly in respect thereof and apply any sums by whomsoever paid and however realized to any liability (including the First Lien Obligations) in any manner or order; and
(iv) exercise or delay in or refrain from exercising any right or remedy against the Company or any security or any other Grantor or any other Person, elect any remedy and otherwise deal freely with the Company, any other Grantor or any First Lien Collateral and any security and any guarantor or any liability of the Company or any other Grantor to the First Lien Claimholders or any liability incurred directly or indirectly in respect thereof.
(c) The Second Lien Collateral Agent, on behalf of itself and the Second Lien Claimholders, also agrees that the First Lien Claimholders and the First Lien Collateral Agent shall have no liability to the Second Lien Collateral Agent or any Second Lien Claimholders, and the Second Lien Collateral Agent, on behalf of itself and the Second Lien Claimholders, hereby waives any claim against any First Lien Claimholder or the First Lien Collateral Agent, arising out of any and all actions which the First Lien Claimholders or the First Lien Collateral Agent may take or permit or omit to take with respect to:
(i) the First Lien Credit Documents, (ii) the collection of the First Lien Obligations or (iii) the foreclosure upon, or sale, liquidation or other disposition of, any First Lien Collateral. The Second Lien Collateral Agent, on behalf of itself and the Second Lien Claimholders, agrees that the First Lien Claimholders and the First Lien Collateral Agent have no duty to them in respect of the maintenance or preservation of the First Lien Collateral, the First Lien Obligations or otherwise; and
(d) The Second Lien Collateral Agent, on behalf of itself and the Second Lien Claimholders, agrees not to assert and hereby waives, to the fullest extent permitted by law, any right to demand, request, plead or otherwise assert or otherwise claim the benefit of, any marshalling, appraisal, valuation or other similar right that may otherwise be available under applicable law with respect to the Collateral or any other similar rights a junior secured creditor may have under applicable law.
7.4 Obligations Unconditional. All rights, interests, agreements and obligations of the First Lien Collateral Agent and the First Lien Claimholders and the Second Lien Collateral Agent and the Second Lien Claimholders, respectively, hereunder shall remain in full force and effect irrespective of:
(a) any lack of validity or enforceability of any First Lien Credit Documents or any Second Lien Credit Documents;
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(b) except as otherwise set forth in the Agreement, any change in the time, manner or place of payment of, or in any other terms of, all or any of the First Lien Obligations or Second Lien Obligations, or any amendment or waiver or other modification, including any increase in the amount thereof, whether by course of conduct or otherwise, of the terms of any First Lien Credit Document or any Second Lien Credit Document;
(c) any exchange of any security interest in any Collateral or any other collateral, or any amendment, waiver or other modification, whether in writing or by course of conduct or otherwise, of all or any of the First Lien Obligations or Second Lien Obligations or any guarantee thereof;
(d) the commencement of any Insolvency or Liquidation Proceeding in respect of the Company or any other Grantor; or
(e) any other circumstances which otherwise might constitute a defense available to, or a discharge of, the Company or any other Grantor in respect of the First Lien Obligations, or of the Second Lien Collateral Agent or any Second Lien Claimholder in respect of this Agreement.
SECTION 8. MISCELLANEOUS.
8.1 Conflicts. In the event of any conflict between the provisions of this Agreement and the provisions of the First Lien Credit Documents or the Second Lien Credit Documents, the provisions of this Agreement shall govern and control.
8.2 Effectiveness; Continuing Nature of this Agreement; Severability. This Agreement shall become effective when executed and delivered by the parties hereto. This is a continuing agreement of lien subordination and the First Lien Claimholders may continue, at any time and without notice to the Second Lien Collateral Agent or any Second Lien Claimholder subject to the Second Lien Credit Documents, to extend credit and other financial accommodations and lend monies to or for the benefit of the Company or any Grantor constituting First Lien Obligations in reliance hereof. The Second Lien Collateral Agent, on behalf of itself and the Second Lien Claimholders, hereby waives any right it may have under applicable law to revoke this Agreement or any of the provisions of this Agreement. The terms of this Agreement shall survive, and shall continue in full force and effect, in any Insolvency or Liquidation Proceeding. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall not invalidate the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. All references to the Company or any other Grantor shall include the Company or such Grantor as debtor and debtor-in-possession and any receiver or trustee for the Company or any other Grantor (as the case may be) in any Insolvency or Liquidation Proceeding. This Agreement shall terminate and be of no further force and effect, (i) with respect to the Second Lien Collateral Agent, the Second Lien Claimholders and the Second Lien Obligations, upon the later of (1) the date upon which the obligations under the Second Lien Credit Agreement terminate if there are no other Second Lien Obligations outstanding on such date and (2) if there are other Second Lien Obligations outstanding on such date, the date upon which such Second Lien Obligations terminate and (ii) with respect to the First Lien Collateral
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Agent, the First Lien Claimholders and the First Lien Obligations, the date of Discharge of First Lien Obligations, subject to the rights of the First Lien Claimholders under Section 6.5.
8.3 Amendments; Waivers. No amendment, modification or waiver of any of the provisions of this Agreement by the Second Lien Collateral Agent or the First Lien Collateral Agent shall be deemed to be made unless the same shall be in writing signed on behalf of each party hereto or its authorized agent and each waiver, if any, shall be a waiver only with respect to the specific instance involved and shall in no way impair the rights of the parties making such waiver or the obligations of the other parties to such party in any other respect or at any other time. Notwithstanding the foregoing, the Company shall not have any right to consent to or approve any amendment, modification or waiver of any provision of this Agreement except to the extent its rights are directly affected (which includes, but is not limited to any amendment to the Grantors' ability to cause additional obligations to constitute First Lien Obligations or Second Lien Obligations as the Company may designate).
8.4 Information Concerning Financial Condition of the Company and its Subsidiaries. The First Lien Collateral Agent and the First Lien Claimholders, on the one hand, and the Second Lien Claimholders and the Second Lien Collateral Agent, on the other hand, shall each be responsible for keeping themselves informed of (a) the financial condition of the Company and its Subsidiaries and all endorsers and/or guarantors of the First Lien Obligations or the Second Lien Obligations and (b) all other circumstances bearing upon the risk of nonpayment of the First Lien Obligations or the Second Lien Obligations. The First Lien Collateral Agent and the First Lien Claimholders shall have no duty to advise the Second Lien Collateral Agent or any Second Lien Claimholder of information known to it or them regarding such condition or any such circumstances or otherwise. In the event the First Lien Collateral Agent or any of the First Lien Claimholders, in its or their sole discretion, undertakes at any time or from time to time to provide any such information to the Second Lien Collateral Agent or any Second Lien Claimholder, it or they shall be under no obligation (w) to make, and the First Lien Collateral Agent and the First Lien Claimholders shall not make, any express or implied representation or warranty, including with respect to the accuracy, completeness, truthfulness or validity of any such information so provided, (x) to provide any additional information or to provide any such information on any subsequent occasion, (y) to undertake any investigation or (z) to disclose any information which, pursuant to accepted or reasonable commercial finance practices, such party wishes to maintain confidential or is otherwise required to maintain confidential.
8.5 Subrogation. The Second Lien Collateral Agent, on behalf of itself and the Second Lien Claimholders, hereby waives any rights of subrogation it may acquire as a result of any payment hereunder until the Discharge of First Lien Obligations has occurred.
8.6 Application of Payments. All payments received by the First Lien Collateral Agent or the First Lien Claimholders may be applied, reversed and reapplied, in whole or in part, to such part of the First Lien Obligations provided for in the First Lien Credit Documents. The Second Lien Collateral Agent, on behalf of itself and the Second Lien Claimholders, assents to any extension or postponement of the time of payment of the First Lien Obligations or any part thereof and to any other indulgence with respect thereto, to any substitution, exchange or release of any security which may at any time secure any part of the First Lien Obligations and to the addition or release of any other Person primarily or secondarily liable therefor.
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8.7 SUBMISSION TO JURISDICTION; WAIVERS. (a) ALL
JUDICIAL PROCEEDINGS BROUGHT AGAINST ANY PARTY ARISING OUT OF OR RELATING HERETO MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE, COUNTY AND CITY OF NEW YORK. BY EXECUTING AND DELIVERING THIS AGREEMENT, EACH PARTY, FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, IRREVOCABLY (a) ACCEPTS GENERALLY AND UNCONDITIONALLY THE NONEXCLUSIVE JURISDICTION AND VENUE OF SUCH COURTS; (b) WAIVES ANY DEFENSE OF FORUM NON CONVENIENS; (c) AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN ANY SUCH COURT MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO THE APPLICABLE PARTY AT ITS ADDRESS PROVIDED IN ACCORDANCE WITH SECTION 8.9; AND (d) AGREES THAT SERVICE AS PROVIDED IN CLAUSE (c) ABOVE IS SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER THE APPLICABLE PARTY IN ANY SUCH PROCEEDING IN ANY SUCH COURT, AND OTHERWISE CONSTITUTES EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT.
(b) EACH OF THE PARTIES HERETO HEREBY AGREES TO WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING HEREUNDER. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER HEREOF, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS. EACH PARTY HERETO ACKNOWLEDGES THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH HAS ALREADY RELIED ON THIS WAIVER IN ENTERING INTO THIS AGREEMENT, AND THAT EACH WILL CONTINUE TO RELY ON THIS WAIVER IN ITS RELATED FUTURE DEALINGS. EACH PARTY HERETO FURTHER WAR-RANTS AND REPRESENTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING (OTHER THAN BY A MUTUAL WRITTEN WAIVER SPECIFICALLY REFERRING TO THIS SECTION
8.7(b) AND EXECUTED BY EACH OF THE PARTIES HERETO), AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS HERETO. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
8.8 Each of the parties hereto waives any right it may have to trial by jury in respect of any litigation based on, or arising out of, under or in connection with this Agreement or any other First Lien Credit Document or Second Lien Credit Document, or any course of conduct, course of dealing, verbal or written statement or action of any party hereto.
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8.9 Notices. All notices to the Second Lien Claimholders and the First Lien Claimholders permitted or required under this Agreement shall also be sent to the Second Lien Collateral Agent and the First Lien Collateral Agent, respectively. Unless otherwise specifically provided herein, any notice or other communication herein required or permitted to be given shall be in writing and may be personally served, electronically mailed or sent by courier service or U.S. mail and shall be deemed to have been given when delivered in person or by courier service, upon receipt of electronic mail or four Business Days after deposit in the U.S. mail (registered or certified, with postage prepaid and properly addressed). For the purposes hereof, the addresses of the parties hereto shall be as set forth below each party's name on the signature pages hereto, or, as to each party, at such other address as may be designated by such party in a written notice to all of the other parties.
8.10 Further Assurances. The First Lien Collateral Agent, on behalf of itself and the First Lien Claimholders under its First Lien Credit Documents, and the Second Lien Collateral Agent, on behalf of itself and the Second Lien Claimholders, and the Company, agrees that each of them shall take such further action and shall execute and deliver such additional documents and instruments (in recordable form, if requested) as the First Lien Collateral Agent or the Second Lien Collateral Agent may reasonably request to effectuate the terms of and the lien priorities contemplated by this Agreement.
8.11 APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
8.12 Binding on Successors and Assigns. This Agreement shall be binding upon the First Lien Collateral Agent, the First Lien Claimholders, the Second Lien Collateral Agent, the Second Lien Claimholders and their respective successors and assigns.
8.13 Specific Performance. Each of the First Lien Collateral Agent and the Second Lien Collateral Agent may demand specific performance of this Agreement. The First Lien Collateral Agent, on behalf of itself and the First Lien Claimholders under its First Lien Credit Documents, and the Second Lien Collateral Agent, on behalf of itself and the Second Lien Claimholders, hereby irrevocably waives any defense based on the adequacy of a remedy at law and any other defense which might be asserted to bar the remedy of specific performance in any action which may be brought by any First Lien Collateral Agent or the Second Lien Collateral Agent, as the case may be.
8.14 Headings. Section headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose or be given any substantive effect.
8.15 Counterparts. This Agreement may be executed in counterparts (and by different parties hereto in different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. Delivery of an executed counterpart of a signature page of this Agreement or any document or instrument delivered in connection herewith by telecopy shall be effective as delivery of a manually executed counterpart of this Agreement or such other document or instrument, as applicable.
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8.16 Authorization. By its signature, each Person executing this Agreement on behalf of a party hereto represents and warrants to the other parties hereto that it is duly authorized to execute this Agreement.
8.17 No Third Party Beneficiaries. This Agreement and the rights and benefits hereof shall inure to the benefit of each of the parties hereto and its respective successors and assigns and shall inure to the benefit of each of the First Lien Claimholders and the Second Lien Claimholders. No other Person shall have or be entitled to assert rights or benefits hereunder.
8.18 Provisions Solely to Define Relative Rights. The provisions of this Agreement are and are intended solely for the purpose of defining the relative rights of the First Lien Claimholders on the one hand and the Second Lien Claimholders on the other hand. None of the Company, any other Grantor or any other creditor thereof shall have any rights hereunder. Nothing in this Agreement is intended to or shall impair the obligations of the Company or any other Grantor, which are absolute and unconditional, to pay the First Lien Obligations and the Second Lien Obligations as and when the same shall become due and payable in accordance with their terms.
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IN WITNESS WHEREOF, the parties hereto have executed this Intercreditor Agreement as of the date first written above.
FIRST LIEN COLLATERAL AGENT
GENERAL ELECTRIC CAPITAL CORPORATION,
 as First Lien Collateral Agent,

By: /s/ WOODROW BROADERS, JR.
    -----------------------------------------
Name: Woodrow Broaders, Jr.
Title: As Its Duly Authorized Signatory	

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SECOND LIEN COLLATERAL AGENT
GOLDMAN SACHS CREDIT PARTNERS L.P.,
 as Second Lien Collateral Agent,

By: /s/ W.W. Archer
    -----------------------------------------
Name: William Archer
Title: Authorized Signatory	

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THE COMPANY
AMERICAN REPROGRAPHICS COMPANY, L.L.C.,

By: /s/ M. W. LEGG
    -----------------------------------------
Name: _______________________________________
Title: ______________________________________	

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EXHIBIT 10.4
2004 Bonus Plan - Mark Legg
1. Financial results of the Blair, Dieterich Post and Commercial Divisions:
a) Blair: Bonus is paid based upon the financial results of this division for the 12 months ended December 31, 2004, based upon the division successfully achieving the "20/20 vision plan". A bonus of $100,000 will be earned upon the achievement of the 20/20 goals. Bonus will be prorated down for performance below 20/20, with a zero bonus being earned upon performance at 10/10 or less. Successful accomplishment of 20/20 goal is to be determined by the CEO of ARC.
b) Dietrich Post: Bonus is paid based upon the financial results of this division for the 12 months ended December 31, 2004, based upon the division successfully achieving the "20/20 vision plan". A bonus of $100,000 will be earned upon the achievement of the 20/20 goals. Bonus will be prorated down for performance below 20/20, with a zero bonus being earned upon performance at 10/10 or less. Successful accomplishment of 20/20 goal is to be determined by the CEO of ARC.
c) Commercial: Bonus is paid based upon the financial results of this division for the 12 months ended December 31, 2004, based upon the division successfully achieving the "20/20 vision plan". A bonus of $100,000 will be earned upon the achievement of the 20/20 goals. Bonus will be prorated down for performance below 20/20, with a zero bonus being earned upon performance at 10/10 or less. Successful accomplishment of 20/20 goal is to be determined by the CEO of ARC.
2. Debt Payment
A bonus of $100,000 will be earned assuming $30,700,000 is paid down in bank debt by December 31, 2004. The debt repayment amount will be increased or decreased, as appropriate, by the change in ARC cash balance from December 31, 2003 to December 31, 2004, and will be decreased by the amount of acquisition cash paid during the year. A zero bonus will be earned for debt payment below $30,700,000. The bonus will be increased by $10,000 for every $1,000,000 in additional debt repaid above $30,700,000.
3. Divisional Cash Flow:
A bonus of $100,000 will be earned based upon the achievement of 100% of divisional cash flow to ARC divided by divisional EBDA for the year ended December 31, 2004. A zero bonus will be earned below 100%. The bonus will be increased by $25,000 for every percentage point achieved above 100%.
If the Company's EBIT margin is equal to or less than 10% for the year ended December 31, 2004, then no bonus will be earned in any category. In this situation, the CEO of the Company will determine the bonus amount based upon his evaluation of Mark's performance.
$210,000, of the bonus is to be paid on July 31, 2004 and the remainder on February 15, 2005.
Approved:

/s/ S. CHANDRAMOHAN
----------------------------
         3/24/04	

EXHIBIT 10.5
AMERICAN REPROGRAPHICS HOLDINGS, L.L.C.
UNIT OPTION PLAN II
(As Adopted Effective as of January 1, 2001)
ARTICLE 1. ESTABLISHMENT, PURPOSE AND DURATION
(a) Establishment of the Plan. American Reprographics Holdings, L.L.C., a California limited liability company (the "Company"), hereby establishes a unit option plan known as the American Reprographics Holdings, L.L.C. Unit Option Plan II (the "Plan"), as set forth in this document. The Plan permits the grant of options to purchase Units of the Company. The Plan shall become effective on January 1, 2001 (the "Effective Date"), and shall remain in effect as provided in Section 1(c).
(b) Purposes of the Plan. The purposes of the Plan are to promote greater equity ownership in the Company by those persons who are principally responsible for its future growth and continued success; to more closely link the personal interests of Employees to those of the Company's Members and; to provide flexibility to the Company and its Subsidiaries in their ability to motivate, attract and retain the services of Employees upon whose judgment, initiative and special effort the continued success of the Company depends.
(c) Duration of the Plan. The Plan shall commence on the Effective Date, and shall remain in effect, subject to the right of the Board, to amend or terminate the Plan at any time pursuant to Article 10, until the day immediately preceding the tenth anniversary of the Effective Date, provided, however, that no amendment shall extend the duration of the Plan.
ARTICLE 2. DEFINITIONS
In addition to terms defined in other Articles of the Plan, the following terms, with the initial letter capitalized, shall have the meanings indicated below for purposes of the Plan:
(a) "Board" means the Board of Advisors as defined in the Operating Agreement.
(b) "Employee" means any employee or any independent advisor of the Company or Subsidiary and any member of the Board or member of the board of directors or advisors of a Subsidiary; provided, however, that a Manager shall not be an Employee.
(c) "Fair Market Value" means the fair market value of a Unit determined as of any particular date by the Board, on a fully diluted basis assuming the exercise or conversion of all then exercisable options, warrants, and other rights to purchase Units and, to the extent that the Board in its discretion determines to be appropriate, the exercise or conversion of such options, warrants, and other rights to purchase Units that are not then exercisable or convertible.
(d) "Manager" means the Manager as defined in the Operating Agreement.
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(e) "Operating Agreement" means the Amended and Restated Operating Agreement of American Reprographics Holdings, L.L.C., dated as of April 10, 2000, as amended from time to time, or its successor.
(f) "Option" means, individually or collectively, any grant under this Plan of an option to purchase Units.
(g) "Option Agreement" means an agreement entered into between the Company and a Participant, setting forth the terms and conditions to the grant of an Option to the Participant under this Plan.
(h) "Option Price" means the price at which a Unit may be purchased by a Participant pursuant to an Option.
(i) "Participant" means an Employee to whom an Option has been granted under the Plan.
(j) "Subsidiary" means any corporation, partnership, joint venture, company, or other entity in which the Company has a majority voting or profits interest, either direct or indirect.
(k) "Unit" means a Common Unit, as defined in the Operating Agreement.
ARTICLE 3. ADMINISTRATION
Except as otherwise provided herein, the Plan shall be administered by the Board and the Board shall have full power and authority to construe and interpret the Plan and any agreement or instrument entered into under the Plan and establish, amend or waive rules and regulations for the Plan's administration. Unless otherwise provided herein, all elections to be made hereunder shall be made by a majority of the Board; provided, however, that if the Managers or Investor Members exercise their respective rights under Section 11.1 or Action 11.2 of the Operating Agreement, then for purposes of Section 7 of this Plan, the Board shall act at the direction of the party exercising such rights.
ARTICLE 4. UNITS SUBJECT TO THE PLAN
(a) Number of Units. Subject to adjustments as provided in Section 4(c) hereof, the aggregate number of Units for which Options may be granted under the Plan shall not exceed 1,735,415 Units. At no time shall the total number of Units issuable upon the exercise of all outstanding Options and the total number of Units provided for under any Unit bonus or similar plan of the Company exceed the applicable percentage as calculated in accordance with the conditions and exclusions of California Commissioner of Corporations Rule 260.140.45, based upon the Units of the Company which are outstanding at the time the calculation is made.
(b) Canceled and Expired Options. If all or any portion of an Option is canceled or expires for any reason, then the number of Units that were not purchased pursuant to exercise of that Option, or portion thereof, shall again be available for Options under the Plan.
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The number of Units attributable to exercise of an Option that were redeemed pursuant to Article 9 shall again be available for Options under the Plan.
(c) Adjustments in Number of Units. Subject to the terms of the Operating Agreement, in the event of any change in the capitalization of the Company, including a Unit split, reverse split, Unit dividend, recapitalization or reclassification, and to prevent dilution or enlargement of rights under this Plan, an adjustment, as the Board in its sole discretion determines to be appropriate and equitable, shall be made in the number of Units or the number and kind of other interests in the Company which may be delivered under the Plan and in the number and price of Units or other interests subject to outstanding Options granted under the Plan.
ARTICLE 5. ELIGIBILITY AND PARTICIPATION
Any Employee of the Company or any Subsidiary whose judgment, initiative and efforts contribute or may be expected to contribute materially to the successful performance of the Company and its Subsidiaries shall be eligible to receive an Option under the Plan. In determining the Employees to whom Options will be granted, the Board shall take into account the duties and responsibilities of the respective Employees, their present and potential contributions to the success of the Company and any Subsidiary and such other factors as the Board shall deem relevant in connection with accomplishing the purpose of the Plan.
ARTICLE 6. OPTIONS
(a) Grant of Options. Subject to the terms and conditions of the Plan, the Board may, at any time, grant an Option to an Employee, provided the grant to such employee is subject to the approval of the Manager. The aggregate number of Units for which Options may be granted under the Plan in any fiscal year of the Company shall not exceed the number determined by the Board for that year. The pool of Options designated by the Board to be granted in any fiscal year shall be allocated by the Manager to the officers and employees of the Company and its Subsidiaries (other than the Managers).
(b) Option Agreement. Each Option granted under the Plan shall be evidenced by an Option Agreement between the Participant and the Company that contains such provisions as the Board determines are necessary or desirable and consistent with the terms and conditions of the Plan and the Operating Agreement. The provisions of the Option Agreements need not be the same for each Option.
(c) Option Price. The Option Price of each Unit for which an Option may be exercised shall be established by the Board, provided, however, that the Option Price shall not be less than eighty-five percent (85%) of the Fair Market Value of such Unit at the time such Option is granted, or, in the case of a person who owns Units possessing more than ten percent (10%) of the total combined voting power of all Units (or of the voting power of the Company's subsidiaries), one hundred ten percent (110%) of the Fair Market Value of such Unit at the time such Option is granted.
(d) Vesting of Options. Each Option shall become exercisable, in full or in such portions and at such times as the Board determines, provided, however, that except for
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Options granted to officers or consultants of the Company, or officers, directors or consultants of any Subsidiary of the Company, each Option shall become exercisable at no lesser rate than twenty percent (20%) for each full year elapsed after the grant of the Option and on or before termination of service as an Employee until fully exercisable.
(e) Duration of Options. Each Option shall expire at such time as the Board shall determine at the time of grant; provided, however, that no Option shall be exercisable after the day immediately preceding the tenth anniversary of its grant.
(f) Termination of Employment. The Option Agreement shall contain provisions regarding the effect of termination of employment on an outstanding Option, as set by the Board, provided, however, that unless employment of an Employee is terminated either for cause determined by applicable law or for Cause (as defined in Article 9 of this Plan), and subject to the limitations of Subsection 6(e) above, the Option shall remain exercisable for:
(i) at least six (6) months from the date of termination if termination was caused by death or disability; and
(ii) at least thirty (30) days from the date of termination if termination was caused other than by death or disability.
(g) Terms of Exercise and Payment. An Option shall be exercised by the delivery of a written notice of exercise to the Company by the Participant on whose behalf the Option has been granted, setting forth the number of Units with respect to which the Option is to be exercised and accompanied by the payment of the full Option Price for those Units. Payment of the Option Price shall be made in cash, including checks or money orders or in such other manner as the Board may permit.
Exercise of the Option and issuance of the Units on exercise shall be conditioned on (i) the timely execution, acknowledgment, and delivery by the person exercising the Option of such instruments as are required by the Manager, including an acknowledgment to be subject to and bound by the terms, conditions, and obligations of the Operating Agreement, and (ii) the filing of an election by such person under Section 83(b) of the Internal Revenue Code of 1986, as amended, with respect to such Units.
(h) Nontransferability of Options. No Option granted under the Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will, by instrument to a trust in which the Options are to be transferred to beneficiaries only upon the death of the Participant, or by the laws of descent and distribution, and any attempt to sell transfer, pledge, assign or otherwise alienate or hypothecate an Option shall be null and void and of no force or effect. All Options granted to a Participant under the Plan shall be exercisable during his or her lifetime only by such Participant, except that Options may be exercised by any legally appointed representative of a Participant who is adjudged legally incompetent.
(i) Limitations on Option Grants. During any twelve (12) month period, the aggregate price of the Units for which Options are granted may not on the date or dates of grant exceed the greater of (1) $1,000,000, (2) fifteen percent (15%) of the Company's assets or (3) fifteen percent (15%) of the outstanding Units.
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ARTICLE 7. EXTRAORDINARY TRANSACTIONS
Upon, or in anticipation of, an Ownership Change Event, as defined below, or any other extraordinary corporate or equity financing transaction involving the Company or its assets, the Board or the entity assuming the obligations of the Company hereunder (the "Successor"), shall have the right to provide for the continuation of Options or for other adjustments as determined by the Board or the Successor, as applicable, in its sole discretion by, for example, the (a) cancellation of all or a portion of any Option for a cash payment in an amount equal to the number of Units subject to the canceled portion of the Option multiplied by the amount by which the Unit price exceeds the exercise price; (b) conversion into other property or securities; (c) removal of any or all restrictions on any Option; (d) temporary suspension of the right to exercise any Option to facilitate the transaction; or (e) giving written notice to any Participant that his or her Option will become immediately exercisable, notwithstanding any waiting period otherwise prescribed, and that the Option will be canceled if not exercised within a specified period of days of such notice.
The term "Ownership Change Event" shall mean: (i) the direct or indirect sale or exchange in a single or series of related transactions by the Members of the Company of more than 50 percent of the outstanding Units of the Company; (ii) a merger or consolidation in which the Company is a party; (iii) the sale, exchange, or transfer of all or substantially all of the assets of the Company or its Subsidiaries; or (iv) a liquidation or dissolution of the Company or its Subsidiaries.
ARTICLE 8. LIMITATIONS ON RIGHTS OF PARTICIPANTS
(a) Employment. Nothing in the Plan shall interfere with or limit in any way the right, if any, of the Company or any Subsidiary to terminate any Participant's employment at any time, nor confer upon any Participant any right to continue in the employ of the Company or any Subsidiary.
(b) Participation. No Employee shall have the right to have an Option granted under this Plan, or, having an Option so granted, to have any additional Options granted in the future.
(c) Limitations on Issuance of Units. The Company shall not be obligated to issue Units upon exercise of Options in violation of any law. No postponement of exercise of Options pursuant to the Agreement or Plan shall extend the period during which Options may be exercised. The Manager, the members of the Board, and the Company shall not have any obligation or liability to any Participant (or successor in interest) because of the loss of rights under the Option.
(d) No Member Rights before Exercise. A Participant shall have none of the rights of a Member under the Operating Agreement with respect to any Units subject the Option unless and until such Units are issued on exercise of the Option.
ARTICLE 9. REDEMPTION RIGHTS ON TERMINATION OF EMPLOYMENT
(a) Generally. Upon the termination of a Participant's service as an Employee with the Company and its Subsidiaries for any reason ("Termination"), all unexercised
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Options and all Units attributable to exercise of an Option (the "Available Units") held by the Participant and by any person to whom the Participant transferred such Units with the consent of the Board pursuant to the Operating Agreement (a "Holder"), shall be subject to redemption by the Company and purchase by ARC Acquisition Co., L.L.C. ("ARC Acquisition") pursuant to this Article 9 (the "Redemption Option").
(b) Redemption Price. The redemption price (the "Redemption Price") for each of the Available Units shall be the following:
(1) if the Participant's service as an Employee of the Company or a Subsidiary is terminated by the Company or a Subsidiary for Cause (as defined below), or terminates by resignation of the Employee for any reason other than the Employee's permanent disability within the meaning of Section 22(e)(3) of the Internal Revenue Code of 1986, as amended, then the Redemption Price for each Available Unit shall be the lower of the following:
(i) the Option Price paid for that Unit; provided, however, that the right to purchase at the Option Price shall lapse at the rate of twenty percent (20%) of the Available Units per year over the five (5) years following the date the Option with respect to such Unit was granted; or
(ii) the Fair Market Value of the Unit on the date of termination of employment.
(2) if the Participant's service as an Employee of the Company or a Subsidiary is terminated for any reason not set forth in subsection (1) above, then the Redemption Price for each Available Unit shall be the higher of the following:
(i) the Option Price paid for that Unit; or
(ii) the Fair Market Value of the Unit on the date of termination of employment.
The Redemption Price of any Options unexercised at the time of termination but which have vested shall be the price which would be paid for the Units issued upon exercise of such Options pursuant to the preceding subsection (1) or (2), less the Option Price of such Options.
The option for the Company to repurchase an Available Unit for the Fair Market Value of the Unit shall terminate in the event that the Company's Units become publicly traded as a result of an IPO (as that term is defined and used in the Company's Operating Agreement.)
For purposes of the Plan, "Cause" shall mean (1) the conviction or admission of a felony involving dishonesty or moral turpitude; (2) embezzlement, misappropriation of property of the Company or any Subsidiary, or any other act involving fraud with respect to the Company or any Subsidiary; (3) the Participant's material breach of any employment, confidentiality, non-compete or similar agreement between the Participant and the Company or any Subsidiary.
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At the election of the Board, an Option grant to an officer, director, manager or consultant of the Company or its Subsidiaries may contain redemption rights which are different than those contained in the Article 9.
(c) Company Option. The Company, in the discretion of the Board, may (but shall not be obligated to) elect to redeem all or any portion of the Available Units or Options on the terms contained in this Article 9 by delivering written notice (the "Redemption Notice") to ARC Acquisition and each Holder within thirty (30) days after Termination. The Company shall have priority over ARC Acquisition in purchasing the Available Units or Options. The Redemption Notice shall set forth the number and amount of Available Units or Options to be acquired from each, the aggregate consideration to be paid for the Units or Options to be acquired, and the time and place for the closing of such redemption.
(d) ARC Acquisition's Option. If, for any reason the Company does not elect to redeem all of the Available Units pursuant to the Redemption Option, ARC Acquisition may (but shall not be obligated to) elect to exercise the Redemption Option for the Available Units or Options which the Company has not elected to redeem (the "Securities Available for ARC Acquisition"). Within thirty (30) days after the Company has notified ARC Acquisition that there shall be Securities Available for ARC Acquisition, ARC Acquisition may elect to purchase all, but not less than all, of the Securities Available for ARC Acquisition by giving written notice to each Holder as to the number and amount of securities being purchased from such Holder by ARC Acquisition (the "Supplemental Redemption Notice"). If, on the last day of such thirty (30) day period, the Company and ARC Acquisition have collectively elected to redeem or purchase some, but not all, of the Available Units, the Company may elect to redeem all of the Available Units which the Company and ARC Acquisition had not collectively elected to redeem or purchase, by delivering written notice (the "Final Redemption Notice") to ARC Acquisition and each Holder within fifteen
(15) days after the last day of such thirty (30) day period. If, following such fifteen (15) day period, the Company and ARC Acquisition have not collectively elected to redeem or purchase all of the Available Units, none of the Available Units shall be redeemed or purchased pursuant to this Article 9.
(e) Closing; Manner of Payment. The redemption or purchase of Available Units pursuant to this Article 9 shall be consummated (the "Closing") at the Company's principal office at 10:00 a.m., local time, on the ninetieth (90th) day (the "Closing Date") next following the date of termination of employment or on such earlier day as designated by the Company or ARC Acquisition, as the case may be, in its sole discretion, upon not less than ten (10) days prior notice to each Holder of Available Units to be redeemed or purchased. If said date is a Saturday, Sunday or legal holiday, the Closing shall occur at the same time and place on the next succeeding, business day. The Company and ARC Acquisition, as applicable, shall pay the Redemption Price for the available Units to be redeemed or purchased pursuant to the Redemption Option in cash or cancellation of indebtedness.
Notwithstanding any other provision of the Plan, the obligations, if any, of the Company to make payments or distributions pursuant to this Section 9 if the Redemption Option is exercised shall be deferred to the extent required by any applicable restrictions imposed by law or the terms of any loan agreement to which the Company or any of its Subsidiaries is a party or by applicable law; provided, however, that any payments or distributions so deferred (together with interest,
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compounded annually, at the Base Rate (as defined in the Operating Agreement) in effect on the Closing Date and thereafter adjusted on each sixth-month anniversary of the Closing Date) shall become payable or distributable as soon as practicable following the lapse or waiver of such restrictions. Nothing herein shall require the Company to segregate or set aside any funds or other property for the purpose of making any payment or distribution pursuant to this
Section 9. The right of any Participant or beneficiary thereof to receive any payment or distribution hereunder shall be an unsecured claim against the general assets of the Company.
ARTICLE 10. FINANCIAL STATEMENTS
The Company shall provide to Participants annual financial statements of the Company as required by California Commissioner of Corporations Rule 260.140.46.
ARTICLE 11. AMENDMENT, MODIFICATION AND TERMINATION
(a) Amendment, Modification and Termination. The Board may, at any time and from time to time, alter, amend, suspend or terminate the Plan in whole or in part.
(b) Options Previously Granted. No termination, amendment or modification of the Plan or any Option shall adversely affect in any material way any Option previously granted under the Plan, without the written consent of the Participant holding such Option.
ARTICLE 12. TAX WITHHOLDING
The Company and its Subsidiaries shall have the power and the right to deduct or withhold, or require a Participant to remit to the Company or any applicable Subsidiary, an amount sufficient to satisfy federal, state and local taxes (including the Participant's FICA obligation), if any, required by law to be withheld with respect to any taxable event arising in connection with a grant or exercise of an Option under this Plan.
ARTICLE 13. SUCCESSORS
All obligations of the Company under the Plan, with respect to Options granted hereunder, shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation or otherwise, of all or substantially all of the business or assets of the Company.
ARTICLE 14. LEGAL CONSTRUCTION
(a) Gender and Number. Except where otherwise indicated by the context, any masculine term used herein also shall include the feminine, the plural shall include the singular and the singular shall include the plural.
(b) Severability. In the event any provision of the Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included.
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(c) Governing Law. The Plan shall be governed by and construed in accordance with the laws of the State of California, without giving effect to the principles of conflict of laws.
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AMERICAN REPROGRAPHICS HOLDINGS, L.L.C.
UNIT OPTION AGREEMENT FOR AN EMPLOYEE

                                                                   [INSERT DATE]

Optionee:                                   [INSERT NAME OF EMPLOYEE]

Number of Units
subject to this Agreement:                  [INSERT NUMBER OF OPTION UNITS]	

Dear [INSERT NAME OF EMPLOYEE]:
Pursuant to the American Reprographics Holdings, L.L.C. Unit Option Plan II (the "Plan"), the Board of Advisors (the "Board") of American Reprographics Holdings, L.L.C. (the "Company") has granted to you an option (the "Option") to purchase the number of Units set forth above, subject to the terms and conditions of the Plan, the provisions of which are incorporated by reference. Capitalized terms not otherwise defined in this Agreement shall have the meanings assigned to them in the Plan. The terms and conditions of the Option are set out below:
1. Date of Grant. The Option is granted as of [INSERT DATE] (the "Date of Grant").
2. Termination of Option. The right to exercise the Option shall expire and terminate in all events on the earlier of (i) the tenth (10th) anniversary of the Date of Grant or (ii) the date provided in Section 7.
3. Option Price. The purchase price to be paid upon the exercise of the Option is [INSERT STRIKE PRICE PER UNIT] per Unit.
4. Vesting Provisions. Subject to the other terms of this Agreement and the Plan, the Option shall become vested and exercisable in accordance with the following schedule:
[INSERT EXERCISABILITY SCHEDULE]
5. Exercise of the Option. To exercise all or any portion of the Option, you must deliver a completed copy of the attached Option Exercise Form (the "Form") to the Company at the address indicated on the Form, specifying the number of Units to be purchased as a result of such exercise of the Option, together with payment of the full purchase price for the Units being purchased. Payment of the purchase price must be made in cash or by certified or official bank check, or in such other manner as the Board may permit.
Exercise of the Option and issuance of the Units on exercise is conditioned on the timely execution, acknowledgment, and delivery by the person exercising the Option of such instruments as are required by the Board, including an acknowledgment to be subject to and
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bound by the terms, conditions, and obligations of the Plan and of the Amended and Restated Operating Agreement of American Reprographics Holdings, L.L.C., dated as of April 10, 2000, and as it may be amended from time to time, or its successor.
6. Transferability of Option. The Option may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated (other than by will or the laws of descent and distribution), and any attempt to sell, transfer, pledge, assign or otherwise alienate or hypothecate the Option in contravention of this provision shall be void. The Option may be exercised during your lifetime only by you or, in the event you are deemed legally incompetent, by your legal representative.
7. Termination of Employment.
(a) If your employment with the Company and its Subsidiaries terminates for any reason other than your death or permanent disability, then the portion of the Option that is exercisable on the date of your termination of employment shall remain exercisable by you for a period of sixty (60) days after such date. If your employment with the Company and its Subsidiaries terminates by reason of your death, then the portion of the Option that is exercisable as of the date of your death may be exercised for a period of one (1) year after the date of your death by the person that has acquired your rights under the Option by will or by the laws of descent and distribution. If your employment with the Company and its Subsidiaries terminates by reason of your permanent disability within the meaning of Section 22(e)(3) of the Internal Revenue Code of 1986, as amended, then the portion of the Option that is exercisable on the date your employment terminates shall remain exercisable by you or your legal representative for a period of six (6) months after such date. Any portion of the Option that is not exercisable on the date of r termination shall not thereafter become exercisable.
(b) Notwithstanding any provision contained in this Section 7 to the contrary, in no event may any portion of the Option be exercised after the tenth (10th) anniversary of the Date of Grant.
8. Representations and Covenants. You represent and warrant to the Company as follows:
(a) You understand that this Option and the Units subject to this Option have not been registered with the Securities and Exchange Commission by reason of their issuance in a transaction exempt from the registration requirements and the Units must be held indefinitely by you unless a subsequent disposition thereof is registered under the Securities Act of 1933, as amended, or is exempt from such registration.
(b) You have received a copy of the Plan.
(c) You understand the federal, state and local income tax consequences of the granting of the Option to you, the exercise of the Option and purchase of Units, and the subsequent sale or other disposition of any Units acquired pursuant to this Agreement.
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(d) You understand that the exercise of the Option will require that you pay the purchase price for the Units, that a purchase of Units of the Company involves a degree of risk and that the Company has the right at the time of exercise to require that you certify that you have received such professional advice as you deem appropriate to assist you to evaluate such risk.
9. Tax Withholding. As a condition to exercise of the Option, the Company and its Subsidiaries may withhold from payments of any kind due to you, or require you to pay or reimburse the Company or any of its Subsidiaries for, any taxes that the Company determines is required to be withheld in connection with the exercise of this Option.
10. Continuation of Employment. Neither the Plan nor the Option granted pursuant to this Agreement shall confer upon you any right to continue in the employ of the Company or any of its Subsidiaries, or limit in any respect the right of the Company or any of its Subsidiaries to terminate your employment or other relationship with the Company or its Subsidiaries at any time.
11. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of California, without giving effect to the principles of conflict of laws.
12. Severability. If any one or more provisions of this Agreement shall be found to be illegal or unenforceable in any respect, the validity and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.
Please acknowledge your acceptance of this Agreement by signing in the space provided below. You should retain the original of this Agreement in a safe place, for it is evidence of the Option granted to you.
AMERICAN REPROGRAPHICS
HOLDINGS, L.L.C.
By:
Its:
I accept this Agreement as of this ___ day of __________, 20___
[INSERT NAME OF EMPLOYEE]
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American Reprographics Holdings, L.L.C.
[INSERT ADDRESS]
Attn: [INSERT NAME OR TITLE
OF CONTACT PERSON)
OPTION EXERCISE FORM
I hereby give notice of my election to exercise the option granted to me effective as of [INSERT DATE] to purchase _________________ (_____) Units of the American Reprographics Holdings, L.L.C. ("Company) at a price of ______________ ($___) per Unit pursuant to the AMERICAN REPROGRAPHICS HOLDINGS, L.L.C. UNIT OPTION PLAN II. Payment in the amount of $__________ equal to the full purchase price of such Units is enclosed.
I represent and warrant that I have received a copy of the Company's financial statements and such other information about the Company as I and my investment advisor deem appropriate to evaluate the risks associated with the purchase of such Units, that I have obtained such advice from my advisors as I deem necessary to evaluate the risks of this investment and that I am fully able to bear the risks of this investment, including the possibility that the Company's business could fail and I could lose my entire investment.
Dated: (Signature)
(Printed Name)
(address)
(city, state, zip code)
(social security number)
THIS DOCUMENT IS TO BE USED TO EXERCISE YOUR OPTION (OR PORTION THEREOF) AS SET FORTH IN PARAGRAPH 5 OF THE UNIT OPTION AGREEMENT.
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AMERICAN REPROGRAPHICS HOLDINGS, L.L.C.
UNIT OPTION PLAN II
 
EXHIBIT 10.6
AMENDMENT NO. 1
TO
AMERICAN REPROGRAPHICS HOLDINGS, L.L.C.
UNIT OPTION PLAN II
This AMENDMENT NO. 1 TO AMERICAN REPROGRAPHICS HOLDINGS, L.L.C. UNIT
OPTION PLAN II (this "Amendment") is made as of the 1st of July, 2003, by the Board of Advisors of American Reprographics Holdings, L.L.C., a California limited liability company (the "Company"). Capitalized terms used in this Amendment and not otherwise defined herein shall have the meanings ascribed to them in the Company Unit Option Plan II, as adopted effective as of January 1, 2001 (the "Plan").
RECITALS
A. Pursuant to Subsection 11(a) of the Plan, the Board may, at any time and from time to time, amend the Plan in whole or in part.
B. The Board desires to amend the Plan and extend certain employees' exercise periods and vesting periods upon retiring.
C. The Board approved this Amendment in an Unanimous Written Consent, dated July 1, 2003.
AMENDMENT
NOW, THEREFORE, the Board hereby amends the Plan as follows:
1. Subsection 6(f). Subsection 6(f) to the Plan is amended by deleting it in its entirety and replacing it with the following text in lieu thereof:
"Termination of Employment. The Option Agreement shall contain more specific provisions regarding the effect of termination of employment on an outstanding Option, as set by the Board; provided, however, that:
(i) Unless employment of an Employee is terminated either for cause determined by applicable law or for Cause (as defined in Article 9 of this Plan), and subject to the limitations set forth in Subsection 6(e) above, the Option shall remain exercisable for:
(A) at least six (6) months from the date of termination if termination was caused by death or disability; and
(B) at least thirty (30) days from the date of termination if termination was caused other than by death or disability.
(ii) Subject to Subsection 6(e) above, if (a) Employee has been employed by the Company or any of its Subsidiaries for a period of at least 10 years, (b) Employee is at
least 55 years old, and (c) Employee's employment with the Company and its Subsidiaries terminates because of his or her retirement or any other voluntary reason other than his or her death or permanent disability, then at the option of the Company, the portion of the Option that is exercisable on the date of such termination of employment shall remain exercisable by Employee until such time that he or she chooses to Compete, as defined herein, with the Company or any of its Subsidiaries. During this period and as long as Employee chooses not to Compete with the Company or any of its Subsidiaries, the Options shall continue to vest according to the Plan and Employee's Option Agreement. This Section 6(f)(ii) shall in no way supercede, modify or amend any existing non-compete agreements, or similar agreements, between any Employee and the Company or any of its Subsidiaries and such agreements shall remain in full force and effect as written.
(A) For purposes of this Subsection
6(f)(ii), the term "Compete" shall mean directly engaging in, or having any interest in, any firm, corporation or business (whether as an agent, partner, security holder, creditor, owner, employee, consultant, consulting firm or otherwise) that engages in, any Prohibited Activity, as defined below; provided, however, that ownership of less than 1% of the outstanding stock of any publicly-traded corporation shall not be deemed to be an engagement in any of its businesses solely by reason of such ownership.
(B) For the purpose of this Subsection
6(f)(ii), "Prohibited Activity" shall mean: (i) any activity after the termination of the Employee's employment that is the same as, similar to, or competitive with any activity engaged in by the Company or any of its Subsidiaries in the reprographics industry related to or associated with the Company or any of its Subsidiaries (including marketing or sales efforts within a 35 mile radius of each Company or Subsidiary location); (ii) consulting with, being employed by or acting as an agent for any prior or existing customer or competitor of the Company or any of its Subsidiaries with respect to those activities specified in clause (i) above; and (iii) inducing or attempting to persuade any person who is then, or at any time during the previous six
(6) months has been, an employee, sales representative, consultant, customer or supplier of the Company or any of its Subsidiaries to terminate or curtail his, her or its present or prospective relationship with the Company or any of its Subsidiaries."
2. Full Force and Effect. Except as set forth herein, all other terms and conditions of the Plan shall remain in full force and effect.
2.
 
EXHIBIT 10.7
AMERICAN REPROGRAPHICS COMPANY
2005 STOCK PLAN
ADOPTED _______________
APPROVED BY SHAREHOLDERS _________________
TERMINATION DATE: __________________
1. PURPOSES.
(a) ELIGIBLE STOCK AWARD RECIPIENTS. The persons eligible to receive Stock Awards are Employees, Directors and Consultants. Only Non-Employee Directors are eligible to receive Options under Section 8.
(b) AVAILABLE STOCK AWARDS. The Plan provides for the grant of the following Stock Awards: (i) Incentive Stock Options, (ii) Nonstatutory Stock Options, (iii), Stock Appreciation Rights, (iv) Restricted Stock Purchase Awards, (v) Restricted Stock Awards, and (v) Restricted Stock Unit Awards.
(c) GENERAL PURPOSE. The Company, by means of the Plan, seeks to secure and retain the services of the group of persons eligible to receive Stock Awards, to provide incentives for such persons to exert maximum efforts for the success of the Company and its Affiliates and to provide a means by which eligible recipients of Stock Awards may be given an opportunity to benefit from increases in the value of the Common Stock.
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation or subsidiary corporation of the Company, whether now or hereafter existing, as those terms are defined in Sections 424(e) and (f), respectively, of the Code.
(b) "ANNUAL MEETING" means the annual meeting of the stockholders of the Company.
(c) "BOARD" means the Board of Directors of the Company.
(d) "CAPITALIZATION ADJUSTMENT" has the meaning ascribed to that term in
Section 12(a).
(e) "CAUSE" means, with respect to a Participant, the occurrence of any of the following: (i) such Participant's commission of any felony or any crime involving fraud, dishonesty or moral turpitude under the laws of the United States or any state thereof; (ii) such Participant's attempted commission of, or participation in, a fraud or act of dishonesty against the Company; (iii) such Participant's intentional and material violation of any contract or agreement between the Participant and the Company or any statutory duty owed to the Company; (iv) such Participant's unauthorized use or disclosure of the Company's confidential information or trade secrets or (v) such Participant's gross misconduct. The determination that a termination is for Cause shall be made by the Company in its discretion. Any determination by the Company that
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the Continuous Service of a Participant was terminated by reason of dismissal without Cause for the purposes of outstanding Stock Awards held by such Participant shall have no impact upon any determination of the rights or obligations of the Company or such Participant for any other purpose.
(f) "CHANGE IN CONTROL" means the occurrence, in a single transaction or in a series of related transactions, of any one or more of the following events:
(i) any Exchange Act Person becomes the Owner, directly or indirectly, of securities of the Company representing more than fifty percent (50%) of the combined voting power of the Company's then outstanding securities other than by virtue of a merger, consolidation or similar transaction. Notwithstanding the foregoing, a Change in Control shall not be deemed to occur (A) on account of the acquisition of securities of the Company by an investor, any affiliate thereof or any other Exchange Act Person from the Company in a transaction or series of related transactions the primary purpose of which is to obtain financing for the Company through the issuance of equity securities or (B) solely because the level of Ownership held by any Exchange Act Person (the "SUBJECT PERSON") exceeds the designated percentage threshold of the outstanding voting securities as a result of a repurchase or other acquisition of voting securities by the Company reducing the number of shares outstanding, provided that if a Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of voting securities by the Company, and after such share acquisition, the Subject Person becomes the Owner of any additional voting securities that, assuming the repurchase or other acquisition had not occurred, increases the percentage of the then outstanding voting securities Owned by the Subject Person over the designated percentage threshold, then a Change in Control shall be deemed to occur;
(ii) there is consummated a merger, consolidation or similar transaction involving (directly or indirectly) the Company and, immediately after the consummation of such merger, consolidation or similar transaction, the shareholders of the Company immediately prior thereto do not Own, directly or indirectly, either (A) outstanding voting securities representing more than fifty percent (50%) of the combined outstanding voting power of the surviving Entity in such merger, consolidation or similar transaction or (B) more than fifty percent (50%) of the combined outstanding voting power of the parent of the surviving Entity in such merger, consolidation or similar transaction, in each case in substantially the same proportions as their Ownership of the outstanding voting securities of the Company immediately prior to such transaction;
(iii) there is consummated a sale, lease, license or other disposition of all or substantially all of the consolidated assets of the Company and its Subsidiaries, other than a sale, lease, license or other disposition of all or substantially all of the consolidated assets of the Company and its Subsidiaries to an Entity, more than fifty percent (50%) of the combined voting power of the voting securities of which are Owned by shareholders of the Company in substantially the same proportions as their Ownership of the outstanding voting securities of the Company immediately prior to such sale, lease, license or other disposition; or
(iv) individuals who, on the date this Plan is adopted by the Board, are members of the Board (the "INCUMBENT BOARD") cease for any reason to constitute at least a
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majority of the members of the Board; provided, however, that if the appointment or election (or nomination for election) of any new Board member was approved or recommended by a majority vote of the members of the Incumbent Board then still in office, such new member shall, for purposes of this Plan, be considered as a member of the Incumbent Board.
Notwithstanding the foregoing or any other provision of this Plan, the definition of Change in Control (or any analogous term) in an individual written agreement between the Company or any Affiliate and the Participant shall supersede the foregoing definition with respect to Stock Awards subject to such agreement (it being understood, however, that if no definition of Change in Control or any analogous term is set forth in such an individual written agreement, the foregoing definition shall apply).
(g) "CODE" means the Internal Revenue Code of 1986, as amended.
(h) "COMMITTEE" means a committee of one (1) or more members of the Board appointed by the Board in accordance with Section 3(c).
(i) "COMMON STOCK" means the common stock of the Company.
(j) "COMPANY" means American Reprographics Company, a Delaware corporation.
(k) "CONSULTANT" means any person, including an advisor, who (i) is engaged by the Company or an Affiliate to render consulting or advisory services and is compensated for such services or (ii) is serving as a member of the Board of Directors of an Affiliate and is compensated for such services. However, service solely as a Director, or payment of a fee for such services, shall not cause a Director to be considered a "Consultant" for purposes of the Plan.
(l) "CONTINUOUS SERVICE" means that the Participant's service with the Company or an Affiliate, whether as an Employee, Director or Consultant, is not interrupted or terminated. A change in the capacity in which the Participant renders service to the Company or an Affiliate as an Employee, Consultant or Director or a change in the entity for which the Participant renders such service, provided that there is no interruption or termination of the Participant's service with the Company or an Affiliate, shall not terminate a Participant's Continuous Service. For example, a change in status from an Employee of the Company to a Consultant of an Affiliate or to a Director shall not constitute an interruption of Continuous Service. The Board or the chief executive officer of the Company, in that party's discretion, may determine whether Continuous Service shall be considered interrupted in the case of any leave of absence approved by that party, including sick leave, military leave or any other personal leave. Notwithstanding the foregoing, a leave of absence shall be treated as Continuous Service for purposes of vesting in a Stock Award only to such extent as may be provided in the Company's leave of absence policy or in the written terms of the Participant's leave of absence.
(m) "CORPORATE TRANSACTION" means the occurrence, in a single transaction or in a series of related transactions, of any one or more of the following events:
(i) a sale or other disposition of all or substantially all, as determined by the Board in its discretion, of the consolidated assets of the Company and its Subsidiaries;
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(ii) a sale or other disposition of at least ninety percent (90%) of the outstanding securities of the Company;
(iii) a merger, consolidation or similar transaction following which the Company is not the surviving corporation; or
(iv) a merger, consolidation or similar transaction following which the Company is the surviving corporation but the shares of Common Stock outstanding immediately preceding the merger, consolidation or similar transaction are converted or exchanged by virtue of the merger, consolidation or similar transaction into other property, whether in the form of securities, cash or otherwise.
(n) "COVERED EMPLOYEE" means the chief executive officer and the four (4) other highest compensated officers of the Company for whom total compensation is required to be reported to shareholders under the Exchange Act, as determined for purposes of Section 162(m) of the Code.
(o) "DIRECTOR" means a member of the Board.
(p) "DISABILITY" means the permanent and total disability of a person within the meaning of Section 22(e)(3) of the Code.
(q) "EMPLOYEE" means any person employed by the Company or an Affiliate. However, service solely as a Director, or payment of a fee for such services, shall not cause a Director to be considered an "Employee" for purposes of the Plan.
(r) "ENTITY" means a corporation, partnership or other entity.
(s) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
(t) "EXCHANGE ACT PERSON" means any natural person, Entity or "group" (within the meaning of Section 13(d) or 14(d) of the Exchange Act), except that "Exchange Act Person" shall not include (i) the Company or any Subsidiary of the Company, (ii) any employee benefit plan of the Company or any Subsidiary of the Company or any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any Subsidiary of the Company, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, or (iv) an Entity Owned, directly or indirectly, by the shareholders of the Company in substantially the same proportions as their Ownership of stock of the Company.
(u) "FAIR MARKET VALUE" means, as of any date, the value of the Common Stock determined as follows:
(i) If the Common Stock is listed on any established stock exchange or traded on the New York Stock Exchange, the Fair Market Value of a share of Common Stock shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange (or the exchange or market with the greatest volume of trading in the Common Stock) on the last market trading day prior to the day of determination, as reported in The Wall Street Journal or such other source as the Board deems reliable.
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(ii) In the absence of such markets for the Common Stock, the Fair Market Value shall be determined by the Board in good faith.
(v) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder.
(w) "IPO DATE" means the effective date of the initial public offering of the Common Stock.
(x) "NON-EMPLOYEE DIRECTOR" means a Director who either (i) is not a current Employee or Officer of the Company or an Affiliate, does not receive compensation, either directly or indirectly, from the Company or an Affiliate for services rendered as a consultant or in any capacity other than as a Director (except for an amount as to which disclosure would not be required under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act ("REGULATION S-K")), does not possess an interest in any other transaction for which disclosure would be required under Item 404(a) of Regulation S-K, and is not engaged in a business relationship for which disclosure would be required pursuant to Item 404(b) of Regulation S-K; or (ii) is otherwise considered a "non-employee director" for purposes of Rule 16b-3.
(y) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify as an Incentive Stock Option.
(z) "OFFICER" means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder.
(aa) "OPTION" means an option to purchase shares of Common Stock granted pursuant to the Plan.
(bb) "OPTION AGREEMENT" means a written agreement between the Company and an Optionholder evidencing the terms and conditions of an Option grant. Each Option Agreement shall be subject to the terms and conditions of the Plan.
(cc) "OPTIONHOLDER" means a person to whom an Option is granted pursuant to the Plan or, if applicable, such other person who holds an outstanding Option.
(dd) "OUTSIDE DIRECTOR" means a Director who either (i) is not a current employee of the Company or an "affiliated corporation" (within the meaning of Treasury Regulations promulgated under Section 162(m) of the Code), is not a former employee of the Company or an "affiliated corporation" who receives compensation for prior services (other than benefits under a tax-qualified retirement plan) during the taxable year, has not been an officer of the Company or an "affiliated corporation", and does not receive remuneration from the Company or an "affiliated corporation," either directly or indirectly, in any capacity other than as a Director or (ii) is otherwise considered an "outside director" for purposes of Section 162(m) of the Code.
(ee) "OWN," "OWNED," "OWNER," "OWNERSHIP" A person or Entity shall be deemed to "Own," to have "Owned," to be the "Owner" of, or to have acquired "Ownership" of securities if such person or Entity, directly or indirectly, through any contract, arrangement, understanding,
5
relationship or otherwise, has or shares voting power, which includes the power to vote or to direct the voting, with respect to such securities.
(ff) "PARTICIPANT" means a person to whom a Stock Award is granted pursuant to the Plan or, if applicable, such other person who holds an outstanding Stock Award.
(gg) "PLAN" means this American Reprographics Company 2005 Stock Plan, as amended and restated.
(hh) "RESTRICTED STOCK AWARD" means an award of shares of Common Stock which is granted pursuant to the terms and conditions of Section 7(c).
(ii) "RESTRICTED STOCK AWARD AGREEMENT" means a written agreement between the Company and a holder of a Stock Bonus Award evidencing the terms and conditions of a Stock Bonus Award grant. Each Stock Bonus Award Agreement shall be subject to the terms and conditions of the Plan.
(jj) "RESTRICTED STOCK PURCHASE AWARD" means an award of shares of Common Stock which is granted pursuant to the terms and conditions of Section 7(b).
(kk) "RESTRICTED STOCK PURCHASE AWARD AGREEMENT" means a written agreement between the Company and a holder of a Restricted Stock Purchase Award evidencing the terms and conditions of a Restricted Stock Purchase Award grant. Each Restricted Stock Purchase Award Agreement shall be subject to the terms and conditions of the Plan.
(ll) "RESTRICTED STOCK UNIT AWARD" means a right to receive shares of Common Stock which is granted pursuant to the terms and conditions of Section 7(d).
(mm) "RESTRICTED STOCK UNIT AWARD AGREEMENT" means a written agreement between the Company and a holder of a Restricted Stock Unit Award evidencing the terms and conditions of a Restricted Stock Unit Award grant. Each Restricted Stock Unit Award Agreement shall be subject to the terms and conditions of the Plan.
(nn) "RULE 16b-3" means Rule 16b-3 promulgated under the Exchange Act or any successor to Rule 16b-3, as in effect from time to time.
(oo) "SECURITIES ACT" means the Securities Act of 1933, as amended.
(pp) "STOCK APPRECIATION RIGHT" means a right to receive the appreciation of Common Stock that is granted pursuant to the terms and conditions of Section 7(a).
(qq) "STOCK APPRECIATION RIGHT AGREEMENT" means a written agreement between the Company and a holder of a Stock Appreciation Right evidencing the terms and conditions of a Stock Appreciation Right grant. Each Stock Appreciation Right Agreement shall be subject to the terms and conditions of the Plan.
(rr) "STOCK AWARD" means any right granted under the Plan, including an Option, a Stock Appreciation Right, a Restricted Stock Purchase Award, or a Restricted Stock Unit Award.
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(ss) "STOCK AWARD AGREEMENT" means a written agreement between the Company and a Participant evidencing the terms and conditions of a Stock Award grant. Each Stock Award Agreement shall be subject to the terms and conditions of the Plan.
(tt) "SUBSIDIARY" means, with respect to the Company, (i) any corporation of which more than fifty percent (50%) of the outstanding capital stock having ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether, at the time, stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time, directly or indirectly, Owned by the Company, and (ii) any partnership in which the Company has a direct or indirect interest (whether in the form of voting or participation in profits or capital contribution) of more than fifty percent (50%).
(uu) "TEN PERCENT SHAREHOLDER" means a person who Owns (or is deemed to Own pursuant to Section 424(d) of the Code) stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or of any of its Affiliates.
3. ADMINISTRATION.
(a) ADMINISTRATION BY BOARD. The Board shall administer the Plan unless and until the Board delegates administration of the Plan to a Committee, as provided in Section 3(c).
(b) POWERS OF BOARD. The Board shall have the power, subject to, and within the limitations of, the express provisions of the Plan:
(i) To determine from time to time which of the persons eligible under the Plan shall be granted Stock Awards; when and how each Stock Award shall be granted; what type or combination of types of Stock Award shall be granted; the provisions of each Stock Award granted (which need not be identical), including the time or times when a person shall be permitted to receive Common Stock pursuant to a Stock Award; and the number of shares of Common Stock with respect to which a Stock Award shall be granted to each such person.
(ii) To construe and interpret the Plan and Stock Awards granted under it, and to establish, amend and revoke rules and regulations for its administration. The Board, in the exercise of this power, may correct any defect, omission or inconsistency in the Plan or in any Stock Award Agreement, in a manner and to the extent it shall deem necessary or expedient to make the Plan fully effective.
(iii) To effect, at any time and from time to time, with the consent of any adversely affected Optionholder, (1) the reduction of the exercise price of any outstanding Option under the Plan, (2) the cancellation of any outstanding Option under the Plan and the grant in substitution therefor of (A) a new Option under the Plan or another equity plan of the Company covering the same or a different number of shares of Common Stock, (B) a Stock Appreciation Right, (C) a Restricted Stock Purchase Award (D) a Restricted Stock Award, (E) a Restricted Stock Unit Award, (F) cash and/or (G) other valuable consideration (as determined by the Board, in its discretion), or (3) any other action that is treated as a repricing under generally accepted accounting principles.
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(iv) To amend the Plan or a Stock Award as provided in Section 13.
(v) To terminate or suspend the Plan as provided in Section 14.
(vi) Generally, to exercise such powers and to perform such acts as the Board deems necessary or expedient to promote the best interests of the Company and that are not in conflict with the provisions of the Plan.
(vii) To adopt such procedures and sub-plans as are necessary or appropriate to permit participation in the Plan by Employees who are foreign nationals or employed outside the United States.
(c) DELEGATION TO COMMITTEE.
(i) GENERAL. The Board may delegate some or all of the administration of the Plan to a Committee or Committees of one (1) or more members of the Board, and the term "COMMITTEE" shall apply to any person or persons to whom such authority has been delegated. If administration is delegated to a Committee, the Committee shall have, in connection with the administration of the Plan, the powers theretofore possessed by the Board that have been delegated to the Committee, including the power to delegate to a subcommittee any of the administrative powers the Committee is authorized to exercise (and references in this Plan to the Board shall thereafter be to the Committee or subcommittee), subject, however, to such resolutions, not inconsistent with the provisions of the Plan, as may be adopted from time to time by the Board. The Board may retain the authority to concurrently administer the Plan with the Committee and may, at any time, revest in the Board some or all of the powers previously delegated.
(ii) SECTION 162(m) AND RULE 16b-3 COMPLIANCE. In the discretion of the Board, the Committee may consist solely of two or more Outside Directors, in accordance with Section 162(m) of the Code, and/or solely of two or more Non-Employee Directors, in accordance with Rule 16b-3. In addition, the Board or the Committee, in its discretion, may (1) delegate to a committee of one or more members of the Board who need not be Outside Directors the authority to grant Stock Awards to eligible persons who are either (a) not then Covered Employees and are not expected to be Covered Employees at the time of recognition of income resulting from such Stock Award, or (b) not persons with respect to whom the Company wishes to comply with Section 162(m) of the Code, and/or (2) delegate to a committee of one or more members of the Board who need not be Non-Employee Directors the authority to grant Stock Awards to eligible persons who are not then subject to Section 16 of the Exchange Act.
(d) DELEGATION TO AN OFFICER. The Board may delegate to one or more Officers of the Company the authority to do one or both of the following: (i) designate Officers and Employees of the Company or any of its Subsidiaries to be recipients of Stock Awards and (ii) determine the number of shares of Common Stock to be subject to such Stock Awards granted to such Officers and Employees of the Company; provided, however, that the Board resolutions regarding such delegation shall specify the total number of shares of Common Stock that may be subject to the Stock Awards granted by such Officer and that such Officer may not grant a Stock Award to himself or herself. Notwithstanding anything to the contrary in this Section 3(d), the Board may
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not delegate to an Officer authority to determine the Fair Market Value of the Common Stock pursuant to Section 2(u)(ii) above.
(e) EFFECT OF BOARD'S DECISION. All determinations, interpretations and constructions made by the Board in good faith shall not be subject to review by any person and shall be final, binding and conclusive on all persons.
4. SHARES SUBJECT TO THE PLAN.
(a) SHARE RESERVE. Subject to the provisions of Section 12(a) relating to Capitalization Adjustments, the shares of Common Stock that may be issued pursuant to Stock Awards shall not exceed in the aggregate five million (5,000,000) shares of Common Stock plus an automatic annual increase to be added on the first day of the fiscal year of the Company for a period beginning on the first day of the fiscal year that begins on January 1, 2006, and ending on (and including) the first day of the fiscal year that begins on January 1, 2010, equal to the least of the following amounts: (i) one percent (1%) of the Company's outstanding shares of Common Stock on the day preceding the first day of the applicable Company fiscal year (rounded to the nearest whole share), (ii) three hundred thousand (300,000) shares of Common Stock, or (iii) an amount as may be determined by the Board.
(b) REVERSION OF SHARES TO THE SHARE RESERVE. If any Stock Award shall for any reason expire or otherwise terminate, in whole or in part, without having been exercised in full, or if any shares of Common Stock issued to a Participant pursuant to a Stock Award are forfeited to or repurchased by the Company, including, but not limited to, any repurchase or forfeiture caused by the failure to meet a contingency or condition required for the vesting of such shares, then the shares of Common Stock not issued under such Stock Award, or forfeited to or repurchased by the Company, shall revert to and again become available for issuance under the Plan. If any shares subject to a Stock Award are not delivered to a Participant because such shares are withheld for the payment of taxes or the Stock Award is exercised through a reduction of shares subject to the Stock Award (i.e., "net exercised"), the number of shares that are not delivered to the Participant shall remain available for issuance under the Plan. If the exercise price of any Stock Award is satisfied by tendering shares of Common Stock held by the Participant (either by actual delivery or attestation), then the number of shares so tendered shall remain available for issuance under the Plan. For purposes of qualification under Section 422 of the Code, notwithstanding anything to the contrary in this Section 4(b) and subject to the provisions of Section 12(a) relating to Capitalization Adjustments, the aggregate maximum number of shares of Common Stock that may be issued as Incentive Stock Options shall be six million five hundred thousand (6,500,000) shares of Common Stock. In addition, the aggregate maximum number of shares of Common Stock that may be issued as Restricted Stock Awards shall be ten percent (10%) of the total of the Company's outstanding shares of Common Stock, as determined with respect to each Restricted Stock Award at the time such award is granted.
(c) SOURCE OF SHARES. The shares of Common Stock subject to the Plan may be unissued shares or reacquired shares, bought on the market or otherwise.
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5. ELIGIBILITY.
(a) ELIGIBILITY FOR SPECIFIC STOCK AWARDS. Incentive Stock Options may be granted only to Employees. Stock Awards other than Incentive Stock Options may be granted to Employees, Directors and Consultants.
(b) TEN PERCENT SHAREHOLDERS. A Ten Percent Shareholder shall not be granted an Incentive Stock Option unless the exercise price of such Option is at least one hundred ten percent (110%) of the Fair Market Value of the Common Stock on the date of grant and the Option is not exercisable after the expiration of five (5) years from the date of grant.
(c) SECTION 162(m) LIMITATION ON ANNUAL GRANTS. Subject to the provisions of Section 12(a) relating to Capitalization Adjustments, at such time as the Company may be subject to the applicable provisions of Section 162(m) of the Code, no Employee shall be eligible to be granted Options or Stock Appreciation Rights covering more than five hundred thousand (500,000) shares of Common Stock during any calendar year.
(d) CONSULTANTS. A Consultant shall not be eligible for the grant of a Stock Award if, at the time of grant, a Form S-8 Registration Statement under the Securities Act ("FORM S-8") is not available to register either the offer or the sale of the Company's securities to such Consultant because of the nature of the services that the Consultant is providing to the Company, because the Consultant is not a natural person, or because of any other rule governing the use of Form S-8.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate. All Options shall be separately designated Incentive Stock Options or Nonstatutory Stock Options at the time of grant, and, if certificates are issued, a separate certificate or certificates shall be issued for shares of Common Stock on exercise of each type of Option. The provisions of separate Options need not be identical, but each Option shall include (through incorporation of provisions hereof by reference in the Option or otherwise) the substance of each of the following provisions:
(a) TERM. The Board shall determine the term of an Option; provided however that, subject to the provisions of Section 5(b) regarding Ten Percent Shareholders, no Incentive Stock Option shall be exercisable after the expiration of ten (10) years from the date on which it was granted.
(b) EXERCISE PRICE OF AN INCENTIVE STOCK OPTION. Subject to the provisions of Section 5(b) regarding Ten Percent Shareholders, the exercise price of each Incentive Stock Option shall be not less than one hundred percent (100%) of the Fair Market Value of the Common Stock subject to the Option on the date the Option is granted. Notwithstanding the foregoing, an Incentive Stock Option may be granted with an exercise price lower than that set forth in the preceding sentence if such Option is granted pursuant to an assumption or substitution for another option in a manner satisfying the provisions of Section 424(a) of the Code.
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(c) EXERCISE PRICE OF A NONSTATUTORY STOCK OPTION. The Board, in its discretion, shall determine the exercise price of each Nonstatutory Stock Option.
(d) CONSIDERATION. The purchase price of Common Stock acquired pursuant to an Option shall be paid, to the extent permitted by applicable law, either (i) in cash at the time the Option is exercised or (ii) at the discretion of the Board at the time of the grant of the Option (or subsequently in the case of a Nonstatutory Stock Option) (1) by delivery to the Company (either by actual delivery or attestation) of other Common Stock at the time the Option is exercised, (2) by a "net exercise" of the Option (as further described below),
(3) pursuant to a program developed under Regulation T as promulgated by the Federal Reserve Board that, prior to the issuance of Common Stock, results in either the receipt of cash (or check) by the Company or the receipt of irrevocable instructions to pay the aggregate exercise price to the Company from the sales proceeds or (4) in any other form of legal consideration that may be acceptable to the Board. Unless otherwise specifically provided in the Option, the purchase price of Common Stock acquired pursuant to an Option that is paid by delivery to the Company of other Common Stock acquired, directly or indirectly from the Company, shall be paid only by shares of the Common Stock of the Company that have been held for more than six (6) months (or such longer or shorter period of time required to avoid a charge to earnings for financial accounting purposes). At any time that the Company is incorporated in Delaware, payment of the Common Stock's "par value," as defined in the Delaware General Corporation Law, shall not be made by deferred payment.
In the case of a "net exercise" of an Option, the Company will not require a payment of the exercise price of the Option from the Participant but will reduce the number of shares of Common Stock issued upon the exercise by the largest number of whole shares that has a Fair Market Value that does not exceed the aggregate exercise price. With respect to any remaining balance of the aggregate exercise price, the Company shall accept a cash payment from the Participant. Shares of Common Stock will no longer be outstanding under an Option (and will therefore not thereafter be exercisable) following the exercise of such Option to the extent of (i) shares used to pay the exercise price of an Option under the "net exercise", (ii) shares actually delivered to the Participant as a result of such exercise and (iii) shares withheld for purposes of tax withholding.
(e) TRANSFERABILITY OF AN INCENTIVE STOCK OPTION. An Incentive Stock Option shall not be transferable except by will or by the laws of descent and distribution and shall be exercisable during the lifetime of the Optionholder only by the Optionholder. Notwithstanding the foregoing, the Optionholder may, by delivering written notice to the Company, in a form provided by or otherwise satisfactory to the Company, designate a third party who, in the event of the death of the Optionholder, shall thereafter be entitled to exercise the Option.
(f) TRANSFERABILITY OF A NONSTATUTORY STOCK OPTION. A Nonstatutory Stock Option shall be transferable to the extent provided in the Option Agreement. If the Nonstatutory Stock Option does not provide for transferability, then the Nonstatutory Stock Option shall not be transferable except by will or by the laws of descent and distribution and shall be exercisable during the lifetime of the Optionholder only by the Optionholder. Notwithstanding the foregoing, the Optionholder may, by delivering written notice to the Company, in a form
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provided by or otherwise satisfactory to the Company, designate a third party who, in the event of the death of the Optionholder, shall thereafter be entitled to exercise the Option.
(g) VESTING GENERALLY. The total number of shares of Common Stock subject to an Option may vest and therefore become exercisable in periodic installments that may be equal. The Option may be subject to such other terms and conditions on the time or times when it may be exercised (which may be based on performance or other criteria) as the Board may deem appropriate. The vesting provisions of individual Options may vary. The provisions of this Section 6(g) are subject to any Option provisions governing the minimum number of shares of Common Stock as to which an Option may be exercised.
(h) TERMINATION OF CONTINUOUS SERVICE. In the event that an Optionholder's Continuous Service terminates (for reasons other than Cause or upon the Optionholder's death or Disability), the Optionholder may exercise his or her Option (to the extent that the Optionholder was entitled to exercise such Option as of the date of termination of Continuous Service) but only within such period of time ending on the earlier of (i) the expiration of the term of the Option as set forth in the Option Agreement or (ii) the date three (3) months following the termination of the Optionholder's Continuous Service (or such longer or shorter period specified in the Option Agreement). If, after termination of Continuous Service, the Optionholder does not exercise his or her Option within the time specified herein or in the Option Agreement (as applicable), the Option shall terminate.
(i) EXTENSION OF TERMINATION DATE. An Optionholder's Option Agreement may provide that if the exercise of the Option following the termination of the Optionholder's Continuous Service (for reasons other than Cause or upon the Optionholder's death or Disability) would be prohibited at any time solely because the issuance of shares of Common Stock would violate the registration requirements under the Securities Act, then the Option shall terminate on the earlier of (i) the expiration of the term of the Option set forth in the Option Agreement or (ii) the expiration of a period of three (3) months after the termination of the Optionholder's Continuous Service during which the exercise of the Option would not be in violation of such registration requirements.
(j) DISABILITY OF OPTIONHOLDER. In the event that an Optionholder's Continuous Service terminates as a result of the Optionholder's Disability, the Optionholder may exercise his or her Option (to the extent that the Optionholder was entitled to exercise such Option as of the date of termination of Continuous Service), but only within such period of time ending on the earlier of (i) the expiration of the term of the Option as set forth in the Option Agreement or
(ii) the date twelve (12) months following such termination of Continuous Service (or such longer or shorter period specified in the Option Agreement). If, after termination of Continuous Service, the Optionholder does not exercise his or her Option within the time specified herein or in the Option Agreement (as applicable), the Option shall terminate.
(k) DEATH OF OPTIONHOLDER. In the event that (i) an Optionholder's Continuous Service terminates as a result of the Optionholder's death or (ii) the Optionholder dies within the period (if any) specified in the Option Agreement after the termination of the Optionholder's Continuous Service for a reason other than death, then the Option may be exercised (to the extent the Optionholder was entitled to exercise such Option as of the date of death) by the
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Optionholder's estate, by a person who acquired the right to exercise the Option by bequest or inheritance or by a person designated to exercise the option upon the Optionholder's death pursuant to Section 6(e) or 6(f), but only within the period ending on the earlier of (i) the expiration of the term of such Option as set forth in the Option Agreement or (ii) the date eighteen (18) months following the date of death (or such longer or shorter period specified in the Option Agreement). If, after the Optionholder's death, the Option is not exercised within the time specified herein or in the Option Agreement (as applicable), the Option shall terminate.
(l) TERMINATION FOR CAUSE. In the event that an Optionholder's Continuous Service is terminated for Cause, the Option shall terminate upon the termination date of such Optionholder's Continuous Service, and the Optionholder shall be prohibited from exercising his or her Option from and after the time of such termination of Continuous Service.
(m) EARLY EXERCISE. The Option may include a provision whereby the Optionholder may elect at any time before the Optionholder's Continuous Service terminates to exercise the Option as to any part or all of the shares of Common Stock subject to the Option prior to the full vesting of the Option. Any unvested shares of Common Stock so purchased may be subject to a repurchase option in favor of the Company or to any other restriction the Board determines to be appropriate. The Company shall not be required to exercise its repurchase option until at least six (6) months (or such longer or shorter period of time required to avoid a charge to earnings for financial accounting purposes) have elapsed following exercise of the Option unless the Board otherwise specifically provides in the Option.
7. PROVISIONS OF STOCK AWARDS OTHER THAN OPTIONS.
(a) STOCK APPRECIATION RIGHTS. Each Stock Appreciation Right Agreement shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate. The terms and conditions of Stock Appreciation Right Agreements may change from time to time, and the terms and conditions of separate Stock Appreciation Right Agreements need not be identical, provided, however, that each Stock Appreciation Right Agreement shall include (through incorporation of the provisions hereof by reference in the agreement or otherwise) the substance of each of the following provisions:
(i) STRIKE PRICE AND CALCULATION OF APPRECIATION. Each Stock Appreciation Right will be denominated in shares of Common Stock equivalents. The appreciation distribution payable on the exercise of a Stock Appreciation Right will be not greater than an amount equal to the excess of (A) the aggregate Fair Market Value (on the date of the exercise of the Stock Appreciation Right) of a number of shares of Common Stock equal to the number of shares of Common Stock equivalents in which the Participant is vested under such Stock Appreciation Right, and with respect to which the Participant is exercising the Stock Appreciation Right on such date, over (B) an amount (the strike price) that will be determined by the Board at the time of grant of the Stock Appreciation Right.
(ii) VESTING. At the time of the grant of a Stock Appreciation Right, the Board may impose such restrictions or conditions to the vesting of such Stock Appreciation Right as it, in its discretion, deems appropriate.
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(iii) EXERCISE. To exercise any outstanding Stock Appreciation Right, the Participant must provide written notice of exercise to the Company in compliance with the provisions of the Stock Appreciation Right Agreement evidencing such Stock Appreciation Right.
(iv) PAYMENT. The appreciation distribution in respect to a Stock Appreciation Right may be paid in Common Stock, in cash, in any combination of the two or in any other form of consideration as determined by the Board and contained in the Stock Appreciation Right Agreement evidencing such Stock Appreciation Right.
(v) TERM. The Board shall determine the term of a Stock Appreciation Right; provided however that no Stock Appreciation Right shall be exercisable after the expiration of ten (10) years from the date on which it was granted.
(vi) TERMINATION OF CONTINUOUS SERVICE. In the event that a Participant's Continuous Service terminates, the Participant may exercise his or her Stock Appreciation Right (to the extent that the Participant was entitled to exercise such Stock Appreciation Right as of the date of termination) but only within such period of time ending on the earlier of (i) the date three (3) months following the termination of the Participant's Continuous Service (or such longer or shorter period specified in the Stock Appreciation Right Agreement) or (ii) the expiration of the term of the Stock Appreciation Right as set forth in the Stock Appreciation Right Agreement. If, after termination, the Participant does not exercise his or her Stock Appreciation Right within the time specified herein or in the Stock Appreciation Right Agreement (as applicable), the Stock Appreciation Right shall terminate.
(b) RESTRICTED STOCK PURCHASE AWARDS. Each Restricted Stock Purchase Award Agreement shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate. At the Board's election, shares of Common Stock may be (i) held in book entry form subject to the Company's instructions until any restrictions relating to the Restricted Stock Purchase Award lapse; or
(ii) evidenced by a certificate, which certificate shall be held in such form and manner as determined by the Board. The terms and conditions of Restricted Stock Purchase Award Agreements may change from time to time, and the terms and conditions of separate Restricted Stock Purchase Award Agreements need not be identical, provided, however, that each Restricted Stock Purchase Award Agreement shall include (through incorporation of the provisions hereof by reference in the agreement or otherwise) the substance of each of the following provisions:
(i) PURCHASE PRICE. At the time of the grant of a Restricted Stock Purchase Award, the Board will determine the price to be paid by the Participant for each share subject to the Restricted Stock Purchase Award. To the extent required by applicable law, the price to be paid by the Participant for each share of the Restricted Stock Purchase Award will not be less than the par value of a share of Common Stock.
(ii) CONSIDERATION. At the time of the grant of a Restricted Stock Purchase Award, the Board will determine the consideration permissible for the payment of the purchase price of the Restricted Stock Purchase Award. The purchase price of Common Stock acquired pursuant to the Restricted Stock Purchase Award shall be paid either: (i) in cash at the time of
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purchase or (ii) in any other form of legal consideration that may be acceptable to the Board and permissible under the Delaware General Corporation Law.
(iii) VESTING. Shares of Common Stock acquired under a Restricted Stock Purchase Award may be subject to a share repurchase right or option in favor of the Company in accordance with a vesting schedule to be determined by the Board.
(iv) TERMINATION OF PARTICIPANT'S CONTINUOUS SERVICE. In the event that a Participant's Continuous Service terminates, the Company shall have the right, but not the obligation, to repurchase or otherwise reacquire, any or all of the shares of Common Stock held by the Participant that have not vested as of the date of termination under the terms of the Restricted Stock Purchase Award Agreement. At the Board's election, the repurchase right may be at the least of:
(i) the Fair Market Value on the relevant date or (ii) the Participant's original cost. The Company shall not be required to exercise its repurchase option until at least six (6) months (or such longer or shorter period of time required to avoid a charge to earnings for financial accounting purposes) have elapsed following the purchase of the restricted stock unless otherwise determined by the Board or provided in the Restricted Stock Purchase Award Agreement.
(v) TRANSFERABILITY. Rights to purchase or receive shares of Common Stock granted under a Restricted Stock Purchase Award shall be transferable by the Participant only upon such terms and conditions as are set forth in the Restricted Stock Purchase Award Agreement, as the Board shall determine in its discretion, and so long as Common Stock awarded under the Restricted Stock Purchase Award remains subject to the terms of the Restricted Stock Purchase Award Agreement.
(c) RESTRICTED STOCK AWARDS. Each Restricted Stock Award Agreement shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate. At the Board's election, shares of Common Stock may be (i) held in book entry form subject to the Company's instructions until any restrictions relating to the Restricted Stock Award lapse; or (ii) evidenced by a certificate, which certificate shall be held in such form and manner as determined by the Board. The terms and conditions of Restricted Stock Award Agreements may change from time to time, and the terms and conditions of separate Restricted Stock Award Agreements need not be identical, but each Restricted Stock Award Agreement shall include (through incorporation of provisions hereof by reference in the agreement or otherwise) the substance of each of the following provisions:
(i) CONSIDERATION. A Restricted Stock Award may be awarded in consideration for past services actually rendered to the Company or an Affiliate.
(ii) VESTING. Shares of Common Stock awarded under the Restricted Stock Award Agreement may be subject to forfeiture to the Company in accordance with a vesting schedule to be determined by the Board.
(iii) TERMINATION OF PARTICIPANT'S CONTINUOUS SERVICE. In the event a Participant's Continuous Service terminates, any or all of the shares of Common Stock held by
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the Participant which have not vested as of the date of termination of Continuous Service shall be forfeited under the terms of the Restricted Stock Award Agreement.
(iv) TRANSFERABILITY. Rights to acquire shares of Common Stock under the Restricted Stock Award Agreement shall be transferable by the Participant only upon such terms and conditions as are set forth in the Restricted Stock Award Agreement, as the Board shall determine in its discretion, so long as Common Stock awarded under the Restricted Stock Award Agreement remains subject to the terms of the Restricted Stock Award Agreement.
(d) RESTRICTED STOCK UNIT AWARDS. A Restricted Stock Unit Award shall be denominated in units equivalent to a number of shares of Common Stock and shall represent a promise to pay the value of such units upon vesting. Each Restricted Stock Unit Award Agreement shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate. The terms and conditions of Restricted Stock Unit Award Agreements may change from time to time, and the terms and conditions of separate Restricted Stock Unit Award Agreements need not be identical, provided, however, that each Restricted Stock Unit Award Agreement shall include (through incorporation of the provisions hereof by reference in the agreement or otherwise) the substance of each of the following provisions:
(i) VESTING. At the time of the grant of a Restricted Stock Unit Award, the Board shall impose such restrictions or conditions to the vesting of the Restricted Stock Unit Award as it, in its discretion, deems appropriate.
(ii) PAYMENT. A Restricted Stock Unit Award, net of any withholding obligations, may, to the extent vested, be settled by the delivery of shares of Common Stock, their cash equivalent, any combination thereof or in any other form of consideration as determined by the Board and contained in the Restricted Stock Unit Award Agreement.
(iii) ADDITIONAL RESTRICTIONS. At the time of the grant of a Restricted Stock Unit Award, the Board, as it deems appropriate, may impose such restrictions or conditions that delay the delivery of the shares of Common Stock (or their cash equivalent) subject to a Restricted Stock Unit Award after the vesting of such Restricted Stock Unit Award.
(iv) DIVIDEND EQUIVALENTS. Dividend equivalents may be credited in respect of shares of Common Stock covered by a Restricted Stock Unit Award, as determined by the Board and contained in the Restricted Stock Unit Award Agreement. At the discretion of the Board, such dividend equivalents may be converted into additional shares of Common Stock covered by the Restricted Stock Unit Award in such manner as determined by the Board. Any additional shares covered by the Restricted Stock Unit Award credited by reason of such dividend equivalents will be subject to all the terms and conditions of the underlying Restricted Stock Unit Award Agreement to which they relate.
8. NON-EMPLOYEE DIRECTORS' NONSTATUTORY STOCK OPTION PROGRAM.
Without any further action by the Board, automatic Option grants shall be made under the Plan in accordance with this Section 8 to Non-Employee Directors who meet the criteria specified in Section 8(a). All Options granted under this
Section 8 shall be Nonstatutory Stock
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Options and shall be in such form as may be approved by the Board, subject to the provisions of the Plan and Section 8.
(a) NON-DISCRETIONARY GRANTS. Without any further action of the Board, on the date of each Annual Meeting, commencing with the first Annual Meeting on or after the IPO Date, each person who is then a Non-Employee Director shall be automatically granted a Nonstatutory Option having a value (on the date of grant) equal to $50,000 of the annual cash compensation (excluding Committee fees) then payable by the Company to such Non-Employee Director, for his or her service as Non-Employee Director since the later of: (i) the last preceding Annual Meeting, or (ii) the date on which such person is elected or appointed for the first time to be a Non-Employee Director. For this purpose, the value of an Option, and thus the number of shares of Common Stock granted under such Option, shall be determined under the Black-Scholes option pricing formula, and any fractional shares shall be rounded to the nearest whole number of shares.
(b) OPTION PROVISIONS. Each Option granted under this Section 8 shall include (through incorporation by reference in the Option or otherwise) the substance of each of the provisions of Section 6, except that no Option granted under this Section 8 shall be exercisable after the expiration of ten (10) years after the date on which it was granted and the exercise price of each Option granted under this Section 8 shall be one hundred percent (100%) of the Fair Market Value of the Common Stock subject to the Option on the date the Option is granted.
9. COVENANTS OF THE COMPANY.
(a) AVAILABILITY OF SHARES. During the terms of the Stock Awards, the Company shall keep available at all times the number of shares of Common Stock required to satisfy such Stock Awards.
(b) SECURITIES LAW COMPLIANCE. The Company shall seek to obtain from each regulatory commission or agency having jurisdiction over the Plan such authority as may be required to grant Stock Awards and to issue and sell shares of Common Stock upon exercise of the Stock Awards; provided, however, that this undertaking shall not require the Company to register under the Securities Act the Plan, any Stock Award or any Common Stock issued or issuable pursuant to any such Stock Award. If, after reasonable efforts, the Company is unable to obtain from any such regulatory commission or agency the authority which counsel for the Company deems necessary for the lawful issuance and sale of Common Stock under the Plan, the Company shall be relieved from any liability for failure to issue and sell Common Stock upon exercise of such Stock Awards unless and until such authority is obtained.
10. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of Common Stock pursuant to Stock Awards shall constitute general funds of the Company.
11. MISCELLANEOUS.
(a) ACCELERATION OF EXERCISABILITY AND VESTING. The Board shall have the power to accelerate the time at which a Stock Award may first be exercised or the time during which a
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Stock Award or any part thereof will vest in accordance with the Plan, notwithstanding the provisions in the Stock Award stating the time at which it may first be exercised or the time during which it will vest.
(b) SHAREHOLDER RIGHTS. No Participant shall be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares of Common Stock subject to such Stock Award unless and until such Participant has satisfied all requirements for exercise of the Stock Award pursuant to its terms.
(c) NO EMPLOYMENT OR OTHER SERVICE RIGHTS. Nothing in the Plan, any Stock Award Agreement or other instrument executed thereunder or any Stock Award granted pursuant thereto shall confer upon any Participant any right to continue to serve the Company or an Affiliate in the capacity in effect at the time the Stock Award was granted or shall affect the right of the Company or an Affiliate to terminate (i) the employment of an Employee with or without notice and with or without cause, (ii) the service of a Consultant pursuant to the terms of such Consultant's agreement with the Company or an Affiliate or (iii) the service of a Director pursuant to the Bylaws of the Company or an Affiliate, and any applicable provisions of the corporate law of the state in which the Company or the Affiliate is incorporated, as the case may be.
(d) INCENTIVE STOCK OPTION $100,000 LIMITATION. To the extent that the aggregate Fair Market Value (determined at the time of grant) of Common Stock with respect to which Incentive Stock Options are exercisable for the first time by any Optionholder during any calendar year (under all plans of the Company and its Affiliates) exceeds one hundred thousand dollars ($100,000), the Options or portions thereof that exceed such limit (according to the order in which they were granted) shall be treated as Nonstatutory Stock Options, notwithstanding any contrary provision of the applicable Option Agreement(s).
(e) INVESTMENT ASSURANCES. The Company may require a Participant, as a condition of exercising or acquiring Common Stock under any Stock Award, (i) to give written assurances satisfactory to the Company as to the Participant's knowledge and experience in financial and business matters and/or to employ a purchaser representative reasonably satisfactory to the Company who is knowledgeable and experienced in financial and business matters and that he or she is capable of evaluating, alone or together with the purchaser representative, the merits and risks of exercising the Stock Award; and (ii) to give written assurances satisfactory to the Company stating that the Participant is acquiring Common Stock subject to the Stock Award for the Participant's own account and not with any present intention of selling or otherwise distributing the Common Stock. The foregoing requirements, and any assurances given pursuant to such requirements, shall be inoperative if (1) the issuance of the shares of Common Stock upon the exercise or acquisition of Common Stock under the Stock Award has been registered under a then currently effective registration statement under the Securities Act or (2) as to any particular requirement, a determination is made by counsel for the Company that such requirement need not be met in the circumstances under the then applicable securities laws. The Company may, upon advice of counsel to the Company, place legends on stock certificates issued under the Plan as such counsel deems necessary or appropriate in order to comply with applicable securities laws, including, but not limited to, legends restricting the transfer of the Common Stock.
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(f) WITHHOLDING OBLIGATIONS. To the extent provided by the terms of a Stock Award Agreement, the Company may in its discretion, satisfy any federal, state or local tax withholding obligation relating to a Stock Award by any of the following means (in addition to the Company's right to withhold from any compensation paid to the Participant by the Company) or by a combination of such means: (i) causing the Participant to tender a cash payment; (ii) withholding shares of Common Stock from the shares of Common Stock issued or otherwise issuable to the Participant in connection with the Stock Award; or (iii) by such other method as may be set forth in the Stock Award Agreement.
12. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) CAPITALIZATION ADJUSTMENTS. If any change is made in, or other event occurs with respect to, the Common Stock subject to the Plan or subject to any Stock Award without the receipt of consideration by the Company through merger, consolidation, reorganization, recapitalization, reincorporation, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or other transaction not involving the receipt of consideration by the Company (each a "CAPITALIZATION ADJUSTMENT"), then (i) the Plan will be appropriately adjusted in the class(es) and maximum number of securities subject to the Plan pursuant to Sections 4(a) and 4(b) and the maximum number of securities subject to award to any person pursuant to Section 5(c) and (ii) the outstanding Stock Awards will be appropriately adjusted in the class(es) and number of securities and price per share of Common Stock subject to such outstanding Stock Awards. The Board shall make such adjustments, and its determination shall be final, binding and conclusive. (Notwithstanding the foregoing, the conversion of any convertible securities of the Company shall not be treated as a transaction "without receipt of consideration" by the Company.)
(b) DISSOLUTION OR LIQUIDATION. In the event of a dissolution or liquidation of the Company, all outstanding Stock Awards (other than Stock Awards consisting of vested Common Stock not subject to the Company's right of repurchase) shall terminate immediately prior to the completion of such dissolution or liquidation, and Common Stock subject to the Company's repurchase option may be repurchased by the Company notwithstanding the fact that the holder of such stock is still in Continuous Service; provided however that, the Board may, in its discretion, cause some or all Stock Awards to be fully vested, exercisable and/or no longer subject to repurchase (to the extent such Stock Awards have not previously expired or terminated) before the dissolution or liquidation is completed but contingent on its completion.
(c) CORPORATE TRANSACTION. In the event of a Corporate Transaction, any surviving corporation or acquiring corporation may assume or continue any or all Stock Awards outstanding under the Plan or may substitute similar stock awards for Stock Awards outstanding under the Plan (including but not limited to, awards to acquire the same consideration paid to the shareholders of the Company, as the case may be, pursuant to the Corporate Transaction), and any reacquisition or repurchase rights held by the Company in respect of Common Stock issued pursuant to Stock Awards may be assigned by the Company to the successor of the Company (or the successor's parent company), if any, in connection with such Corporate Transaction. In the event that any surviving corporation or acquiring corporation does not assume or continue all such outstanding Stock Awards or substitute similar stock awards for all such outstanding Stock Awards, then with respect to Stock Awards that have been not assumed, continued or substituted
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and that are held by Participants whose Continuous Service has not terminated prior to the effective time of the Corporate Transaction, the vesting of such Stock Awards (and, if applicable, the time at which such Stock Awards may be exercised) shall (contingent upon the effectiveness of the Corporate Transaction) be accelerated in full to a date prior to the effective time of such Corporate Transaction as the Board shall determine (or, if the Board shall not determine such a date, to the date that is five (5) days prior to the effective time of the Corporate Transaction), and such Stock Awards shall terminate if not exercised (if applicable) at or prior to such effective time and any reacquisition or repurchase rights held by the Company with respect to such Stock Awards shall (contingent upon the effectiveness of the Corporate Transaction) lapse. With respect to any other Stock Awards outstanding under the Plan that have not been assumed, continued or substituted, the vesting of such Stock Awards (and, if applicable, the time at which such Stock Award may be exercised) shall not be accelerated, unless otherwise provided in a written agreement between the Company or any Affiliate and the holder of such Stock Award, and such Stock Awards shall terminate if not exercised (if applicable) prior to the effective time of the Corporate Transaction.
(d) CHANGE IN CONTROL. A Stock Award may be subject to additional acceleration of vesting and exercisability upon or after a Change in Control as may be provided in the Stock Award Agreement for such Stock Award or as may be provided in any other written agreement between the Company or any Affiliate and the Participant, but in the absence of such provision, no such acceleration shall occur.
13. AMENDMENT OF THE PLAN AND STOCK AWARDS.
(a) AMENDMENT OF PLAN. Subject to the limitations, if any, of applicable law, the Board at any time, and from time to time, may amend the Plan. However, except as provided in Section 12(a) relating to Capitalization Adjustments, no amendment shall be effective unless approved by the shareholders of the Company to the extent shareholder approval is necessary to satisfy applicable law.
(b) SHAREHOLDER APPROVAL. The Board, in its discretion, may submit any other amendment to the Plan for shareholder approval, including, but not limited to, amendments to the Plan intended to satisfy the requirements of Section 162(m) of the Code and the regulations thereunder regarding the exclusion of performance-based compensation from the limit on corporate deductibility of compensation paid to Covered Employees.
(c) CONTEMPLATED AMENDMENTS. It is expressly contemplated that the Board may amend the Plan in any respect the Board deems necessary or advisable to provide eligible Employees with the maximum benefits provided or to be provided under the provisions of the Code and the regulations promulgated thereunder relating to Incentive Stock Options and/or to bring the Plan and/or Incentive Stock Options granted under it into compliance therewith.
(d) NO IMPAIRMENT OF RIGHTS. Rights under any Stock Award granted before amendment of the Plan shall not be impaired by any amendment of the Plan unless
(i) the Company requests the consent of the Participant and (ii) the Participant consents in writing.
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(e) AMENDMENT OF STOCK AWARDS. The Board at any time, and from time to time, may amend the terms of any one or more Stock Awards, including, but not limited to, amendments to provide terms more favorable than previously provided in the agreement evidencing a Stock Award, subject to any specified limits in the Plan that are not subject to Board discretion; provided, however, that the rights under any Stock Award shall not be impaired by any such amendment unless
(i) the Company requests the consent of the Participant and (ii) the Participant consents in writing.
14. TERMINATION OR SUSPENSION OF THE PLAN.
(a) PLAN TERM. The Board may suspend or terminate the Plan at any time. Unless sooner terminated, the Plan shall terminate on the day before the tenth
(10th) anniversary of the date the Plan is adopted by the Board or approved by the shareholders of the Company, whichever is earlier. No Stock Awards may be granted under the Plan while the Plan is suspended or after it is terminated.
(b) NO IMPAIRMENT OF RIGHTS. Suspension or termination of the Plan shall not impair rights and obligations under any Stock Award granted while the Plan is in effect except with the written consent of the Participant.
15. EFFECTIVE DATE OF PLAN.
The Plan shall become effective immediately upon the date on which membership units of American Reprographics Holdings, L.L.C., a California limited liability company, are contributed to the Company, but no Stock Award shall be exercised (or, in the case of Restricted Stock Awards, shall be granted) unless and until the Plan has been approved by the shareholders of the Company, which approval shall be within twelve (12) months before or after the date the Plan is adopted by the Board.
16. CHOICE OF LAW.
The law of the State of California shall govern all questions concerning the construction, validity and interpretation of this Plan, without regard to such state's conflict of laws rules.
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EXHIBIT 10.8
AMERICAN REPROGRAPHICS COMPANY
2005 STOCK PLAN
STOCK OPTION AGREEMENT
 (INCENTIVE STOCK OPTION OR NONSTATUTORY STOCK OPTION)
Pursuant to your Stock Option Grant Notice ("GRANT NOTICE") and this Stock Option Agreement, American Reprographics Company (the "COMPANY") has granted you an option under its 2005 Stock Plan (the "PLAN") to purchase the number of shares of the Company's Common Stock indicated in your Grant Notice at the exercise price indicated in your Grant Notice. Defined terms not explicitly defined in this Stock Option Agreement but defined in the Plan shall have the same definitions as in the Plan.
The details of your option are as follows:
1. VESTING. Subject to the limitations contained herein, your option will vest as provided in your Grant Notice, provided that vesting will cease upon the termination of your Continuous Service.
2. NUMBER OF SHARES AND EXERCISE PRICE. The number of shares of Common Stock subject to your option and your exercise price per share referenced in your Grant Notice may be adjusted from time to time for Capitalization Adjustments.
3. METHOD OF PAYMENT. Payment of the exercise price is due in full upon exercise of all or any part of your option. You may elect to make payment of the exercise price in cash or by check or in any other manner PERMITTED BY YOUR GRANT NOTICE, which may include one or more of the following:
(a) In the Company's sole discretion at the time your option is exercised and provided that at the time of exercise the Common Stock is publicly traded and quoted regularly in The Wall Street Journal, pursuant to a program developed under Regulation T as promulgated by the Federal Reserve Board that, prior to the issuance of Common Stock, results in either the receipt of cash (or check) by the Company or the receipt of irrevocable instructions to pay the aggregate exercise price to the Company from the sales proceeds.
(b) Provided that at the time of exercise the Common Stock is publicly traded and quoted regularly in The Wall Street Journal, by delivery of already-owned shares of Common Stock either that you have held for the period required to avoid a charge to the Company's reported earnings (generally six (6) months) or that you did not acquire, directly or indirectly from the Company, that are owned free and clear of any liens, claims, encumbrances or security interests, and that are valued at Fair Market Value on the date of exercise. "Delivery" for these purposes, in the sole discretion of the Company at the time you exercise your option, shall include delivery to the Company of your attestation of ownership of such shares of Common Stock in a form approved by the Company. Notwithstanding the foregoing, you may not exercise your option by tender to the Company of Common Stock to the extent such tender would violate the provisions of any law, regulation or agreement restricting the redemption of the Company's stock.
4. WHOLE SHARES. You may exercise your option only for whole shares of Common Stock.
5. SECURITIES LAW COMPLIANCE. Notwithstanding anything to the contrary contained herein, you may not exercise your option unless the shares of Common Stock issuable upon such exercise are then registered under the Securities Act or, if such shares of Common Stock are not then so registered, the Company has determined that such exercise and issuance would be exempt from the registration requirements of the Securities Act. The exercise of your option also must comply with other applicable laws and regulations governing your option, and you may not exercise your option if the Company determines that such exercise would not be in material compliance with such laws and regulations.
6. TERM. You may not exercise your option before the commencement of its term or after its term expires. The term of your option commences on the Date of Grant and expires upon the earliest of the following:
(a) three (3) months after the termination of your Continuous Service for any reason other than Cause, Disability or death, provided that if during any part of such three (3) month period you may not exercise your option solely because of the condition set forth in the preceding paragraph relating to "Securities Law Compliance," your option shall not expire until the earlier of the Expiration Date or until it shall have been exercisable for an aggregate period of three (3) months after the termination of your Continuous Service;
(b) twelve (12) months after the termination of your Continuous Service due to your Disability;
(c) eighteen (18) months after your death if you die either during your Continuous Service or within three (3) months after your Continuous Service terminates;
(d) immediately upon the termination of your Continuous Service if for Cause;
(e) the Expiration Date indicated in your Grant Notice; or
(f) the day before the tenth (10th) anniversary of the Date of Grant.
If your option is an Incentive Stock Option, in order to obtain the federal income tax advantages associated with an Incentive Stock Option, the Code requires that at all times beginning on the date of grant of your option and ending on the day three (3) months before the date of your option's exercise, you must be an employee of the Company or an Affiliate, except in the event of your death or your permanent and total disability, as defined in
Section 22(e) of the Code. The Company has provided for extended exercisability of your option under certain circumstances for your benefit but cannot guarantee that your option will necessarily be treated as an Incentive Stock Option if you continue to provide services to the Company or an Affiliate as a Consultant or Director after your employment terminates or if you otherwise exercise your option more than three (3) months after the date your employment with the Company or an Affiliate terminates.
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7. EXERCISE.
(a) You may exercise the vested portion of your option during its term by delivering a Notice of Exercise (in a form designated by the Company) together with the exercise price to the Secretary of the Company, or to such other person as the Company may designate, during regular business hours, together with such additional documents as the Company may then require.
(b) By exercising your option you agree that, as a condition to any exercise of your option, the Company may require you to enter into an arrangement providing for the payment by you to the Company of any tax withholding obligation of the Company arising by reason of (1) the exercise of your option, (2) the lapse of any substantial risk of forfeiture to which the shares of Common Stock are subject at the time of exercise, or (3) the disposition of shares of Common Stock acquired upon such exercise.
(c) If your option is an Incentive Stock Option, by exercising your option you agree that you will notify the Company in writing within fifteen (15) days after the date of any disposition of any of the shares of the Common Stock issued upon exercise of your option that occurs within two (2) years after the date of your option grant or within one (1) year after such shares of Common Stock are transferred upon exercise of your option.
(d) By exercising your option you agree that the Company (or a representative of the underwriter(s)) may, in connection with the first underwritten registration of the offering of any securities of the Company under the Securities Act, require that you not sell, dispose of, transfer, make any short sale of, grant any option for the purchase of, or enter into any hedging or similar transaction with the same economic effect as a sale, any shares of Common Stock or other securities of the Company held by you, for a period of time specified by the underwriter(s) (not to exceed one hundred eighty (180) days) following the effective date of the registration statement of the Company filed under the Securities Act. You further agree to execute and deliver such other agreements as may be reasonably requested by the Company and/or the underwriter(s) that are consistent with the foregoing or that are necessary to give further effect thereto. In order to enforce the foregoing covenant, the Company may impose stop transfer instructions with respect to your shares of Common Stock until the end of such period.
8. TRANSFERABILITY.
(a) If your option is an Incentive Stock Option, your option is not transferable, except by will or by the laws of descent and distribution, and is exercisable during your life only by you. Notwithstanding the foregoing, by delivering written notice to the Company, in a form satisfactory to the Company, you may designate a third party who, in the event of your death, shall thereafter be entitled to exercise your option.
(b) If your option is a Nonstatutory Stock Option, your option is not transferable, except (i) by will or by the laws of descent and distribution,
(ii) with the prior written approval of the Company, by instrument to an inter vivos or testamentary trust, in a form accepted by the Company, in which the option is to be passed to beneficiaries upon the death of
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the trustor (settlor) and (iii) with the prior written approval of the Company, by gift, in a form accepted by the Company, to a permitted transferee under Rule 701 of the Securities Act.
9. OPTION NOT A SERVICE CONTRACT. Your option is not an employment or service contract, and nothing in your option shall be deemed to create in any way whatsoever any obligation on your part to continue in the employ of the Company or an Affiliate, or of the Company or an Affiliate to continue your employment. In addition, nothing in your option shall obligate the Company or an Affiliate, their respective stockholders, Boards of Directors, Officers or Employees to continue any relationship that you might have as a Director or Consultant for the Company or an Affiliate.
10. WITHHOLDING OBLIGATIONS.
(a) At the time you exercise your option, in whole or in part, or at any time thereafter as requested by the Company, you hereby authorize withholding from payroll and any other amounts payable to you, and otherwise agree to make adequate provision as instructed by the Company (including by means of a "cashless exercise" pursuant to a program developed under Regulation T as promulgated by the Federal Reserve Board to the extent instructed by the Company), for any sums required to satisfy the federal, state, local and foreign tax withholding obligations of the Company or an Affiliate, if any, which arise in connection with the exercise of your option.
(b) The Company may, in its sole discretion, and in compliance with any applicable legal conditions or restrictions, withhold from fully vested shares of Common Stock otherwise issuable to you upon the exercise of your option a number of whole shares of Common Stock having a Fair Market Value, determined by the Company as of the date of exercise, not in excess of the minimum amount of tax required to be withheld by law (or such lower amount as may be necessary to avoid variable award accounting). Any adverse consequences to you arising in connection with such share withholding procedure shall be your sole responsibility.
(c) You may not exercise your option unless the tax withholding obligations of the Company and/or any Affiliate are satisfied. Accordingly, you may not be able to exercise your option when desired even though your option is vested, and the Company shall have no obligation to issue a certificate for such shares of Common Stock or release such shares of Common Stock from any escrow provided for herein unless such obligations are satisfied.
11. NOTICES. Any notices provided for in your option or the Plan shall be given in writing and shall be deemed effectively given upon receipt or, in the case of notices delivered by mail by the Company to you, five (5) days after deposit in the United States mail, postage prepaid, addressed to you at the last address you provided to the Company.
12. GOVERNING PLAN DOCUMENT. Your option is subject to all the provisions of the Plan, the provisions of which are hereby made a part of your option, and is further subject to all interpretations, amendments, rules and regulations, which may from time to time be promulgated and adopted pursuant to the Plan. In the event of any conflict between the provisions of your option and those of the Plan, the provisions of the Plan shall control.
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AMERICAN REPROGRAPHICS COMPANY
2005 STOCK PLAN
NON-EMPLOYEE DIRECTORS' NONSTATUTORY STOCK OPTION PROGRAM
STOCK OPTION AGREEMENT
 (NONSTATUTORY STOCK OPTION)
Pursuant to your Stock Option Grant Notice ("GRANT NOTICE") and this Stock Option Agreement, American Reprographics Company (the "COMPANY") has granted you an option under its 2005 Stock Plan (the "PLAN") and Non-Employee Directors' Nonstatutory Stock Option Program to purchase the number of shares of the Company's Common Stock indicated in your Grant Notice at the exercise price indicated in your Grant Notice. Defined terms not explicitly defined in this Stock Option Agreement but defined in the Plan shall have the same definitions as in the Plan.
The details of your option are as follows:
1. VESTING. Subject to the limitations contained herein, your option will vest as provided in your Grant Notice, provided that vesting will cease upon the termination of your Continuous Service. In addition, if the Company is subject to a Change in Control before your Continuous Service terminates, then all of the unvested shares subject to this option shall become fully vested and exercisable immediately prior to the effective date of such Change in Control.
2. NUMBER OF SHARES AND EXERCISE PRICE. The number of shares of Common Stock subject to your option and your exercise price per share referenced in your Grant Notice may be adjusted from time to time for Capitalization Adjustments, as provided in the Plan.
3. METHOD OF PAYMENT. Payment of the exercise price is due in full upon exercise of all or any part of your option. You may elect to make payment of the exercise price in cash or by check or in any other manner permitted by your Grant Notice, which may include one or more of the following:
(a) In the Company's sole discretion at the time your option is exercised and provided that at the time of exercise the Common Stock is publicly traded and quoted regularly in The Wall Street Journal, pursuant to a program developed under Regulation T as promulgated by the Federal Reserve Board that, prior to the issuance of Common Stock, results in either the receipt of cash (or check) by the Company or the receipt of irrevocable instructions to pay the aggregate exercise price to the Company from the sales proceeds.
(b) Provided that at the time of exercise the Common Stock is publicly traded and quoted regularly in The Wall Street Journal, by delivery of already-owned shares of Common Stock either that you have held for the period required to avoid a charge to the Company's reported earnings (generally six months) or that you did not acquire, directly or indirectly from the Company, that are owned free and clear of any liens, claims, encumbrances or security interests, and that are valued at Fair Market Value on the date of exercise. "Delivery"
for these purposes, in the sole discretion of the Company at the time you exercise your option, shall include delivery to the Company of your attestation of ownership of such shares of Common Stock in a form approved by the Company. Notwithstanding the foregoing, you may not exercise your option by tender to the Company of Common Stock to the extent such tender would violate the provisions of any law, regulation or agreement restricting the redemption of the Company's stock.
4. WHOLE SHARES. You may exercise your option only for whole shares of Common Stock.
5. SECURITIES LAW COMPLIANCE. Notwithstanding anything to the contrary contained herein, you may not exercise your option unless the shares of Common Stock issuable upon such exercise are then registered under the Securities Act or, if such shares of Common Stock are not then so registered, the Company has determined that such exercise and issuance would be exempt from the registration requirements of the Securities Act. The exercise of your option must also comply with other applicable laws and regulations governing your option, and you may not exercise your option if the Company determines that such exercise would not be in material compliance with such laws and regulations.
6. TERM. You may not exercise your option before the commencement of its term or after its term expires. The term of your option commences on the Date of Grant and expires upon the earliest of the following:
(a) three (3) months after the termination of your Continuous Service for any reason other than your Disability or death, provided that if during any part of such three (3) month period your option is not exercisable solely because of the condition set forth in the preceding paragraph relating to "Securities Law Compliance," your option shall not expire until the earlier of the Expiration Date or until it shall have been exercisable for an aggregate period of three (3) months after the termination of your Continuous Service;
(b) twelve (12) months after the termination of your Continuous Service due to your Disability or upon a Change in Control;
(c) eighteen (18) months after your death if you die either during your Continuous Service or within three (3) months after your Continuous Service terminates;
(d) immediately upon the termination of your Continuous Service for Cause;
(e) the Expiration Date indicated in your Grant Notice; or
(f) the day before the tenth (10th) anniversary of the Date of Grant.
7. EXERCISE.
(a) You may exercise the vested portion of your option (and the unvested portion of your option if your Grant Notice so permits) during its term by delivering a Notice of Exercise (in a form designated by the Company) together with the exercise price to the Secretary
of the Company, or to such other person as the Company may designate, during regular business hours, together with such additional documents as the Company may then require.
(b) By exercising your option you agree that, as a condition to any exercise of your option, the Company may require you to enter into an arrangement providing for the payment by you to the Company of any tax withholding obligation of the Company arising by reason of (i) the exercise of your option, (ii) the lapse of any substantial risk of forfeiture to which the shares of Common Stock are subject at the time of exercise, or (iii) the disposition of shares of Common Stock acquired upon such exercise.
8. TRANSFERABILITY. Your option is not transferable, except (i) by will or by the laws of descent and distribution, (ii) with the prior written approval of the Company, by instrument to an inter vivos or testamentary trust, in a form accepted by the Company, in which the option is to be passed to beneficiaries upon the death of the trustor (settlor) and (iii) with the prior written approval of the Company, by gift, in a form accepted by the Company, to a permitted transferee under Rule 701 of the Securities Act.
9. OPTION NOT A SERVICE CONTRACT. Your option is not an employment or service contract, and nothing in your option shall be deemed to create in any way whatsoever any obligation on your part to continue in the employ of the Company or an Affiliate, or of the Company or an Affiliate to continue your employment. In addition, nothing in your option shall obligate the Company or an Affiliate, their respective shareholders, Boards of Directors, Officers or Employees to continue any relationship that you might have as a Director or Consultant for the Company or an Affiliate.
10. WITHHOLDING OBLIGATIONS.
(a) At the time you exercise your option, in whole or in part, or at any time thereafter as requested by the Company, you hereby authorize withholding from payroll and any other amounts payable to you, and otherwise agree to make adequate provision as directed by the Company (including by means of a "cashless exercise" pursuant to a program developed under Regulation T as promulgated by the Federal Reserve Board to the extent directed by the Company), for any sums required to satisfy the federal, state, local and foreign tax withholding obligations of the Company or an Affiliate, if any, which arise in connection with your option.
(b) The Company may, in its sole discretion, and in compliance with any applicable conditions or restrictions of law, withhold from fully vested shares of Common Stock otherwise issuable to you upon the exercise of your option a number of whole shares of Common Stock having a Fair Market Value, determined by the Company as of the date of exercise, not in excess of the minimum amount of tax required to be withheld by law. Any adverse consequences to you arising in connection with such share withholding procedure shall be your sole responsibility.
(c) You may not exercise your option unless the tax withholding obligations of the Company and/or any Affiliate are satisfied. Accordingly, you may not be able to exercise your option when desired even though your option is vested, and the Company shall have no
obligation to issue a certificate for such shares of Common Stock or release such shares of Common Stock from any escrow provided for herein.
11. NOTICES. Any notices provided for in your option or the Plan shall be given in writing and shall be deemed effectively given upon receipt or, in the case of notices delivered by mail by the Company to you, five (5) days after deposit in the United States mail, postage prepaid, addressed to you at the last address you provided to the Company.
12. GOVERNING PLAN DOCUMENT. Your option is subject to all the provisions of the Plan, the provisions of which are hereby made a part of your option, and is further subject to all interpretations, amendments, rules and regulations which may from time to time be promulgated and adopted pursuant to the Plan. In the event of any conflict between the provisions of your option and those of the Plan, the provisions of the Plan shall control.
 
EXHIBIT 10.9
AMERICAN REPROGRAPHICS COMPANY
2005 EMPLOYEE STOCK PURCHASE PLAN
ADOPTED _______________
APPROVED BY SHAREHOLDERS _________________
1. PURPOSE.
(a) The purpose of the Plan is to provide a means by which Employees of the Company and certain designated Related Corporations may be given an opportunity to purchase shares of the Common Stock of the Company.
(b) The Company, by means of the Plan, seeks to secure and retain the services of current and new Employees and to provide incentives for such persons to exert maximum efforts for the success of the Company and its Related Corporations.
(c) The Company intends that the Purchase Rights be considered options issued under an Employee Stock Purchase Plan.
2. DEFINITIONS.
As used in the Plan and any Offering, unless otherwise specified, the following terms have the meanings set forth below:
(a) "BOARD" means the Board of Directors of the Company.
(b) "CODE" means the Internal Revenue Code of 1986, as amended.
(c) "COMMITTEE" means a committee appointed by the Board in accordance with Section 3(c) of the Plan.
(d) "COMMON STOCK" means the common stock of the Company.
(e) "COMPANY" means American Reprographics Company, a Delaware corporation.
(f) "CONTRIBUTIONS" means the payroll deductions and other additional payments that a Participant contributes to fund the exercise of a Purchase Right.
(g) "CORPORATE TRANSACTION" means the occurrence, in a single transaction or in a series of related transactions, of any one or more of the following events:
(i) a sale, lease, license or other disposition of all or substantially all of the consolidated assets of the Company;
(ii) a sale or other disposition of at least ninety percent (90%) of the outstanding securities of the Company;
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(iii) a merger, consolidation or similar transaction following which the Company is not the surviving corporation; or
(iv) a merger, consolidation or similar transaction following which the Company is the surviving corporation but the shares of Common Stock outstanding immediately preceding the merger, consolidation or similar transaction are converted or exchanged by virtue of the merger, consolidation or similar transaction into other property, whether in the form of securities, cash or otherwise.
(h) "DIRECTOR" means a member of the Board.
(i) "ELIGIBLE EMPLOYEE" means an Employee who meets the requirements set forth in the Offering for eligibility to participate in the Offering, provided that such Employee also meets the requirements for eligibility to participate set forth in Section 6 of the Plan.
(j) "EMPLOYEE" means any person, including Officers and Directors, who is employed for purposes of Section 423(b)(4) of the Code by the Company or a Related Corporation. Neither service as a Director nor payment of a director's fee shall be sufficient to make an individual an Employee of the Company or a Related Corporation.
(k) "EMPLOYEE STOCK PURCHASE PLAN" means a plan that grants Purchase Rights intended to be options issued under an "employee stock purchase plan," as that term is defined in Section 423(b) of the Code.
(l) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
(m) "FAIR MARKET VALUE" means the value of a security, as determined in good faith by the Board. If the security is listed on any established stock exchange or traded on the New York Stock Exchange, the Fair Market Value of a share of Common Stock shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange (or the exchange or market with the greatest volume of trading in the Common Stock) on the last Trading Day prior to the relevant determination date, as reported in The Wall Street Journal or such other source as the Board deems reliable.
(n) "IPO DATE" means the effective date of the initial public offering of the Common Stock.
(o) "OFFERING" means the grant of Purchase Rights to purchase shares of Common Stock under the Plan to Eligible Employees.
(p) "OFFERING DATE" means a date selected by the Board for an Offering to commence.
(q) "OFFICER" means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder.
(r) "PARTICIPANT" means an Eligible Employee who holds an outstanding Purchase Right granted pursuant to the Plan.
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(s) "PLAN" means this American Reprographics Company 2005 Employee Stock Purchase Plan.
(t) "PURCHASE DATE" means one or more dates during an Offering established by the Board on which Purchase Rights shall be exercised and as of which purchases of shares of Common Stock shall be carried out in accordance with such Offering.
(u) "PURCHASE PERIOD" means a period of time specified within an Offering beginning on the Offering Date or on the next day following a Purchase Date within an Offering and ending on a Purchase Date. An Offering may consist of one or more Purchase Periods.
(v) "PURCHASE RIGHT" means an option to purchase shares of Common Stock granted pursuant to the Plan.
(w) "RELATED CORPORATION" means any parent corporation or subsidiary corporation, whether now or hereafter existing, as those terms are defined in Sections 424(e) and (f), respectively, of the Code.
(x) "SECURITIES ACT" means the Securities Act of 1933, as amended.
(y) "TRADING DAY" means any day on which the exchange(s) or market(s) on which shares of Common Stock are listed, whether it be an established stock exchange, the New York Stock Exchange or otherwise, is open for trading.
3. ADMINISTRATION.
(a) The Board shall administer the Plan unless and until the Board delegates administration to a Committee, as provided in Section 3(c). Whether or not the Board has delegated administration, the Board shall have the final power to determine all questions of policy and expediency that may arise in the administration of the Plan.
(b) The Board (or the Committee) shall have the power, subject to, and within the limitations of, the express provisions of the Plan:
(i) To determine when and how Purchase Rights to purchase shares of Common Stock shall be granted and the provisions of each Offering of such Purchase Rights (which need not be identical).
(ii) To designate from time to time which Related Corporations of the Company shall be eligible to participate in the Plan.
(iii) To construe and interpret the Plan and Purchase Rights, and to establish, amend and revoke rules and regulations for the administration of the Plan. The Board, in the exercise of this power, may correct any defect, omission or inconsistency in the Plan, in a manner and to the extent it shall deem necessary or expedient to make the Plan fully effective.
(iv) To amend the Plan as provided in Section 15.
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(v) To terminate or suspend the Plan as provided in Section 16.
(vi) Generally, to exercise such powers and to perform such acts as it deems necessary or expedient to promote the best interests of the Company and its Related Corporations and to carry out the intent that the Plan be treated as an Employee Stock Purchase Plan.
(vii) To adopt such procedures and sub-plans as are necessary or appropriate to permit participation in the Plan by Employees who are foreign nationals or employed outside the United States.
(c) The Board may delegate administration of the Plan to a Committee of the Board composed of one (1) or more members of the Board. If administration of the Plan is delegated to a Committee, the Committee shall have, in connection with the administration of the Plan, the powers theretofore possessed by the Board, subject, however, to such resolutions, not inconsistent with the provisions of the Plan, as may be adopted from time to time by the Board. The Board may abolish the Committee at any time and revest in the Board some or all of the powers previously delegated. If administration is delegated to a Committee, references to the Board in this Plan and in the Offering document shall thereafter be deemed to be to the Board or the Committee, as the case may be.
(d) All determinations, interpretations and constructions made by the Board in good faith shall not be subject to review by any person and shall be final, binding and conclusive on all persons.
4. SHARES OF COMMON STOCK SUBJECT TO THE PLAN.
Subject to the provisions of Section 14(a) relating to adjustments upon changes in Common Stock, the stock that may be sold pursuant to Purchase Rights granted under the Plan shall not exceed in the aggregate seven hundred fifty thousand (750,000) shares of Common Stock.
5. GRANT OF PURCHASE RIGHTS; OFFERING.
(a) The Board may from time to time grant or provide for the grant of Purchase Rights to purchase shares of Common Stock under the Plan to Eligible Employees in an Offering (consisting of one or more Purchase Periods) on an Offering Date or Offering Dates selected by the Board. Each Offering shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate, which shall comply with the requirement of Section 423(b)(5) of the Code that all Employees granted Purchase Rights shall have the same rights and privileges. The terms and conditions of an Offering shall be incorporated by reference into the Plan and treated as part of the Plan. The provisions of separate Offerings need not be identical, but each Offering shall include (by reference to the provisions of this Plan or otherwise) the period during which the Offering shall be effective, which period shall not exceed twenty-seven (27) months beginning with the Offering Date, and the substance of the provisions contained in Sections 6 through 9, inclusive.
(b) If a Participant has more than one Purchase Right outstanding under the Plan, unless he or she otherwise indicates in agreements or notices delivered hereunder: (i) each
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agreement or notice delivered by that Participant shall be deemed to apply to all of his or her Purchase Rights under the Plan, and (ii) a Purchase Right with a lower exercise price (or an earlier-granted Purchase Right, if different Purchase Rights have identical exercise prices) shall be exercised to the fullest possible extent before a Purchase Right with a higher exercise price (or a later-granted Purchase Right if different Purchase Rights have identical exercise prices) shall be exercised.
6. ELIGIBILITY.
(a) Purchase Rights may be granted only to Employees of the Company or, as the Board may designate as provided in Section 3(b), to Employees of a Related Corporation. Except as provided in Section 6(b), an Employee shall not be eligible to be granted Purchase Rights under the Plan unless, on the Offering Date, such Employee has been in the employ of the Company or the Related Corporation, as the case may be, for such continuous period preceding such Offering Date as the Board may require, but in no event shall the required period of continuous employment be greater than two (2) years. In addition, the Board may provide that no Employee shall be eligible to be granted Purchase Rights under the Plan unless, on the Offering Date, such Employee's customary employment with the Company or the Related Corporation is more than twenty (20) hours per week and/or more than five (5) months per calendar year.
(b) The Board may provide that each person who, during the course of an Offering, first becomes an Eligible Employee shall, on a date or dates specified in the Offering which coincides with the day on which such person becomes an Eligible Employee or which occurs thereafter, receive a Purchase Right under that Offering, which Purchase Right shall thereafter be deemed to be a part of that Offering. Such Purchase Right shall have the same characteristics as any Purchase Rights originally granted under that Offering, as described herein, except that:
(i) the date on which such Purchase Right is granted shall be the "Offering Date" of such Purchase Right for all purposes, including determination of the exercise price of such Purchase Right;
(ii) the period of the Offering with respect to such Purchase Right shall begin on its Offering Date and end coincident with the end of such Offering; and
(iii) the Board may provide that if such person first becomes an Eligible Employee within a specified period of time before the end of the Offering, he or she shall not receive any Purchase Right under that Offering.
(c) No Employee shall be eligible for the grant of any Purchase Rights under the Plan if, immediately after any such Purchase Rights are granted, such Employee owns stock possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Company or of any Related Corporation. For purposes of this Section 6(c), the rules of Section 424(d) of the Code shall apply in determining the stock ownership of any Employee, and stock which such Employee may purchase under all outstanding Purchase Rights and options shall be treated as stock owned by such Employee.
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(d) As specified by Section 423(b)(8) of the Code, an Eligible Employee may be granted Purchase Rights under the Plan only if such Purchase Rights, together with any other rights granted under all Employee Stock Purchase Plans of the Company and any Related Corporations, do not permit such Eligible Employee's rights to purchase stock of the Company or any Related Corporation to accrue at a rate which exceeds twenty five thousand dollars ($25,000) of Fair Market Value of such stock (determined at the time such rights are granted, and which, with respect to the Plan, shall be determined as of their respective Offering Dates) for each calendar year in which such rights are outstanding at any time.
(e) Officers of the Company and any designated Related Corporation, if they are otherwise Eligible Employees, shall be eligible to participate in Offerings under the Plan. Notwithstanding the foregoing, the Board may provide in an Offering that Employees who are highly compensated Employees within the meaning of Section 423(b)(4)(D) of the Code shall not be eligible to participate.
7. PURCHASE RIGHTS; PURCHASE PRICE.
(a) On each Offering Date, each Eligible Employee, pursuant to an Offering made under the Plan, shall be granted a Purchase Right to purchase up to that number of shares of Common Stock purchasable either with a percentage or with a maximum dollar amount, as designated by the Board, but in either case not exceeding fifteen percent (15%), of such Employee's Earnings (as defined by the Board in each Offering) during the period that begins on the Offering Date (or such later date as the Board determines for a particular Offering) and ends on the date stated in the Offering, which date shall be no later than the end of the Offering.
(b) The Board shall establish one (1) or more Purchase Dates during an Offering as of which Purchase Rights granted pursuant to that Offering shall be exercised and purchases of shares of Common Stock shall be carried out in accordance with such Offering.
(c) In connection with each Offering made under the Plan, the Board may specify a maximum number of shares of Common Stock that may be purchased by any Participant on any Purchase Date during such Offering. In connection with each Offering made under the Plan, the Board may specify a maximum aggregate number of shares of Common Stock that may be purchased by all Participants pursuant to such Offering. In addition, in connection with each Offering that contains more than one Purchase Date, the Board may specify a maximum aggregate number of shares of Common Stock that may be purchased by all Participants on any Purchase Date under the Offering. Notwithstanding anything to the contrary, during any calendar year, no Participant may purchase under this Plan in excess of the lesser of (i) four hundred (400) shares of Common Stock, or (ii) a number of shares of Common Stock having an aggregate Fair Market Value (determined on the date of the purchase(s)) of ten thousand dollars ($10,000).
(d) If the number of shares of Common Stock which might be purchased by all Participants on a Purchase Date exceeds the number of shares of Common Stock available in the Plan as provided in Section 4 or the maximum aggregate number of shares of Common Stock that may be purchased on such Purchase Date pursuant to a limit established by the Board pursuant to Section 7.1(c), the Company shall make a pro rata allocation of the shares available
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in as uniform a manner as practicable and as the Company determines to be equitable. Any fractional share resulting from such pro rata allocation to any Participant shall be disregarded.
(e) The purchase price of shares of Common Stock acquired pursuant to Purchase Rights shall be not less than the lesser of:
(i) an amount equal to eighty-five percent (85%) of the Fair Market Value of the shares of Common Stock on the Offering Date; or
(ii) an amount equal to eighty-five percent (85%) of the Fair Market Value of the shares of Common Stock on the applicable Purchase Date.
8. PARTICIPATION; WITHDRAWAL; TERMINATION.
(a) A Participant may elect to authorize payroll deductions pursuant to an Offering under the Plan by completing and delivering to the Company, within the time specified in the Offering, an enrollment form (in such form as the Company may provide). Each such enrollment form shall authorize an amount of Contributions expressed as a percentage of the submitting Participant's Earnings (as defined in each Offering) during the Offering (not to exceed the maximum percentage specified by the Board). Each Participant's Contributions shall remain the property of the Participant at all times prior to the purchase of Common Stock, but such Contributions may be commingled with the assets of the Company and used for general corporate purposes except where applicable law requires that Contributions be deposited with an independent third party. To the extent provided in the Offering, a Participant may begin making Contributions after the beginning of the Offering. To the extent provided in the Offering, a Participant may thereafter reduce (including to zero) or increase his or her Contributions. To the extent specifically provided in the Offering, in addition to making Contributions by payroll deductions, a Participant may make Contributions through the payment by cash or check prior to each Purchase Date of the Offering, provided that payment through means other than payroll deductions shall be permitted only if the Participant has not already had the maximum permitted amount withheld through payroll deductions during the Offering.
(b) During an Offering, a Participant may cease making Contributions and withdraw from the Offering by delivering to the Company a notice of withdrawal in such form as the Company may provide. Such withdrawal may be elected at any time prior to the end of the Offering, except as provided otherwise in the Offering. Upon such withdrawal from the Offering by a Participant, the Company shall distribute to such Participant all of his or her accumulated Contributions (reduced to the extent, if any, such Contributions have been used to acquire shares of Common Stock for the Participant) under the Offering, and such Participant's Purchase Right in that Offering shall thereupon terminate. A Participant's withdrawal from an Offering shall have no effect upon such Participant's eligibility to participate in any other Offerings under the Plan, but such Participant shall be required to deliver a new enrollment form in order to participate in subsequent Offerings.
(c) Purchase Rights granted pursuant to any Offering under the Plan shall terminate immediately upon a Participant ceasing to be an Employee for any reason or for no reason (subject to any post-employment participation period required by law) or other lack of eligibility.
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The Company shall distribute to such terminated or otherwise ineligible Employee all of his or her accumulated Contributions (reduced to the extent, if any, such Contributions have been used to acquire shares of Common Stock for the terminated or otherwise ineligible Employee) under the Offering.
(d) Purchase Rights shall not be transferable by a Participant otherwise than by will, the laws of descent and distribution, or a beneficiary designation as provided in Section 13. During a Participant's lifetime, Purchase Rights shall be exercisable only by such Participant.
(e) Unless otherwise specified in an Offering, the Company shall have no obligation to pay interest on Contributions.
9. EXERCISE.
(a) On each Purchase Date during an Offering, each Participant's accumulated Contributions shall be applied to the purchase of shares of Common Stock up to the maximum number of shares of Common Stock permitted pursuant to the terms of the Plan and the applicable Offering, at the purchase price specified in the Offering. No fractional shares shall be issued upon the exercise of Purchase Rights unless specifically provided for in the Offering.
(b) If any amount of accumulated Contributions remains in a Participant's account after the purchase of shares of Common Stock and such remaining amount is less than the amount required to purchase one share of Common Stock on the final Purchase Date of an Offering, then such remaining amount shall be held in such Participant's account for the purchase of shares of Common Stock under the next Offering under the Plan, unless such Participant withdraws from such next Offering, as provided in Section 8(b), or is not eligible to participate in such Offering, as provided in Section 6, in which case such amount shall be distributed to such Participant after the final Purchase Date, without interest. If the amount of Contributions remaining in a Participant's account after the purchase of shares of Common Stock is at least equal to the amount required to purchase one (1) whole share of Common Stock on the final Purchase Date of the Offering, then such remaining amount shall be distributed in full to such Participant at the end of the Offering.
(c) No Purchase Rights may be exercised to any extent unless the shares of Common Stock to be issued upon such exercise under the Plan are covered by an effective registration statement pursuant to the Securities Act and the Plan is in material compliance with all laws applicable to the Plan. If on a Purchase Date during any Offering hereunder the shares of Common Stock are not so registered or the Plan is not in such compliance, no Purchase Rights or any Offering shall be exercised on such Purchase Date, and the Purchase Date shall be delayed until the shares of Common Stock are subject to such an effective registration statement and the Plan is in such compliance, except that the Purchase Date shall not be delayed more than twelve (12) months and the Purchase Date shall in no event be more than twenty-seven (27) months from the Offering Date. If, on the Purchase Date under any Offering hereunder, as delayed to the maximum extent permissible, the shares of Common Stock are not registered and the Plan is not in such compliance, no Purchase Rights or any Offering shall be exercised and all Contributions accumulated during the Offering (reduced to the extent, if any, such Contributions have been used to acquire shares of Common Stock) shall be distributed to the Participants.
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10. COVENANTS OF THE COMPANY.
The Company shall seek to obtain from each federal, state, foreign or other regulatory commission or agency having jurisdiction over the Plan such authority as may be required to issue and sell shares of Common Stock upon exercise of the Purchase Rights. If, after commercially reasonable efforts, the Company is unable to obtain from any such regulatory commission or agency the authority that counsel for the Company deems necessary for the lawful issuance and sale of shares of Common Stock under the Plan, the Company shall be relieved from any liability for failure to issue and sell shares of Common Stock upon exercise of such Purchase Rights unless and until such authority is obtained.
11. USE OF PROCEEDS FROM SHARES OF COMMON STOCK.
Proceeds from the sale of shares of Common Stock pursuant to Purchase Rights shall constitute general funds of the Company.
12. RIGHTS AS A SHAREHOLDER.
A Participant shall not be deemed to be the holder of, or to have any of the rights of a holder with respect to, shares of Common Stock subject to Purchase Rights unless and until the Participant's shares of Common Stock acquired upon exercise of Purchase Rights are recorded in the books of the Company (or its transfer agent).
13. DESIGNATION OF BENEFICIARY.
(a) A Participant may file a written designation of a beneficiary who is to receive any shares of Common Stock and/or cash, if any, from the Participant's account under the Plan in the event of such Participant's death subsequent to the end of an Offering but prior to delivery to the Participant of such shares of Common Stock or cash. In addition, a Participant may file a written designation of a beneficiary who is to receive any cash from the Participant's account under the Plan in the event of such Participant's death during an Offering. Any such designation shall be on a form provided by or otherwise acceptable to the Company.
(b) The Participant may change such designation of beneficiary at any time by written notice to the Company. In the event of the death of a Participant and in the absence of a beneficiary validly designated under the Plan who is living at the time of such Participant's death, the Company shall deliver such shares of Common Stock and/or cash to the executor or administrator of the estate of the Participant, or if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its sole discretion, may deliver such shares of Common Stock and/or cash to the spouse or to any one or more dependents or relatives of the Participant, or if no spouse, dependent or relative is known to the Company, then to such other person as the Company may designate.
14. ADJUSTMENTS UPON CHANGES IN SECURITIES; CORPORATE TRANSACTIONS.
(a) If any change is made in the shares of Common Stock, subject to the Plan, or subject to any Purchase Right, without the receipt of consideration by the Company (through merger, consolidation, reorganization, recapitalization, reincorporation, stock dividend, dividend
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in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or other transaction not involving the receipt of consideration by the Company), the Plan shall be appropriately adjusted in the type(s), class(es) and maximum number of shares of Common Stock subject to the Plan pursuant to Section 4(a), and the outstanding Purchase Rights shall be appropriately adjusted in the type(s), class(es), number of shares and purchase limits of such outstanding Purchase Rights. The Board shall make such adjustments, and its determination shall be final, binding and conclusive. (Notwithstanding the foregoing, the conversion of any convertible securities of the Company shall not be treated as a "transaction not involving the receipt of consideration by the Company.")
(b) In the event of a Corporate Transaction, then: (i) any surviving or acquiring corporation may continue or assume Purchase Rights outstanding under the Plan or may substitute similar rights (including a right to acquire the same consideration paid to shareholders in the Corporate Transaction) for those outstanding under the Plan, or (ii) if any surviving or acquiring corporation does not continue or assume such Purchase Rights or does not substitute similar rights for Purchase Rights outstanding under the Plan, then, the Participants' accumulated Contributions shall be used to purchase shares of Common Stock prior to the Corporate Transaction under the ongoing Offering, and the Participants' Purchase Rights under the ongoing Offering shall terminate immediately after such purchase.
15. AMENDMENT OF THE PLAN.
(a) The Board at any time, and from time to time, may amend the Plan. However, except as provided in Section 14 relating to adjustments upon changes in securities and except as to amendments solely to benefit the administration of the Plan, to take account of a change in legislation or to obtain or maintain favorable tax, exchange control or regulatory treatment for Participants or the Company or any Related Corporation, no amendment shall be effective unless approved by the shareholders of the Company to the extent shareholder approval is necessary for the Plan to satisfy the requirements of Section 423 of the Code or other applicable laws or regulations.
(b) It is expressly contemplated that the Board may amend the Plan in any respect the Board deems necessary or advisable to provide Employees with the maximum benefits provided or to be provided under the provisions of the Code and the regulations promulgated thereunder relating to Employee Stock Purchase Plans or to bring the Plan and/or Purchase Rights into compliance therewith.
(c) The rights and obligations under any Purchase Rights granted before amendment of the Plan shall not be impaired by any amendment of the Plan except:
(i) with the consent of the person to whom such Purchase Rights were granted, or
(ii) as necessary to comply with any laws or governmental regulations (including, without limitation, the provisions of the Code and the regulations promulgated thereunder relating to Employee Stock Purchase Plans). Notwithstanding the foregoing, in the event that the Board determines that continuation of the Plan or an Offering would result in unfavorable financial accounting consequences to the Company as a result of a change after the IPO Date in the generally accepted accounting principles applicable to the Plan, the Board may, in its discretion and without the consent of any
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Participant, including with respect to an Offering then in progress: (a) terminate the Plan or any Offering, (b) accelerate the Purchase Date of any Offering, (c) reduce the discount applicable to any Purchase Right of any Offering, (d) reduce the maximum number of shares of Common Stock that may be purchased in any Offering or (e) take any combination of the foregoing actions.
16. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board in its discretion may suspend or terminate the Plan at any time. Unless sooner terminated, the Plan shall terminate at the time that all of the shares of Common Stock reserved for issuance under the Plan, as increased and/or adjusted from time to time, have been issued under the terms of the Plan. No Purchase Rights may be granted under the Plan while the Plan is suspended or after it is terminated.
(b) Any benefits, privileges, entitlements and obligations under any Purchase Rights while the Plan is in effect shall not be impaired by suspension or termination of the Plan except (i) as expressly provided in the Plan or with the consent of the person to whom such Purchase Rights were granted, (ii) as necessary to comply with any laws, regulations, or listing requirements, or
(iii) as necessary to ensure that the Plan and/or Purchase Rights comply with the requirements of Section 423 of the Code.
17. EFFECTIVE DATE OF PLAN.
The Plan shall become effective on the IPO Date, but no Purchase Rights shall be exercised unless and until the Plan has been approved by the shareholders of the Company within twelve (12) months before or after the date the Plan is adopted by the Board.
18. MISCELLANEOUS PROVISIONS.
(a) The Plan and Offering do not constitute an employment contract. Nothing in the Plan or in the Offering shall in any way alter the at will nature of a Participant's employment or be deemed to create in any way whatsoever any obligation on the part of any Participant to continue in the employ of the Company or a Related Corporation, or on the part of the Company or a Related Corporation to continue the employment of a Participant.
(b) The provisions of the Plan shall be governed by the law of the State of California without resort to that state's conflicts of laws rules.
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AMERICAN REPROGRAPHICS COMPANY
2005 EMPLOYEE STOCK PURCHASE PLAN
OFFERING DOCUMENT
ADOPTED BY THE BOARD OF DIRECTORS: [_______________]
In this document, capitalized terms not otherwise defined shall have the same definitions as set forth in American Reprographics Company 2005 Employee Stock Purchase Plan.
1. GRANT; OFFERING DATE.
(a) The Board hereby authorizes a series of Offerings pursuant to the terms of this Offering document.
(b) The first Offering hereunder (the "Initial Offering") shall begin on
[ ] (the "IPO Date") and shall end on [ ], unless terminated earlier as provided below. After the Initial Offering, an additional new Offering shall begin on the day after the first Purchase Date of the immediately preceding Offering; provided, however, the first additional new Offering shall begin on [ ] rather than [ ]. The first day of an Offering is that Offering's "Offering Date." Except as provided below, each Offering shall be approximately twenty-four (24) months in duration, with four (4) Purchase Periods which, except for the first Purchase Period of the Initial Offering (which may be longer or shorter) and except as otherwise provided herein, shall be six (6) months in length. Except as provided below, a Purchase Date is the last day of a Purchase Period or of an Offering, as the case may be. The Initial Offering shall consist of four (4) Purchase Periods with the first Purchase Period of the Initial Offering ending on [ ].
(c) Notwithstanding the foregoing: (i) if any Offering Date falls on a day that is not a Trading Day, then such Offering Date shall instead fall on the next subsequent Trading Day, and (ii) if any Purchase Date falls on a day that is not a Trading Day, then such Purchase Date shall instead fall on the immediately preceding Trading Day.
(d) Prior to the commencement of any Offering, the Board may change any or all terms of such Offering and any subsequent Offerings. The granting of Purchase Rights pursuant to each Offering hereunder shall occur on each respective Offering Date unless prior to such date (i) the Board determines that such Offering shall not occur, or (ii) no shares of Common Stock remain available for issuance under the Plan in connection with the Offering.
(e) Notwithstanding anything in this Section 1 to the contrary, if on the first day of a Purchase Period (after the Offering Date) during an Offering the Fair Market Value of the shares of Common Stock is less than it was on the Offering Date for that Offering, the Offering that would otherwise have continued in effect shall immediately terminate and the Employees who were enrolled in the terminated Offering shall automatically be enrolled in the new Offering that starts such day. Notwithstanding the foregoing, if on the Offering Date of the Offering that
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begins on [ ], the Fair Market Value of the shares of Common Stock is less than it was on the Offering Date for the Initial Offering, the Initial Offering shall immediately terminate and the Employees who were enrolled in such terminated Offering shall automatically be enrolled in the new Offering that starts on [ ].
(f) If the Company's accountants advise the Company that the accounting treatment of purchases under the Plan will change or has changed in a manner that the Company determines is detrimental to its best interests, then the Company may, in its discretion, take any or all of the following actions: (i) terminate the Plan or any Offering and refund any money contributed to the Participants, (ii) accelerate the Purchase Date of any Offering, (iii) reduce the discount applicable to any Purchase Right of any Offering, (iv) reduce the maximum number of shares of Common Stock that may be purchased in any Offering or (v) take any combination of the foregoing actions.
2. ELIGIBLE EMPLOYEES.
(a) Each Eligible Employee who, on the Offering Date of an Offering, is
(i) an employee of the Company; (ii) an employee of a Related Corporation incorporated in the United States; or (iii) an employee of a Related Corporation that is not incorporated in the United States, provided that the Board or Committee has designated the employees of such Related Corporation as eligible to participate in the Offering, shall be granted a Purchase Right on the Offering Date of such Offering.
(b) Notwithstanding the foregoing, the following Employees shall not be Eligible Employees or be granted Purchase Rights under an Offering:
(i) part-time or seasonal Employees whose customary employment is twenty (20) hours per week or less or five (5) months per calendar year or less;
(ii) five percent (5%) stockholders (including ownership through unexercised and/or unvested stock options) as described in Section 6(c) of the Plan; or
(iii) Employees in jurisdictions outside of the United States if, as of the Offering Date of the Offering, the grant of such Purchase Rights would not be in compliance with the applicable laws of any jurisdiction in which the Employee resides or is employed.
(c) Notwithstanding the foregoing, each person who first becomes an Eligible Employee during an ongoing Offering shall not be able to participate in such Offering.
3. PURCHASE RIGHTS.
(a) Subject to the limitations set forth herein and in the Plan, a Participant's Purchase Right shall permit the purchase of the number of shares of Common Stock purchasable with up to fifteen percent (15%) of such Participant's Earnings (defined below) paid during the period of such Offering beginning immediately after such Participant first commences participation; provided, however, that no Participant may have more than fifteen percent (15%) of such Participant's Earnings applied to purchase shares of Common Stock under all ongoing Offerings
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under the Plan and all other plans of the Company and Related Corporations that are intended to qualify as Employee Stock Purchase Plans.
(b) For Offerings hereunder, "Earnings" means the base compensation paid to a Participant, including all salary and wages (including amounts elected to be deferred by the Participant, that would otherwise have been paid, under any cash or deferred arrangement or other deferred compensation program established by the Company or a Related Corporation), overtime pay, commissions and bonuses; but excluding all other remuneration paid directly to such Participant, profit sharing, the cost of employee benefits paid for by the Company or a Related Corporation, education or tuition reimbursements, imputed income arising under any Company or Related Corporation group insurance or benefit program, traveling expenses, business and moving expense reimbursements, income received in connection with stock options, contributions made by the Company or a Related Corporation under any employee benefit plan, and similar items of compensation.
(c) Notwithstanding the foregoing, the maximum number of shares of Common Stock that a Participant may purchase on any Purchase Date in an Offering shall be such number of shares as has a Fair Market Value (determined as of the Offering Date for such Offering) equal to (x) $25,000 multiplied by the number of calendar years in which the Purchase Right under such Offering has been outstanding at any time, minus (y) the Fair Market Value of any other shares of Common Stock (determined as of the relevant Offering Date with respect to such shares) that, for purposes of the limitation of Section 423(b)(8) of the Code, are attributed to any of such calendar years in which the Purchase Right is outstanding. The amount in clause (y) of the previous sentence shall be determined in accordance with regulations applicable under Section 423(b)(8) of the Code based on (i) the number of shares previously purchased with respect to such calendar years pursuant to such Offering or any other Offering under the Plan, or pursuant to any other Company or Related Corporation plans intended to qualify as Employee Stock Purchase Plans, and (ii) the number of shares subject to other Purchase Rights outstanding on the Offering Date for such Offering pursuant to the Plan or any other such Company or Related Corporation Employee Stock Purchase Plan.
(d) The maximum aggregate number of shares of Common Stock available to be purchased by all Participants on a Purchase Date shall be the number of shares of Common Stock then remaining available under the Plan. If the aggregate purchase of shares of Common Stock upon exercise of Purchase Rights granted under the Offering would exceed the maximum aggregate number of shares available, the Board shall make a pro rata allocation of the shares available in a uniform and equitable manner. Notwithstanding anything to the contrary, during any calendar year, no Participant may purchase under this Plan in excess of the lesser of (i) four hundred (400) shares of Common Stock, or (ii) a number of shares of Common Stock having an aggregate Fair Market Value (determined on the date of the purchase(s)) of ten thousand dollars ($10,000).
4. PURCHASE PRICE.
The purchase price of shares of Common Stock under an Offering shall be the lesser of: (i) eighty-five percent (85%) of the Fair Market Value of such shares of Common Stock on the applicable Offering Date, or (ii) eighty-five percent (85%) of the Fair Market Value of such
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shares of Common Stock on the applicable Purchase Date, in each case rounded up to the nearest whole cent per share. For the Initial Offering, the Fair Market Value of the shares of Common Stock at the time when the Offering commences shall be the price per share at which shares are first sold to the public in the Company's initial public offering as specified in the final prospectus for that initial public offering.
5. PARTICIPATION.
(a) An Eligible Employee may elect to participate in an Offering on the Offering Date. An Eligible Employee shall elect his or her payroll deduction percentage on such enrollment form as the Company provides. The completed enrollment form must be delivered to the Company prior to the date participation is to be effective, unless a later time for filing the enrollment form is set by the Company for all Eligible Employees with respect to a given Offering. Payroll deduction percentages must be expressed in whole percentages of Earnings, with a minimum percentage of one percent (1%) and a maximum percentage of fifteen percent (15%). Except as provided in paragraph (e) below with respect to the Initial Offering, Contributions may be made only by way of payroll deductions.
(b) A Participant may increase or decrease his or her participation level once during a Purchase Period. In addition, a Participant may decrease to zero percent (0%) his or her participation level only once during a Purchase Period. Any such increase or decrease in participation level shall be made by delivering a notice to the Company or a designated Related Corporation in such form as the Company provides prior to the ten (10) day period (or such shorter period of time as determined by the Company and communicated to Participants) immediately preceding the next Purchase Date of the Purchase Period for which it is to be effective.
(c) A Participant may withdraw from an Offering and receive a refund of his or her Contributions (reduced to the extent, if any, such Contributions have been used to acquire shares of Common Stock for the Participant on any prior Purchase Date) without interest, at any time prior to the end of the Offering, excluding only each ten (10) day period immediately preceding a Purchase Date (or such shorter period of time determined by the Company and communicated to Participants), by delivering a withdrawal notice to the Company or a designated Related Corporation in such form as the Company provides. A Participant who has withdrawn from an Offering shall not again participate in such Offering, but may participate in subsequent Offerings under the Plan in accordance with the terms of the Plan and the terms of such subsequent Offerings.
(d) Notwithstanding the foregoing or any other provision of this Offering document or of the Plan to the contrary, neither the enrollment of any Eligible Employee in the Plan nor any forms relating to participation in the Plan shall be given effect until such time as a registration statement covering the registration of the shares under the Plan that are subject to the Offering has been filed by the Company and has become effective.
(e) Notwithstanding the foregoing or any other provision of this Offering document or of the Plan to the contrary, with respect to the Initial Offering only, each Eligible Employee who is employed on the IPO Date automatically shall be enrolled in the Initial Offering, with a
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Purchase Right to purchase up to the number of shares of Common Stock that are purchasable with fifteen percent (15%) of the Eligible Employee's Earnings, subject to the limitations set forth in Section 3 above. Following the filing of an effective registration statement pursuant to a Form S-8, such Eligible Employee shall be provided a certain period of time, as determined by the Company in its sole discretion, within which to elect to authorize payroll deductions for the purchase of shares during the Initial Offering (which may be for a percentage that is less than fifteen percent (15%) of the Eligible Employee's Earnings). If such Eligible Employee elects not to authorize such payroll deductions, the Eligible Employee instead may purchase shares of Common Stock under the Plan by delivering a single cash payment for the purchase of such shares to the Company or a designated Related Corporation prior to the ten
(10) day period (or such shorter period of time as determined by the Company and communicated to Participants) immediately preceding the first Purchase Date under the Initial Offering. If an Eligible Employee neither elects to authorize payroll deductions (or fails to do so in a timely manner) nor chooses to make a cash payment in accordance with the foregoing sentence, then the Eligible Employee shall not purchase any shares of Common Stock during the Initial Offering. After the end of the Initial Offering, in order to participate in any subsequent Offerings, an Eligible Employee must enroll and authorize payroll deductions prior to the commencement of the Offering, in accordance with paragraph (a) above; provided, however, that once an Eligible Employee enrolls in an Offering and authorizes payroll deductions (including in connection with the Initial Offering), the Eligible Employee automatically shall be enrolled for all subsequent Offerings until he or she elects to withdraw from an Offering pursuant to paragraph (c) above or terminates his or her participation in the Plan.
6. PURCHASES.
Subject to the limitations contained herein, on each Purchase Date, each Participant's Contributions (without any increase for interest) shall be applied to the purchase of whole shares, up to the maximum number of shares permitted under the Plan and the Offering.
7. NOTICES AND AGREEMENTS.
Any notices or agreements provided for in an Offering or the Plan shall be given in writing, in a form provided by the Company, and unless specifically provided for in the Plan or this Offering, shall be deemed effectively given upon receipt or, in the case of notices and agreements delivered by the Company, five (5) days after deposit in the United States mail, postage prepaid.
8. EXERCISE CONTINGENT ON SHAREHOLDER APPROVAL.
The Purchase Rights granted under an Offering are subject to the approval of the Plan by the stockholders of the Company as required for the Plan to obtain treatment as an Employee Stock Purchase Plan.
9. OFFERING SUBJECT TO PLAN.
Each Offering is subject to all the provisions of the Plan, and the provisions of the Plan are hereby made a part of the Offering. The Offering is further subject to all interpretations, amendments, rules and regulations which may from time to time be promulgated and adopted
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pursuant to the Plan. In the event of any conflict between the provisions of an Offering and those of the Plan (including interpretations, amendments, rules and regulations which may from time to time be promulgated and adopted pursuant to the Plan), the provisions of the Plan shall control.
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EXHIBIT 10.10
LEASE AGREEMENT BETWEEN
SUMO HOLDINGS LA, LLC
AND
FORD GRAPHICS GROUP, L.L.C.
 
LEASE AGREEMENT BETWEEN
SUMO HOLDINGS LA, LLC AND
FORD GRAPHICS GROUP, L.L.C.

PREAMBLE........................................................................      1

ARTICLE 1 - TERM OF LEASE.......................................................      1
        1.01 Original Term.......................................................     1
        1.02 Option to Extend Term...............................................     1
        1.03 Holding Over........................................................     2
        1.04 Right of First Refusal to Purchase Leased Premises..................     2

        ARTICLE 2 - RENT AND TAXES..............................................      3
        2.01 Fixed Rent..........................................................     3
        2.02 Late Payment Charges................................................     4
        2.03 Additional Rent for Increase in Taxes...............................     4

        ARTICLE 3 - REPAIRS, MAINTENANCE, AND ALTERATIONS.......................      5
        3.01 Present Condition of Premises.......................................     5
        3.02 Maintenance and Repairs by Tenant...................................     5
        3.03 Repairs by Landlord for Tenant's Account............................     5
        3.04 Alterations and Improvements........................................     6
        3.05 Surrender of Premises...............................................     7
        3.06 Landlord's Right of Inspection......................................     7

        ARTICLE 4 - USE OF PREMISES.............................................      7
        4.01 Permitted and Prohibited Use of Premises............................     7
        4.02 Signs and Advertising...............................................     8

ARTICLE 5 - INSURANCE AND ALLOCATION OF THE RISK OF LOSS........................      8
        5.01 Allocation of the Risk of Loss......................................     8
        5.02 Fire Insurance......................................................     8
        5.03 Liability and Property Insurance....................................     9
        5.04 Business Interruption Insurance.....................................    10
        5.05 Tenant's Personal Property..........................................    10
        5.06 Workers' Compensation Insurance.....................................    10
        5.07 Cancellation Clause.................................................    10
        5.08 Deposit of Insurance Policies With Landlord.........................    11
        5.09 Blanket Insurance Policy............................................    11	

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        5.10 Landlord's Right to Procure Insurance..............................   11

ARTICLE 6 - DESTRUCTION OF PREMISES.............................................   11
        6.01 Tenant's Duty to Repair or Restore.................................   11
        6.02 Termination of Lease for Certain Losses............................   12
        6.03 Time for Construction of Repairs...................................   13
        6.04 Payment of Insurance Proceeds......................................   13

ARTICLE 7 - CONDEMNATION........................................................   13
        7.01 Condemnation Defined...............................................   13
        7.02 Effect of Condemnation.............................................   14
        7.03 Landlord's Power to Sell in Lieu of Condemnation...................   14
        7.04 Condemnation Award.................................................   15

ARTICLE 8 - INDEMNIFICATION.....................................................   15
        8.01 Tenant's Hold-Harmless Clause......................................   15
        8.02 Landlord's Hold-Harmless Clause....................................   16

ARTICLE 9 - DEFAULT AND REMEDIES................................................   16
        9.01 Remedies on Tenant's Default.......................................   16
        9.02 Termination by Landlord............................................   17
        9.03 Default by Tenant..................................................   17
        9.04 Nuisance...........................................................   18
        9.05 Cumulative Remedies................................................   18
        9.06 Waiver of Breach...................................................   18

ARTICLE 10 - MISCELLANEOUS......................................................   19
        10.01 Assignment and Subletting.........................................   19
        10.02 Utilities.........................................................   19
        10.03 Notices...........................................................   19
        10.04 Attorneys' Fees...................................................   20
        10.05 Binding on Heirs and Successors...................................   20
        10.06 Time of the Essence...............................................   20
        10.07 Complete Agreement................................................   20
        10.08 Severability......................................................   20
        10.09 Governing Law/Venue...............................................   21
        10.10 Quiet Equipment...................................................   21

EXHIBIT A.......................................................................   23	

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LEASE AGREEMENT BETWEEN
SUMO HOLDINGS LA, LLC AND
FORD GRAPHICS GROUP, L.L.C.
PREAMBLE
THIS LEASE is entered into on November 19, 1997, by and between SUMO HOLDINGS LA, LLC, a California limited liability company, having its principal place of business located at 900 Palm Avenue, South Pasadena, California 91030, (hereinafter referred to as "Landlord") and FORD GRAPHICS GROUP, L.L.C., a California limited liability company, having its principal place of business located at 900 Palm Avenue, South Pasadena, California, 91030 (hereinafter referred to as "Tenant").
Landlord hereby Leases to Tenant on the terms and conditions set forth in this Lease certain real property located in the City and County of Los Angeles, California, described in Exhibit "A", attached hereto and incorporated by reference (hereinafter referred to as "Premises").
ARTICLE 1
TERM OF LEASE
1.01 ORIGINAL TERM:
The term of this Lease shall be for a period of fifteen (15) years commencing at 12:01 A.M. on January 1, 1998 and ending at 11:59 P.M. on December 31, 2013, unless extended or terminated sooner as provided in this Lease.
1.02 OPTION TO EXTEND TERM:
Tenant shall have a one-time option to extend the term of this Lease for an additional period of five (5) years commencing on expiration of the original term specified in Section 1.01 of this Lease provided:
(a) Tenant has fully and faithfully performed all the terms, covenants, and conditions of this Lease for the original term specified in
Section 1.01 herein.
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(b) Written notice of Tenant's election to renew the term of this Lease is delivered by Tenant to Landlord at least six (6) months prior to the expiration of the Lease's original term.
(c) The renewed term of this Lease shall be subject to the same terms and conditions as are contained in this Lease, except that the amount of rent payable under this Lease for the renewed term shall be adjusted based on the then fair market value of the Premises, determined in accordance with
Section 2.01(b) of this Lease.
1.03 HOLDING OVER:
If Tenant holds over and continues in possession of the Premises after termination of the term of this Lease, including any extended term, Tenant's continued occupancy of the Premises shall be deemed merely a tenancy from month to month and be subject to the provisions of this Lease, excluding the right of first refusal as defined in Section 1.04, and provided that the monthly amount of rent due shall be determined in accordance with Section 2.01(b) of this Lease.
1.04 RIGHT OF FIRST REFUSAL TO PURCHASE LEASED PREMISES:
(a) If Landlord, during the lease term or any extension of the term, elects to sell all or any portion of the Premises, Tenant shall have the right of first refusal to meet any bona fide offer of sale from a third party on the same terms and conditions of that offer, including but not limited to the price and date for close of escrow, provided Tenant is not then in default under this Lease. On receipt of an acceptable bona fide third party offer for purchase of the Premises, Landlord shall notify Tenant in writing of the offer and its terms and conditions. Tenant, within thirty (30) days after the date of Landlord's notice to Tenant, shall notify Landlord in writing whether or not Tenant agrees to purchase the Premises on the same terms and conditions as contained in the third party offer. A failure by Tenant to give Landlord any written notification within the prescribed time period shall be deemed notice to Landlord that Tenant does not elect to purchase the Premises. If Tenant elects not to purchase the Premises, Landlord shall be free to sell the premises or portion thereof to that third party in accordance with the terms and conditions of the third party offer; provided, however, that any material change in such terms and conditions shall be deemed a new offer triggering this right of first refusal.
(b) The right of first refusal granted to Tenant shall exclude all of the following transfers: any transfer by Landlord to individuals holding an ownership interest in Landlord; any transfer resulting from the Landlord's death; any transfer by Landlord to Landlord's spouse or any of Landlord's children; and any transfer by Landlord to any other
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entity in which Landlord or its owners hold a fifty-one percent (51%) or greater ownership interest. The right of first refusal granted to Tenant also shall not apply in the event of foreclosure (or a deed in lieu of foreclosure) or to a sale of the Premises by a lender who has foreclosed.
(c) The right of first refusal granted to Tenant under this lease is personal, and Tenant shall have no right to assign or transfer the right of first refusal either separately from or together with a transfer of Tenant's leasehold interest.
ARTICLE 2
RENT AND TAXES
2.01 FIXED RENT:
(a) Tenant agrees to pay to Landlord during the original term of this Lease FIFTEEN THOUSAND ONE HUNDRED DOLLARS ($15,100) per month. Such rent shall be payable on the first day of each and every month occurring during the term of this Lease at the address set forth in this Lease for mailing notices to Landlord, or at any other place or places that Landlord may, from time to time, designate by written notice given to Tenant.
(b) Should Tenant elect to extend the original term of this Lease, the annual rent to be paid by Tenant under this Lease during the extended term described in Section 1.02 shall equal one hundred percent (100%) of the property's fair market rental value three (3) months prior to the expiration of the Lease, or FIFTEEN THOUSAND ONE HUNDRED DOLLARS ($15,100), whichever is greater. Should Tenant dispute Landlord's determination of the property's fair market rental value, the parties agree that the fair market rental value shall be determined by arbitration held in accordance with the rules of the American Arbitration Association in effect at that time. The written decision of the arbitrators shall be binding on Tenant and Landlord. The costs of such arbitration shall be borne equally by Tenant and Landlord. Such arbitration hearing shall be held in Los Angeles, California.
The annual rent for the renewed term shall be payable in equal monthly installments and otherwise paid in the same manner as rent is required under
Section 2.01 to be paid during the original term of this Lease. Landlord shall give Tenant written notice at least six (6) months prior to expiration of the original term of any expected rent increase determined under this section.
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2.02 LATE PAYMENT CHARGES:
Tenant shall pay a late charge equal to five percent (5%) of the amount of each installment of fixed rent or any other sum owing from Tenant to Landlord under the terms hereof which is not received by Landlord within ten (10) days after its due date. The late charge shall increase to ten percent (10%) of the amount owing, if such amount is overdue thirty (30) days or more. In addition to late charges, interest shall accrue on the unpaid balance at ten percent (10%) per annum compounded monthly from the time such amount becomes due until such amounts are paid in full. No interest shall accrue if the rent and other amounts owed are received by Landlord within ten (10) days of the time they first became due.
2.03 ADDITIONAL RENT FOR INCREASE IN TAXES:
In addition to the rent specified in Section 2.01 of this lease, Tenant agrees to pay to Landlord as additional rent for the use and occupancy of the Premises the amount, referred to in this lease as "additional rent," that is required to reimburse Landlord for all real property taxes (including general and special assessments) assessed against the premises in excess of the "Base Taxes" described below for each calendar year during the term of this Lease, including any renewed term of this lease. The additional rent for each year shall be payable on or before July 1 following each applicable calendar year and:
(a) Shall be computed on the basis that each tax year commences on July 1 of one calendar year and ends on June 30 of the following calendar year.
(b) For purposes of this section, all taxes and assessments levied or assessed against the Premises during the first and last years of the term of this lease shall be prorated as of 12:01 A.M. Pacific time on the dates of commencement and expiration, respectively, of the term of this lease.
(c) "Base Taxes" means all taxes and a assessments levied or assessed against the Premises for the initial year of this Lease.
(d) As a condition precedent to Tenant's obligation to pay additional rent for a year, Landlord must supply Tenant with copies of the tax bills applicable for the premises and a receipt or other evidence showing such bills have been paid in full; during the first year for which additional rent is due, Landlord must supply Tenant with a copy of the tax bill for Base Taxes and a receipt or other evidence showing such bill has been paid.
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(e) Tenant shall have the right, at Tenant's sole cost and expense, to protest or contest any tax or assessment, or any increase in any tax or assessment, levied or assessed against the Premises, but Tenant shall have no right to direct Landlord, pending final determination of the protest or contest, not to pay any tax or assessment before it becomes delinquent unless Tenant deposits with Landlord the full amount of that tax or assessment plus the amount of any penalty that will be imposed on the Premises for failure to timely pay the tax or assessment, and one (1) year's interest at the rate charged by the government entity imposing the tax or assessment on the amount of the tax or assessment; provided, however, that such deposit shall be held in an interest bearing account and refunded with such interest in the event and to the extent the tax assessment is successfully contested and refunded. Landlord shall, upon the request of Tenant, cooperate with Tenant in any legal proceedings described under this subparagraph.
ARTICLE 3
REPAIRS, MAINTENANCE, AND ALTERATIONS
3.01 PRESENT CONDITION OF PREMISES:
Tenant hereby acknowledges that it has inspected the Premises and all improvements existing thereon, including any and all buildings on and appurtenances to the Premises, and agrees to accept the Premises as is.
3.02 MAINTENANCE AND REPAIRS BY TENANT:
At all times during the term of this Lease, including any extensions thereof, Tenant shall, at its own cost and expense and at no cost and expense to Landlord, maintain the Premises and all portions of the Premises in good order and repair, and make all repairs and replacements that may become necessary to the Premises, any buildings or improvements on the Premises, or any sidewalks, landscaping, driveways, or parking areas that are part of or appurtenant to the Premises. Any and all repairs and replacements required by this section, both ordinary and extraordinary and both structural and nonstructural, shall be made promptly by Tenant as required and shall be of quality and workmanship comparable to that existing at the Premises on the date hereof and shall comply with all applicable laws, regulations, and ordinances of any governmental authority with jurisdiction.
3.03 REPAIRS BY LANDLORD FOR TENANT'S ACCOUNT:
If, at any time during the term of this Lease, including any extensions thereof Tenant fails to maintain the Premises or make any repairs or replacements as required by Section
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3.02 of this Lease, Landlord may, at its discretion, enter the Premises and perform such maintenance or make such repairs or replacements for the account of Tenant as shall be necessary to fulfill Tenant's covenants hereunder; provided, however, that Landlord shall first notify Tenant of such repairs or replacements and Tenant shall have ten (10) business days to make arrangements for such repairs or replacements to Landlord's reasonable satisfaction. Any sums expended by Landlord in making such repairs or replacements, together with interest thereon at an annual rate of seven and one half percent (7.5%) from the date expended by Landlord until the date repaid by Tenant, shall be due and payable by Tenant to Landlord with the next due payment of rent under this Lease.
3.04 ALTERATIONS AND IMPROVEMENTS:
Tenant shall have the right to make alterations and Improvements to the Premises, subject to the following terms and conditions:
(a) No alterations or improvements made by Tenant shall in any way impair the structural stability of any building or improvement on the Premises or diminish the value of the Premises.
(b) All alterations or improvements requiring an expenditure greater then TEN THOUSAND DOLLARS ($10,000) shall be first approved in writing by Landlord.
(c) Tenant shall keep all of the Premises and every part thereof, including buildings and other improvements at any time located thereon, free and clear of any and all mechanics', materialmen's, and other liens arising out of, or in connection with, any work or services performed, or materials or appliances furnished to Tenant as part of any alterations, improvements, or repairs that Tenant may make, or cause to be made, on or about the Premises, or any obligations of any kind incurred by Tenant. Tenant further agrees to promptly and fully discharge any and all claims on which such liens might be based, and to hold Landlord free and harmless from any and all such liens and claims of liens and suits or other proceedings pertaining thereto. Should Tenant desire to contest any lien that may attach to the Premises, Tenant shall first notify Landlord in writing of Tenant's intention so to do within five (5) business days of the lien having been filed. In such a case, Tenant shall not be considered in default hereunder until ten (10) business days after the final determination of the validity thereof, within which time Tenant shall satisfy and discharge the lien to the extent held valid. The satisfaction and discharge of any such lien shall not, in any case, be delayed until execution is had on any judgment rendered on the lien, and that delay shall be a default of Tenant under this Lease. In the event of any such contest, Tenant shall protect and indemnify Landlord against all loss, cost, expense, and damage resulting from the contest.
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(d) All alterations and improvements made to the Premises shall become the property of Landlord and shall remain on and be surrendered with the Premises at the expiration or earlier termination of this Lease, including any extension thereof. Notwithstanding any other provision in this Lease, Tenant shall have the right to remove its trade fixtures from the Premises at the expiration or earlier termination of this Lease term provided Tenant is not then in default under this Lease and provided that Tenant shall repair any damage to the Premises caused by that removal.
(e) All alterations and improvements shall comply with the applicable laws, ordinances, and regulations of any governmental authority with jurisdiction over the Premises.
3.05 SURRENDER OF PREMISES:
On expiration of the term of this Lease, including any extension thereof, or oh earlier termination of this Lease, Tenant shall surrender the Premises, all building or improvements on the Premises, and all things appurtenant to the Premises, to Landlord in substantially the same condition as exists on the date of this Lease, reasonable wear and tear excepted.
3.06 LANDLORD'S RIGHT OF INSPECTION:
Landlord or its duly authorized agents may enter the Premises accompanied by Tenant's designated employee at any and all reasonable times during the term of this Lease upon twenty-four (24) hours notice, including any extended term, to determine Tenant's compliance with the terms and conditions of this Lease or to perform any other acts authorized by this Lease to be performed by Landlord or reasonably necessary to protect Landlord's rights under this Lease.
ARTICLE 4
USE OF PREMISES
4.01 PERMITTED AND PROHIBITED USE OF PREMISES:
Tenant may use the Premises for any lawful purpose without the written consent of Landlord. In addition, Tenant may use or cause to be used, at its own risk, any hazardous or toxic substances or materials, or store or dispose of any such substances or materials on the Premises, provided that Tenant shall maintain the Premises in a clean and sanitary
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manner and shall comply with all laws, ordinance, rules, and regulations applicable to the Premises, enacted or promulgated by any public or governmental authority or agency having jurisdiction over the Premises.
4.02 SIGNS AND ADVERTISING:
Tenant may erect and maintain any signs on the Premises relating to its business, provided that such signs:
(a) are approved, in writing, by Landlord;
(b) comply with all laws, ordinances, rules, and regulations applicable to the Premises, including those enacted or promulgated by any public or governmental authority or agency having jurisdiction over the Premises;
(c) are removed at Tenant's sole cost and expense without damage to the Premises, or any improvement thereon, upon expiration or sooner termination of this Lease; and
(d) are erected by Tenant for its own advertising purposes.
ARTICLE 5
INSURANCE AND ALLOCATION OF THE RISK OF LOSS
5.01 ALLOCATION OF THE RISK OF LOSS:
Tenant shall, at all times during the term of this Lease, including any extensions, bear the sole risk of loss resulting from the damage or destruction of any part of the Premises which are the subject matter of this Lease.
5.02 FIRE INSURANCE:
(a) Tenant shall, at its own cost and expense, and at all times during the full term of this Lease, including any extended term, keep all buildings, improvements, equipment, and other structures on the Premises insured for their "Full Replacement Cost" against loss or destruction by fire or such other perils, including vandalism and malicious mischief, as are commonly covered under a standard extended coverage endorsement in Los Angeles County, California. Any proceeds received under any policy described in this section shall be used to fund the repair or replacement of the damaged building or
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improvement pursuant to Section 6.01 of this Lease. Landlord shall be named as an additional insured on the policies and the policies shall contain cross-liability endorsements.
(b) "Full Replacement Cost," as used in Section 5.02(a), means the actual cost of replacement for the building, equipment, and other improvements on the Premises, as determined from time to time. If, at any time during the term of this Lease, Landlord believes that the Full Replacement Cost has increased, Landlord shall notify Tenant in writing. If Tenant agrees with the increased Full Replacement Cost set forth in Landlord's notice, Tenant shall, within thirty (30) days of receipt of the notice, increase the amount of insurance carried to the amount stated in the notice. If, however, the parties disagree as to the value of the property's Full Replacement Cost, the insurance carrier that is then carrying the largest amount of fire and extended coverage on the Premises shall make a determination as to the property's Full Replacement Cost. The insurer's determination shall be final and Tenant shall, if necessary, immediately increase the amount of insurance carried on the Premises to the amount determined by that carrier. Notwithstanding any provision to the contrary, increases in coverage pursuant to this section may not be made more often than once per calendar year, unless otherwise agreed by Landlord and Tenant in a separate writing. Notwithstanding the preceding sentence, if Tenant makes improvements or alterations to the Premises during any given year of the term of this Lease, Landlord may request an increase in coverage pursuant to the provisions of this section.
5.03 LIABILITY AND PROPERTY INSURANCE:
(a) Tenant shall, at its own cost and expense, secure and maintain during the entire term of this Lease and any extended term of this Lease, public liability, property damage, and products liability insurance, insuring both Tenant and its employees against all bodily injury, property damage, personal injury, or other loss or liability that might arise in connection with Tenant's occupation and use of the Premises under this Lease.
(b) Landlord shall be named as an additional insured and the policy or policies shall contain cross-liability endorsements.
(c) If the limits of liability and property damage insurance carried by Tenant are materially less than the amount or type of insurance typically carried by owners or tenants of properties located in the same county in which the Premises are located, which are similar to and operated for similar business purposes as the Premises, Landlord may elect to require Tenant to increase the amount of specific coverage, change the type of policy carried, or both. If Landlord so elects, Tenant shall be notified in writing of the specific change in policy amount or type required and shall have 30 days after the date of Landlord's notice to effect the change in amount or type of policy If, however, the parties
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disagree as to the necessary amount of coverage, the insurance carrier that is then carrying the largest amount of liability and property insurance coverage on the Premises shall make a determination as to the necessary amount of coverage. The insurer's determination shall be final and Tenant shall, if necessary, immediately increase the amount of insurance carried on the Premises to the amount determined by that carrier. Notwithstanding any provision to the contrary, increases in coverage pursuant to this section may not be made more often than once per calendar year, unless otherwise agreed by Landlord and Tenant in a separate writing. Notwithstanding the preceding sentence, if Tenant makes improvements or alterations to the Premises during any given year of the term of this Lease, Landlord may request an increase in coverage pursuant to the provisions of this section.
5.04 BUSINESS INTERRUPTION INSURANCE:
Tenant shall procure and maintain, at its own cost and expense, business interruption insurance for and during the term of this Lease, and in an amount sufficient to ensure that the rent provided for in Section 2.01 will be paid to Landlord for a period of up to one (1) year in the event the Premises or buildings thereon are destroyed or damaged so as to render operation of Tenant's business impossible or impracticable.
5.05 TENANT'S PERSONAL PROPERTY:
Tenant shall at all times during the term of this Lease and at Tenant's sole expense, keep its personal property, including trade fixtures and equipment and all inventory of Tenant that may be in the Premises from time to time, insured against loss or damage by fire and by any peril included within fire and extended coverage insurance for an amount that will insure the ability of Tenant to fully replace the trade fixtures, equipment, and merchandise.
5.06 WORKERS' COMPENSATION INSURANCE:
Tenant shall maintain in effect throughout the term of this Lease, at Tenant's sole expense, Workers' Compensation insurance in accordance with the laws of California.
5.07 CANCELLATION CLAUSE:
Any policy of insurance required under this Article 5 shall be written by insurance companies authorized to do business in California. Each policy of insurance procured by Tenant pursuant to this Article 5 shall expressly provide that it cannot be canceled for any
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reason or altered in any manner unless at least thirty (30) days prior written notice has been given by the insurance company issuing the policy to Landlord in the manner specified in this Lease for service of notice on Landlord by Tenant.
5.08 DEPOSIT OF INSURANCE POLICIES WITH LANDLORD:
Promptly following the issuance, reissuance, or renewal of any insurance policy required by this Lease, Tenant shall cause a duplicate copy of the policy or a certificate evidencing the policy signed by the insurance company issuing the policy or its agent to be given to Landlord.
5.09 BLANKET INSURANCE POLICY:
In order to satisfy its obligations under this Article 5, Tenant may at any time during the term of this Lease, have in full force and effect a "blanket" policy of insurance insuring the Premises as well as other property owned or occupied by Tenant, provided the blanket policy does not in any way diminish the amount or coverage of the insurance required under this Article, and further provided that the blanket policy otherwise meets all requirements of this Article.
5.10 LANDLORD'S RIGHT TO PROCURE INSURANCE:
If at any time Tenant fails to procure or maintain the insurance required by this Article 5, Landlord may obtain that insurance and pay the premiums on it for the benefit of Tenant. Any amounts paid by Landlord to procure or maintain insurance pursuant to this section shall be immediately due and repayable to Landlord by Tenant with the next then due installment of rent under this Lease; failure to repay at that time any amount expended by Landlord shall be considered the same as a failure to pay rent and a default by Tenant under this Lease.
ARTICLE 6
DESTRUCTION OF PREMISES
6.01 TENANT'S DUTY TO REPAIR OR RESTORE:
(a) If any improvements, including buildings and other structures, located on the Premises are damaged or destroyed during the term of this Lease, or any renewal or extension thereof, regardless of the nature of such damage or destruction, Tenant shall repair that damage as soon as reasonably possible and restore the Premises and
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improvements to substantially the same condition as existed before the damage or destruction, to the extent that the proceeds of the insurance policies covering the occurrence are sufficient to cover the actual cost of repair and restoration.
(b) If the damage or destruction is caused either by a peril against which fire and extended coverage insurance is required by this Lease to be carried or by a peril against which insurance is not required to be carried by this Lease, Tenant expressly waives any right under Civil Code Sections 1931-1933 to terminate this Lease for damage or destruction to the Premises.
6.02 TERMINATION OF LEASE FOR CERTAIN LOSSES:
(a) Notwithstanding any other provision of this Lease, if more than fifty percent (50%) of the Premises are damaged or destroyed, including any buildings or improvements thereon, Tenant may elect not to rebuild and terminate this Lease by giving Landlord written notice of the termination. The notice must be given within sixty (60) days after occurrence of the damage or destruction.
(b) Tenant or Landlord shall also have the right to terminate this Lease by giving written notice of termination to the other not later than sixty
(60) days after occurrence of the damage or destruction under either of the following circumstances:
(1) If the Premises are damaged or destroyed from any cause whatsoever, insured or uninsured, and the laws then in existence do not permit the repair or restoration of the Premises provided for in this Article; or
(2) If the Premises are destroyed from any cause whatsoever, insured or uninsured, during the last six (6) months of the original term of this Lease (provided that Tenant has not elected before the date of damage or destruction to extend the term of this Lease in accordance with the provisions of Section 1.02) or during the last six (6) months of the extended term, if any, of this Lease.
(c) Any termination shall become effective as of the date of the notice of termination. In the event of a termination under subsection 6.02(a) or 6.02(b), Tenant shall not be entitled to collect any insurance proceeds attributable to insurance policies covering the Premises or improvements, except those proceeds attributable to Tenant's personal property and trade fixtures, business interruption or liability for claims in which Tenant is a party defendant.
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(d) If this Lease is terminated pursuant to either subsection 6.02(a) or 6.02(b) above, rent, taxes, assessments, and other sums payable by Tenant under this Lease shall be abated as of the date of the casualty. If any taxes, assessments, or rent has been paid in advance by Tenant, Landlord shall refund it to Tenant for the unexpired period for which the payment has been made.
6.03 TIME FOR CONSTRUCTION OF REPAIR:
Any and all repairs and restoration of improvements required by this Article shall be commenced by Tenant within a reasonable time after occurrence of the damage or destruction requiring the repairs or restoration; shall be diligently pursued after being commenced; and shall be completed within a reasonable time after the loss. If Landlord, in its discretion, determines that it must make the necessary repairs and restoration, Landlord shall cause the repairs and restoration to be completed not later than one(1) year after occurrence of the event causing destruction subject to force majeure.
6.04 PAYMENT OF INSURANCE PROCEEDS:
For any damage to the Premises caused by a peril covered by insurance required under this Lease to be carried and maintained by Tenant, the proceeds shall be paid directly to the Tenant for the purpose of making the necessary repairs to the Premises.
ARTICLE 7
CONDEMNATION
7.01 CONDEMNATION DEFINED:
(a) The term "Total Condemnation" as used in this Article shall mean the taking by eminent domain ("Condemnation") by a public or quasi-public agency or entity having the power of eminent domain ("Condemner") of:
(1) More than fifty percent (50%) of the total ground area of the Premises; or
(2) Less than fifty percent (50%) of the ground area of the Premises at a time when the remaining buildings or improvements on the Premises cannot reasonably be restored to a condition suitable for Tenant's occupancy for the uses permitted by this Lease within ninety (90) normal eight-hour working days under all laws and regulations then applicable; or
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(3) Less than fifty percent (50%) of the ground area of the Premises in such a manner that Tenant is materially prevented from carrying on its then current operations on the remaining portion of the Premises at no material additional costs than were incurred immediately prior to the taking.
(b) The term "Partial Condemnation" as used in this Article shall mean any Condemnation of a portion of the Premises that is not a Total Condemnation under Section 7.01(a) of this Lease.
7.02 EFFECT OF CONDEMNATION:
(a) If a Total Condemnation of the Premises should occur during the term of this Lease, this Lease shall terminate without further notice as of 12:01 A.M. on the date actual physical possession of the Condemned property is taken by the Condemner. All rent payable under this Lease shall be prorated as of 12:01 A.M. on the date and a prompt refund or payment of rent for the unexpired period of this Lease shall be made by Landlord to Tenant. On the making of that rent adjustment, both Landlord and Tenant will be released and discharged from any and all further obligations under this Lease.
(b) In the event of a Partial Condemnation of the Premises, this Lease shall terminate as to the portion of the Premises taken on the date actual physical possession of that portion is taken by the Condemned but shall remain in full force and effect as to the remainder of the Premises; provided, however, that promptly after the taking of actual physical possession by the Condemner of the portion taken by Condemnation, Landlord shall restore, at Landlord's own cost and expense, the improvements on the remainder of the Premises to a condition making the Premises tenantable by Tenant, to the satisfaction of Tenant in its reasonable discretion, for the then current uses. Any rent payable under this Lease after the date actual physical possession is taken by the Condemner of the portion of the Premises condemned shall be reduced by the percentage the ground area of the portion taken by eminent domain bears to the total ground area of the Premises on the date of this Lease. In addition, the rent payable under this Lease shall be further abated during the time and to the extent Tenant is prevented from occupying all of the remainder of the Premises by the work of restoration required by this section to be performed by Landlord.
7.03 LANDLORD'S POWER TO SELL IN LIEU OF CONDEMNATION:
Landlord may, without any obligation or liability to Tenant and without affecting the validity or continuation of this Lease other than as expressly provided in this Article, agree
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to sell or convey to the Condemner, without first requiring that an action or proceeding for Condemnation be instituted or tried, the portion of the Premises sought by the Condemner free from this Lease and the rights of Tenant in the Premises other than as provided in this Article 7.
7.04 CONDEMNATION AWARD:
All compensation and damages awarded or paid for the Condemnation of the Premises or any portion thereof, or for any sale in lieu of Condemnation as authorized by Section 7.03 of this Lease, shall, except as otherwise expressly provided in this section, belong to and be the sole property of Landlord. Tenant hereby assigns to Landlord any claim Tenant might have except for this provision against Landlord, the Premises or Condemner for diminution in value of the leasehold estate created by this Lease or the value of the unexpired term of this Lease; provided, however, that Tenant is entitled to seek to recover from the Condemner, but not from Landlord:
(a) The cost of removing any trade fixtures, furniture, or equipment from the portion of the Premises taken by Condemnation;
(b) The value of any improvements installed by Tenant on the portion of the Premises taken by Condemnation that Tenant has a right to remove under this Lease but that Tenant elects not to remove; and
(c) The then amortized value of all improvements made by Tenant on the portion of the Premises taken by Condemnation that could not be removed by Tenant on expiration of this Lease either because of provisions of this Lease or because the improvements would have no economic value on removal from the Premises.
ARTICLE 8
INDEMNIFICATION
8.01 TENANT'S HOLD-HARMLESS CLAUSE:
Except as otherwise provided in Section 8.02, Tenant shall indemnify and hold Landlord and the property of Landlord, including the Premises, free and harmless from any and all liability, claims, loss, damages, or expenses, including attorney's fees and costs, arising by reason of the death or injury of any person, including Tenant or any person who is an employee or agent of Tenant, or by reason of damage to or destruction of any property, including property owned by Tenant or any person who is an employee or agent
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of Tenant, caused or allegedly caused by: (1) any cause whatsoever while that person or property is in or on the Premises or in any way connected with the Premises or with any improvements or personal property on the Premises; (2) some condition of the Premises or some building or improvement on the Premises; (3) some act or omission on the Premises of Tenant or any person in, on, or about the Premises with the permission and consent of Tenant; or (4) any matter connected with Tenant's occupation and use of the Premises.
8.02 LANDLORD'S HOLD-HARMLESS CLAUSE:
Notwithstanding the provisions of Section 8.01 of this Lease, Tenant shall be under no duty to indemnify and hold Landlord harmless from any liability, claims, or damages arising because of Landlord's failure to make any repairs required by this Lease to be made by Landlord or because of any negligence or willful acts of misconduct by Landlord or by any person who is an agent or employee of Landlord acting in the course and scope of its agency or employment. Landlord agrees to indemnify, defend, protect, and hold Tenant free and harmless from and against any liability, claims, or damages arising from or in connection with Landlord's failure to make any repairs required by this Lease to be made by Landlord or because of any negligence or willful acts of misconduct by Landlord or by any person who is an agent or employee of Landlord acting in the course and scope of its agency or employment.
ARTICLE 9
DEFAULT AND REMEDIES
9.01 REMEDIES ON TENANT'S DEFAULT:
If Tenant breaches this Lease or breaches this Lease and abandons the Premises before the natural expiration of the term of this Lease, Landlord, in addition to any other remedy given by law or equity, may:
(a) Continue this Lease in effect by not terminating Tenant's right to possession of the Premises, in which case Landlord shall be entitled to enforce all Landlord's rights and remedies under this Lease, including the right to recover the rent specified in this Lease as it becomes due under this Lease.
(b) Terminate this Lease and recover from Tenant:
(1) The worth, at the time of award, of the unpaid rent that had been earned at the time of termination of the Lease;
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(2) The worth, at the time of award, of the amount by which the unpaid rent that would have been earned after termination of the Lease until the time of award exceeds the amount of rental loss that Tenant proves could have been reasonably avoided;
(3) The worth, at the time of award, of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of rental loss that Tenant proves could be reasonably avoided; and
(4) Any other amount necessary to compensate Landlord for all detriment proximately caused by Tenant's failure to perform the obligations under this Lease; or
(c) Terminate the Lease and, in addition to any recoveries Tenant may seek under paragraph (b) of this Section 9.01, bring an action to reenter and regain possession of the Premises in the manner provided by the laws of unlawful detainer then in effect in California.
9.02 TERMINATION BY LANDLORD:
No act of Landlord, including but not limited to Landlord's entry on the Premises or efforts to relet the Premises, or the giving by Landlord to Tenant of a notice of default, shall be construed as an election to terminate this Lease unless a written notice of the Landlord's election to terminate is given to Tenant or unless termination of this Lease is decreed by a court of competent jurisdiction.
9.03 DEFAULT BY TENANT:
All covenants and agreements contained in this Lease are declared to be conditions to this Lease and to the term hereby leased to Tenant. The occurrence of any of the following shall constitute a material default and breach of this Lease by Tenant:
(a) Tenant's failure to pay rent when due when the failure continues for ten (10) business days after written notice to pay that rent or surrender possession of the Premises is served on Tenant by Landlord; or
(b) Any failure to perform any other covenant, condition, or agreement contained in this Lease when the failure is not cured within thirty
(30) days after written notice of the specific failure is given by Landlord to Tenant; or
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(c) The bankruptcy of insolvency of Tenant, the making by Tenant of any general assignment for the benefit of creditors; the filing by or against Tenant of a petition to have Tenant adjudged a bankrupt or of a petition for reorganization or arrangement under the Bankruptcy Act (unless, in the case of a petition filed against Tenant, it is dismissed within sixty (60) days); the appointment of a trustee or receiver to take possession of substantially all of Tenant's assets located at the Premises or of Tenant's interest in this Lease, if possession is not restored to Tenant within thirty (30) days; or the attachment, execution, or other judicial seizure of substantially all of Tenant's assets located at the Premises or of Tenant's interest in this Lease, when that seizure is not discharged within thirty (30) days.
(d) The abandonment or vacating of the Premises by Tenant (which, for purposes of this Lease, shall mean Tenant's failure to occupy and operate the Premises for business for a period of at least 30 consecutive days).
9.04 NUISANCE:
Notwithstanding any provision to the contrary, including the permitted uses of the Premises by the Tenant described in Section 4.01, Tenant shall not commit or permit any act constituting a nuisance, whether such nuisance arises from noise, odor, smoke, sewerage, chemical wastes or otherwise. Furthermore, Tenant shall not obstruct or cause to be obstructed any public or private roadway or sidewalk leading onto the Premises or any area adjacent thereto. The commission of any act of nuisance, shall constitute a default by Tenant of the terms of this Lease.
9.05 CUMULATIVE REMEDIES:
The remedies granted to Landlord in this Article 9 shall not be exclusive but shall be cumulative and in addition to all other remedies now or hereafter allowed by law or authorized hi this Lease.
9.06 WAIVER OF BREACH:
The waiver by Landlord of any breach by Tenant of any of the provisions of this Lease shall not constitute a continuing waiver or a waiver of any subsequent default or breach by Tenant either of the same or a different provision of this Lease.
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ARTICLE 10
MISCELLANEOUS
10.01 ASSIGNMENT AND SUBLETTING:
Tenant shall not encumber, assign, or otherwise transfer this Lease, any right or interest in this Lease, or any right or interest in the Premises or any of the improvements that may now or hereafter be constructed or installed on the Premises without first obtaining the written consent of Landlord, which consent shall not be unreasonably withheld. Tenant shall not sublet the Premises or any part thereof, nor allow any other person, other than Tenant's agents, servants, and employees, to occupy the Premises or any part of the Premises without the prior written consent of Landlord, which consent shall not be unreasonably withheld. Any encumbrance, assignment, transfer, or subletting without the prior written consent of Landlord, whether voluntary or involuntary, by operation of law or otherwise, is void and shall, at the option of Landlord, terminate this Lease.
10.02 UTILITIES:
Tenant shall pay all charges incurred for the furnishing of gas, electricity, water, telephone service, garbage or refuse service, and other public utilities to the Premises during the term of this Lease. Landlord hereby represents and warrants that all necessary utilities are in place and not subject to assessment.
10.03 NOTICES:
Except as otherwise expressly provided by law, any and all notices or other communications required or permitted by this Lease or by law to be served on or given to either party to this Lease by the other party shall be in writing and shall be deemed duly served and given when personally delivered to the party to whom it is directed or to any managing employee or officer of that party or, in lieu of personal service, when deposited in the United States mail, first-class postage prepaid, addressed to Tenant at 900 Palm Avenue, South Pasadena, California, 91030 or to Landlord at 900 Palm Avenue, South Pasadena, California, 91030. Either party, Landlord or Tenant, may change its address for purposes of this section by giving written notice of that change to the other party in the manner provided in this section.
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10.04 ATTORNEYS' FEES:
If any litigation, including arbitration proceedings, is commenced between the parties to this Lease concerning the Premises, this Lease, or the rights and duties of either in relation to this Lease, the party prevailing in that litigation shall be entitled, in addition to any other relief that may be granted in the litigation, to a reasonable sum as and for its attorneys' fees in the litigation, which shall be determined by the court in that litigation or in a separate action brought for that purpose.
10.05 BINDING ON HEIRS AND SUCCESSORS:
This Lease shall be binding on and shall inure to the benefit of the heirs, executors, administrators, successors, and assigns of each Landlord and Tenant, but nothing contained in this section shall be construed as a consent by Landlord to any assignment of this Lease or any interest in this Lease by Tenant.
10.06 TIME OF THE ESSENCE:
Time is expressly declared to be of the essence in this Lease.
10.07 COMPLETE AGREEMENT:
This instrument constitutes the sole and only agreement between Landlord an Tenant respecting the Premises, the leasing of the Premises to Tenant, and the Lease terms contained in this Lease, and correctly sets forth the obligations of Landlord and Tenant to each other as of its date. Any agreements or representations respecting the Premises or their leasing by Landlord to Tenant not expressly set forth in this instrument are null and void.
10.08 SEVERABILITY:
In the event that a court of competent jurisdiction finds any of the terms of this Lease either partially or wholly invalid or unenforceable, for any reason whatsoever, such holding shall have no effect on the remaining terms contained herein not so held, and this Lease shall be construed, if possible, as if such invalid or unenforceable terms had not been included herein.
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10.09 GOVERNING LAW/VENUE:
The parties intend that, in the event either party brings an action under this Lease, such action shall be governed by the laws of the State of California. Sole and proper venue for such action shall be the City and County of Los Angeles, State of California.
10.10 OUTLET ENJOYMENT:
Upon payment by Tenant of the rent and additional rent and the performance of all the covenants, conditions and provisions on Tenant's part to be performed under this Lease Tenant shall have quiet enjoyment of the Premises for the entire term of this Lease, subject to all of the provisions of this Lease.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the dates set forth below.

WITNESSES:                               SUMO HOLDINGS LA, LLC, a California
                                         limited liability company
DATED: November 19, 1997

/s/ DAVID BEARD                          By: /s/ Sathiyamurthy Chandramohan
----------------------------                ------------------------------------
First Witness                               SATHIYAMURTHY CHANDRAMOHAN
                                         Its: Manager
/s/ MEGAN MURDY
----------------------------
Second witness

/s/ LAURIE WILLIAMS                      By: /s/ Kumarakulasingam Suriyakumar
----------------------------                ------------------------------------
First Witness                               KUMARAKULASINGAM SURIYAKUMAR
                                         Its: Manager
/s/ [ILLEGIBLE]
----------------------------
Second Witness

                                                    "LANDLORD"

                                      -21-	

                                          FORD GRAPHICS GROUP, LLC, a California
                                          limited liability company

/s/ DAVID BEARD                           By: /s/ Sathiyamurthy Chandramohan
-------------------------                    -----------------------------------
First Witness                                SATHIYAMURTHY CHANDRAMOHAN
                                          Its: Manager

/s/ MEGAN MURDY
------------------------
Second Witness

                                                      "TENANT"	

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"EXHIBIT A"
DESCRIPTION OF LEASED PROPERTY
Real property located at 934 and 940 Venice Boulevard, Los Angeles, California 90015 and more precisely described as follows:
Parcel 1:
Lot "A" of Tract No. 6825, in the City of Los Angeles, County of Los Angeles, State of California, as per map recorded in Book 133 pages 55 and 56 of Maps, in the office of the County Recorder of said County.
Parcel 2:
Lot "A" of Tract No. 8763, in the City of Los Angeles, County of Los Angeles, State of California, as per map recorded in Book 122 pages 43 and 44 of Maps, in the office of the County Recorder of said County.
Parcel 3:
Lot 1, of Tract No. 4800, in the City of Los Angeles, County of Los Angeles, State of California, as per map recorded in Book 50 page 97 of Maps, in the office of the County Recorder of said County.
Parcel 4:
Lot 2 of Tract No. 4800, in the City of Los Angeles, County of Los Angeles, State of California, as per map recorded in Book 50 page 97 of Maps, in the office of the County Recorder of said County.
Parcel 5:
The Northeasterly 44.75 feet of Lot "A" of Tract No. 3068, in the City of Los Angeles, County of Los Angeles, State of California, as per map recorded in Book 29 page 69 of Maps, in the office of the County Recorder of said County.
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EXHIBIT 10.11
[LOGO] AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE - NET
 (DO NOT USE THIS FORM FOR MULTI-TENANT BUILDINGS)
1. BASIC PROVISIONS ("BASIC PROVISIONS")
1.1 PARTIES: This Lease ("Lease"), dated for reference purposes only __________________, 1999, is made by and between SUMO HOLDINGS SAN JOSE, LLC, a California limited liability company ("LESSOR") and AMERICAN REPROGRAPHICS COMPANY, LLC, a California limited liability company ("LESSEE") (collectively the "PARTIES," or individually a "PARTY").
1.2 PREMISES: That certain real property, including all improvements therein or to be provided by Lessor under the terms of this Lease, and commonly known as 835 W. Julian Street, San Jose, California 95126 located in the County of Santa Clara, State of California and generally described as (describe briefly the nature of the property and, if applicable, the "PROJECT", if the property is located within a Project) The legal description is attached hereto as Exhibit A.

__________________________________________________________("PREMISES"). (See also Paragraph 2)
1.3 TERM: 10 years and 0 months ("ORIGINAL TERM") commencing 1999 ("COMMENCEMENT DATE") and ending ______, 2009 ("EXPIRATION DATE"). (See also Paragraph 3)
1.4 EARLY POSSESSION: N/A ("EARLY POSSESSION DATE"). (See also Paragraphs 3.2 and 3.3)
1.5 BASE RENT: $ 9,906.00 per month ("BASE RENT"), payable on the _______________ day of each month commencing __________________________________ (See also Paragraph 4) [X] If this box is checked, there are provisions in this Lease for the Base Rent to be adjusted.
1.6 BASE RENT PAID UPON EXECUTION: $ 9,906.00 as Base Rent for the period _________________________.
1.7 SECURITY DEPOSIT: $ N/A ("SECURITY DEPOSIT"). (See also Paragraph 5)
1.8 AGREED USE: The conduct of a reprographics business and related uses.
(See also Paragraph 6)
1.9 INSURING PARTY. Lessee is the "INSURING PARTY" unless otherwise stated herein. (See also Paragraph 8) N/A
1.10 REAL ESTATE BROKERS: (See also Paragraph 15)
(a) REPRESENTATION: The following real estate brokers (collectively, the "BROKERS") and brokerage relationships exist in this transaction (check applicable boxes):
[ ]_______________________________________________________ represents Lessor exclusively ("LESSOR'S BROKER");
[ ]_____________________________________________________ represents Lessee exclusively ("LESSEE'S BROKER"); or
[ ]________________________________________________________ represents both Lessor and Lessee ("DUAL AGENCY").
(b) PAYMENT TO BROKERS: Upon execution and delivery of this Lease by both Parties. Lessor shall pay to the Broker the fee agreed to in their separate written agreement (or if there is no such agreement, the sum of _____ % of the total Base Rent for the brokerage services rendered by said Broker).
1.11 GUARANTOR. The obligations of the Lessee under this Lease are to be guaranteed by N/A ("GUARANTOR"). (See also Paragraph 37)
1.12 ADDENDA AND EXHIBITS. Attached hereto is an Addendum or Addenda consisting of Paragraphs 50 through 52 and Exhibit A, all of which constitute a part of this Lease.
2. PREMISES.
2.1. LETTING. Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor, the Premises, for the term, at the rental, and upon all of the terms, covenants and conditions set forth in this Lease. Unless otherwise provided herein, any statement of size set forth in this Lease, or that may have been used in calculating rental, is an approximation which the Parties agree is reasonable and the rental based thereon is not subject to revision whether or not the actual size is more or less.
2.2 CONDITION. Lessor shall deliver the Premises to Lessee broom clean and free of debris on the Commencement Date or the Early Possession Date, whichever first occurs ("START DATE"), and, so long as the required service contracts described in Paragraph 7.1 (b) below are obtained by Lessee within thirty (30) days following the Start Date, warrants that the existing electrical, plumbing, fire sprinkler, lighting, heating, ventilating and air conditioning systems ("HVAC"), loading doors, if any, and all other such elements in the Premises, other than those constructed by Lessee, shall be in good operating condition on said date and that the structural elements of the roof, bearing walls and foundation of any buildings on the Premises (the "BUILDING") shall be free of material defects. If a non-compliance with said warranty exists as of the Start Date. Lessor shall, as Lessor's sole obligation with respect to such matter, except as otherwise provided in this Lease, promptly after receipt of written notice from Lessee setting forth with specificity the nature and extent of such non-compliance, rectify same at Lessor's expense. If, after the Start Date, Lessee does not give Lessor written notice of any non-compliance with this warranty within: (i) one year as to the surface of the roof and the structural portions of the roof, foundations and bearing walls, (ii) six (6) months as to the HVAC systems, (iii) thirty (30) days as to the remaining systems and other elements of the Building, correction of such non-compliance shall be the obligation of Lessee at Lessee's sole cost and expense.
2.3 COMPLIANCE. Lessor warrants that the improvements on the Premises comply with all applicable laws, covenants or restrictions of record, building codes, regulations and ordinances ("APPLICABLE REQUIREMENTS") in effect on the Start Date. Said warranty does not apply to the use to which Lessee will put the Premises or to any Alterations or Utility Installations (as defined in Paragraph 7.3(a)) made or to be made by Lessee. NOTE: Lessee is responsible for determining whether or not the zoning is appropriate for Lessee's intended use, and acknowledges that past uses of the Premises may no longer be allowed. If the Premises do not comply with said warranty, Lessor shall, except as otherwise provided, promptly after receipt of written notice from Lessee setting forth with specificity the nature and extent of such non-compliance, rectify the same at Lessor's expense. If Lessee does not give Lessor written notice of a non-compliance with this warranty within six (6) months following the Start Date, correction of that non-compliance shall be the obligation of Lessee at Lessee's sole cost and expense. If the Applicable Requirements are hereafter changed (as opposed to being in existence at the Start Date, which is addressed in Paragraph 6.2(e) below) so as to require during the term of this Lease the construction of an addition to or an alteration of the Building, the remediation of any Hazardous Substance, or the reinforcement or other physical modification of the Building ("CAPITAL EXPENDITURE"). Lessor and Lessee shall allocate the cost of such work as follows:
(C)1997 - AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION FORM STN-6-2/97
PAGE 1
(a) Subject to Paragraph 2.3(c) below, if such Capital Expenditures are required as a result of the specific and unique use of the Premises by Lessee as compared with uses by tenants in general. Lessee shall be fully responsible tor the cost thereof, provided, however that if such Capital Expenditure is required during the last two (2) years of this Lease and the cost thereof exceeds six (6) months' Base Rent. Lessee may instead terminate this Lease unless Lessor notifies Lessee, in writing, within ten (10) days after receipt of Lessee's termination notice that Lessor has elected to pay the difference between the actual cost thereof and the amount equal to six (6) months' Base Rent. If Lessee elects termination. Lessee shall immediately cease the use of the Premises which requires such Capital Expenditure and deliver to Lessor written notice specifying a termination date at least ninety (90) days thereafter. Such termination date shall, however, in no event be earlier than the last day that Lessee could legally utilize the Premises without commencing such Capital Expenditure.
(b) If such Capital Expenditure is not the result of the specific and unique use of the Premises by Lessee (such as, governmentally mandated seismic modifications), then Lessor and Lessee shall allocate the obligation to pay for such costs pursuant to the provisions of Paragraph 7.1(c); provided, however, that if such Capital Expenditure is required during the last two years of this Lease or if Lessor reasonably determines that it is not economically feasible to pay its share thereof, Lessor shall have the option to terminate this Lease upon ninety (90) days prior written notice to Lessee unless Lessee notifies Lessor, in writing, within ten (10) days after receipt of Lessor's termination notice that Lessee will pay for such Capital Expenditure. If Lessor does not elect to terminate, and fails to tender its share of any such Capital Expenditure, Lessee may advance such funds and deduct same, with Interest, from Rent until Lessor's share of such costs have been fully paid. If Lessee is unable to finance Lessor's share, or if the balance of the Rent due and payable for the remainder of this Lease is not sufficient to fully reimburse Lessee on an offset basis Lessee shall have the right to terminate this Lease upon thirty
(30) days written notice to Lessor.
(c) Notwithstanding the above, the provisions concerning Capital Expenditures are intended to apply only to non-voluntary, unexpected, and new Applicable Requirements. If the Capital Expenditures are instead triggered by Lessee as a result of an actual or proposed change in use, change in intensity of use, or modification to the Premises then, and in that event, Lessee shall be fully responsible for the cost thereof, and Lessee shall not have any right to terminate this Lease.
2.4 ACKNOWLEDGEMENTS. Lessee acknowledges that: (a) it has been advised by Lessor and/or Brokers to satisfy itself with respect to the condition of the Premises (including but not limited to the electrical, HVAC and fire sprinkler systems, security, environmental aspects, and compliance with Applicable Requirements), and their suitability for Lessee's intended use, (b) Lessee has made such investigation as it deems necessary with reference to such matters and assumes all responsibility therefor as the same relate to its occupancy of the Premises, and (c) neither Lessor, Lessor's agents, nor any Broker has made any oral or written representations or warranties with respect to said matters other than as set forth in this Lease. In addition, Lessor acknowledges that: (a) Broker has made no representations, promises or warranties concerning Lessee's ability to honor the Lease or suitability to occupy the Premises, and (b) it is Lessor's sole responsibility to investigate the financial capability and/or suitability of all proposed tenants.
2.5 LESSEE AS PRIOR OWNER/OCCUPANT. The warranties made by Lessor in Paragraph 2 shall be of no force or effect if immediately prior to the Start Date Lessee was the owner or occupant of the Premises. In such event, Lessee shall be responsible for any necessary corrective work.
3. TERM.
3.1 TERM. The Commencement Date, Expiration Date and Original Term of this Lease are as specified in Paragraph 1.3.
3.2 EARLY POSSESSION. If Lessee totally or partially occupies the Premises prior to the Commencement Date, the obligation to pay Base Rent shall be abated for the period of such early possession. All other terms of this Lease (including but not limited to the obligations to pay Real Property Taxes and insurance premiums and to maintain the Premises) shall, however, be in effect during such period. Any such early possession shall not affect the Expiration Date.
3.3 DELAY IN POSSESSION. Lessor agrees to use its best commercially reasonable efforts to deliver possession of the Premises to Lessee by the Commencement Date. If, despite said efforts, Lessor is unable to deliver possession as agreed, Lessor shall not be subject to any liability therefor, nor shall such failure affect the validity of this Lease. Lessee shall not, however, be obligated to pay Rent or perform its other obligations until it receives possession of the Premises. If possession is not delivered within sixty (60) days after the Commencement Date, Lessee may, at its option, by notice in writing within ten (10) days after the end of such sixty (60) day period, cancel this Lease, in which event the Parties shall be discharged from all obligations hereunder. If such written notice is not received by Lessor within said ten (10) day period. Lessee's right to cancel shall terminate. Except as otherwise provided, if possession is not tendered to Lessee by the Start Date and Lessee does not terminate this Lease, as aforesaid, any period of rent abatement that Lessee would otherwise have enjoyed shall run from the date of delivery of possession and continue for a period equal to what Lessee would otherwise have enjoyed under the terms hereof, but minus any days of delay caused by the acts or omissions of Lessee. If possession of the Premises is not delivered within four (4) months after the Commencement Date, this Lease shall terminate unless other agreements are reached between Lessor and Lessee, in writing.
3.4 LESSEE COMPLIANCE. Lessor shall not be required to tender possession of the Premises to Lessee until Lessee complies with its obligation to provide evidence of insurance (Paragraph 8.5). Pending delivery of such evidence, Lessee shall be required to perform all of its obligations under this Lease from and after the Start Date, including the payment of Rent, notwithstanding Lessor's election to withhold possession pending receipt of such evidence of insurance. Further, if Lessee is required to perform any other conditions prior to or concurrent with the Start Date, the Start Date shall occur but Lessor may elect to withhold possession until such conditions are satisfied.
4. RENT.
4.1 RENT DEFINED. All monetary obligations of Lessee to Lessor under the terms of this Lease (except for the Security Deposit) are deemed to be rent ("RENT").
4.2 PAYMENT. Lessee shall cause payment of Rent to be received by Lessor in lawful money of the United States, without offset or deduction (except as specifically permitted in this Lease), on or before the day on which it is due. Rent for any period during the term hereof which is for less than one (1) full calendar month shall be prorated based upon the actual number of days of said month. Payment of Rent shall be made to Lessor at its address stated herein or to such other persons or place as Lessor may from time to time designate in writing. Acceptance of a payment which is less than the amount then due shall not be a waiver of Lessor's rights to the balance of such Rent, regardless of Lessor's endorsement of any check so stating.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof the Security Deposit as security for Lessee's faithful performance of its obligations under this Lease. If Lessee fails to pay Rent, or otherwise Defaults under this Lease, Lessor may use, apply or retain all or any portion of said Security Deposit for the payment of any amount due Lessor or to reimburse or compensate Lessor tor any liability, expense, loss or damage which Lessor may suffer or incur by reason thereof. If Lessor uses or applies all or any portion of said Security Deposit. Lessee shall within ten (10) days after written request therefor deposit monies with Lessor sufficient to restore said Security Deposit to the full amount required by this Lease. If the Base Rent increases during the term of this Lease, Lessee shall, upon written request from Lessor, deposit additional moneys with Lessor so that the total amount of the Security Deposit shall at all times bear the same proportion to the increased Base Rent as the initial Security Deposit bore to the initial Base Rent. Should the Agreed Use be amended to accommodate a material change in the business of Lessee or to accommodate a sublessee or assignee, Lessor shall have the right to increase the Security Deposit to the extent necessary, in Lessor's reasonable judgment, to account for any increased wear and tear that the Premises may suffer as a result thereof. If a change in control of Lessee occurs during this Lease and following such change the financial condition of Lessee is, in Lessor's reasonable judgment, significantly reduced, Lessee shall deposit such additional monies with Lessor as shall be sufficient to cause the Security Deposit to be at a commercially reasonable level based on said change in financial condition. Lessor shall not be required to keep the Security Deposit separate from its general accounts. Within fourteen (14) days after the expiration or termination of this Lease, if Lessor elects to apply the Security Deposit only to unpaid Rent, and otherwise within thirty (30) days after the Premises have been vacated pursuant to Paragraph 7.4(c) below. Lessor shall return that portion of the Security Deposit not used or applied by Lessor. No part of the Security Deposit shall be considered to be held in trust, to bear interest or to be prepayment for any monies to be paid by Lessee under this Lease.
FORM STN-6-2/97
PAGE 2
6. USE.
6.1 USE. Lessee shall use and occupy the Premises only for the Agreed Use, or any other legal use which is reasonably comparable thereto, and for no other purpose. Lessee shall not use or permit the use of the Premises in a manner that is unlawful, creates damage, waste or a nuisance, or that disturbs owners and/or occupants of, or causes damage to neighboring properties. Lessor shall not unreasonably withhold or delay its consent to any written request for a modification of the Agreed Use, so long as the same will not impair the structural integrity of the improvements on the Premises or the mechanical or electrical systems therein, is not significantly more burdensome to the Premises. If Lessor elects to withhold consent, Lessor shall within five (5) business days after such request give written notification of same, which notice shall include an explanation of Lessor's objections to the change in use.
6.2 HAZARDOUS SUBSTANCES.
(a) REPORTABLE USES REQUIRE CONSENT. The term "HAZARDOUS SUBSTANCE" as used in this Lease shall mean any product, substance, or waste whose presence, use, manufacture, disposal, transportation, or release, either by itself or in combination with other materials expected to be on the Premises, is either: (i) potentially injurious to the public health, safety or welfare, the environment or the Premises, (ii) regulated or monitored by any governmental authority, or (iii) a basis for potential liability of Lessor to any governmental agency or third party under any applicable statute or common law theory. Hazardous Substances shall include, but not be limited to hydrocarbons, petroleum, gasoline, and/or crude oil or any products, by-products or fractions thereof. Lessee shall not engage in any activity in or on the Premises which constitutes a Reportable Use of Hazardous Substances without the express prior written consent of Lessor and timely compliance (at Lessee's expense) with all Applicable Requirements. "REPORTABLE USE" shall mean (i) the installation or use of any above or below ground storage tank, (ii) the generation, possession, storage, use, transportation, or disposal of a Hazardous Substance that requires a permit from, or with respect to which a report, notice, registration or business plan is required to be filed with, any governmental authority, and/or
(iii) the presence at the Premises of a Hazardous Substance with respect to which any Applicable Requirements requires that a notice be given to persons entering or occupying the Premises or neighboring properties. Notwithstanding the foregoing, Lessee may use any ordinary and customary materials reasonably required to be used in the normal course of the Agreed Use, so long as such use is in compliance with all Applicable Requirements, is not a Reportable Use, and does not expose the Premises or neighboring property to any meaningful risk of contamination or damage or expose Lessor to any liability therefor. In addition, Lessor may condition its consent to any Reportable Use upon receiving such additional assurances as Lessor reasonably deems necessary to protect itself, the public, the Premises and/or the environment against damage, contamination, injury and/or liability, including, but not limited to, the installation (and removal on or before Lease expiration or termination) of protective modifications (such as concrete encasements) and/or increasing the Security Deposit.
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable cause to believe, that a Hazardous Substance has come to be located in, on, under or about the Premises, other than as previously consented to by Lessor, Lessee shall immediately give written notice of such fact to Lessor, and provide Lessor with a copy of any report, notice, claim or other documentation which it has concerning the presence of such Hazardous Substance.
(c) LESSEE REMEDIATION. Lessee shall not cause or permit any Hazardous Substance to be spilled or released in, on, under, or about the Premises (including through the plumbing or sanitary sewer system) and shall promptly, at Lessee's expense, take all investigatory and/or remedial action reasonably recommended, whether or not formally ordered or required, for the cleanup of any contamination of, and for the maintenance, security and/or monitoring of the Premises or neighboring properties, that was caused or materially contributed to by Lessee, or pertaining to or involving any Hazardous Substance brought onto the Premises during the term of this Lease, by or for Lessee, or any third party.
(d) LESSEE INDEMNIFICATION. Lessee shall indemnify, defend and hold Lessor, its agents, employees, lenders and ground lessor, if any, harmless from and against any and all loss of rents and/or damages, liabilities, judgments, claims, expenses, penalties, and attorneys' and consultants' fees arising out of or involving any Hazardous Substance brought onto the Premises by or for Lessee, or any third party (provided, however, that Lessee shall have no liability under this Lease with respect to underground migration of any Hazardous Substance under the Premises from adjacent properties). Lessee's obligations shall include, but not be limited to, the effects of any contamination or injury to person, property or the environment created or suffered by Lessee, and the cost of investigation, removal, remediation, restoration and/or abatement, and shall survive the expiration or termination of this Lease. No termination, cancellation or release agreement entered into by Lessor and Lessee shall release Lessee from its obligations under this Lease with respect to Hazardous Substances, unless specifically so agreed by Lessor in writing at the time of such agreement.
(e) LESSOR INDEMNIFICATION. Lessor and its successors and assigns shall indemnify, defend, reimburse and hold Lessee, its employees and lenders, harmless from and against any and all environmental damages, including the cost of remediation, which existed as a result of Hazardous Substances on the Premises prior to the Start Date or which are caused by the gross negligence or willful misconduct of Lessor, its agents or employees. Lessor's obligations, as and when required by the Applicable Requirements, shall include, but not be limited to the cost of investigation, removal, remediation, restoration and/or abatement, and shall survive the expiration or termination of this Lease.
(f) INVESTIGATIONS AND REMEDIATIONS. Lessor shall retain the responsibility and pay for any investigations or remediation measures required by governmental entities having jurisdiction with respect to the existence of Hazardous Substances on the Premises prior to the Start Date, unless such remediation measure is required as a result of Lessee's use (including "Alterations", as defined in paragraph 7.3(a) below) of the Premises, in which event Lessee shall be responsible for such payment. Lessee shall cooperate fully in any such activities at the request of Lessor, including allowing Lessor and Lessor's agents to have reasonable access to the Premises at reasonable times in order to carry out Lessor's investigative and remedial responsibilities.
(g) LESSOR TERMINATION OPTION. If a Hazardous Substance Condition occurs during the term of this Lease, unless Lessee is legally responsible therefor (in which case Lessee shall make the investigation and remediation thereof required by the Applicable Requirements and this Lease shall continue in full force and effect, but subject to Lessor's rights under Paragraph 6.2(d) and Paragraph 13). Lessor may, at Lessors option, either (i) investigate and remediate such Hazardous Substance Condition, if required, as soon as reasonably possible at Lessor's expense, in which event this Lease shall continue in full force and effect, or (ii) if the estimated cost to remediate such condition exceeds twelve (12) times the then monthly Base Rent or $100,000, whichever is greater, give written notice to Lessee, within thirty (30) days after receipt by Lessor of knowledge of the occurrence of such Hazardous Substance Condition, of Lessor's desire to terminate this Lease as of the date sixty (60) days following the date of such notice. In the event Lessor elects to give a termination notice, Lessee may, within ten (10) days thereafter, give written notice to Lessor of Lessee's commitment to pay the amount by which the cost of the remediation of such Hazardous Substance Condition exceeds an amount equal to twelve (12) times the then monthly Base Rent or $100,000, whichever is greater. Lessee shall provide Lessor with said funds or satisfactory assurance thereof within thirty (30) days following such commitment. In such event, this Lease shall continue in full force and effect, and Lessor shall proceed to make such remediation as soon as reasonably possible after the required funds are available. If Lessee does not give such notice and provide the required funds or assurance thereof within the time provided, this Lease shall terminate as of the date specified in Lessor's notice of termination.
6.3 LESSEE'S COMPLIANCE WITH APPLICABLE REQUIREMENTS. Except as otherwise provided in this Lease, Lessee shall, at Lessee's sole expense, fully, diligently and in a timely manner, materially comply with all Applicable Requirements, the requirements of any applicable fire insurance underwriter or rating bureau, and the recommendations of Lessor's engineers and/or consultants which relate in any manner to the Premises, without regard to whether said requirements are now in effect or become effective after the Start Date. Lessee shall, within ten (10) days after receipt of Lessor's written request, provide Lessor with copies of all permits and other documents, and other information evidencing Lessee's compliance with any Applicable Requirements specified by Lessor, and shall immediately upon receipt, notify Lessor in writing (with copies of any documents involved) of any threatened or actual claim, notice, citation, warning, complaint or report pertaining to or involving the failure of Lessee or the Premises to comply with any Applicable Requirements.
6.4 INSPECTION; COMPLIANCE. Lessor and Lessor's "Lender" (as defined in Paragraph 30 below) and consultants shall have the right to enter into Premises at any time, in the case of an emergency, and otherwise at reasonable times, for the purpose of inspecting the condition of the Premises and for verifying compliance by Lessee with this Lease. The cost of any such inspections shall be paid by Lessor, unless a violation of Applicable Requirements, or a contamination is found to exist or be imminent, or the inspection is requested or ordered by a governmental authority. In such case, Lessee shall upon request reimburse Lessor for the cost of such inspections, so long as such inspection is reasonably related to the violation or contamination.
FORM STN-6-2/97
PAGE 3
7. MAINTENANCE; REPAIRS, UTILITY INSTALLATIONS; TRADE FIXTURES AND ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS.
(a) IN GENERAL. Subject to the provisions of Paragraph 2.2 (Condition), 2.3 (Compliance), 6.3 (Lessee's Compliance with Applicable Requirements), 7.2 (Lessor's Obligations), 9 (Damage or Destruction), and 14 (Condemnation). Lessee shall, at Lessee's sole expense, keep the Premises, Utility Installations, and Alterations in good order, condition and repair (whether or not the portion of the Premises requiring repairs, or the means of repairing the same, are reasonably or readily accessible to Lessee, and whether or not the need for such repairs occurs as a result of Lessee's use, any prior use, the elements or the age of such portion of the Premises), including, but not limited to all equipment or facilities, such as plumbing, heating, ventilating, air-conditioning, electrical, lighting facilities, boilers, pressure vessels, fire protection system, fixtures, walls (interior and exterior), foundations, ceilings, roofs, floors, windows, doors, plate glass, skylights, landscaping, driveways, parking lots, fences, retaining walls, signs, sidewalks and parkways located in, on, or adjacent to the Premises. Lessee, in keeping the Premises in good order, condition and repair, shall exercise and perform good maintenance practices, specifically including the procurement and maintenance of the service contracts required by Paragraph 7.1(b) below. Lessee's obligations shall include restorations, replacements or renewals when necessary to keep the Premises and all improvements thereon or a part thereof in good order, condition and state of repair. Lessee shall, during the term of this Lease, keep the exterior appearance of the Building in a first-class condition consistent with the exterior appearance of other similar facilities of comparable age and size in the vicinity, including, when necessary, the exterior repainting of the Building.
(b) SERVICE CONTRACTS. Lessee shall, at Lessee's sole expense, procure and maintain contracts, with copies to Lessor, in customary form and substance for, and with contractors specializing and experienced in the maintenance or the following equipment and improvements ("Basic Elements"), if any, if and when installed on the Premises: (i) HVAC equipment, (ii) boiler, and pressure vessels, (iii) fire extinguishing systems, including fire alarm and/or smoke detection, (iv) landscaping and irrigation systems, (v) roof covering and drains, (vi) driveways and parking lots, (vii) clarifiers (viii) basic utility feed to the perimeter of the Building, and (ix) any other equipment, if reasonably required by Lessor.
(c) REPLACEMENT. Subject to Lessee's indemnification of Lessor as set forth in Paragraph 8.7 below, and without relieving Lessee of liability resulting from Lessee's failure to exercise and perform good maintenance practices, if the Basic Elements described in Paragraph 7.1 (b) cannot be repaired other than at a cost which is in excess of 50% of the cost of replacing such Basic Elements, then such Basic Elements shall be replaced by Lessor, and the cost thereof shall be prorated between the Parties and Lessee shall only be obligated to pay, each month during the remainder of the term of this Lease, on the date on which Base Rent is due, an amount equal to the product of multiplying the cost of such replacement by a fraction, the numerator of which is one, and the denominator of which is the number of months of the useful life of such replacement as such useful life is specified pursuant to Federal income tax regulations or guidelines for depreciation thereof (including interest on the unamortized balance as is then commercially reasonable in the judgment of Lessor's accountants), with Lessee reserving the right to prepay its obligation at any time.
7.2 LESSOR'S OBLIGATIONS. Subject to the provisions of Paragraphs 2.2 (Condition), 2.3 (Compliance), 9 (Damage or Destruction) and 14 (Condemnation), it is intended by the Parties hereto that Lessor have no obligation, in any manner whatsoever, to repair and maintain the Premises, or the equipment therein, all of which obligations are intended to be that of the Lessee. It is the intention of the Parties that the terms of this Lease govern the respective obligations of the Parties as to maintenance and repair of the Premises, and they expressly waive the benefit of any statute now or hereafter in effect to the extent it is inconsistent with the terms of this Lease.
7.3 UTILITY INSTALLATIONS; TRADE FIXTURES; ALTERATIONS.
(a) DEFINITIONS; CONSENT REQUIRED. The term "UTILITY INSTALLATIONS" refers to all floor and window coverings, air lines, power panels, electrical distribution, security and fire protection systems, communication systems, lighting fixtures, HVAC equipment, plumbing, and fencing in or on the Premises. The term "TRADE FIXTURES" shall mean Lessee's machinery and equipment that can be removed without doing material damage to the Premises. The term "ALTERATIONS" shall mean any modification of the improvements, other than Utility Installations or Trade Fixtures, whether by addition or deletion. "LESSEE OWNED ALTERATIONS AND/OR UTILITY INSTALLATIONS" are defined as Alterations and/or Utility Installations made by Lessee that are not yet owned by Lessor pursuant to Paragraph 7.4(a). Lessee shall not make any Alterations or Utility Installations to the Premises without Lessor's prior written consent. Lessee may, however, make non-structural Utility Installations to the interior of the Premises (excluding the roof) without such consent but upon notice to Lessor, as long as they are not visible from the outside, do not involve puncturing, relocating or removing the roof or any existing walls, and the cumulative cost thereof during this Lease as extended does not exceed $50,000 in the aggregate or $10,000 in any one year.
(b) CONSENT. Any Alterations or Utility Installations that Lessee shall desire to make and which require the consent of the Lessor shall be presented to Lessor in written form with detailed plans. Consent shall be deemed conditioned upon Lessee's: (i) acquiring all applicable governmental permits,
(ii) furnishing Lessor with copies of both the permits and the plans and specifications prior to commencement of the work, and (iii) compliance with all conditions of said permits and other Applicable Requirements in a prompt and expeditious manner. Any Alterations or Utility Installations shall be performed in a workmanlike manner with good and sufficient materials. Lessee shall promptly upon completion furnish Lessor with as-built plans and specifications. For work which costs an amount equal to the greater of one month's Base Rent, or $10,000, Lessor may condition its consent upon Lessee providing a lien and completion bond in an amount equal to one and one-half times the estimated cost of such Alteration or Utility Installation and/or upon Lessee's posting an additional Security Deposit with Lessor.
(c) INDEMNIFICATION. Lessee shall pay, when due, all claims for labor or materials furnished or alleged to have been furnished to for Lessee at or for use on the Premises, which claims are or may be secured by any mechanic's or materialmen's lien against the Premises or any interest therein. Lessee shall give Lessor not less than ten (10) days' notice prior to the commencement of any work in, on or about the Premises, and Lessor shall have the right to post notices of non-responsibility. If Lessee shall contest the validity of any such lien, claim or demand, then Lessee shall, at its sole expense defend and protect itself, Lessor and the Premises against the same and shall pay and satisfy any such adverse judgment that may be rendered thereon before the enforcement thereof. If Lessor shall require, Lessee shall furnish a surety bond in an amount equal to one and one-half times the amount of such contested lien, claim or demand, indemnifying Lessor against liability for the same. If Lessor elects to participate in any such action, Lessee shall pay Lessor's attorneys' fees and costs.
7.4 OWNERSHIP; REMOVAL; SURRENDER; AND RESTORATION.
(a) OWNERSHIP. Subject to Lessor's right to require removal or elect ownership as hereinafter provided, all Alterations and Utility Installations made by Lessee shall be the property of Lessee, but considered a part of the Premises. Lessor may, at any time, elect in writing to be the owner of all or any specified part of the Lessee Owned Alterations and Utility Installations. Unless otherwise instructed per Paragraph 7.4(b) hereof, all Lessee Owned Alterations and Utility Installations shall, at the expiration or termination of this Lease, become the property of Lessor and be surrendered by Lessee with the Premises.
(b) REMOVAL. By delivery to Lessee of written notice from Lessor not earlier than ninety (90) and not later than thirty (30) days prior to the end of the term of this Lease, Lessor may require that any or all Lessee Owned Alterations or Utility Installations be removed by the expiration or termination of this Lease. Lessor may require the removal at any time of all or any part of any Lessee Owned Alterations or Utility Installations made without the required consent.
(c) SURRENDER/RESTORATION. Lessee shall surrender the Premises by the Expiration Date or any earlier termination date, with all of the improvements, parts and surfaces thereof broom clean and free of debris, and in good operating order, condition and state of repair, ordinary wear and tear excepted. "Ordinary wear and tear" shall not include any damage or deterioration that would have been prevented by good maintenance practice. Lessee shall repair any damage occasioned by the installation, maintenance or removal of Trade Fixtures, Lessee Owned Alterations and/or Utility Installations, furnishings, and equipment as well as the removal of any storage tank installed by or for Lessee, and the removal, replacement, or remediation of any soil, material or groundwater contaminated by Lessee. Trade Fixtures shall remain the property of Lessee and shall be removed by Lessee. The failure by Lessee to timely vacate the Premises pursuant to this Paragraph 7.4(c) without the express written consent of Lessor shall constitute a holdover under the provisions of Paragraph 26 below.
FORM STN-6-2/97
PAGE 4
8. INSURANCE; INDEMNITY.
8.1 PAYMENT FOR INSURANCE. Lessee shall pay for all insurance required under Paragraph 8 except to the extent of the cost attributable to liability insurance carried by Lessor under Paragraph 8.2(b) in excess of $2,000,000 per occurrence. Premiums for policy periods commencing prior to or extending beyond the Lease term shall be prorated to correspond to the Lease term. Payment shall be made by Lessee to Lessor within ten (10) days following receipt of an invoice.
8.2 LIABILITY INSURANCE.
(a) CARRIED BY LESSEE. Lessee shall obtain and keep in force a Commercial General Liability Policy of Insurance protecting Lessee and Lessor against claims for bodily injury, personal injury and property damage based upon or arising out of the ownership, use, occupancy or maintenance of the Premises and all areas appurtenant thereto. Such insurance shall be on an occurrence basis providing single limit coverage in an amount not less than $2,000,000 per occurrence with an "ADDITIONAL INSURED-MANAGERS OR LESSORS OF PREMISES ENDORSEMENT" and contain the "AMENDMENT OF THE POLLUTION EXCLUSION ENDORSEMENT" for damage caused by heat, smoke or fumes from a hostile fire. The Policy shall not contain any intra-insured exclusions as between insured persons or organizations, but shall include coverage for liability assumed under this Lease as an "insured contract" for the performance of Lessee's indemnity obligations under this Lease. The limits of said insurance shall not, however, limit the liability of Lessee nor relieve Lessee of any obligation hereunder. All insurance carried by Lessee shall be primary to and not contributory with any similar insurance carried by Lessor, whose insurance shall be considered excess insurance only.
(b) CARRIED BY LESSOR. Lessor may maintain liability insurance as described in Paragraph 8.2(a), in addition to, and not in lieu of the insurance required to be maintained by Lessee. Lessee shall not be named as an additional insured therein.
8.3 PROPERTY INSURANCE - BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. The Insuring Party shall obtain and keep in force a policy or policies in the name of Lessor, with loss payable to Lessor, any groundlessor, and to any Lender(s) insuring loss or damage to the Premises. The amount of such insurance small be equal to the full replacement cost of the Premises, as the same shall exist from time to time, or the amount required by any Lenders, but in no event more than the commercially reasonable and available insurable value thereof. If Lessor is the Insuring Party, however, Lessee Owned Alterations and Utility Installations, Trade Fixtures, and Lessee's personal property shall be insured by Lessee under Paragraph 8.4 rather than by Lessor. If the coverage is available and commercially appropriate, such policy or policies shall insure against all risks of direct physical loss or damage (except the perils of flood and/or earthquake unless required by a Lender), including coverage for debris removal and the enforcement of any Applicable Requirements requiring the upgrading, demolition, reconstruction or replacement of any portion of the Premises as the result of a covered loss. Said policy or policies shall also contain an agreed valuation provision in lieu of any coinsurance clause, waiver of subrogation, and inflation guard protection causing an increase in the annual property insurance coverage amount by a factor of not less than the adjusted U.S. Department of Labor Consumer Price Index for All Urban Consumers for the city nearest to where the Premises are located. If such insurance coverage has a deductible clause, the deductible amount shall not exceed $1,000 per occurrence, and Lessee shall be liable for such deductible amount in the event of an Insured Loss.
(b) RENTAL VALUE. The Insuring Party shall obtain and keep in force a policy or policies in the name of Lessor with loss payable to Lessor and any Lender, insuring the loss of the full Rent for one (1) year. Said insurance shall provide that in the event the Lease is terminated by reason of an insured loss, the period of indemnity for such coverage shall be extended beyond the date of the completion of repairs or replacement of the Premises, to provide for one full year's loss of Rent from the date of any such loss. Said insurance shall contain an agreed valuation provision in lieu of any coinsurance clause, and the amount of coverage shall be adjusted annually to reflect the projected Rent otherwise payable by Lessee, for the next twelve (12) month period. Lessee shall be liable for any deductible amount in the event of such loss.
(c) ADJACENT PREMISES. If the Premises are part of a larger building, or of a group of buildings owned by Lessor which are adjacent to the Premises, the Lessee shall pay for any increase in the premiums for the property insurance of such building or buildings if said increase is caused by Lessee's acts, omissions, use or occupancy of the Premises.
8.4 LESSEE'S PROPERTY/BUSINESS INTERRUPTION INSURANCE.
(a) PROPERTY DAMAGE. Lessee shall obtain and maintain insurance coverage on all of Lessee's personal property. Trade Fixtures, and Lessee Owned Alterations and Utility Installations. Such insurance shall be full replacement cost coverage with a deductible of not to exceed $1,000 per occurrence. The proceeds from any such insurance shall be used by Lessee for the replacement of personal property, Trade Fixtures and Lessee Owned Alterations and Utility Installations. Lessee shall provide Lessor with written evidence that such insurance is in force.
(b) BUSINESS INTERRUPTION. Lessee shall obtain and maintain loss of income and extra expense insurance in amounts as will reimburse Lessee for direct or indirect loss of earnings attributable to all perils commonly insured against by prudent lessees in the business of Lessee or attributable to prevention of access to the Premises as a result of such perils.
(c) NO REPRESENTATION OF ADEQUATE COVERAGE. Lessor makes no representation that the limits or forms of coverage of insurance specified herein are adequate to cover Lessee's property, business operations or obligations under this Lease.
8.5 INSURANCE POLICIES. Insurance required herein shall be by companies duly licensed or admitted to transact business in the state where the Premises are located, and maintaining during the policy term a "General Policyholders Rating" of at least B+, V, as set forth in the most current issue of "Best's Insurance Guide", or such other rating as may be required by a Lender. Lessee shall not do or permit to be done anything which invalidates the required insurance policies. Lessee shall, prior to the Start Date, deliver to Lessor certified copies of policies of such insurance or certificates evidencing the existence and amounts of the required insurance. No such policy shall be cancelable or subject to modification except after thirty (30) days prior written notice to Lessor. Lessee shall, at least thirty (30) days prior to the expiration of such policies, furnish Lessor with evidence of renewals or insurance binders" evidencing renewal thereof, or Lessor may order such insurance and charge the cost thereof to Lessee, which amount shall be payable by Lessee to Lessor upon demand. Such policies shall be for a term of at least one year, or the length of the remaining term of this Lease, whichever is less. If either Party shall fail to procure and maintain the insurance required to be carried by it, the other Party may, but shall not be required to, procure and maintain the same.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or remedies, Lessee and Lessor each hereby release and relieve the other, and waive their entire right to recover damages against the other, for loss of or damage to its property arising out of or incident to the penis required to be insured against herein. The effect of such releases and waivers is not limited by the amount of insurance carried or required, or by any deductibles applicable hereto. The Parties agree to have their respective property damage insurance carriers waive any right to subrogation that such companies may have against Lessor or Lessee, as the case may be, so long as the insurance is not invalidated thereby.
8.7 INDEMNITY. Except for Lessor's gross negligence or willful misconduct, Lessee shall indemnify, protect, defend and hold harmless the Premises, Lessor and its agents. Lessor's master or ground lessor, partners and Lenders, from and against any and a claims, loss of rents and/or damages, liens, judgments, penalties, attorneys' and consultants' fees, expenses and/or liabilities arising out of, involving, or in connection with, the use and/or occupancy of the Premises by Lessee. If any action or proceeding is brought against Lessor by reason of any of the foregoing matters, Lessee shall upon notice defend the same at Lessee's expense by counsel reasonably satisfactory to Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need not have first paid any such claim in order to be defended or indemnified.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable for injury or damage to the person or goods, wares, merchandise or other property of Lessee, Lessee's employees, contractors, invitees, customers, or any other person in or about the Premises, whether such damage or injury is caused by or results from fire, steam, electricity, gas, water or rain, or from the breakage, leakage, obstruction or other defects of pipes, fire sprinklers, wires, appliances, plumbing, HVAC or lighting fixtures, or from any other cause, whether the said injury or damage results from conditions arising upon the Premises or upon other portions of the Building of which the Premises are a part, or from other sources or places. Lessor shall not be liable for any damages arising from any act or neglect of any other tenant of Lessor. Notwithstanding Lessor's negligence or breach of this Lease, Lessor shall under no circumstances be liable for injury to Lessee's business or for any loss of income or profit therefrom.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction to the improvements on the Premises, other than Lessee Owned Alterations and Utility Installations, which can reasonably be repaired in six (6) months or less from the date of the damage or destruction.
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Lessor shall notify Lessee in writing within thirty (30) days from the date of the damage or destruction as to whether or not the damage is Partial or Total.
(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or destruction to the Premises, other than Lessee Owned Alterations and Utility Installations and Trade Fixtures, which cannot reasonably be repaired in six (6) months or less from the date of the damage or destruction. Lessor shall notify Lessee in writing within thirty (30) days from the date of the damage or destruction as to whether or not the damage is Partial or Total.
(c) "INSURED LOSS" shall mean damage or destruction to improvements on the Premises, other than Lessee Owned Alterations and Utility Installations and Trade Fixtures, which was caused by an event required to be covered by the insurance described in Paragraph 8.3(a), irrespective of any deductible amounts or coverage limits involved.
(d) "REPLACEMENT COST" shall mean the cost to repair or rebuild the improvements owned by Lessor at the time of the occurrence to their condition existing immediately prior thereto, including demolition, debris removal and upgrading required by the operation of Applicable Requirements, and without deduction for depreciation.
(e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the occurrence or discovery of a condition involving the presence of, or a contamination by, a Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the Premises.
9.2 PARTIAL DAMAGE - INSURED LOSS. If a Premises Partial Damage that is an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such -damage (but not Lessee's Trade Fixtures or Lessee Owned Alterations and Utility Installations) as soon as reasonably possible and this Lease shall continue in full force and effect; provided, however, that Lessee shall, at Lessor's election, make the repair of any damage or destruction the total cost to repair of which is $10,000 or less, and, in such event. Lessor shall make any applicable insurance proceeds available to Lessee on a reasonable basis for that purpose. Notwithstanding the foregoing, if the required insurance was not in force or the insurance proceeds are not sufficient to effect such repair, the Insuring Party shall promptly contribute the shortage in proceeds (except as to the deductible which is Lessee's responsibility) as and when required to complete said repairs. In the event, however, such shortage was due to the fact that, by reason of the unique nature of the improvements, full replacement cost insurance coverage was not commercially reasonable and available, Lessor shall have no obligation to pay for the shortage in insurance proceeds or to fully restore the unique aspects of the Premises unless Lessee provides Lessor with the funds to cover same, or adequate assurance thereof, within ten (10) days following receipt of written notice of such shortage and request therefor. If Lessor receives said funds or adequate assurance thereof within said ten (10) day period, the party responsible for making the repairs shall complete them as soon as reasonably possible and this Lease shall remain in full force and effect. If such funds or assurance are not received, Lessor may nevertheless elect by written notice to Lessee within ten (10) days thereafter to: (i) make such restoration and repair as is commercially reasonable with Lessor paying any shortage in proceeds, in which case this Lease shall remain in full force and effect; or (ii) have this Lease terminate thirty (30) days thereafter. Lessee shall not be entitled to reimbursement of any funds contributed by Lessee to repair any such damage or destruction. Premises Partial Damage due to flood or earthquake shall be subject to Paragraph 9.3, notwithstanding that there may be some insurance coverage, but the net proceeds of any such insurance shall be made available for the repairs if made by either Party.
9.3 PARTIAL DAMAGE - UNINSURED LOSS. If a Premises Partial Damage that is not an Insured Loss occurs, unless caused by a negligent or willful act of Lessee (in which event Lessee shall make the repairs at Lessee's expense), Lessor may either: (i) repair such damage as soon as reasonably possible at Lessor's expense, in which event this Lease shall continue in full force and effect, or (ii) terminate this Lease by giving written notice to Lessee within thirty (30) days after receipt by Lessor of knowledge of the occurrence of such damage. Such termination shall be effective sixty (60) days following the date of such notice. In the event Lessor elects to terminate this Lease, Lessee shall have the right within ten (10) days after receipt of the termination notice to give written notice to Lessor of Lessee's commitment to pay for the repair of such damage without reimbursement from Lessor. Lessee shall provide Lessor with said funds or satisfactory assurance thereof within thirty (30) days after making such commitment. In such event this Lease shall continue in full force and effect, and Lessor shall proceed to make such repairs as soon as reasonably possible after the required funds are available. If Lessee does not make the required commitment, this Lease shall terminate as of the date specified in the termination notice.
9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof, if a Premises Total Destruction occurs, this Lease shall terminate sixty (60) days following such Destruction. If the damage or destruction was caused by the gross negligence or willful misconduct of Lessee, Lessor shall have the right to recover Lessor's damages from Lessee, except as provided in Paragraph 8.6.
9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6) months of this Lease there is damage for which the cost to repair exceeds one (1) month's Base Rent, whether or not an Insured Loss. Lessor may terminate this Lease effective sixty (60) days following the date of occurrence of such damage by giving a written termination notice to Lessee within thirty (30) days after the date of occurrence of such damage. Notwithstanding the foregoing, if Lessee at that time has an exercisable option to extend this Lease or to purchase the Premises, then Lessee may preserve this Lease by, (a) exercising such option and
(b) providing Lessor with any shortage in insurance proceeds (or adequate assurance thereof) needed to make the repairs on or before the earlier of (i) the date which is ten days after Lessee's receipt of Lessor's written notice purporting to terminate this Lease, or (ii) the day prior to the date upon which such option expires. If Lessee duly exercises such option during such period and provides Lessor with funds (or adequate assurance thereof) to cover any shortage in insurance proceeds, Lessor shall, at Lessor's commercially reasonable expense, repair such damage as soon as reasonably possible and this Lease shall continue in full force and effect. If Lessee fails to exercise such option and provide such funds or assurance during such period, then this Lease shall terminate on the date specified in the termination notice and Lessee's option shall be extinguished.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) ABATEMENT. In the event of Premises Partial Damage or Premises Total Destruction or a Hazardous Substance Condition for which Lessee is not responsible under this Lease, the Rent payable by Lessee for the period required for the repair, remediation or restoration of such damage shall be abated in proportion to the degree to which Lessee's use of the Premises is impaired, but not to exceed the proceeds received from the Rental Value insurance. All other obligations of Lessee hereunder shall be performed by Lessee, and Lessor shall have no liability for any such damage, destruction, remediation, repair or restoration except as provided herein.
(b) REMEDIES. If Lessor shall be obligated to repair or restore the Premises and does not commence, in a substantial and meaningful way, such repair or restoration within ninety (90) days after such obligation shall accrue. Lessee may, at any time prior to the commencement of such repair or restoration, give written notice to Lessor and to any Lenders of which Lessee has actual notice, of Lessee's election to terminate this Lease on a date not less than sixty (60) days following the giving of such notice. If Lessee gives such notice and such repair or restoration is not commenced within thirty (30) days thereafter, this Lease shall terminate as of the date specified in said notice. If the repair or restoration is commenced within said thirty (30) days, this Lease shall continue in full force and effect. "Commence" shall mean either the unconditional authorization of the preparation of the required plans, or the beginning of the actual work on the Premises, whichever first occurs.
9.7 TERMINATION-ADVANCE PAYMENTS. Upon termination of this Lease pursuant to Paragraph 6.2(g) or Paragraph 9, an equitable adjustment shall be made concerning advance Base Rent and any other advance payments made by Lessee to Lessor. Lessor shall, in addition, return to Lessee so much of Lessee's Security Deposit as has not been, or is not then required to be, used by Lessor.
9.8 WAIVE STATUTES. Lessor and Lessee agree that the terms of this Lease shall govern the effect of any damage to or destruction of the Premises with respect to the termination of this Lease and hereby waive the provisions of any present or future statute to the extent inconsistent herewith.
10. REAL PROPERTY TAXES.
10.1 DEFINITION OF "REAL PROPERTY TAXES." As used herein, the term "REAL PROPERTY TAXES" shall include any form of assessment; real estate, general, special, ordinary or extraordinary, or rental levy or tax (other than inheritance, personal income or estate taxes): improvement bond: and/or license fee imposed upon or levied against any legal or equitable interest of Lessor in the Premises, Lessor's right to other income therefrom, and/or Lessor's business of leasing, by any authority having the direct or indirect power to tax and where the funds are generated
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with reference to the Building address and where the proceeds so generated are to be applied by the city, county or other local taxing authority of a jurisdiction within which the Premises are located. The term "REAL PROPERTY TAXES" shall also include any tax, fee, levy, assessment or charge, or any increase therein, imposed by reason of events occurring during the term of this Lease, including but not limited to a change in the ownership of the Premises.
10.2
(a) PAYMENT OF TAXES. Lessee shall pay the Real Property Taxes applicable to the Premises during the term of this Lease. Subject to Paragraph 10.2(b), all such payments shall be made at least ten (10) days prior to any delinquency date. Lessee shall promptly furnish Lessor with satisfactory evidence that such taxes have been paid. If any such taxes shall cover any period of time prior to or after the expiration or termination of this Lease, Lessee's share of such taxes shall be prorated to cover only that portion of the tax bill applicable to the period that this Lease is in effect, and Lessor shall reimburse Lessee for any overpayment. If Lessee shall fail to pay any required Real Property Taxes. Lessor shall have the right to pay the same, and Lessee shall reimburse Lessor therefor upon demand.
(b) ADVANCE PAYMENT. In the event Lessee incurs a late charge on any Rent payment. Lessor may, at Lessor's option, estimate the current Real Property Taxes, and require that such taxes be paid in advance to Lessor by Lessee, either: (i) in a lump sum amount equal to the installment due, at least twenty
(20) days prior to the applicable delinquency date, or (ii) monthly in advance with the payment of the Base Rent. If Lessor elects to require payment monthly in advance, the monthly payment shall be an amount equal to the amount of the estimated installment of taxes divided by the number of months remaining before the month in which said installment becomes delinquent. When the actual amount of the applicable tax bill is known, the amount of such equal monthly advance payments shall be adjusted as required to provide the funds needed to pay the applicable taxes. If the amount collected by Lessor is insufficient to pay such Real Property Taxes when due. Lessee shall pay Lessor, upon demand, such additional sums as are necessary to pay such obligations. All moneys paid to Lessor under this Paragraph may be intermingled with other moneys of Lessor and shall not bear interest. In the event of a Breach by Lessee in the performance of its obligations under this Lease, then any balance of funds paid to Lessor under the provisions of this Paragraph may at the option of Lessor, be treated as an additional Security Deposit.
10.3 JOINT ASSESSMENT. If the Premises are not separately assessed, Lessee's liability shall be an equitable proportion of the Real Property Taxes for all of the land and improvements included within the tax parcel assessed, such proportion to be conclusively determined by Lessor from the respective valuations assigned in the assessor's work sheets or such other information as may be reasonably available.
10.4 PERSONAL PROPERTY TAXES. Lessee shall pay, prior to delinquency, all taxes assessed against and levied upon Lessee Owned Alterations, Utility Installations, Trade Fixtures, furnishings, equipment and all personal property of Lessee. When possible, Lessee shall cause such property to be assessed and billed separately from the real property of Lessor. If any of Lessee's said personal property shall be assessed with Lessor's real property, Lessee shall pay Lessor the taxes attributable to Lessee's property within ten (10) days after receipt of a written statement.
11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power, telephone, trash disposal and other utilities and services supplied to the Premises, together with any taxes thereon. If any such services are not separately metered to Lessee, Lessee shall pay a reasonable proportion to be determined by Lessor, of all charges jointly metered.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED.
(a) Lessee shall not voluntarily or by operation of law assign, transfer, mortgage or encumber (collectively, "ASSIGN OR ASSIGNMENT") or sublet all or any part of Lessee's interest in this Lease or in the Premises without Lessor's prior written consent.
(b) A change in the control of Lessee shall constitute an assignment requiring consent. The transfer, on a cumulative basis, of twenty-five percent (25%) or more of the voting control of Lessee shall constitute a change in control for this purpose.
(c) The involvement of Lessee or its assets in any transaction, or series of transactions (by way of merger, sale, acquisition, financing, transfer, leveraged buy-out or otherwise), whether or not a formal assignment or hypothecation of this Lease or Lessee's assets occurs, which results or will result in a reduction of the Net Worth of Lessee by an amount greater than twenty-five percent (25%) of such Net Worth as it was represented at the time of the execution of this Lease or at the time of the most recent assignment to which Lessor has consented, or as it exists immediately prior to said transaction or transactions constituting such reduction, whichever was or is greater, shall be considered an assignment of this Lease to which Lessor may withhold its consent. "NET WORTH OF LESSEE" shall mean the net worth of Lessee (excluding any guarantors) established under generally accepted accounting principles.
(d) An assignment or subletting without consent shall, at Lessor's option, be a Default curable after notice per Paragraph 13.1(c). or a noncurable Breach without the necessity of any notice and grace period. If Lessor elects to treat such unapproved assignment or subletting as a noncurable Breach, Lessor may either. (i) terminate this Lease, or (ii) upon thirty (30) days written notice, increase the monthly Base Rent to one hundred ten percent (110%) of the Base Rent then in effect. Further, in the event of such Breach and rental adjustment, (i) the purchase price of any option to purchase the Premises held by Lessee shall be subject to similar adjustment to one hundred ten percent (110%) of the price previously in effect, and (ii) all fixed and non-fixed rental adjustments scheduled during the remainder of the Lease term shall be increased to One Hundred Ten Percent (110%) of the scheduled adjusted rent.
(e) Lessee's remedy for any breach of Paragraph 12.1 by Lessor shall be limited to compensatory damages and/or injunctive relief.
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, any assignment or subletting shall not: (i) be effective without the express written assumption by such assignee or sublessee of the obligations of Lessee under this Lease, (ii) release Lessee of any obligations hereunder, or (iii) after the primary liability of Lessee for the payment of Rent or for the performance of any other obligations to be performed by Lessee.
(b) Lessor may accept Rent or performance of Lessee's obligations from any person other than Lessee pending approval or disapproval of an assignment. Neither a delay in the approval or disapproval of such assignment nor the acceptance of Rent or performance shall constitute a waiver or estoppel of Lessor's right to exercise its remedies for Lessee's Default or Breach.
(c) Lessor's consent to any assignment or subletting shall not constitute a consent to any subsequent assignment or subletting.
(d) In the event of any Default or Breach by Lessee. Lessor may proceed directly against Lessee, any Guarantors or anyone else responsible for the performance of Lessee's obligations under this Lease, including any assignee or sublessee, without first exhausting Lessor's remedies against any other person or entity responsible therefore to Lessor, or any security held by Lessor.
(e) Each request tor consent to an assignment or subletting shall be in writing, accompanied by information relevant to Lessor's determination as to the financial and operational responsibility and appropriateness of the proposed assignee or sublessee, including but not limited to the intended use and/or required modification of the Premises, if any, together with a fee of $1,000 or ten percent (10%) of the current monthly Base Rent applicable to the portion of the Premises which is the subject of the proposed assignment or sublease, whichever is greater, as consideration for Lessor's considering and processing said request. Lessee agrees to provide Lessor with such other or additional information and/or documentation as may be reasonably requested.
(f) Any assignee of, or sublessee under, this Lease shall, by reason of accepting such assignment or entering into such sublease, be deemed to have assumed and agreed to conform and comply with each and every term, covenant, condition and obligation herein to be observed or performed by Lessee during the term of said assignment or sublease, other than such obligations as are contrary to or inconsistent with provisions of an assignment or sublease to which Lessor has specifically consented to in writing.
12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The following terms and conditions shall apply to any subletting by Lessee of all or any part of the Premises and shall be deemed included in all subleases under this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's interest in all Rent payable on any sublease, and Lessor may collect such Rent and apply same toward Lessee's obligations under this Lease; provided, however, that until a Breach shall occur in the performance of Lessee's obligations. Lessee may collect said Rent. Lessor shall not, by reason of the foregoing or any assignment of such sublease, nor by reason of the collection of Rent, be deemed liable to the sublessee for any failure of Lessee to perform and comply with any of Lessee's obligations to such sublessee. Lessee hereby irrevocably authorizes and directs any such sublessee, upon receipt of a written notice
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from Lessor slating that a Breach exists in the performance of Lessee's obligations under this Lease to pay to Lessor all Rent due and to become due under the sublease. Sublessee shall rely upon any such notice from Lessor and shall pay all Rents to Lessor without any obligation or right to inquire as to whether such Breach exists, notwithstanding any claim from Lessee to the contrary.
(b) In the event of a Breach by Lessee, Lessor may, at its option, require sublessee to anorn to Lessor, in which event Lessor shall undertake the obligations of the sublessor under such sublease from the time of the exercise of said option to the expiration of such sublease: provided, however, Lessor shall not be liable for any prepaid rents or security deposit paid by such sublessee to such sublessor or for any prior Defaults or Breaches of such sublessor.
(c) Any matter requiring the consent of the sublessor under a sublease shall also require the consent of Lessor.
(d) No sublessee shall further assign or sublet all or any part of the Premises without Lessor's prior written consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach by Lessee to the sublessee, who shall have the right to cure the Default of Lessee within the grace period, if any, specified in such notice. The sublessee shall have a right of reimbursement and offset from and against Lessee for any such Defaults cured by the sublessee.
13. DEFAULT; BREACH; REMEDIES.
13.1 DEFAULT; BRANCH. A "DEFAULT" is defined as a failure by the Lessee to comply with or perform any of the terms, covenants, conditions or rules under this Lease. A "BREACH" is defined as the occurrence of one or more of the following Defaults, and the failure of Lessee to cure such Default within any applicable grace period.
(a) The abandonment of the Premises; or the vacating of the Premises without providing a commercially reasonable level of security, or where the coverage of the property insurance described in Paragraph 8.3 is jeopardized as a result thereof, or without providing reasonable assurances to minimize potential vandalism.
(b) The failure of Lessee to make any payment of Rent or any Security Deposit required to be made by Lessee hereunder, whether to Lessor or to a third party, when due, to provide reasonable evidence of insurance or surety bond, or to fulfill any obligation under this Lease which endangers or threatens life or property, where such failure continues for a period of three
(3) business days following written notice to Lessee.
(c) The failure by Lessee to provide (i) reasonable written evidence of compliance with Applicable Requirements, (ii) the service contracts, (iii) the rescission of an unauthorized assignment or subletting, (iv) a Estoppel Certificate, (v) a requested subordination, (vi) evidence concerning any guaranty and/or Guarantor, (vii) any document requested under Paragraph 42 (easements), or (viii) any other documentation or information which Lessor may reasonably require of Lessee under the terms of this Lease, where any such failure continues for a period of ten (10) days following written notice to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or provisions of this Lease, or of the rules adopted under Paragraph 40 hereof, other than those described in subparagraphs 13.1(a), (b) or (c), above, where such Default continues for a period of thirty (30) days after written notice; provided, however, that if the nature of Lessee's Default is such that more than thirty (30) days are reasonably required for its cure, then it shall not be deemed to be a Breach if Lessee commences such cure within said thirty (30) day period and thereafter diligently prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) the making of any general arrangement or assignment for the benefit of creditors; (ii) becoming a "DEBTOR" as defined in 11 U.S.C. Section 101 or any successor statute thereto (unless, in the case of a petition filed against Lessee, the same is dismissed within sixty (60) days); (iii) the appointment of a trustee or receiver to take possession of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where possession is not restored to Lessee within thirty (30) days: or (iv) the attachment, execution or other judicial seizure of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where such seizure is not discharged within thirty (30) days; provided, however, in the event that any provision of this subparagraph (e) is contrary to any applicable law, such provision shall be of no force or effect, and not affect the validity of the remaining provisions.
(f) The discovery that any financial statement of Lessee or of any Guarantor given to Lessor was materially false.
(g) If the performance of Lessee's obligations under this Lease is guaranteed: (i) the death of a Guarantor, (ii) the termination of a Guarantor's liability with respect to this Lease other than in accordance with the terms of such guaranty, (iii) a Guarantor's becoming insolvent or the subject of a bankruptcy filing, (iv) a Guarantor's refusal to honor the guaranty, or (v) a Guarantor's breach of its guaranty obligation on an anticipatory basis, and Lessee's failure, within sixty (60) days following written notice of any such event, to provide written alternative assurance or security, which, when coupled with the then existing resources of Lessee, equals or exceeds the combined financial resources of Lessee and the Guarantors that existed at the time of execution of this Lease.
13.2 REMEDIES. If Lessee fails to perform any of its affirmative duties or obligations, within ten (10) days after written notice (or in case of an emergency, without notice), Lessor may, at its option, perform such duty or obligation on Lessee's behalf, including but not limited to the obtaining of reasonably required bonds, insurance policies, or governmental licenses, permits or approvals. The costs and expenses of any such performance by Lessor shall be due and payable by Lessee upon receipt of invoice therefor. If any check given to Lessor by Lessee shall not be honored by the bank upon which it is drawn, Lessor, at its option, may require all future payments to be made by Lessee to be by cashier's check. In the event of a Breach, Lessor may, with or without further notice or demand, and without limiting Lessor in the exercise of any right or remedy which Lessor may have by reason of such Breach:
(a) Terminate Lessee's right to possession of the Premises by any lawful means, in which case this Lease shall terminate and Lessee shall immediately surrender possession to Lessor. In such event Lessor shall be entitled to recover from Lessee: (i) the unpaid Rent which had been earned at the time of termination; (ii) the worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that the Lessee proves could have been reasonably avoided; (iii) the worth at the time of award of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of such rental loss that the Lessee proves could be reasonably avoided; and (iv) any other amount necessary to compensate Lessor for all the detriment proximately caused by the Lessee's failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom, including but not limited to the cost of recovering possession of the Premises, expenses of reletting, including necessary renovation and alteration of the Premises, reasonable attorneys' fees, and that portion of any leasing commission paid by Lessor in connection with this Lease applicable to the unexpired term of this Lease. The worth at the time of award of the amount referred to in provision (iii) of the immediately preceding sentence shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of the District within which the Premises are located at the time of award plus one percent (1%). Efforts by Lessor to mitigate damages caused by Lessee's Breach of this Lease shall not waive Lessor's right to recover damages under Paragraph 12. If termination of this Lease is obtained through the provisional remedy of unlawful detainer, Lessor shall have the right to recover in such proceeding any unpaid Rent and damages as are recoverable therein, or Lessor may reserve the right to recover all or any part thereof in a separate suit. If a notice and grace period required under Paragraph 13.1 was not previously given, a notice to pay rent or quit, or to perform or quit given to Lessee under the unlawful detainer statute shall also constitute the notice required by Paragraph 13.1. In such case, the applicable grace period required by Paragraph 13.1 and the unlawful detainer statute shall run concurrently, and the failure of Lessee to cure the Default within the greater of the two such grace periods shall constitute both an unlawful detainer and a Breach of this Lease entitling Lessor to the remedies provided for in this Lease and/or by said statute.
(b) Continue the Lease and Lessee's right to possession and recover the Rent as it becomes due, in which event Lessee may sublet or assign, subject only to reasonable limitations. Acts of maintenance, efforts to relet, and/or the appointment of a receiver to protect the Lessor's interests, shall not constitute a termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available under the laws or judicial decisions of the state wherein the Premises are located. The expiration or termination of this Lease and/or the termination of Lessee's right to possession shall not relieve Lessee from liability
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under any indemnity provisions of this Lease as to matters occurring or accruing during the term hereof or by reason of Lessee's occupancy of the Premises.
13.3 INDUCEMENT RECAPTURE. Any agreement for free or abated rent or other charges, or for the giving or paying by Lessor to or lor Lessee of any cash or other bonus, inducement or consideration for Lessee's entering into this Lease, all of which concessions are hereinafter referred to as "INDUCEMENT PROVISIONS," shall be deemed conditioned upon Lessee's full and faithful performance of all of the terms, covenants and conditions of this Lease. Upon Breach of this Lease by Lessee, any such Inducement Provision shall automatically be deemed deleted from this Lease and of no further force or effect, and any rent, other charge, bonus, inducement or consideration theretofore abated, given or paid by Lessor under such an Inducement Provision shall be immediately due and payable by Lessee to Lessor, notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by Lessor of rent or the cure of the Breach which initiated the operation of this paragraph shall not be deemed a waiver by Lessor of the provisions of this paragraph unless specifically so stated in writing by Lessor at the time of such acceptance.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by Lessee of Rent will cause Lessor to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Such costs include, but are not limited to, processing and accounting charges, and late charges which may be imposed upon Lessor by any Lender. Accordingly, if any Rent shall not be received by Lessor within five (5) days after such amount shall be due, then, without any requirement for notice to Lessee, Lessee shall pay to Lessor a one-time late charge equal to ten percent (10%) of each such overdue amount. The parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Lessor will incur by reason of such late payment. Acceptance of such late charge by Lessor shall in no event constitute a waiver of Lessee's Default or Breach with respect to such overdue amount, nor prevent the exercise of any of the other rights and remedies granted hereunder. In the event that a late charge is payable hereunder, whether or not collected, for three (3) consecutive installments of Base Rent, then notwithstanding any provision of this Lease to the contrary. Base Rent shall, at Lessor's option. become due and payable quarterly in advance.
13.5 INTEREST. Any monetary payment due Lessor hereunder, other than late charges, not received by Lessor, when due as to scheduled payments (such as Base Rent) or within thirty (30) days following the date on which it was due for non-scheduled payment, shall bear interest from the date when due, as to scheduled payments, or the thirty-first (31st) day after it was due as to non-scheduled payments. The interest ("Interest") charged shall be equal to the prime rate reported in the Wall Street Journal as published closest prior to the date when due plus four percent (4%), but shall not exceed the maximum rate allowed by law. Interest is payable in addition to the potential late charge provided for in Paragraph 13.4.
13.6 BREACH BY LESSOR.
(a) NOTICE OF BREACH. Lessor shall not be deemed in breach of this Lease unless Lessor fails within a reasonable time to perform an obligation required to be performed by Lessor. For purposes of this Paragraph, a reasonable time shall in no event be less than thirty (30) days after receipt by Lessor, and any Lender whose name and address shall have been furnished Lessee in writing for such purpose, of written notice specifying wherein such obligation of Lessor has not been performed; provided, however, that if the nature of Lessors obligation is such that more than thirty (30) days are reasonably required for its performance, then Lessor shall not be in breach if performance is commenced within such thirty (30) day period and thereafter diligently pursued to completion.
(b) PERFORMANCE BY LESSEE ON BEHALF OF LESSOR. In the event that neither Lessor nor Lender cures said breach within thirty (30) days after receipt of said notice, or if having commenced said cure they do not diligently pursue it to completion, then Lessee may elect to cure said breach at Lessee's expense and offset from Rent an amount equal to the greater of one month's Base Rent or the Security Deposit, and to pay an excess of such expense under protest, reserving Lessee's right to reimbursement from Lessor. Lessee shall document the cost of said cure and supply said documentation to Lessor.
14. CONDEMNATION. If the Premises or any portion thereof are taken under the power of eminent domain or sold under the threat of the exercise of said power (collectively "CONDEMNATION"), this Lease shall terminate as to the part taken as of the date the condemning authority takes title or possession, whichever first occurs. If more than ten percent (10%) of any building portion of the premises, or more than twenty-five percent (25%) of the land area portion of the premises not occupied by any building, is taken by Condemnation, Lessee may, at Lessee's option, to be exercised in writing within ten (10) days after Lessor shall have given Lessee written notice of such taking (or in the absence of such notice, within ten (10) days after the condemning authority shall have taken possession) terminate this Lease as of the date the condemning authority takes such possession. If Lessee does not terminate this Lease in accordance with the foregoing, this Lease shall remain in full force and effect as to the portion of the Premises remaining, except that the Base Rent shall be reduced in proportion to the reduction in utility of the Premises caused by such Condemnation. Condemnation awards and/or payments shall be the property of Lessor, whether such award shall be made as compensation for diminution in value of the leasehold, the value of the part taken, or for severance damages; provided, however, that Lessee shall be entitled to any compensation for Lessee's relocation expenses, loss of business goodwill and/or Trade Fixtures, without regard to whether or not this Lease is terminated pursuant to the provisions of this Paragraph. All Alterations and Utility Installations made to the Premises by Lessee, for purposes of Condemnation only, shall be considered the property of the Lessee and Lessee shall be entitled to any and all compensation which is payable therefor. In the event that this Lease is not terminated by reason of the Condemnation. Lessor shall repair any damage to the Premises caused by such Condemnation.
15. BROKERS' FEE.
15.1 ADDITIONAL COMMISSION. In addition to the payments owed pursuant to Paragraph 1.10 above, and unless Lessor and the Brokers otherwise agree in writing. Lessor agrees that: (a) if Lessee exercises any Option, (b) if Lessee acquires any rights to the Premises or other premises owned by Lessor and located within the same Project, if any, within which the Premises is located,
(c) if Lessee remains in possession of the Premises, with the consent of Lessor, after the expiration of this Lease, or (d) if Base Rent is increased, whether by agreement or operation of an escalation clause herein, then, Lessor shall pay Brokers a fee in accordance with the schedule of said Brokers in effect at the time of the execution of this Lease.
15.2 ASSUMPTION OF OBLIGATIONS. Any buyer or transferee of Lessor's interest in this Lease shall be deemed to have assumed Lessor's obligation hereunder. Each Broker shall be a third party beneficiary of the provisions of Paragraphs 1.10, 15, 22 and 31. If Lessor fails to pay to a Broker any amounts due as and for commissions pertaining to this Lease when due, then such amounts shall accrue interest. In addition, if Lessor fails to pay any amounts to Lessee's Broker when due, Lessee's Broker may send written notice to Lessor and Lessee of such failure and if Lessor fails to pay such amounts within ten (10) days after said notice. Lessee shall pay said monies to its Broker and offset such amounts against Rent. In addition. Lessee's Broker shall be deemed to be a third party beneficiary of any commission agreement entered into by and/or between Lessor and Lessor's Broker.
15.3 REPRESENTATIONS AND INDEMNITIES OF BROKER RELATIONSHIPS. Lessee and Lessor each represent and warrant to the other that it has had no dealings with any person, firm, broker or finder (other than the Brokers, if any) in connection with this Lease, and that no one other than said named Brokers is entitled to any commission or finder's fee in connection herewith. Lessee and Lessor do each hereby agree to indemnify, protect, defend and hold the other harmless from and against liability for compensation or charges which may be claimed by any such unnamed broker, finder or other similar party by reason of any dealings or actions of the indemnifying Party, including any costs, expenses, attorneys' fees reasonably incurred with respect thereto.
16. ESTOPPEL CERTIFICATES.
(a) Each Party (as "RESPONDING PARTY") shall within ten (10) days after written notice from the other Party (the "Requesting Party") execute, acknowledge and deliver to the Requesting Party a statement in writing in form similar to the then most current "ESTOPPEL CERTIFICATE" form published by the American Industrial Real Estate Association, plus such additional information, confirmation and/or statements as may be reasonably requested by the Requesting Party.
(b) If the Responding Party shall fail to execute or deliver the Estoppel Certificate within such ten day period, the Requesting Party may execute an Estoppel Certificate stating that: (i) the Lease is in full force and effect without modification except as may be represented by the Requesting Party, (ii) there are no uncured defaults in the Requesting Party's performance, and (iii) if Lessor is the Requesting Party, not more than one month's rent has been paid in advance. Prospective purchasers and encumbrancers may rely upon the Requesting Party's Estoppel Certificate, and the Responding Party shall be estopped from denying the truth of the facts contained in said Certificate.
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(c) If Lessor desires to finance, refinance, or sell the Premises, or any part thereof, Lessee and all Guarantors shall deliver to any potential lender or purchaser designated by Lessor such financial statements as may be reasonably required by such lender or purchaser, including but not limited to Lessee's financial statements for the past three (3) years. All such financial statements shall be received by Lessor and such lender or purchaser in confidence and shall be used only for the purposes herein set forth.
17. DEFINITION OF LESSOR. The term "LESSOR" as used herein shall mean the owner or owners at the time in question of the fee title to the Premises, or, if this is a sublease, of the Lessee's interest in the prior lease. In the event of a transfer of Lessor's title or interest in the Premises or this Lease, Lessor shall deliver to the transferee or assignee (in cash or by credit) any unused Security Deposit held by Lessor. Except as provided in Paragraph 15, upon such transfer or assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor shall be relieved of all liability with respect to the obligations and/or covenants under this Lease thereafter to be performed by the Lessor. Subject to the foregoing, the obligations and/or covenants in this Lease to be performed by the Lessor shall be binding only upon the Lessor as hereinabove defined. Notwithstanding the above, and subject to the provisions of Paragraph 20 below, the original Lessor under this Lease, and all subsequent holders of the Lessor's interest in this Lease shall remain liable and responsible with regard to the potential duties and liabilities of Lessor pertaining to Hazardous Substances as outlined in Paragraph 6 above.
18. SEVERABILITY. The invalidity of any provision of this Lease, as determined by a court of competent jurisdiction, shall in no way affect the validity of any other provision hereof.
19. DAYS. Unless otherwise specifically indicated to the contrary, the word "days" as used in this Lease shall mean and refer to calendar days.
20. LIMITATION ON LIABILITY. Subject to the provisions of Paragraph 17 above, the obligations of Lessor under this Lease shall not constitute personal obligations of Lessor, the individual partners of Lessor or its or their individual partners, directors, officers or shareholders, and Lessee shall look to the Premises, and to no other assets of Lessor, for the satisfaction of any liability of Lessor with respect to this Lease, and shall not seek recourse against the individual partners of Lessor, or its or their individual partners, directors, officers or shareholders, or any of their personal assets for such satisfaction.
21. TIME OF ESSENCE. Time is of the essence with respect to the performance of all obligations to be performed or observed by the Parties under this Lease.
22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains all agreements between the Parties with respect to any matter mentioned herein, and no other prior or contemporaneous agreement or understanding shall be effective. Lessor and Lessee each represents and warrants to the Brokers that it has made, and is relying solely upon, its own investigation as to the nature, quality, character and financial responsibility of the other Party to this Lease and as to the nature, quality and character of the Premises. Brokers have no responsibility with respect thereto, or with respect to any default or breach hereof by either Party. The liability (including court costs and Attorneys' fees), of any Broker with respect to negotiation, execution, delivery or performance by either Lessor or Lessee under this Lease or any amendment or modification hereto shall be limited to an amount up to the fee received by such Broker pursuant to this Lease; provided, however, that the foregoing limitation on each Broker's liability shall not be applicable to any gross negligence or willful misconduct of such Broker.
23. NOTICES.
23.1 NOTICE REQUIREMENTS. All notices required or permitted by this Lease shall be in writing and may be delivered in person (by hand or by courier) or may be sent by regular, certified or registered mail or U.S. Postal Service Express Mail, with postage prepaid, or by facsimile transmission, and shall be deemed sufficiently given if served in a manner specified in this Paragraph 23. The addresses noted adjacent to a Party's signature on this Lease shall be that Party's address for delivery or mailing of notices. Either Party may by written notice to the other specify a different address for notice, except that upon Lessee's taking possession of the Premises, the Premises shall constitute Lessee's address for notice. A copy of all notices to Lessor shall be concurrently transmitted to such party or parties at such addresses as Lessor may from time to time hereafter designate in writing.
23.2 DATE OF NOTICE. Any notice sent by registered or certified mail, return receipt requested, shall be deemed given on the date of delivery shown on the receipt card, or if no delivery date is shown, the postmark thereon. If sent by regular mail the notice shall be deemed given forty-eight (48) hours after the same is addressed as required herein and mailed with postage prepaid. Notices delivered by United States Express Mail or overnight courier that guarantee next day delivery shall be deemed given twenty-four (24) hours after delivery of the same to the Postal Service or courier. Notices transmitted by facsimile transmission or similar means shall be deemed delivered upon telephone confirmation of receipt, provided a copy is also delivered via delivery or mail. If notice is received on a Saturday. Sunday or legal holiday, it shall be deemed received on the next business day.
24. WAIVERS. No waiver by Lessor of the Default or Breach of any term, covenant or condition hereof by Lessee, shall be deemed a waiver of any other term, covenant or condition hereof, or of any subsequent Default or Breach by Lessee of the same or of any other term, covenant or condition hereof. Lessor's consent to, or approval of, any act shall not be deemed to render unnecessary the obtaining of Lessor's consent 10, or approval of, any subsequent or similar act by Lessee, or be construed as the basis of an estoppel to enforce the provision or provisions of this Lease requiring such consent. The acceptance of Rent by Lessor shall not be a waiver of any Default or Breach by Lessee. Any payment by Lessee may be accepted by Lessor on account of moneys or damages due Lessor, notwithstanding any qualifying statements or conditions made by Lessee in connection therewith, which such statements and/or conditions shall be of no force or effect whatsoever unless specifically agreed to in writing by Lessor at or before the time of deposit of such payment.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other, execute, acknowledge and deliver to the other a short form memorandum of this Lease for recording purposes. The Party requesting recordation shall be responsible for payment of any fees applicable thereto.
26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the Premises or any part thereof beyond the expiration or termination of this Lease. In the event that Lessee holds over, then the Base Rent shall be increased to one hundred fifty percent (150%) of the Base Rent applicable during the month immediately preceding the expiration or termination. Nothing contained herein shall be construed as consent by Lessor to any holding over by Lessee.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed exclusive but shall, wherever possible, be cumulative with all other remedies at law or in equity.
28. COVENANTS AND CONDITIONS; CONSTRUCTION OF AGREEMENT. All provisions of this Lease to be observed or performed by Lessee are both covenants and conditions. In construing this Lease, all headings and titles are for the convenience of the parties only and shall not be considered a part of this Lease. Whenever required by the context, the singular shall include the plural and vice versa. This Lease shall not be construed as if prepared by one of the parties, but rather according to its fair meaning as a whole, as if both parties had prepared it.
29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the parties, their personal representatives, successors and assigns and be governed by the laws of the State in which the Premises are located. Any litigation between the Parties hereto concerning this Lease shall be initiated in the county in which the Premises are located.
30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.
30.1 SUBORDINATION. This Lease and any Option granted hereby shall be subject and subordinate to any ground lease, mortgage, deed of trust, or other hypothecation or security device (collectively, "SECURITY DEVICE"), now or hereafter placed upon the Premises, to any and all advances made on the security thereof, and to all renewals, modifications, and extensions thereof. Lessee agrees that the holders of any such Security Devices (in this Lease together referred to as "Lender") shall have no liability or obligation to perform any of the obligations of Lessor under this Lease. Any Lender may elect to have this Lease and/or any Option granted hereby superior to the lien of its Security Device by giving written notice thereof to Lessee, whereupon this Lease and such Options shall be deemed prior to such Security Device, notwithstanding the relative dates of the documentation or recordation thereof.
30.2 ATTORNMENT. Subject to the non-disturbance provisions of Paragraph 30.3, Lessee agrees to attorn to a Lender or any other party who acquires ownership of the Premises by reason of a foreclosure of a Security Device, and that in the event of such foreclosure, such new
FORM STN-6-2/97
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owner shall not: (i) be liable (or any act or omission of any prior lessor or with respect to events occurring prior to acquisition of ownership: (ii) be subject to any offsets or defenses which Lessee might have against any prior lessor, or (iii) be bound by prepayment of more than one (1) month's rent.
30.3 NON-DISTURBANCE. With respect to Security Devices entered into by Lessor after the execution of this Lease, Lessee's subordination of this Lease shall be subject to receiving a commercially reasonable non-disturbance agreement (a "NON-DISTURBANCE AGREEMENT") from the Lender which Non-Disturbance Agreement provides that Lessee's possession of the Premises, and this Lease, including any options to extend the term hereof, will not be disturbed so long as Lessee is not in Breach hereof and attorns to the record owner of the Premises. Further, within sixty (60) days after the execution of this Lease. Lessor shall use its commercially reasonable efforts to obtain a Non- Disturbance Agreement from the holder of any pre-existing Security Device which is secured by the Premises. In the event that Lessor is unable to provide the Non-Disturbance Agreement within said sixty (60) days, then Lessee may, at Lessee's option, directly contact Lessor's lender and attempt to negotiate for the execution and delivery of a Non-Disturbance Agreement.
30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30 shall be effective without the execution of any further documents: provided, however, that, upon written request from Lessor or a Lender in connection with A sale, financing or refinancing of the Premises. Lessee and Lessor shall execute such further writings as may be reasonably required to separately document any subordination, attornment and/or Non-Disturbance Agreement provided for herein.
31. ATTORNEYS' FEES. If any Party or Broker brings an action or proceeding involving the Premises to enforce the terms hereof or to declare rights hereunder, the Prevailing Party (as hereafter defined) in any such proceeding, action, or appeal thereon, shall be entitled to reasonable attorneys' fees. Such fees may be awarded in the same suit or recovered in a separate suit, whether or not such action or proceeding is pursued to decision or judgment. The term, "PREVAILING PARTY" shall include, without limitation, a Party or Broker who substantially obtains or defeats the relief sought, as the case may be, whether by compromise, settlement, judgment, or the abandonment by the other Party or Broker of its claim or defense. The attorneys' fees award shall not be computed in accordance with any court fee schedule, but shall be such as to fully reimburse all attorneys' fees reasonably incurred. In addition, Lessor shall be entitled to attorneys' fees, costs and expenses incurred in the preparation and service of notices of Default and consultations in connection therewith, whether or not a legal action is subsequently commenced in connection with such Default or resulting Breach.
32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents shall have the right to enter the Premises at any time, in the case of an emergency, and otherwise at reasonable times for the purpose of showing the same to prospective purchasers, lenders, or lessees, and making such alterations, repairs, improvements or additions to the Premises as Lessor may deem necessary. All such activities shall be without abatement of rent or liability to Lessee. Lessor may at any time place on the Premises any ordinary "FOR SALE" signs and Lessor may during the last six (6) months of the term hereof place on the Premises any ordinary "FOR LEASE" signs. Lessee may at any time place on or about the Premises any ordinary "FOR SUBLEASE" sign.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, any auction upon the Premises without Lessor's prior written consent. Lessor shall not be obligated to exercise any standard of reasonableness in determining whether to permit an auction.
34. SIGNS. Except for ordinary "For Sublease" signs, Lessee shall not place any sign upon the Premises without Lessor's prior written consent. All signs must comply with all Applicable Requirements.
35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual termination or cancellation hereof, or a termination hereof by Lessor for Breach by Lessee, shall automatically terminate any sublease or lesser estate in the Premises; provided, however, that Lessor may elect to continue any one or all existing subtenancies. Lessor's failure within ten (10) days following any such event to elect to the contrary by written notice to the holder of any such lesser interest, shall constitute Lessor's election to have such event constitute the termination of such interest.
36. CONSENTS. Except as otherwise provided herein, wherever in this Lease the consent of a Party is required to an act by or for the other Party, such consent shall not be unreasonably withheld or delayed. Lessor's actual reasonable costs and expenses (including but not limited to architects', attorneys', engineers' and other consultants' fees) incurred in the consideration of, or response to, a request by Lessee for any Lessor consent, including but not limited to consents to an assignment, a subletting or the presence or use of a Hazardous Substance, shall be paid by Lessee upon receipt of an invoice and supporting documentation therefor. Lessor's consent to any act, assignment or subletting shall not constitute an acknowledgment that no Default or Breach by Lessee of this Lease exists, nor shall such consent be deemed a waiver of any then existing Default or Breach, except as may be otherwise specifically stated in writing by Lessor at the time of such consent. The failure to specify herein any particular condition to Lessor's consent shall not preclude the imposition by Lessor at the time of consent of such further or other conditions as are then reasonable with reference to the particular matter for which consent is being given. In the event that either Party disagrees with any determination made by the other hereunder and reasonably requests the reasons for such determination the determining party shall furnish its reasons in writing and in reasonable detail within ten (10) business days following such request.
37. GUARANTOR.
37.1 EXECUTION. The Guarantors, if any, shall each execute a guaranty in the form most recently published by the American Industrial Real Estate Association, and each such Guarantor shall have the same obligations as Lessee under this Lease.
37.2 DEFAULT. It shall constitute a Default of the Lessee if any Guarantor fails or refuses, upon request to provide: (a) evidence of the execution of the guaranty, including the authority of the party signing on Guarantor's behalf to obligate Guarantor, and in the case of a corporate Guarantor, a certified copy of a resolution of its board of directors authorizing the making of such guaranty, (b) current financial statements, (c) a Estoppel Certificate, or (d) written confirmation that the guaranty is still in effect.
38. QUIET POSSESSION. Subject to payment by Lessee of the Rent and performance of all of the covenants, conditions and provisions on Lessee's part to be observed and performed under this Lease, Lessee shall have quiet possession and quiet enjoyment of the Premises during the term hereof.
39. OPTIONS.
39.1 DEFINITION. "OPTION" shall mean: (a) the right to extend the term of or renew this Lease or to extend or renew any lease that Lessee has on other property of Lessor; (b) the right of first refusal or first offer to lease either the Premises or other property of Lessor; (c) the right to purchase or the right of first refusal to purchase the Premises or other property of Lessor.
39.2 OPTIONS PERSONAL TO ORIGINAL LESSEE. Each Option granted to Lessee in this Lease is personal to the original Lessee, and cannot be assigned or exercised by anyone other than said original Lessee and only while the original Lessee is in full possession of the Premises and, if requested by Lessor, with Lessee certifying that Lessee has no intention of thereafter assigning or subletting.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple Options to extend or renew this Lease, a later Option cannot be exercised unless the prior Options have been validly exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option: (i) during the period commencing with the giving of any notice of Default and continuing until said Default is cured, (ii) during the period of time any Rent is unpaid (without regard to whether notice thereof is given Lessee), (iii) during the time Lessee is in Breach of this Lease, or (iv) in the event that Lessee has been given three (3) or more notices of separate Default, whether or not the Defaults are cured, during the twelve (12) month period immediately preceding the exercise of the Option.
(b) The period of time within which an Option may be exercised shall not be extended or enlarged by reason of Lessee's inability to exercise an Option because of the provisions of Paragraph 39.4(a).
(c) An Option shall terminate and be of no further force or effect, notwithstanding Lessee's due and timely exercise of the Option, if, after such exercise and prior to the commencement of the extended term, (i) Lessee fails to pay Rent for a period of thirty (30) days after such Rent becomes due (without any necessity of Lessor to give notice thereof), (ii) Lessor gives to Lessee three (3) or more notices of separate Default during any twelve (12) month period, whether or not the Defaults are cured, or (iii) if Lessee commits a Breach of this Lease.
40. MULTIPLE BUILDINGS. If the Premises are a part of a group of buildings controlled by Lessor, Lessee agrees that it will observe all reasonable rules and regulations which Lessor may make from time to time for the management, safety, and care of said properties, including
FORM STN-6-2/97
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the care and cleanliness of the grounds and including the parking, loading and unloading of vehicles, and that Lessee will pay its fair share of common expenses incurred in connection therewith.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to Lessor hereunder does not include the cost of guard service or other security measures, and that Lessor shall have no obligation whatsoever to provide same. Lessee assumes all responsibility for the protection of the Premises, Lessee, its agents and invitees and their property from the acts of third parties.
42. RESERVATIONS. Lessor reserves to itself the right, from time to time, to grant, without the consent or joinder of Lessee, such easements, rights and dedications that Lessor deems necessary, and to cause the recordation of parcel maps and restrictions, so long as such easements, rights, dedications, maps and restrictions do not unreasonably interfere with the use of the Premises by Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to effectuate any such easement rights, dedication, map or restrictions.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any amount or sum of money to be paid by one Party to the other under the provisions hereof, the Party against whom the obligation to pay the money is asserted shall have the right to make payment "under protest" and such payment shall not be regarded as a voluntary payment and there shall survive the right on the part of said Party to institute suit for recovery of such sum. If it shall be adjudged that there was no legal obligation on the part of said Party to pay such sum or any part thereof, said Party shall be entitled to recover such sum or so much thereof as it was not legally required to pay.
44. AUTHORITY. If either Party hereto is a corporation, trust, limited liability company, partnership, or similar entity, each individual executing this Lease on behalf of such entity represents and warrants that he or she is duly authorized to execute and deliver this Lease on its behalf. Each party shall, within thirty (30) days after request, deliver to the other party satisfactory evidence of such authority.
45. CONFLICT. Any conflict between the printed provisions of this Lease and the typewritten or handwritten provisions shall be controlled by the typewritten or handwritten provisions.
46. OFFER. Preparation of this Lease by either Party or their agent and submission of same to the other Party shall not be deemed an offer to lease to the other Part. This Lease is not intended to be binding until executed and delivered by all Parties hereto.
47. AMENDMENTS. This Lease may be modified only in writing, signed by the Parties in interest at the time of the modification. As long as they do not materially change Lessee's obligations hereunder. Lessee agrees to make such reasonable non-monetary modifications to this Lease as may be reasonably required by a Lender in connection with the obtaining of normal financing or refinancing of the Premises.
48. MULTIPLE PARTIES. If more than one person or entity is named herein as either Lessor or Lessee, such multiple Parties shall have joint and several responsibility to comply with the terms of this Lease.
49. MEDIATION AND ARBITRATION OF DISPUTES. An Addendum requiring the Mediation and/or the Arbitration of all disputes between the Parties and/or Brokers arising out of this Lease [ ] is [X] is not attached to this Lease.
See Addendum for paragraphs 50 through 52.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS LEASE IS EXECUTED. THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE PREMISES
ATTENTION: NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY ANY BROKER AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT RELATES. THE PARTIES ARE URGED TO:
1. SEEK ADVICE OF COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.
2. RETAIN APPROPRIATE CONSULTANTS TO REVIEW AND INVESTIGATE THE CONDITION OF THE PREMISES. SAID INVESTIGATION SHOULD INCLUDE BUT NOT BE LIMITED TO: THE POSSIBLE PRESENCE OF HAZARDOUS SUBSTANCES, THE ZONING OF THE PREMISES, THE STRUCTURAL INTEGRITY, THE CONDITION OF THE ROOF AND OPERATING SYSTEMS, AND THE SUITABILITY OF THE PREMISES FOR LESSEE'S INTENDED USE.
WARNING: IF THE PREMISES ARE LOCATED IN A STATE OTHER THAN CALIFORNIA, CERTAIN PROVISIONS OF THE LEASE MAY NEED TO BE REVISED TO COMPLY WITH THE LAWS OF THE STATE IN WHICH THE PREMISES ARE LOCATED.
The parties hereto have executed this Lease at the place and on the dates specified above their respective signatures.

Executed at: _________________________________      Executed at: _________________________________
on:___________________________________________      on:___________________________________________
By LESSOR:                                          By LESSEE:
   SUMO HOLDINGS SAN JOSE, LLC, a California            AMERICAN REPROGRAPHICS COMPANY, LLC, a
   limited liability company                             California limited liability company

By:    /s/ Sathy Chandramohan                       By: /s/ Mark W. Legg
  --------------------------------------------        --------------------------------------------
Name Printed:    Sathy Chandramohan                 Name Printed: Mark W. Legg
Title:           Managing Member                    Title:        Chief Financial Officer

By:___________________________________________      By:___________________________________________
Name Printed:_________________________________      Name Printed:_________________________________
Title:________________________________________      Title:________________________________________
Address:______________________________________      Address:______________________________________
______________________________________________      ______________________________________________
Telephone: (   )______________________________      Telephone: (   )______________________________
Facsimile: (   )______________________________      Facsimile: (   )______________________________
Federal ID No.________________________________      Federal ID No.________________________________	

NOTE: These forms are often modified to meet changing requirements of law and industry needs. Always write or call to make sure you are utilizing the most current form: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 700 So.
Flower Street, Suite 600, Los Angeles, California 90017. (213)687-8777. Fax No. (213) 687-8616
(C)COPYRIGHT 1997 - BY AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION. ALL RIGHTS RESERVED. NO PART OF THOSE WORKS MAY BE REPRODUCED IN ANY FORM WITHOUT PERMISSION IN WRITING.
FORM STN-6-2/97
PAGE 12
[LOGO] 
OPTION(S) TO EXTEND
STANDARD LEASE ADDENDUM
DATED____________, 1999
BY AND BETWEEN (LESSOR) SUMO HOLDINGS SAN JOSE, LLC.
 (LESSEE) AMERICAN REPROGRAPHICS COMPANY, LLC
ADDRESS OF PREMISES: 17721 MITCHELL NORTH IRVINE, CA 91714
Paragraph 51
A. OPTION(S) TO EXTEND:
Lessor hereby grants to Lessee the option to extend the term of this Lease for 1 additional 60 month period(s) commencing when the prior term expires upon each and all of the following terms and conditions:
(i) In order to exercise an option to extend, Lessee must give written notice of such election to Lessor and Lessor must receive the same at least 6 but not more than 9 months prior to the date that the option period would commence, time being of the essence. If proper notification of the exercise of an option is not given and/or received, such option shall automatically expire. Options (if there are more than one) may only be exercised consecutively.
(ii) The provisions of paragraph 39, including those relating to Lessee's Default set forth in paragraph 39.4 of this Lease, are conditions of this Option.
(iii) Except for the provisions of this Lease granting an option or options to extend the term, all of the terms and conditions of this Lease except where specifically modified by this option shall apply.
(iv) This Option is personal to the original Lessee, and cannot be assigned or exercised by anyone other than said original Lessee and only while the original Lessee is in full possession of the Premises and without the intention of thereafter assigning or subletting.
(v) The monthly rent for each month of the option period shall be calculated as follows, using the method(s) indicated below:
(Check Method(s) to be Used and Fill in Appropriately)
[X] I. COST OF LIVING ADJUSTMENT(S) (COLA) N/A
a. On (Fill in COLA Dates):_________, 2010 the Base Rent shall be adjusted by the change, if any, from the Base Month specified below, in the Consumer Price Index of the Bureau of Labor Statistics of the U.S. Department of Labor for (select one): [ ]CPI W (Urban Wage Earners and Clerical Workers) or [ ]CPI U (All Urban Consumers), for (Fill in Urban Area):___________

All Items (1982-1984 = 100). herein referred to as "CPI"
b. The monthly rent payable in accordance with paragraph A.I.a. of this Addendum shall be calculated as follows: the Base Rent set forth in paragraph 1.5 of the attached Lease, shall be multiplied by a fraction the numerator of which shall be the CPI of the calendar month two months prior to the month(s) specified in paragraph A.I.a. above during which the adjustment is to take effect, and the denominator of which shall be the CPI of the calendar month which is two months prior to (select one): [ ] the first month of the term of this Lease as set forth in paragraph 1.3 ("Base Month") or [X] (Fill in Other "Base Month"):____, 2009. The sum so calculated shall constitute the new monthly rent hereunder, but in no event, shall any such new monthly rent be less than the rent payable for the month immediately preceding the rent adjustment.
c. In the event the compilation and/or publication of the CPI shall be transferred to any other governmental department or bureau or agency or shall be discontinued, then the index most nearly the same as the CPI shall be used to make such calculation. In the event that the Parties cannot agree on such alternative index, then the matter shall be submitted for decision to the American Arbitration Association in accordance with the then rules of said Association and the decision of the arbitrators shall be binding upon the parties. The cost of said Arbitration shall be paid equally by the Parties.
[X] II. MARKET RENTAL VALUE ADJUSTMENT(S) (MRV)
a. On (Fill in MRV Adjustment Date(s))_________, 2009 the Base Rent shall be adjusted to the "Market Rental Value" of the property as follows:
1) Four months prior to each Market Rental Value Adjustment Date described above, the Parties shall attempt to agree upon what the new MRV will be on the adjustment date. If agreement cannot be reached, within thirty days, than:
(a) Lessor and Lessee shall Immediately appoint a mutually acceptable appraiser or broker to establish the new MRV within the next thirty days. Any associated costs will be split equally between the Parties, or
(b) Both Lessor and Lessee shall each immediately make a reasonable determination of the MRV and submit such determination, in writing, to arbitration in accordance with the following provisions:
(i) Within fifteen days thereafter, Lessor and Lessee shall each select a [x] appraiser or [ ] broker ("CONSULTANT" - check one) of their choice to act as an arbitrator. The two arbitrators so appointed shall immediately select a third mutually acceptable Consultant to act as a third arbitrator.
For this form, write: American Industrial Real Estate Association, 700 S. Flower Street, Suite 600, Los Angeles. Calif. 90017
(C) 1997- AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION FORM OE-2-3/97
PAGE 1 OF 2
(ii) The three arbitrators shall within thirty days of the appointment of the third arbitrator reach a decision as to what the actual MRV for the Premises is and whether Lessor's or Lessee's submitted MRV is the closest thereto. The decision of a majority of the arbitrators shall be binding on the Parties. The submitted MRV which is determined to be the closest to the actual MRV shall thereafter be used by the Parties.
(iii) If either of the Parties fails to appoint an arbitrator within the specified fifteen days, the arbitrator timely appointed by one of them shall reach a decision on his or her own and said decision shall be binding on the Parties.
(iv) The entire cost of such arbitration shall be paid by the party whose submitted MRV is not selected, ie. the one that is NOT the closest to the actual MRV.
2) Notwithstanding the foregoing, the new MRV shall not be less than the rent payable for the month immediately preceding the rent adjustment.
b. Upon the establishment of each New Market Rental Value:
1) the new MRV will become the new "Base Rent" for the purpose of calculating any further Adjustments, and
2) the first month of each Market Rental Value term shall become the new "Base Month" for the purpose of calculating any further Adjustments.
III. FIXED RENTAL ADJUSTMENTS) (FRA) N/A
The Base Rent shall be increased to the following amounts on the dates set forth below:

On (Fill in FRA Adjustment Date(s)):        The New Base Rent shall be:
______________________________________      $______________________________________
______________________________________      $______________________________________
______________________________________      $______________________________________
______________________________________      $______________________________________	

B. NOTICE:
Unless specified otherwise herein, notice of any rental adjustments, other than Fixed Rental Adjustments, shall be made as specified in paragraph 23 of the Lease.
C. BROKER'S FEE: N/A
The Brokers specified in paragraph 1.10 shall be paid a Brokerage Fee for each adjustment specified above in accordance with paragraph 15 of the Lease.
NOTICE: These forms are often modified to meet changing requirements of law and industry needs. Always write or call to make sure you are utilizing the most current form: American Industrial Real Estate Association, 700 S. Flower Street, Suite 600, Los Angeles. CA 90017. (213) 687.8777. Fax No. (213) 687-8616.
(C)1997-AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION FORM OE-2-3/97
OPTION(S)TO EXTEND
PAGE 2 OF 2
[LOGO] 
RENT ADJUSTMENT(S)
STANDARD LEASE ADDENDUM
DATED ________, 1999
BY AND BETWEEN (LESSOR) SUMO HOLDINGS SAN JOSE, LLC
(LESSEE) AMERICAN REPROGRAPHICS COMPANY, LLC
ADDRESS OF PREMISES: 17721 Mitchell North, Irvine, CA 91714
Paragraph 50
A. RENT ADJUSTMENTS:
The monthly rent for each month of the adjustment period(s) specified below shall be increased using the method(s) indicated below: (Check Method(s) to be Used and Fill in Appropriately)
[X] I. COST OF LIVING ADJUSTMENT(s) (COLA)
a. On (Fill in COLA Dates):___________, 2004 and on each anniversary date thereafter. the Base Rent shall be adjusted by the change, if any, from the Base Month specified below, in the Consumer Price Index of the Bureau of Labor Statistics of the U.S. Department of Labor for (select one): [ ]CPI W (Urban Wage Earners and Clerical Workers) or[X]CPI U (All Urban Consumers), for (Fill in Urban Area):
_____________________________________________________________________, All Items (1982-1984 = 100), herein referred to as "CPI"
b. The monthly rent payable in accordance with paragraph A.l.a. of this Addendum shall be calculated as follows: the Base Rent set forth in paragraph 1.5 of the attached Lease, shall be multiplied by a fraction the numerator of which shall be the CPI of the calendar month two months prior to the month(s) specified in paragraph A.l.a. above during which the adjustment is to take effect, and the denominator of which shall be the CPI of the calendar month which is two months prior to (select one): [ ]the first month of the term of this Lease as set forth in paragraph 1.3 ("Base Month") or [X](Fill in Other "Base Month"):_____, 2003 . The sum so calculated shall constitute the new monthly rent hereunder, but in no event, shall any such new monthly rent be less than the rent payable for the month immediately preceding the rent adjustment.
c. In the event the compilation and/or publication of the CPI shall be transferred to any other governmental department or bureau or agency or shall be discontinued, then the index most nearly the same as the CPI shall be used to make such calculation. In the event that the Parties cannot agree on such alternative index, then the matter shall be submitted for decision to the American Arbitration Association in accordance with the then rules of said Association and the decision of the arbitrators shall be binding upon the parties. The cost of said Arbitration shall be paid equally by the Parties.
[ ] II. MARKET RENTAL VALUE ADJUSTMENT(S) (MRV)
a. On (Fill in MRV Adjustment Date(s): N/A__________________________
 the Base Rent shall be adjusted to the "Market Rental Value" of the property as follows:
1)Four months prior to each Market Rental Value Adjustment Date described above, the Parties shall attempt to agree upon what the new MRV will be on the adjustment date. If agreement cannot be reached within thirty days, then:
(a) Lessor and Lessee shall immediately appoint a mutually acceptable appraiser or broker to establish the new MRV within the next thirty days. Any associated costs will be split equally between the Parties, or
(b) Both Lessor and Lessee shall each immediately make a reasonable determination of the MRV and submit such determination, in writing, to arbitration in accordance with the following provisions:
(i) Within fifteen days thereafter, Lessor and Lessee shall each select an [ ] appraiser or [ ] broker ("CONSULTANT"- check one) of their choice to act as an arbitrator. The two arbitrators so appointed shall immediately select a third mutually acceptable Consultant to act as a third arbitrator.
(ii) The three arbitrators shall within thirty days of the appointment of the third arbitrator reach a decision as to what the actual MRV for the Premises is, and whether Lessor's or Lessee's submitted MRV is the closest thereto. The decision of a majority of the arbitrators shall be binding on the Parties. The submitted MRV which is determined to be the closest to the actual MRV shall thereafter be used by the Parties.
(iii) If either of the Parties fails to appoint an arbitrator within the specified fifteen days, the arbitrator timely appointed by one of them shall reach a decision on his or her own, and said decision shall be binding on the Parties.
(iv) The entire cost of such arbitration shall be paid by the party whose submitted MRV is not selected, ie. the one that is NOT the closest to the actual MRV.
2)Notwithstanding the foregoing, the new MRV shall not be less than the rent payable for the month immediately preceding the rent adjustment.
RENT ADJUSTMENT(S)
FOR THIS FORM, WRITE: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 700 S.
FLOWER STREET, SUITE 600, LOS ANGELES, CALIF. 90017
(C) 1997 - AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
PAGE 1 of 2
b. Upon the establishment of each New Market Rental Value:
1) the new MRV will become the new "Base Rent" for the purpose of calculating any further Adjustments, and
2) the first month of each Market Rental Value term shall become the new "Base Month" for the purpose of calculating any further Adjustments.
[ ] III. FIXED RENTAL ADJUSTMENT(S) (FRA) N/A
The Base Rent shall be increased to the following amounts on the dates set forth below:
On (Fill in FRA Adjustment Date(s)): The New Base Rent shall be:

__________________________________     $ _________________________________
__________________________________     $ _________________________________
__________________________________     $ _________________________________
__________________________________     $ _________________________________	

B. NOTICE:
Unless specified otherwise herein, notice of any such adjustments, other than Fixed Rental Adjustments, shall be made as specified in paragraph 23 of the Lease.
C. BROKER'S FEE: N/A
The Brokers specified in paragraph 1.10 shall be paid a Brokerage Fee for each adjustment specified above in accordance with paragraph 5 of the Lease.
FOR THIS FORM, WRITE: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATIONS, 700 S.
FLOWER STREET, SUITE 600, LOS ANGELES, CALIF. 90017
(C) 1997 - AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
RENT ADJUSTMENT(S)
PAGE 2 of 2
ADDENDUM TO THE
STANDARD INDUSTRIAL/COMMERCIAL SINGLE LEASE - NET
 Dated___________________, 1999
By and Between (Lessor) SUMO HOLDINGS SAN JOSE, LLC
(Lessee) AMERICAN REPROGRAPHICS COMPANY, LLC
Address of Premises: 835 W. Julian Street, San Jose, California
Paragraph 52:
Lessor and Lessee acknowledge that Lessor is in the process of acquiring title to the Premises and that this Lease shall become is contingent upon and become effective on Lessor's acquiring title to the Premises. In the event that Lessor is unable to acquire title on or before December 15, 1999, either party may thereafter terminate this Lease and be released from any further obligations thereunder by providing written notice to the other party.
 
EXHIBIT 10.12
[LOGO] AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE - NET
 (DO NOT USE THIS FORM FOR MULTI-TENANT BUILDINGS)
1. BASIC PROVISIONS ("BASIC PROVISIONS")
1.1 PARTIES: This Lease ("Lease"), dated for reference purposes only _________, 1999, is made by and between SUMO HOLDINGS IRVINE, LLC, a California limited liability company ("LESSOR") and AMERICAN REPROGRAPHICS COMPANY, LLC, a California limited company ("LESSEE"), (collectively the "PARTIES," or individually a "PARTY").
1.2 PREMISES: That certain real property, including all improvements therein or to be provided by Lessor under the terms of this Lease, and commonly known as 17721 Mitchell North, Irvine, California 92714, located in the County of Orange, State of California, and generally described as (describe briefly the nature of the property and, if applicable, the "PROJECT", if the property is located within a Project) The legal description is attached hereto as Exhibit A.
("PREMISES"). (See also Paragraph 2)
1.3 TERM: 10 years and 0 months ("ORIGINAL TERM") commencing __________, 1999 ("COMMENCEMENT DATE") and ending ______,2009 ("EXPIRATION DATE"). (See also Paragraph 3)
1.4 EARLY POSSESSION: N/A ("EARLY POSSESSION DATE"). (See also Paragraphs 3.2 and 3.3)
1.5 BASE RENT: $10,722.00 per month ("BASE RENT"), payable on the _____________ day of each month commencing _______________, 1999 (See also Paragraph 4) [x] If this box is checked, there are provisions in this Lease for the Base Rent to be adjusted.
1.6 BASE RENT PAID UPON EXECUTION: $ 10,722.00 as Base Rent for the period _______________________________________________________________________________.
1.7 SECURITY DEPOSIT: $ N/A ( "SECURITY DEPOSIT"). (Sea also Paragraph 5)
1.8 AGREED USE: The conduct of reprographics business and related uses. Lessee. (See also Paragraph 6)
1.9 INSURING PARTY: Lesser is the "INSURING PARTY" unless otherwise stated herein. (See also Paragraph 8)
1.10 REAL ESTATE BROKERS: (See also Paragraph 15) N/A
(a) REPRESENTATION: The following real estate brokers (collectively, the "BROKERS") and brokerage relationships exist in this transaction (check applicable boxes):
[ ] _______________________represents Lessor exclusively ("LESSOR'S BROKER");
[ ] _______________________represents Lessee exclusively ("LESSEE'S BROKER"); or
[ ] _______________________represents both Lessor and Lessee ("DUAL AGENCY").
(b) PAYMENT TO BROKERS: Upon execution and delivery of this Lease by both Parties, Lessor shall pay to the Broker the fee agreed to in their separate written agreement (or if there is no such agreement, the sum of_______% of the total Base Rent for the brokerage services rendered by said Broker).
1.11 GUARANTOR. The obligations of the Lessee under this Lease are to be guaranteed by N/A ("GUARANTOR"). (See also Paragraph 37)
1.12 ADDENDA AND EXHIBITS. Attached hereto is an Addendum or Addenda consisting of Paragraphs 50 through 51 and Exhibit A, all of which constitute a part of this Lease.
2. PREMISES.
2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor, the Premises, for the term, at the rental, and upon all of the terms, covenants and conditions set forth in this Lease. Unless otherwise provided herein, any statement of size set forth in this Lease, or that may have been used in calculating rental, is an approximation which the Parties agree is reasonable and the rental based thereon is not subject to revision whether or not the actual size is more or less.
2.2 CONDITION. Lessor shall deliver the Premises to Lessee broom clean and free of debris on the Commencement Date or the Early Possession Date, whichever first occurs ("START DATE"), and, so long as the required service contracts described in Paragraph 7.1(b) below are obtained by Lessee within thirty (30) days following the Start Date, warrants that the existing electrical, plumbing, fire sprinkler, lighting, heating, ventilating and air conditioning systems ("HVAC"), loading doors, if any, and all other such elements in the Premises, other than those constructed by Lessee, shall be in good operating condition on said date and that the structural elements of the roof, bearing walls and foundation of any buildings on the Premises (the "BUILDING") shall be free of material defects. If a non-compliance with said warranty exists as of the Start Date, Lessor shall, as Lessor's sole obligation with respect to such matter, except as otherwise provided in this Lease, promptly after receipt of written notice from Lessee setting forth with specificity the nature and extent of such non-compliance, rectify same at Lessor's expense. If, after the Start Date, Lessee does not give Lessor written notice of any non-compliance with this warranty within: (i) one year as to the surface of the roof and the structural portions of the roof, foundations and bearing walls, (ii) six (6) months as to the HVAC systems, (iii) thirty (30) days as to the remaining systems and other elements of the Building, correction of such non-compliance shall be the obligation of Lessee at Lessee's sale cost and expense.
2.3 COMPLIANCE. Lessor warrants that the improvements on the Premises comply with all applicable laws, covenants or restrictions of record, building codes, regulations and ordinances ("APPLICABLE REQUIREMENTS") in effect on the Start Date, Said warranty does not apply to the use to which Lessee will put the Premises or to any Alterations or Utility Installations (as defined in Paragraph 7.3(a)) made or to be made by Lessee. NOTE: Lessee is responsible for determining whether or not the zoning is appropriate for Lessee's intended use, and acknowledges that past uses of the Premises may no longer be allowed. If the Premises do not comply with said warranty, Lessor shall, except as otherwise provided, promptly after receipt of written notice from Lessee setting forth with specificity the nature and extent of such non-compliance, rectify the same at Lessor's expense. If Lessee does not give Lessor written notice of a non-compliance with this warranty within six (6) months following the Start Date, correction of that non-compliance shall be the obligation of Lessee at Lessee's sole cost and expense. If the Applicable Requirements are hereafter changed (as opposed to being in existence at the Start Date, which is addressed in Paragraph 6.2(e) below) so as to require during the term of this Lease the construction of an addition to or an alteration of the Building, the remediation of any Hazardous Substance, or the reinforcement or other physical modification of the Building ("CAPITAL EXPENDITURE"), Lessor and Lessee shall allocate the cost of such work as follows:
(C)1997 - AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION FORM STN-6-2/97
PAGE 1
(a) Subject to Paragraph 2.3(c) below, if such Capital Expenditures are required as a result of the specific and unique use of the Premises by Lessee as compared with uses by tenants in general. Lessee shall be fully responsible for the cost thereof, provided, however that if such Capital Expenditure is required during the last two (2) years of this Lease and the cost thereof exceeds six (6) months' Base Rent. Lessee may instead terminate this Lease unless Lessor notifies Lessee, in writing, within ten (10) days after receipt of lessee's termination notice that Lessor has elected to pay the difference between the actual cost thereof and the amount equal to six (6) months' Base Rent. If Lessee elects termination, Lessee shall immediately cease the use of the Premises which requires such Capital Expenditure and deliver to Lessor written notice specifying a termination date at least ninety (90) days thereafter. Such termination date shall, however, in no event be earlier than the last day that Lessee could legally utilize the Premises without commencing such Capital Expenditure.
(b) If such Capital Expenditure is not the result of the specific and unique use of the Premises by Lessee (such as, governmentally mandated seismic modifications), then Lessor and Lessee shall allocate the obligation to pay for such costs pursuant to the provisions of Paragraph 7.1 (c); provided, however, that if such Capital Expenditure is required during the last two years of this Lease or if Lessor reasonably determines that it is not economically feasible to pay its share thereof, Lessor shall have the option to terminate this Lease upon ninety (90) days prior written notice to Lessee unless Lessee notifies Lessor, in writing, within ten (10) days after receipt of Lessor's termination notice that Lessee will pay for such Capital Expenditure. If Lessor does not elect to terminate, and fails to tender its share of any such Capital Expenditure, Lessee may advance such funds and deduct same, with Interest, from Rent until Lessor's share of such costs have been fully paid. If Lessee is unable to finance Lessor's share, or if the balance of the Rent due and payable for the remainder of this Lease is not sufficient to fully reimburse Lessee on an offset basis, Lessee shall have the right to terminate this Lease upon thirty
(30) days written notice to Lessor.
(c) Notwithstanding the above, the provisions concerning Capital Expenditures are intended to apply only to non-voluntary, unexpected, and new Applicable Requirements. If the Capital Expenditures are instead triggered by Lessee as a result of an actual or proposed change in use, change in intensity of use, or modification to the Premises then, and in that event, Lessee shall be fully responsible for the cost thereof, and Lessee shall not have any right to terminate this Lease.
2.4 ACKNOWLEDGEMENTS. Lessee acknowledges that: (a) it has been advised by Lessor and/or Brokers to satisfy itself with respect to the condition of the Premises (including but not limited to the electrical, HVAC and fire sprinkler systems, security, environmental aspects, and compliance with Applicable Requirements), and their suitability for Lessee's intended use, (b) Lessee has made such investigation as it deems necessary with reference to such matters and assumes all responsibility therefor as the same relate to its occupancy of the Premises, and (c) neither Lessor, Lessor's agents, nor any Broker has made any oral or written representations or warranties with respect to said matters other than as set forth in this Lease. In addition, Lessor acknowledges that: (a) Broker has made no representations, promises or warranties concerning Lessee's ability to honor the Lease or suitability to occupy the Premises, and (b) it is Lessor's sole responsibility to investigate the financial capability and/or suitability of all proposed tenants.
2.5 LESSEE AS PRIOR OWNER/OCCUPANT. The warranties made by Lessor in Paragraph 2 shall be of no force or effect if immediately prior to the Start Date Lessee was the owner or occupant of the Premises. In such event, Lessee shall be responsible for any necessary corrective work.
3. TERM.
3.1 TERM. The Commencement Date, Expiration Date and Original Term of this Lease are as specified in Paragraph 1.3.
3.2 EARLY POSSESSION. If Lessee totally or partially occupies the Premises prior to the Commencement Date, the obligation to pay Base Rent shall be abated for the period of such early possession. All other terms of this Lease (including but not limited to the obligations to pay Real Property Taxes and insurance premiums and to maintain the Premises) shall, however, be in effect during such period. Any such early possession shall not affect the Expiration Date.
3.3 DELAY IN POSSESSION. Lessor agrees to use its best commercially reasonable efforts to deliver possession of the Premises to Lessee by the Commencement Date. If, despite said efforts, Lessor is unable to deliver possession as agreed, Lessor shall not be subject to any liability therefor, nor shall such failure affect the validity of this Lease. Lessee shall not, however, be obligated to pay Rent or perform its other obligations until it receives possession of the Premises. If possession is not delivered within sixty
(60) days after the Commencement Date, Lessee may, at its option, by notice in writing within ten (10) days after the end of such sixty (60) day period, cancel this Lease, in which event the Parties shall be discharged from all obligations hereunder. If such written notice is not received by Lessor within said ten (10) day period, Lessee's right to cancel shall terminate. Except as otherwise provided, if possession is not tendered to Lessee by the Start Date and Lessee does not terminate this Lease, as aforesaid, any period of rent abatement that Lessee would otherwise have enjoyed shall run from the date of delivery of possession and continue for a period equal to what Lessee would otherwise have enjoyed under the terms hereof, but minus any days of delay caused by the acts or omissions of Lessee. If possession of the Premises is not delivered within four (4) months after the Commencement Date, this Lease shall terminate unless other agreements are reached between Lessor and Lessee; in writing.
3.4 LESSEE COMPLIANCE. Lessor shall not be required to tender possession of the Premises to Lessee until Lessee complies with its obligation to provide evidence of Insurance (Paragraph 8.5). Pending delivery of such evidence, Lessee shall be required to perform all of its obligations under this Lease from and after the Start Date, including the payment of Rent, notwithstanding Lessor's election to withhold possession pending receipt of such evidence of insurance. Further, If Lessee is required to perform any other conditions prior to or concurrent with the Start Date, the Start Date shall occur but Lessor may elect to withhold possession until such conditions are satisfied.
4. RENT.
4.1. RENT DEFINED. All monetary obligations of Lessee to Lessor under the terms of this Lease (except for the Security Deposit) are deemed to be rent ("RENT").
4.2 PAYMENT. Lessee shall cause payment of Rent to be received by Lessor in lawful money of the United States, without offset or deduction (except as specifically permitted in this Lease), on or before the day on which it is due. Rent for any period during the term hereof which is for less than one (1) full calendar month shall be prorated based upon the actual number of days of said month. Payment of Rent shall be made to Lessor at its address stated herein or to such other persons or place as Lessor may from time to time designate in writing Acceptance of a payment which is less than the amount then due shall not be a waiver of Lessor's rights to the balance of such Rent, regardless of Lessor's endorsement of any check so stating.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof the Security Deposit as security for Lessee's faithful performance of its obligations under this Lease. If Lessee fails to pay Rent, or otherwise Defaults under this Lease, Lessor may use, apply or retain all or any portion of said Security Deposit for the payment of any amount due Lessor or to reimburse or compensate Lessor for any liability, expense, loss or damage which Lessor may suffer or incur by reason thereof. If Lessor uses or applies all or any portion of said Security Deposit, Lessee shall within ten (10) days after written request therefor deposit monies with Lessor sufficient to restore said Security Deposit to the full amount required by this Lease. If the Base Rent increases during the term of this Lease, Lessee shall, upon written request from Lessor, deposit additional moneys with Lessor so that the total amount of the Security Deposit shall at all times bear the same proportion to the increased Base Rent as the initial Security Deposit bore to the initial Base Rent. Should the Agreed Use be amended to accommodate a material change in the business of Lessee or to accommodate a sublessee or assignee, Lessor shall have the right to increase the Security Deposit to the extent necessary. In Lessor's reasonable judgment, to account for any increased wear and tear that the Premises may suffer as a result thereof. If a change in control of Lessee occurs during this Lease and following: such change the financial condition of Lessee is, in Lessor's, reasonable judgment, significantly reduced. Lessee shall deposit such additional monies with Lessor as shall be sufficient to cause the Security Deposit to be at a commercially reasonable level based on said change in financial condition. Lessor shall not be required to keep the Security Deposit separate from its general accounts. Within fourteen (14) days after the expiration or termination of this Lease, if Lessor elects to apply the Security Deposit only to unpaid Rent, and otherwise within thirty (30) days after the Premises have been vacated pursuant to Paragraph 7.4(c) below, Lessor shall return that portion of the Security Deposit not used or applied by Lessor. No part of the Security Deposit shall be considered to be held in trust, to bear interest or to be prepayment for any monies to be paid by Lessee under this Lease.
FORM STN-6-2/97
PAGE 2
6. USE.
6.1 USE. Lessee shall use and occupy the Premises only for the Agreed Use, or any other legal use which is reasonably comparable thereto, and for no other purpose. Lessee shall not use or permit the use of the Premises in a manner that is unlawful, creates damage, waste or a nuisance, or that disturbs owners and/or occupants of, or causes damage to neighboring properties. Lessor shall not unreasonably withhold or delay its consent to any written request for a modification of the Agreed Use, so long as the same will not impair the structural integrity of the improvements on the Premises or the mechanical or electrical systems therein, is not significantly more burdensome to the Premises. If Lessor elects to withhold consent, Lessor shall within five (5) business days after such request give written notification of same, which notice shall include an explanation of Lessor's objections to the change in use.
6.2 HAZARDOUS SUBSTANCES.
(a) REPORTABLE USES REQUIRE CONSENT. The term "HAZARDOUS SUBSTANCE" as used in this Lease shall mean any product, substance, or waste whose presence, use, manufacture, disposal, transportation, or release, either by itself or in combination with other materials expected to be on the Premises, is either; (i) potentially injurious to the public health, safety or welfare, the environment or the Premises, (ii) regulated of monitored by any governmental authority, or (iii) a basis for potential liability of Lessor to any governmental agency or third party under any applicable statute or common law theory. Hazardous Substances shall include, but not be limited to, hydrocarbons petroleum, gasoline, and/or crude oil or any products, by-products of fractions thereof. Lessee shall not engage in any activity in or on the Premises which constitutes a Reportable Use of Hazardous Substances without the express prior written consent of Lessor and timely compliance (at Lessee's expense) with all Applicable Requirements. "REPORTABLE USE" shall mean (i) the installation or use of any above or below ground storage tank, (ii) the generation, possession, storage, use, transportation, or disposal of a Hazardous Substance that requires a permit from, or with respect to which a report, notice, registration or business plan is required to be filed with, any governmental authority, and/or
(iii) the presence at the premises of a Hazardous Substance with respect to which any Applicable Requirements requires that a notice be given to persons entering or occupying the Premises or neighboring properties. Notwithstanding the foregoing, Lessee may use any ordinary and customary materials reasonably required to be used in the normal course of the Agreed Use, so long as such use is in compliance with all Applicable Requirements, is not a Reportable Use, and does not expose the Premises or neighboring property to any meaningful risk of contamination or damage or expose Lessor to any liability therefor. In addition, Lessor may condition its consent to any Reportable Use upon receiving such additional assurances as Lessor reasonably deems necessary to protect itself, the public, the Premises and/or the environment against damage, Contamination, injury and/or liability, including, but not limited to, the installation (and removal on or before Lease expiration or termination) of protective modifications (such as concrete encasements) and/or increasing the Security Deposit.
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable cause to believe, that a Hazardous Substance has come to be located in, on, under or about the Premises, other than as previously consented to by Lessor, Lessee shall immediately give written notice of such fact to Lessor, and provide Lessor with a copy of any report, notice, claim or other documentation which it has concerning the presence of such Hazardous Substance.
(c) LESSEE REMEDIATION. Lessee shall not cause or permit any Hazardous Substance to be spilled or released in, on, under, or about the Premises (including through the plumbing or sanitary sewer system) and shall promptly, at Lessee's expense, take all investigatory and/or remedial action reasonably recommended, whether or not formally ordered or required, for the cleanup of any contamination of, and for the maintenance, security and/or monitoring of the Premises or neighboring properties, that was caused or materially contributed to by Lessee, or pertaining to or involving any Hazardous Substance brought onto the Premises during the term of this Lease, by or for Lessee, or any third party.
(d) LESSEE INDEMNIFICATION. Lessee shall indemnify, defend and hold Lessor, its agents, employees, lenders and ground lessor, if any, harmless from and against any and all loss of rents and/or damages, liabilities, judgments, claims, expenses, penalties, and attorneys' and consultants fees arising out of or involving any Hazardous Substance brought onto the Premises by or for Lessee, or any third party (provided, however, that Lessee shall have no liability under this Lease with respect to underground migration of any Hazardous Substance under the Premises from adjacent properties). Lessee's obligations shall include, but not be limited to, the effects of any contamination or injury to person, property or the environment created or suffered by Lessee, and the cost of investigation, removal, remediation, .restoration and/or abatement, and shall survive the expiration or termination of this Lease. No termination, cancellation or release agreement entered into by Lessor and Lessee shall release Lessee from its obligations under this Lease with respect to Hazardous Substances, unless specifically so agreed by Lessor in writing at the time of such agreement.
(e) LESSOR INDEMNIFICATION. Lessor and its successors and assigns shall indemnify, defend, reimburse and hold Lessee, its employees and lenders, harmless from and against any and all environmental damages, including the cost of remediation, which existed as a result of Hazardous Substances on the Premises prior to the Start Date or which are caused by the gross negligence or willful misconduct of Lessor, its agents or employees. Lessor's obligations, as and when required by the Applicable Requirements, shall include, but not be limited to, the cost of investigation, removal, remediation, restoration and/or abatement, and shall survive the expiration or termination of this Lease.
(f) INVESTIGATION AND REMEDIATIONS. Lessor shall retain the responsibility and pay for any investigations or remediation measures required by governmental entities having jurisdiction with respect to the existence of Hazardous Substances on the Premises prior to the Start Date, unless such remediation measure is required as a result of Lessee's use (including "Alterations", as defined in paragraph 7.3(a) below) of the Premises, in which event Lessee shall be responsible for such payment, Lessee shall cooperate fully in any such activities at the request of Lessor, including allowing Lessor and Lessor's agents to have reasonable access to the Premises at reasonable times in order to carry out Lessor's investigative and remedial responsibilities.
(g) LESSOR TERMINATION OPTION. If a Hazardous Substance Condition occurs during the term of this Lease, unless Lessee is legally responsible therefor (in Which case Lessee shall make the investigation and remediation thereof required by the Applicable Requirements and this Lease shall continue in full force and effect, but Subject to Lessor's rights under Paragraph 6.2(d) and Paragraph 13), Lessor may, at Lessor's option, either (i) investigate and remediate such Hazardous Substance Condition, if required, as soon as reasonably possible at Lessor's expense in which event this Lease shall continue in full force and effect, or (ii) if the estimated cost to remediate such condition exceeds twelve (12) times the then monthly Base Rent or $100,000, whichever is greater, give written notice to Lessee, within thirty (30) days after receipt by Lessor of knowledge of the occurrence of such Hazardous Substance Condition, of Lessor's desire to terminate this Lease as of the date sixty (60) days following the date of such notice. In the event Lessor elects to give a termination notice, Lessee may, within ten (10) days thereafter, give written notice to Lessor of Lessee's commitment to pay the amount by which the cost of the remediation of such Hazardous Substance Condition exceeds an amount equal to twelve (12) times the then monthly Base Rent or $100,000, whichever is greater. Lessee shall provide Lessor with said funds or satisfactory assurance thereof within thirty (30) days following such commitment. In such event, this Lease shall continue in full force and effect, and Lessor shall proceed to make such remediation as soon as reasonably possible after the required funds are available. If Lessee does not give such notice and provide the required funds or assurance thereof within the time provided, this Lease shall terminate as of the date specified in Lessor's notice of termination.
6.3 LESSEE'S COMPLIANCE WITH APPLICABLE REQUIREMENTS. Except as otherwise provided in this Lease, Lessee shall, at Lessee's sole expense, fully, diligently and in a timely manner, materially comply with all Applicable Requirements, the requirements of any applicable fire insurance underwriter or rating bureau, and the recommendations of Lessor's engineers and/or consultants which relate in any manner to the Premises, without regard to whether said requirements are now in effect or become effective after the Start Date. Lessee shall, within ten (10) days after receipt of Lessor's written request, provide Lessor with copies of all permits and other documents, and other information evidencing Lessee's compliance with any Applicable Requirements specified by Lessor, and shall immediately upon receipt, notify Lessor in writing (with copies of any documents involved) of any threatened or actual claim, notice, citation, warning, complaint or report pertaining to or involving the failure of Lessee or the Premises to comply with any Applicable Requirements.
6.4 INSPECTION; COMPLIANCE. Lessor and Lessor's "Lender" (as defined in Paragraph 30 below) and consultants shall have the right to enter into Premises at any time, in the case of an emergency, and otherwise at reasonable times, for the purpose of inspecting the condition of the Premises and for verifying compliance by Lessee with this Lease. The cost of any such inspections shall be paid by Lessor, unless a violation of Applicable Requirements, or a contamination is found to exist or be imminent, or the inspection is requested or ordered by a governmental authority. In such case, Lessee shall upon request reimburse Lessor for the cost of such inspections, so long as such inspection is reasonably related to the violation or contamination.
FORM STN-6-2/97
PAGE 3
7. MAINTENANCE; REPAIRS, UTILITY INSTALLATIONS; TRADE FIXTURES AND ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS.
(a) IN GENERAL. Subject to the provisions of Paragraph 2.2 (Condition), 2.3 (Compliance), 6.3 (Lessee's Compliance with Applicant's Requirements), 7.2 (Lessor's Obligations), 9 (Damage or Destruction), and 14 (Condemnation), Lessee shall, at Lessee's sole expense, keep the Premises, Utility Installations, and Alterations in good order, condition and repair (whether or not the portion of the Premises requiring repairs, or the means of repairing the same, are reasonably or readily accessible to Lessee, and whether or not the need for such repairs occurs as a result of Lessee's use, any prior use, the elements or the age of such portion of the Premises), including, but not limited to, all equipment or facilities, such as plumbing, heating, ventilating, air-conditioning, electrical, lighting facilities, boilers, pressure vessels, fire protection system, fixtures, walls (interior and exterior), foundations, ceilings, roofs, floors, windows, doors, plate glass, skylights, landscaping, driveways, parking lots, fences, retaining walls, signs, sidewalks and parkways located in, on, or adjacent to the Premises. Lessee, in keeping the Premises in good order, condition and repair, shall exercise and perform good maintenance practices, specifically including the procurement and maintenance of the service contracts required by Paragraph 7.1(b) below. Lessee's obligations shall include restorations, replacements or renewals when necessary to keep the Premises and all improvements thereon or a part thereof in good order, condition and state of repair. Lessee shall, during the term of this Lease, keep the exterior appearance of the Building in a first-class condition consistent with the exterior appearance of other similar facilities of comparable age and size in the vicinity, including, when necessary, the exterior repainting of the Building.
(b) SERVICE CONTRACTS. Lessee shall, at Lessee's sole expense, procure and maintain contracts, with copies to Lessor, in customary form and substance for, and with contractors specializing and experienced in the maintenance of the following equipment and improvements ("Basic Elements"), if any, if and when installed on the Premises: (i) HVAC equipment, (ii) boiler, and pressure vessels, (iii) fire extinguishing systems, including fire alarm and/or smoke detection, (iv) landscaping and irrigation systems, (v) roof covering and drains, (vi) driveways and parking lots, (vii) clarifiers (viii) basic utility feed to the perimeter of the Building, and (ix) any other equipment, if reasonably required by Lessor.
(c) REPLACEMENT. Subject to Lessee's indemnification of Lessor as set forth in Paragraph 8.7 below, and without relieving Lessee of liability resulting from Lessee's failure to exercise and perform good maintenance practices, if the Basic Elements described in Paragraph 7.1(b) cannot be repaired other than at a cost which is in excess of 50% of the cost of replacing such Basic Elements, then such Basic Elements shall be replaced by Lessor, and the cost thereof shall be prorated between the Parties and Lessee shall only be obligated to pay, each month during the remainder of the term of this Lease, on the date on which Base Rent is due, an amount equal to the product of multiplying the cost of such replacement by a fraction, the numerator of which is one, and the denominator of which is the number of months of the useful life of such replacement as such useful life is specified pursuant to Federal income tax regulations or guidelines for depreciation thereof (including interest on the unamortized balance as is then commercially reasonable in the judgment of Lessor's accountants), with Lessee reserving the right to prepay its obligation at any time.
7.2 LESSOR'S OBLIGATIONS. Subject to the provisions of Paragraphs 2.2 (Condition), 2.3 (Compliance), 9 (Damage or Destruction) and 14 (Condemnation), it is intended by the Parties hereto that Lessor have no obligation, in any manner whatsoever, to repair and maintain the Premises, or the equipment therein, all of which obligations are intended to be that of the Lessee. It is the intention of the Parties that the terms of this Lease govern the respective obligations of the Parties as to maintenance and repair of the Premises, and they expressly waive the benefit of any statute now or hereafter in effect to the extent it is inconsistent with the terms of this Lease.
7.3 UTILITY INSTALLATIONS; TRADE FIXTURES; ALTERATIONS.
(a) DEFINITIONS; CONSENT REQUIRED. The term "Utility Installations" refers to all floor and window coverings, air lines, power panels, electrical distribution, security and fire protection systems, communication systems, lighting fixtures, HVAC equipment, plumbing, and fencing in or on the Premises. The term "Trade Fixtures" shall mean Lessee's machinery and equipment that can be removed without doing material damage to the Premises. The term "ALTERATIONS" shall mean any modification of the improvements, other than Utility Installations or Trade Fixtures, whether by addition or deletion. "LESSEE OWNED ALTERATIONS AND/OR UTILITY INSTALLATIONS" are defined as Alterations and/or Utility Installations made by Lessee that are not yet owned by Lessor pursuant to Paragraph 7.4(a). Lessee shall not make any Alterations or Utility Installations to the Premises without Lessor's prior written consent. Lessee may, however, make, non-structural Utility Installations to the interior of the Premises (excluding the roof) without such consent but upon notice to Lessor, as long as they are not visible from the outside, do not involve puncturing, relocating or removing the roof or any existing walls, and the cumulative cost thereof during this Lease as extended does not exceed $50,000 in the aggregate or $10,000 in any one year.
(b) CONSENT. Any Alterations or Utility Installations that Lessee shall desire to make and which require the consent of the Lessor shall be presented to Lessor in written form with detailed plans. Consent shall be deemed conditioned upon Lessee's: (i) acquiring all applicable governmental permits,
(ii) furnishing Lessor with copies of both the permits and the plans and specifications prior to commencement of the work, and (iii) compliance with all conditions of said permits and other Applicable Requirements in a prompt and expeditious manner. Any Alterations or Utility Installations shall be performed in a workmanlike manner with good and sufficient materials. Lessee shall promptly upon completion furnish Lessor with as-built plans and specifications. For work which costs an amount equal to the greater of one month's Base Rent, or $10,000, Lessor may condition its consent upon Lessee providing a lien and completion bond in an amount equal to one and one-half times the estimated cost of such Alteration or Utility Installation and/or upon Lessee's posting an additional Security Deposit with Lessor.
(c) INDEMNIFICATION. Lessee shall pay, when due, all claims for labor or materials furnished or alleged to have been furnished to or for Lessee at or for use on the Premises, which claims are or may be secured by any mechanic's or materialmen's lien against the Premises or any interest therein. Lessee shall give Lessor not less than ten (10) days' notice prior to the commencement of any work in, on or about the Premises, and Lessor shall have the right to post notices of non-responsibility. If Lessee shall contest the validity of any such lien, claim or demand, then Lessee shall, at its sole expense defend and protect itself, Lessor and the Premises against the same and shall pay and satisfy any such adverse judgment that may be rendered thereon before the enforcement thereof. If Lessor shall require, Lessee shall furnish a surety bond in an amount equal to one and one-half times the amount of such contested lien, claim or demand, indemnifying Lessor against liability for the same. If Lessor elects to participate in any such action, Lessee shall pay Lessor's attorneys' fees and costs.
7.4 OWNERSHIP; REMOVAL; SURRENDER; AND RESTORATION.
(a)OWNERSHIP. Subject to Lessor's right to require removal or elect ownership as hereinafter provided, all Alterations and Utility Installations made by Lessee shall be the property of Lessee, but considered a part of the Premises. Lessor may, at any time, elect in writing to be the owner of all or any specified part of the Lessee. Owned Alterations and Utility Installations. Unless otherwise instructed per Paragraph 7.4(b) hereof, all Lessee Owned Alterations and Utility Installations shall, at the expiration or termination of this Lease, become the property of Lessor and be surrendered by Lessee with the Premises.
(b) REMOVAL. By delivery to Lessee of written notice from Lessor not earlier than ninety (90) and not later than thirty (30) days prior to the end of the term of this Lease, Lessor may require that any or all Lessee Owned Alterations or Utility Installations be removed by the expiration or termination of this Lease. Lessor may require the removal at any time of all or any part of any Lessee Owned Alterations or Utility Installations made without the required consent.
(c) SURRENDER/RESTORATION. Lessee shall surrender the Premises by the Expiration Date or any earlier termination date, with all of the improvements, parts and surfaces thereof broom clean and free of debris, and in good operating order, condition and state of repair, ordinary wear and tear excepted. "Ordinary wear and tear" shall not include any damage or deterioration that would have been prevented by good maintenance practice. Lessee shall repair any damage occasioned by the installation, maintenance or removal of Trade Fixtures, Lessee Owned Alterations and/or Utility Installations, furnishings, and equipment as well as the removal of any storage tank installed by or for Lessee, and the removal, replacement, or remediation of any soil, material or groundwater contaminated by Lessee. Trade Fixtures shall remain the property of Lessee and shall be removed by Lessee. The failure by Lessee to timely vacate the Premises pursuant to this Paragraph 7.4(c) without the express written consent of Lessor shall constitute a holdover under the provisions of Paragraph 26 below.
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8. INSURANCE; INDEMNITY.
8.1 PAYMENT FOR INSURANCE. Lessee shall pay for all insurance required under Paragraph 8 except to the extent of the cost attributable to liability insurance carried by Lessor under Paragraph 8.2(b) in excess of $2,000,000 per occurrence. Premiums for policy periods commencing prior to or extending beyond the Lease term shall be prorated to correspond to the Lease term. Payment shall be made by Lessee to Lessor within ten (10) days following receipt of an invoice.
8.2 LIABILITY INSURANCE.
(a) CARRIED BY LESSEE. Lessee shall obtain and keep in force a Commercial General Liability Policy of Insurance protecting Lessee and Lessor against claims for bodily injury, personal injury and property damage based upon or arising out of the ownership, use, occupancy or maintenance of the Premises and all areas appurtenant thereto. Such insurance shall be on an occurrence basis providing single limit coverage in an amount not less than $2,000,000 per occurrence with an "Additional Insured-Managers or Lessors of Premises Endorsement" and contain the "Amendment of the Pollution Exclusion Endorsement" for damage caused by heat, smoke or fumes from a hostile fire. The Policy shall not contain any intra-insured exclusions as between insured persons or organizations, but shall include coverage for liability assumed under this Lease as an "Insured contract" for the performance of Lessee's indemnity obligations under this Lease. The limits of said insurance shall not, however, limit the liability of Lessee nor relieve Lessee of any obligation hereunder. All insurance carried by Lessee shall be primary to and not contributory with any similar insurance carried by Lessor, whose insurance shall be considered excess insurance only.
(b) CARRIED BY LESSOR. Lessor may maintain liability insurance as described in Paragraph 8.2(a), in addition to, and not in lieu of, the insurance required to be maintained by Lessee. Lessee shall not be named as an additional insured therein.
8.3 PROPERTY INSURANCE - BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. The Insuring Party shall obtain and keep in force a policy or policies in the name of Lessor, with loss payable to Lessor any groundlessor, and to any Lender(s) insuring loss or damage to the Premises. The amount of such insurance shall be equal to the full replacement cost of the Premises, as the same shall exist from time to time, or the amount required by any Lenders, but in no event more than the commercially reasonable and available insurable value thereof. If Lessor is the Insuring Party, however, Lessee Owned Alterations and Utility Installations, Trade Fixtures, and Lessee's personal property shall be insured by Lessee under Paragraph 8.4 rather than by Lessor. If the coverage is available and commercially appropriate, such policy or policies shall insure against all risks of direct physical loss or damage (except the perils of flood and/or earthquake unless required by a Lender), including coverage for debris removal and the enforcement of any Applicable Requirements requiring the upgrading, demolition, reconstruction or replacement of any portion of the Premises as the result of a covered loss. Said policy or policies shall also contain an agreed valuation provision in lieu of any coinsurance clause, waiver of subrogation, and inflation guard protection causing an increase in the annual property insurance coverage amount by a factor of not less than the adjusted U.S. Department of Labor Consumer Price Index for All Urban Consumers for the city nearest to where the Premises are located. If such insurance coverage has a deductible clause, the deductible amount shall not exceed $1,000 per occurrence, and Lessee shall be liable for such deductible amount in the event of an Insured Loss.
(b) RENTAL VALUE. The Insuring Party shall obtain and keep in force a policy or policies in the name of Lessor with loss payable to Lessor and any Lender, Insuring the loss of the full Rent for one (1) year. Said insurance shall provide that in the event the Lease is terminated by reason of an insured loss, the period of Indemnity for such coverage shall be extended beyond the date of the completion of repairs or replacement of the Premises, to provide for one full year's loss of Rent from the date of any such loss. Said insurance shall contain an agreed valuation provision in lieu of any coinsurance clause, and the amount of coverage shall be adjusted annually to reflect the projected Rent otherwise payable by Lessee, for the next twelve (12) month period. Lessee shall be liable for any deductible amount in the event of such loss.
(c) ADJACENT PREMISES. If the Premises are part of a larger building, or of a group of buildings owned by Lessor which are adjacent to the Premises, the Lessee shall pay for any increase in the premiums for the property insurance of such building or buildings if said increase is caused by Lessee's acts, omissions, use or occupancy of the Premises.
8.4 LESSEE'S PROPERTY/BUSINESS INTERRUPTION INSURANCE.
(a) PROPERTY DAMAGE. Lessee shall obtain and maintain insurance coverage on all of Lessee's personal property, Trade Fixtures, and Lessee Owned Alterations and Utility Installations. Such insurance shall be full replacement cost coverage with a deductible of not to exceed $1,000 per occurrence. The proceeds from any such insurance shall be used by Lessee for the replacement of personal property. Trade Fixtures and Lessee Owned Alterations and Utility Installations. Lessee shall provide Lessor with written evidence that such insurance is in force.
(b) BUSINESS INTERRUPTION. Lessee shall obtain and maintain loss of income and extra expense insurance in amounts as will reimburse Lessee for direct or indirect loss of earnings attributable to all perils commonly insured against by prudent lessees in the business of Lessee or attributable to prevention of access to the Premises as a result of such perils.
(c) NO REPRESENTATION OF ADEQUATE COVERAGE. Lessor makes no representation that the limits or forms of coverage of insurance specified herein are adequate to cover Lessee's property, business operations or obligations under this Lease.
8.5 INSURANCE POLICIES. Insurance required herein shall be by companies duly licensed or admitted to transact business in the state where the Premises are located, and maintaining during the policy term a "General Policyholders Rating" of at least B+, V, as set forth in the most current issue of "Best's Insurance Guide", or such other rating as may be required by a Lender. Lessee shall not do or permit to be done anything which invalidates the required Insurance policies. Lessee shall, prior to the Start Date, deliver to Lessor certified copies of policies of such insurance or certificates evidencing the existence and amounts of the required insurance. No such policy shall be cancelable or subject to modification except after thirty (30) days prior written notice to Lessor. Lessee shall, at least thirty (30) days prior to the expiration of such policies, furnish Lessor with evidence of renewals or "Insurance binders" evidencing renewal thereof, or Lessor may order such insurance and charge the cost thereof to Lessee, which amount shall be payable by Lessee to Lessor upon demand. Such policies shall be for a term of at least one year, or the length of the remaining term of this Lease, whichever is less. If either Party shall fail to procure and maintain the insurance required to be carried by it, the other Party may, but shall not be required to, procure and maintain the same.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or remedies, Lessee and Lessor each hereby release and relieve the other, and waive their entire right to recover damages against the other, for loss of or damage to its property arising out of or incident to the perils required to be insured against herein. The effect of such releases and waivers is not limited by the amount of insurance carried or required, or by any deductible applicable hereto. The Parties agree to have their respective property damage insurance carriers waive any right to subrogation that such companies may have against Lessor or Lessee, as the case may be, so long as the insurance is not invalidated thereby.
8.7 INDEMNITY. Except for Lessor's gross negligence or willful misconduct, Lessee shall indemnify, protect, defend and hold harmless the Premises, Lessor and its agents, Lessor's master or ground lessor, partners and Lenders, from and against any and all claims, loss of rents and/or damages, liens, judgments, penalties, attorneys' and consultants' fees, expenses and/or liabilities arising out of, involving, or in connection with, the use and/or occupancy of the Premises by Lessee. If any action or proceeding is brought against Lessor by reason of any of the foregoing matters, Lessee shall upon notice defend the same at Lessee's expense by counsel reasonably satisfactory to Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need not have first paid any such claim in order to be defended, or indemnified.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable for injury or damage to the person or goods, wares, merchandise or other property of Lessee, Lessee's employees, contractors, invitees, customers, or any other person in or about the Premises, whether such damage or injury is caused by or results from fire, steam, electricity, gas, water or rain, or from the breakage, leakage, obstruction or other defects of pipes, fire sprinklers, wires, appliances, plumbing, HVAC or lighting fixtures, or from any other cause, whether the said injury or damage results from conditions arising upon the Premises or upon other portions of the Building of which the Premises are a part, or from other sources or places. Lessor shall not be liable for any damages arising from any act or neglect of any other tenant of Lessor. Notwithstanding Lessor's negligence or breach of this Lease, Lessor shall under no circumstances be liable for injury to Lessee's business or for any loss of income or profit therefrom.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction to the improvements on the Premises, other than Lessee Owned Alterations and Utility Installations, which can reasonably be repaired in six (6) months or less from the date of the damage or destruction.
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FORM STN-6-2/97
Lessor shall notify Lessee in writing within thirty (30) days from the date of the damage or destruction as to whether or not the damage is Partial or Total.
(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or destruction to the Premises, other than Lessee. Owned Alterations and Utility Installations and Trade Fixtures, which cannot reasonably be repaired in six (6) months or less from the date of the damage or destruction. Lessor shall notify Lessee in writing within thirty (30) days from the date of the damage or destruction as to whether or not the damage is Partial or Total.
(c) "INSURED LOSS" shall mean damage or destruction to improvements on the Premises, other than Lessee Owned Alterations and Utility Installations and Trade Fixtures, which was caused by an event required to be covered by the insurance described in Paragraph 8.3(a), irrespective of any deductible amounts or coverage limits involved.
(d) "REPLACEMENT COST" shall mean the cost to repair or rebuild the improvements owned by Lessor at the time of the occurrence to their condition existing immediately prior thereto, including demolition, debris removal and upgrading required by the operation of Applicable Requirements, and without deduction for depreciation.
(e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the occurrence or discovery of a condition involving the presence of, or a contamination by, a Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the Premises.
9.2 PARTIAL DAMAGE - INSURED LOSS. If a Premises Partial Damage that is an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such damage (but not Lessee's Trade Fixtures or Lessee Owned Alterations and Utility Installations) as soon as reasonably possible and this Lease shall continue in full force and effect; provided, however, that Lessee shall, at Lessor's election, make the repair of any damage or destruction the total cost to repair of which is $10,000 or less; and, in such event, Lessor shall make any applicable insurance proceeds available to Lessee on a reasonable basis for that purpose. Notwithstanding the foregoing, if the required insurance was not in force or the Insurance proceeds are not sufficient to effect such repair, the Insuring Party shall promptly contribute the shortage in proceeds (except as to the deductible which is Lessee's responsibility) as and when required to complete said repairs. In the event, however, such shortage was due to the fact that, by reason of the unique nature of the improvements, full replacement cost insurance coverage was not commercially reasonable and available, Lessor shall have no obligation to pay for the shortage in insurance proceeds or to fully restore the unique aspects of the Premises unless Lessee provides Lessor with the funds to cover same, or adequate assurance thereof, within ten (10) days following receipt of written notice of such shortage and request therefor. If Lessor receives said funds or adequate assurance thereof within said ten (10) day period, the party responsible for making the repairs shall complete them as soon as reasonably possible and this Lease shall remain in full force and effect. If such funds or assurance are not received. Lessor may nevertheless elect by written notice to Lessee within ten (10) days thereafter to: (i) make such restoration and repair as is commercially reasonable with Lessor paying any shortage in proceeds, in which case this Lease shall remain in full force and effect; or (ii) have this Lease terminate thirty (30) days thereafter. Lessee shall not be entitled to reimbursement of any funds contributed by Lessee to repair any such damage or destruction. Premises Partial Damage due to flood or earthquake shall be subject to Paragraph 9.3, notwithstanding that there may be some insurance coverage, but the net proceeds of any such insurance shall be made available for the repairs if made by either Party.
9.3 PARTIAL DAMAGE - UNINSURED LOSS. If a Premises Partial Damage that is not an Insured Loss occurs, unless caused by a negligent or willful act of Lessee (in which event Lessee shall make the repairs at Lessee's expense), Lessor may either: (i) repair such damage as soon as reasonably possible at Lessor's expense, in which event this Lease shall continue in full force and effect, or (ii) terminate this Lease by giving written notice to Lessee within thirty (30) days after receipt by Lessor of knowledge of the occurrence of such damage. Such termination shall be effective sixty (60) days following the date of such notice. In the event Lessor elects to terminate this Lease, Lessee, shall have the right within ten (10) days after receipt of the termination notice to give written notice to Lessor of Lessee's commitment to pay for the repair of such damage without reimbursement from Lessor. Lessee shall provide Lessor with said funds or satisfactory assurance thereof within thirty (30) days after making such commitment. In such event this Lease shall continue in full force and effect, and Lessor shall proceed to make such repairs as soon as reasonably possible after the required funds are available. If Lessee does not make the required commitment, this Lease shall terminate as of the date specified in the termination notice.
9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof, if a Premises Total Destruction occurs, this Lease shall terminate sixty (60) days following such Destruction. If the damage or destruction was caused by the gross negligence or willful misconduct of Lessee, Lessor shall have the right to recover Lessor's damages from Lessee, except as provided in Paragraph 8.6.
9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6) months of this Lease there is damage for which the cost to repair exceeds one (1) month's Base Rent, whether or not an Insured Loss, Lessor may terminate this Lease effective sixty (60) days following the date of occurrence of such damage by giving a written termination notice to Lessee within thirty (30) days after the date of occurrence of such damage. Notwithstanding the foregoing, if Lessee at that time has an exercisable option to extend this Lease or to purchase the Premises, then Lessee may preserve this Lease by, (a) exercising such option and (b) providing Lessor with any shortage in insurance proceeds (or adequate assurance thereof) needed to make the repairs on or before the earlier of (i) the date which is ten days after Lessee's receipt of Lessor's written notice purporting to terminate this Lease, or (ii) the day prior to the data upon which such option expires. If Lessee duly exercises such option during such period and provides Lessor with funds (or adequate assurance thereof) to cover any shortage in insurance proceeds, Lessor shall, at Lessor's commercially reasonable expense, repair such damage as soon as reasonably possible and this Lease shall continue in full force and effect. If Lessee fails to exercise such option and provide such funds or assurance during such period, then this Lease shall terminate on the date specified in the termination notice and Lessee's option shall be extinguished.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) ABATEMENT. In the event of Premises Partial Damage or Premises Total Destruction or a Hazardous Substance Condition for which Lessee is not responsible under this Lease, the Rent payable by Lessee for the period required for the repair, remediation or restoration of such damage shall be abated in proportion to the degree to which Lessee's use of the Premises is impaired, but not to exceed the proceeds received from the Rental Value Insurance. All other obligations of Lessee hereunder shall be performed by Lessee, and Lessor shall have liability for any such damage, destruction, remediation, repair or restoration except as provided herein.
(b) REMEDIES. If Lessor shall be obligated to repair or restore the Premises and does not commence, in a substantial and meaningful way, such repair or restoration within ninety (90) days after such obligation shall accrue, Lessee may; at any time prior to the commencement of such repair or restoration, give written notice to Lessor and to any Lenders of which Lessee has actual notice, of Lessee's election to terminate this Lease on a date not less than sixty (60) days following the giving of such notice. If Lessee gives such notice and such repair or restoration is not commenced within thirty (30) days thereafter, this Lease shall terminate as of the date specified in said notice. If the repair or restoration is commenced within said thirty (30) days, this Lease shall continue in full force and effect. "Commence" shall mean either the unconditional authorization of the preparation of the required plans, or the beginning of the actual work on the Premises, whichever first occurs.
9.7 TERMINATION-ADVANCE PAYMENTS. Upon termination of this Lease pursuant to Paragraph 6.2(g) or Paragraph 9, an equitable adjustment shall be made concerning advance Base Rent and any other advance payments made by Lessee to Lessor. Lessor shall, in addition, return to Lessee so much of Lessee's Security Deposit as has not been, or is not then required to be, used by Lessor.
9.8 WAIVE STATUTES. Lessor and Lessee agree that the terms of this Lease shall govern the effect of any damage to or destruction of the Premises with respect to the termination of this Lease and hereby waive the provisions of any present or future statute to the extent inconsistent herewith.
10. REAL PROPERTY TAXES.
10.1 DEFINITION OF "REAL PROPERTY TAXES," As used herein, the term "Real Property Taxes" shall include any form of assessment; real estate, general, special, ordinary or extraordinary, or rental levy or tax (other than inheritance, personal income or estate taxes); improvement bond; and/or license fee imposed upon or levied against any legal or equitable interest of Lessor in the Premises. Lessor's right to other income therefrom, and/or Lessor's business of leasing, by any authority having the direct or indirect power to tax and where the funds are generated
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with reference to the Building address and where the proceeds so generated are to be applied by the city, county or other local taxing authority of a jurisdiction within which the Premises are located. The term "REAL PROPERTY TAXES" shall also include any tax, fee, levy, assessment or charge, or any increase therein, imposed by reason of events occurring during the term of this Lease, including but not limited to, a change in the ownership of the Premises.
10.2
(a) PAYMENT OF TAXES. Lessee shall pay the Real Property Taxes applicable to the Premises during the term of this Lease. Subject to Paragraph 10.2(b), all such payments shall be made at least ten (10) day's prior to any delinquency date. Lessee shall promptly furnish Lessor with satisfactory evidence that such taxes have been paid. If any such taxes shall cover any period of time prior to or after the expiration or termination of this Lease, Lessee's share of such taxes shall be prorated to cover only that portion of the tax bill applicable to the period that this Lease is in effect, and Lessor shall reimburse Lessee for any overpayment. If Lessee shall fail to pay any required Real Property Taxes, Lessor shall have the right to pay the same, and Lessee shall reimburse Lessor therefor upon demand.
(b) ADVANCE PAYMENT. In the event Lessee incurs a late charge on any Rent payment, Lessor may, at Lessor's option, estimate the current Real Property Taxes, and require that such taxes be paid in advance to Lessor by Lessee, either: (i) in a lump sum amount equal to the installment due, at least twenty
(20) days prior to the applicable delinquency date, or (ii) monthly in advance with the payment of the Base Rent. If Lessor elects to require payment monthly in advance, the monthly payment shall be an amount equal to the amount of the estimated installment of taxes divided by the number of months remaining before the month in which said installment becomes delinquent. When the actual amount of the applicable tax bill is known, the amount of such equal monthly advance payments shall be adjusted as required to provide the funds needed to pay the applicable taxes. If the amount collected by Lessor is insufficient to pay such Real Property Taxes when due, Lessee shall pay Lessor, upon demand, such additional sums as are necessary to pay such obligations. All moneys paid to Lessor under this Paragraph may be intermingled with other moneys of Lessor and shall not bear interest. In the event of a Breach by Lessee in the performance of its obligations under this Lease, then any balance of funds paid to Lessor under the provisions of this Paragraph may at the option of Lessor, be treated as an additional Security Deposit.
10.3 JOINT ASSESSMENT. If the Premises are not separately assessed, Lessee's liability shall be an equitable proportion of the Real Property Taxes for all of the land and improvements included within the tax parcel assessed, such proportion to be conclusively determined by Lessor from the respective valuations assigned in the assessor's work sheets or such other information as may be reasonably available.
10.4 PERSONAL PROPERTY TAXES. Lessee shall pay, prior to delinquency, all taxes assessed against and levied upon Lessee Owned Alterations, Utility Installations, Trade Fixtures, furnishings, equipment and all personal property of Lessee. When possible, Lessee shall cause such property to be assessed and billed separately from the real property of Lessor. If any of Lessee's said personal property shall be assessed with Lessor's real property. Lessee shall pay Lessor the taxes attributable to Lessee's property within ten (10) days after receipt of a written statement.
11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power, telephone, trash disposal and other utilities and services supplied to the Premises, together with any taxes thereon. If any such services are not separately metered to Lessee, Lessee shall pay a reasonable proportion, to be determined by Lessor, of all charges jointly metered.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED.
(a) Lessee shall not voluntarily or by operation of law assign, transfer, mortgage or encumber (collectively, "ASSIGN OR ASSIGNMENT") or sublet all or any part of Lessee's interest in this Lease or in the Premises without Lessor's prior written consent.
(b) A change in the control of Lessee shall constitute an assignment requiring consent. The transfer, on a cumulative basis, of twenty-five percent (25%) or more of the voting control of Lessee shall constitute a change in control for this purpose.
(c) The involvement of Lessee or its assets in any transaction, or series of transactions (by way of merger, sale, acquisition, financing, transfer, leveraged buy-out or otherwise), whether or not a formal assignment or hypothecation of this Lease or Lessee's assets occurs, which results or will result in a reduction of the Net Worth of Lessee by an amount greater than twenty-five percent (25%) of such Net Worth as it was represented at the time of the execution of this Lease or at the time of the most recent assignment to which Lessor has consented, or as it exists immediately prior to said, transaction or transactions constituting such reduction, whichever was or is greater, shall be considered an assignment of this Lease to which Lessor may withhold its consent. "NET WORTH OF LESSEE" shall mean the net worth of Lessee (excluding any guarantors) established under generally accepted accounting principles.
(d) An assignment or subletting without consent shall, at Lessor's option, be a Default curable after notice per Paragraph 13.1(c), or a noncurable Breach without the necessity of any notice and grace period. If Lessor elects to treat such unapproved assignment or subletting as a noncurable Breach, Lessor may either: (i) terminate this Lease, or (ii) upon thirty (30) days written notice, increase the monthly Base Rent to one hundred ten percent (110%) of the Base Rent then in effect. Further, in the event of such Breach and rental adjustment, (i) the purchase price of any option to purchase the Premises held by Lessee shall be subject to similar adjustment to one hundred ten percent (110%) of the price previously in effect, and (ii) all fixed and non-fixed rental adjustments scheduled during the remainder of the Lease term shall be increased to One Hundred Ten Percent (110%) of the scheduled adjusted rent.
(e) Lessee's remedy for any breach of Paragraph 12.1 by Lessor shall be limited to compensatory damages and/or injunctive relief.
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, any assignment or subletting shall not: (i) be effective without the express written assumption by such assignee or sublessee of the obligations of Lessee under this Lease, (ii) release Lessee of any obligations hereunder, or (iii) alter the primary liability of Lessee for the payment of Rent or for the performance of any other obligations to be performed by Lessee.
(b) Lessor may accept Rent or performance of Lessee's obligations from any person other than Lessee pending approval or disapproval of an assignment. Neither a delay in the approval or disapproval of such assignment nor the acceptance of Rent or performance shall constitute a waiver or estoppel of Lessor's right to exercise its remedies for Lessee's Default or Breach.
(c) Lessor's consent to any assignment or subletting shall not constitute a consent to any subsequent assignment or subletting.
(d) In the event of any Default or Breach by Lessee, Lessor may proceed directly against Lessee, any Guarantors or anyone else responsible for the performance of Lessee's obligations under this Lease, including any assignee or sublessee, without first exhausting Lessor's remedies against any other person or entity responsible therefore to Lessor, or any security held by Lessor.
(e) Each request for consent to an assignment or subletting shall be in writing, accompanied by information relevant to Lessor's determination as to the financial and operational responsibility and appropriateness of the proposed assignee or sublessee, including but not limited to the intended use and/or required modification of the Premises, if any, together with a fee of $1,000 or ten percent (10%) of the current monthly Base Rent applicable to the portion of the Premises which is the subject of the proposed assignment or sublease, whichever is greater, as consideration for Lessor's considering and processing said request. Lessee agrees to provide Lessor with such other or additional information and/or documentation as may be reasonably requested.
(f) Any assignee of, or sublessee under, this Lease shall, by reason of accepting such assignment or entering into such sublease, be deemed to have assumed and agreed to conform and comply with each and every term, covenant, condition and obligation herein to be observed or performed by Lessee during the term of said assignment or sublease, other than such obligations as are contrary to or inconsistent with provisions of an assignment or sublease to which Lessor has specifically consented to in writing.
12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The following terms and conditions shall apply to any subletting by Lessee of all or any part of the Premises and shall be deemed included in all subleases under this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's interest in all Rent payable on any sublease, and Lessor may collect such Rent and apply same toward Lessee's obligations under this Lease; provided, however, that until a Breach shall occur in the performance of Lessee's obligations, Lessee may collect said Rent. Lessor shall not, by reason of the foregoing or any assignment of such sublease, nor by reason of the collection of Rent, be deemed liable to the sublessee for any failure of Lessee to perform and comply with any of Lessee's obligations to such sublessee. Lessee hereby irrevocably authorizes and directs any such sublessee, upon receipt of a written notice
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from Lessor stating that a Breach exists in the performance of Lessee's obligations under this Lease, to pay to Lessor all Rent due and to become due under the sublease. Sublessee shall rely upon any such notice from Lessor and shall pay all Rents to Lessor without any obligation or right to inquire as to whether such Breach exists, notwithstanding any claim from Lessee to the contrary.
(b) In the event of a Breach by Lessee, Lessor may, at its option, require sublessee to attorn to Lessor, in which event Lessors' undertake the obligations of the sublessor under such sublease from the time of the exercise of said option to the expiration of such sublease provided, however, Lessor shall not be liable for any prepaid rents or security deposit paid by such sublessee to such sublessor or for any prior Defaults or Breaches of such sublessor.
(c) Any matter requiring the consent of the sublessor under a sublease shall also require the consent of Lessor.
(d) No sublessee shall further assign or sublet all or any part of the Premises without Lessor's prior written consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach by Lessee to the sublessee, who shall have the right to cure the Default of Lessee within the grace period, if any, specified in such notice. The sublessee shall have a right of reimbursement and offset from and against Lessee for any such Defaults cured by the sublessee.
13. DEFAULT; BREACH; REMEDIES.
13.1 DEFAULT; BREACH: A "DEFAULT" is defined as a failure by the Lessee to comply with or perform any of the terms, covenants, conditions or rules under this Lease. A "BREACH" is defined as the occurrence of one or more of the following Defaults, and the failure of Lessee to cure such Default within any applicable grace period:
(a) The abandonment of the Premises; or the vacating of the Premises without providing a commercially reasonable level of security, or where the coverage of the property insurance described in Paragraph 8.3 is jeopardized as a result thereof, or without providing reasonable assurances to minimize potential vandalism.
(b) The failure of Lessee to make any payment of Rent or any Security Deposit required to be made by Lessee hereunder, whether to Lessor or to a third party, when due, to provide reasonable evidence of insurance or surety bond, or to fulfill any obligation under this Lease which endangers or threatens life or property, where such failure continues for a period of three
(3) business days following written notice to Lessee.
(c) The failure by Lessee to provide (i) reasonable written evidence of compliance with Applicable Requirements, (ii) the service contracts, (iii) the rescission of an unauthorized assignment or subletting, (iv) a Estoppel Certificate, (v) a requested subordination, (vi) evidence concerning any guaranty and/or Guarantor, (vii) any document requested under Paragraph 42 (easements), or (viii) any other documentation or information which Lessor may reasonably require of Lessee under the terms of this Lease, where any such failure continues for a period of ten (10) days following written notice to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or provisions of this Lease, or of the rules adopted under Paragraph 40 hereof, other than those described in subparagraphs 13.1 (a), (b) or (c), above, where such Default continues for a period of thirty (30) days after written notice; provided, however, that if the nature of Lessee's Default is such that more than thirty (30) days are reasons required for its cure, then it shall not be deemed to be a Breach if Lessee commences such cure within said thirty (30) day period and thereafter diligently prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) the making of any general arrangement or assignment for the benefit of creditors; (ii) becoming a "debtor" as defined in 11 U.S.C. Section 101 or any successor statute thereto (unless, in the case of a petition filed against Lessee, the same is dismissed within sixty (60) days); (iii) the appointment of a trustee or receiver to take possession of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where possession is not restored to Lessee within thirty (30) days; or (iv) the attachment, execution or other judicial seizure of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where such seizure is not discharged within thirty (30) days; provided, however, in the event that any provision of this subparagraph (e) is contrary to any applicable law, such provision shall be of no force or effect, and not affect the validity of the remaining provisions.
(f) The discovery that any financial statement of Lessee or of any Guarantor given to Lessor was materially false.
(g) If the performance of Lessee's obligations under this Lease is guaranteed: (i) the death of a Guarantor, (ii) the termination of a Guarantor's liability with respect to this Lease other than in accordance with the terms of such guaranty, (iii) a Guarantor's becoming insolvent or the subject of a bankruptcy filing, (iv) a Guarantor's refusal to honor the guaranty, or (v) a Guarantor's breach of its guaranty obligation on an anticipatory basis, and Lessee's failure, within sixty (60) days following written notice of any such event, to provide written alternative assurance or security, which, when coupled with the then existing resources of Lessee, equals or exceeds the combined financial resources of Lessee and the Guarantors that existed at the time of execution of this Lease.
13.2 REMEDIES. If Lessee fails to perform any of its affirmative duties or obligations, within ten (10) days after written notice (or in case of an emergency, without notice), Lessor may, at its option, perform such duty or obligation on Lessee's behalf, including but not limited to the obtaining of reasonably required bonds, insurance policies, or governmental licenses, permits or approvals. The costs and expenses of any such performance by Lessor shall be due and payable by Lessee upon receipt of invoice therefor. If any check given to Lessor by Lessee shall not be honored by the bank upon which it is drawn, Lessor, at its option, may require all future payments to be made by Lessee to be by cashier's check. In the event of a Breach, Lessor may, with or without further notice or demand, and without limiting Lessor in the exercise of any right or remedy which Lessor may have by reason of such Breach:
(a) Terminate Lessee's right to possession of the Premises by any lawful means, in which case this Lease shall terminate and Lessee shall immediately surrender possession to Lessor. In such event Lessor shall be entitled to recover from Lessee: (i) the unpaid Rent which had been earned at the time of termination; (ii) the worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that the Lessee proves could have been reasonably avoided; (iii) the worth at the time of award of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of such rental loss that the Lessee proves could be reasonably avoided; and (iv) any other amount necessary to compensate lessor, for all the detriment proximately caused by the Lessee's failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom, including but not limited to the cost of recovering possession of the Premises, expenses of reletting, including necessary renovation and alteration of the Premises, reasonable attorneys' fees, and that portion of any leasing commission paid by Lessor in connection with this Lease applicable to the unexpired term of this Lease. The worth at the time of award of the amount referred to in provision (iii) of the immediately preceding sentence shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of the District within which the Premises are located at the time of award plus one percent (1%). Efforts by lessor to mitigate damages caused by Lessee's Breach of this Lease shall not waive Lessor's right to recover damages under Paragraph 12. If termination of this Lease is obtained through the provisional remedy of unlawful detainer, Lessor shall have the right to recover in such proceeding any unpaid Rent and damages as are recoverable therein, or Lessor may reserve the right to recover all or any part thereof in a separate suit. If a notice and grace period required under Paragraph 13.1 was not previously given, a notice to pay rent or quit, or to perform or quit given to Lessee under the unlawful detainer statute shall also constitute the notice required by Paragraph 13.1. In such case, the applicable grace period required by Paragraph 13.1 and the unlawful detainer statute shall run concurrently, and the failure of Lessee to cure the Default within the greater of the two such grace periods shall constitute both an unlawful detainer and a Breach of this Lease entitling Lessor to the remedies provided for in this Lease and/or by said statute.
(b) Continue the Lease and Lessee's right to possession and recover the Rent as it becomes due, in which event Lessee may sublet or assign, subject only to reasonable limitations. Acts of maintenance, efforts to relet, and/or the appointment of a receiver to protect the Lessor's interests, shall not constitute a termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available under the laws or judicial decisions of the state wherein the Premises are located. The expiration or termination of this Lease and/or the termination of Lessee's right to possession shall not relieve Lessee from liability
FORM STN-6-2/97
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under any indemnity provisions of this Lease as to matters occurring or accruing during the term hereof or by reason of Lessee's occupancy of the Premises.
13.3 INDUCEMENT RECAPTURE. Any agreement for free or abated rent or other charges, or for the giving or paying by Lessor to or for Lessee of any cash or other bonus, inducement or consideration for Lessee's entering into this Lease, all of which concessions are hereinafter referred to as "INDUCEMENT PROVISIONS," shall be deemed conditioned upon Lessee's full and faithful performance of all of the terms, covenants and conditions of this Lease. Upon Breach of this Lease by Lessee, any such Inducement Provision shall automatically be deemed deleted from this Lease and of no further force or effect, and any rent, other charge, bonus, inducement or consideration theretofore abated, given or paid by Lessor under such an Inducement Provision shall be immediately due and payable by Lessee to Lessor, notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by Lessor of rent or the cure of the Breach which initiated the operation of this paragraph shall not be deemed a waiver by Lessor of the provisions of this paragraph unless specifically so stated in writing by Lessor at the time of such acceptance.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by Lessee of Rent will cause Lessor to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Such costs include, but are not limited to, processing and accounting charges, and late charges which may be imposed upon Lessor by any Lender. Accordingly, if any Rent shall not be received by Lessor within five (5) days after such amount shall be due, then, without any requirement for notice to Lessee, Lessee shall pay to Lessor a one-time late charge equal to ten percent (10%) of each such overdue amount. The parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Lessor will incur by reason of such late payment. Acceptance of such late charge by Lessor shall in no event constitute a waiver of Lessee's Default or Breach with respect to such overdue amount, nor prevent the exercise of any of the other rights and remedies granted hereunder. In the event that a late charge is payable hereunder, whether or not collected, for three (3) consecutive installments of Base Rent, then notwithstanding any provision of this Lease to the contrary, Base Rent shall, at Lessor's option, become due and payable quarterly in advance.
13.5 INTEREST. Any monetary payment due Lessor hereunder, other than late charges, not received by Lessor, when due as to scheduled payments (such as Base Rent) or within thirty (30) days following the date on which it was due for non-scheduled payment, shall bear interest from the date when due, as to scheduled payments, or the thirty-first (31st) day after it was due as to non-scheduled payments. The interest ("Interest") charged shall be equal to the prime rate reported in the Wall Street Journal as published closest prior to the date when due plus four percent (4%), but shall not exceed the maximum rate allowed by law. Interest is payable in addition to the potential late charge provided for in Paragraph 13.4.
13.6 BREACH BY LESSOR.
(a) NOTICE OF BREACH. Lessor shall not be deemed in breach of this Lease unless Lessor fails within a reasonable time to perform an obligation required to be performed by Lessor. For purposes of this Paragraph, a reasonable time shall in no event be less than thirty (30) days after receipt by Lessor, and any Lender whose name and address shall have been furnished Lessee in writing for such purpose, of written notice specifying wherein such obligation of Lessor has not been performed; provided, however, that if the nature of Lessors obligation is such that more than thirty (30) days are reasonably required for its performance, then Lessor shall not be in breach if performance is commenced within such thirty (30) day period and thereafter diligently pursued to completion.
(b) PERFORMANCE BY LESSEE ON BEHALF OF LESSOR. In the event that neither Lessor nor Lender cures said breach within thirty (30) days after receipt of said notice, or if having commenced said cure they do not diligently pursue it to completion, then Lessee may elect to cure said breach at Lessee's expense and offset from Rent an amount equal to the greater of one month's Base Rent or the Security Deposit, and to pay an excess of such expense under protest, reserving Lessee's right to reimbursement from Lessor. Lessee shall document the cost of said cure and supply said documentation to Lessor.
14. CONDEMNATION. If the Premises or any portion thereof are taken under the power of eminent domain or sold under the threat of the exercise of said power (collectively "CONDEMNATION"), this Lease shall terminate as to the part taken as of the date the condemning authority takes title or possession, whichever first occurs. If more than ten percent (10%) of any building portion of the premises, or more than twenty-five percent (25%) of the land area portion of the premises not occupied by any building, is taken by Condemnation, Lessee may, at Lessee's option, to be exercised in writing within ten (10) days after Lessor shall have given Lessee written notice of such taking (or in the absence of such notice, within ten (10) days after the condemning authority shall have taken possession) terminate this Lease as of the date the condemning authority takes such possession. If Lessee does not terminate this Lease in accordance with the foregoing, this Lease shall remain in full force and effect as to the portion of the Premises remaining, except that the Base Rent shall be reduced in proportion to the reduction in utility of the Premises caused by such Condemnation. Condemnation awards and/or payments shall be the property of Lessor, whether such award shall be made as compensation for diminution in value of the leasehold, the value of the part taken, or for severance damages; provided, however, that Lessee shall be entitled to any compensation for Lessee's relocation expenses, loss of business goodwill and/or Trade Fixtures, without regard to whether or not this Lease is terminated pursuant to the provisions of this Paragraph. All Alterations and Utility Installations made to the Premises by Lessee, for purposes of Condemnation only, shall be considered the property of the Lessee and Lessee shall be entitled to any and all compensation which is payable therefor. In the event that this Lease is not terminated by reason of the Condemnation, Lessor shall repair any damage to the Premises caused by such Condemnation.
15. BROKERS' FEE.
15.1 ADDITIONAL COMMISSION. In addition to the payments owed pursuant to Paragraph 1.10 above, and unless Lessor and the Brokers otherwise agree in writing, Lessor agrees that: (a) if Lessee exercises any Option, (b) if Lessee acquires any rights to the Premises or other premises owned by Lessor and located within the same Project, if any, within which the Premises is located,
(c) if Lessee remains in possession of the Premises, with the consent of Lessor, after the expiration of this Lease, or (d) if Base Rent is increased, whether by agreement or operation of an escalation clause herein, then, Lessor shall pay Brokers a fee in accordance with the schedule of said Brokers in effect at the time of the execution of this Lease.
15.2 ASSUMPTION OF OBLIGATIONS. Any buyer or transferee of Lessor's interest in this Lease shall be deemed to have assumed Lessor's obligation hereunder. Each Broker shall be a third party beneficiary of the provisions of Paragraphs 1, 10, 15, 22 and 31. If Lessor fails to pay to a Broker any amounts due as and for commissions pertaining to this Lease when due, then such amounts shall accrue Interest. In addition, if Lessor fails to pay any amounts to Lessee's Broker when due, Lessee's Broker may send written notice to Lessor and Lessee of such failure and if Lessor fails to pay such amounts within ten (10) days after said notice, Lessee shall pay said monies to its Broker and offset such amounts against Rent. In addition, Lessee's Broker shall be deemed to be a third party beneficiary of any commission agreement entered into by and/or between Lessor and Lessor's Broker.
15.3 REPRESENTATIONS AND INDEMNITIES OF BROKER RELATIONSHIPS. Lessee and Lessor each represent and warrant to the other that it has had no dealings with any person, firm, broker or finder (other than the Brokers, if any) in connection with this Lease, and that no one other than said named Brokers is entitled to any commission or finder's fee in connection herewith. Lessee and Lessor do each hereby agree to indemnify, protect, defend and hold the other harmless from and against liability for compensation or charges which may be claimed by any such unnamed broker, finder or other similar party by reason of any dealings or actions of the indemnifying Party, including any costs, expenses, attorneys' fees reasonably incurred with respect thereto.
16. ESTOPPEL CERTIFICATES.
(a) Each Party (as "RESPONDING PARTY") shall within ten (10) days after written notice from the other Party (the "REQUESTING PARTY") execute, acknowledge and deliver to the Requesting Party a statement in writing in form similar to the then most current "ESTOPPEL CERTIFICATE" form published by the American Industrial Real Estate Association, plus such additional information, confirmation and/or statements as may be reasonably requested by the Requesting Party.
(b) If the Responding Party shall fail to execute or deliver the Estoppel Certificate within such ten day period, the Requesting Party may execute an Estoppel Certificate stating that: (i) the Lease is in full force and effect without modification except as may be represented by the Requesting Party, (ii) there are no uncured defaults in the Requesting Party's performance, and (iii) if Lessor is the Requesting Party, not more than one month's rent has been paid in advance. Prospective purchasers and encumbrancers may rely upon the Requesting Party's Estoppel Certificate, and the Responding Party shall be estopped from denying the truth of the facts contained in said Certificate.
FORM STN-6-2/97
PAGE 9
(c) If Lessor desires to finance, refinance, or sell the Premises, or any part thereof, Lessee and all Guarantors shall deliver to any potential lender or purchaser designated by Lessor such financial statements as may be reasonably required by such lender or purchaser, including but not limited to Lessee's financial statements for the past three (3) years. All such financial statements shall be received by Lessor and such lender or purchaser in confidence and shall be used only for the purposes herein set forth.
17. DEFINITION OF LESSOR. The term "LESSOR" as used herein shall mean the owner or owners at the time in question of the fee title to the Premises, or, if this is a sublease, of the Lessee's interest in the prior lease. In the event of a transfer of Lessor's title or interest in the Premises or this Lease, Lessor shall deliver to the transferee or assignee (in cash or by credit) any unused Security Deposit held by Lessor. Except as provided in Paragraph 15, upon such transfer or assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor shall be relieved of all liability with respect to the obligations and/or covenants under this Lease thereafter to be performed by the Lessor. Subject to the foregoing, the obligations and/or covenants in this Lease to be performed by the Lessor shall be binding only upon the Lessor as hereinabove defined. Notwithstanding the above, and subject to the provisions of Paragraph 20 below, the original Lessor under this Lease, and all subsequent holders of the Lessor's interest in this Lease shall remain liable and responsible with regard to the potential duties and liabilities of Lessor pertaining to Hazardous Substances as outlined in Paragraph 6 above.
18. SEVERABILITY. The invalidity of any provision of this Lease, as determined by a court of competent jurisdiction, shall in no way affect the validity of any other provision hereof.
19. DAYS. Unless otherwise specifically indicated to the contrary, the word "days" as used in this Lease shall mean and refer to calendar days.
20. LIMITATION ON LIABILITY. Subject to the provisions of Paragraph 17 above, the obligations of Lessor under this Lease shall not constitute personal obligations of Lessor, the individual partners of Lessor or its or their individual partners, directors, officers or shareholders, and Lessee shall look to the Premises, and to no other assets of Lessor, for the satisfaction of any liability of Lessor with respect to this Lease, and shall not seek recourse against the individual partners of Lessor, or its or their individual partners, directors, officers or shareholders, or any of their personal assets for such satisfaction.
21. TIME OF ESSENCE. Time is of the essence with respect to the performance of all obligations to be performed or observed by the Parties under this Lease.
22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains all agreements between the Parties with respect to any matter mentioned herein, and no other prior or contemporaneous agreement or understanding shall be effective. Lessor and Lessee each represents and warrants to the Brokers that it has made, and is relying solely upon, its own investigation as to the nature, quality, character and financial responsibility of the other Party to this Lease and as to the nature, quality and character of the Premises. Brokers have no responsibility with respect thereto or with respect to any default or breach hereof by either Party. The liability (including court costs and Attorneys' fees), of any Broker with respect to negotiation, execution, delivery or performance by either Lessor or Lessee under this Lease or any amendment or modification hereto shall be limited to an amount up to the fee received by such Broker pursuant to this Lease; provided, however, that the foregoing limitation on each Broker's liability shall not be applicable to any gross negligence or willful misconduct of such Broker.
23. NOTICES.
23.1 NOTICE REQUIREMENTS. All notices required or permitted by this Lease shall be in writing and may be delivered in person (by hand or by courier) or may be sent by regular, certified or registered mail or U.S. Postal Service Express Mail, with postage prepaid, or by facsimile transmission, and shall be deemed sufficiently given if served in a manner specified in this Paragraph 23. The addresses noted adjacent to a Party's signature on this Lease shall be that Party's address for delivery or mailing of notices. Either Party may by written notice to the other specify a different address for notice, except that upon Lessee's taking possession of the Premises, the Premises shall constitute Lessee's address for notice. A copy of all notices to Lessor shall be concurrently transmitted to such party or parties at such addresses as Lessor may from time to time hereafter designate in writing.
23.2 DATE OF NOTICE. Any notice sent by registered or certified mail, return receipt requested, shall be deemed given on the date of delivery shown on the receipt card, or if no delivery date is shown, the postmark thereon. If sent by regular mail the notice shall be deemed given forty-eight (48) hours after the same is addressed as required herein and mailed with postage prepaid. Notices delivered by United States Express Mail or overnight courier that guarantee next day delivery shall be deemed given twenty-four (24) hours after delivery of the same to the Postal Service or courier. Notices transmitted by facsimile transmission or similar means shall be deemed delivered upon telephone confirmation of receipt, provided a copy is also delivered via delivery or mail. If notice is received on a Saturday, Sunday or legal holiday, it shall be deemed received on the next business day.
24. WAIVERS. No waiver by Lessor of the Default or Breach of any term, covenant or condition hereof by Lessee, shall be deemed a waiver of any other term, covenant or condition hereof, or of any subsequent Default or Breach by Lessee of the same or of any other term, covenant or condition hereof. Lessor's consent to or approval of, any act shall not be deemed to render unnecessary the obtaining of Lessor's consent to, or approval of, any subsequent or similar act by Lessee, or be construed as the basis of an estoppel to enforce the provision or provisions of this Lease requiring such consent. The acceptance of Rent by Lessor shall not be a waiver of any Default or Breach by Lessee. Any payment by Lessee may be accepted by Lessor on account of moneys or damages due Lessor, notwithstanding any qualifying statements or conditions "made by Lessee in connection therewith, which such statements and/or conditions shall be of no force or effect whatsoever unless specifically agreed to in writing by Lessor at or before the time of deposit of such payment.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other, execute, acknowledge and deliver to the other a short form memorandum of this Lease for recording purposes. The Party requesting recordation shall be responsible for payment of any fees applicable thereto.
26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the Premises or any part thereof beyond the expiration or termination of this Lease. In the event that Lessee holds over, then the Base Rent shall be increased to one hundred fifty percent (150%) of the Base Rent applicable during the month immediately preceding the expiration or termination. Nothing contained herein shall be construed as consent by Lessor to any holding over by Lessee.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed exclusive but shall, wherever possible, be cumulative with all other remedies at law or in equity.
28. COVENANTS AND CONDITIONS; CONSTRUCTION OF AGREEMENT. All provisions of this Lease to be observed or performed by Lessee are both covenants and conditions. In construing this Lease, all headings and titles are for the convenience of the parties only and shall not be considered a part of this Lease. Whenever required by the context, the singular shall include the plural and vice versa. This Lease shall not be construed as if prepared by one of the parties, but rather according to its fair meaning as a whole, as if both parties had prepared it.
29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the parties, their personal representatives, successors and assigns and be governed by the laws of the State in which the Premises are located. Any litigation between the Parties hereto concerning this Lease shall be initiated in the county in which the Premises are located.
30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.
30.1 SUBORDINATION. This Lease and any Option granted hereby shall be subject and subordinate to any ground lease, mortgage, deed of trust, or other hypothecation or security device (collectively, "SECURITY DEVICE"), now or hereafter placed upon the Premises, to any and all advances made on the security thereof, and to all renewals, modifications, and extensions thereof. Lessee agrees that the holders of any such Security Devices (in this Lease together referred to as "Lender") shall have no liability or obligation to perform any of the obligations of Lessor under this Lease. Any Lender may elect to have this Lease and/or any Option granted hereby superior to the lien of its Security Device by giving written notice thereof to Lessee, whereupon this Lease and such Options shall be deemed prior to such Security Device, notwithstanding the relative dates of the documentation or recordation thereof.
30.2 ATTORNMENT. Subject to the non-disturbance provisions of Paragraph 30.3, Lessee agrees to attorn to a Lender or any other party who acquires ownership of the Premises by reason of a foreclosure of a Security Device, and that in the event of such foreclosure, such new
FORM STN-6-2/97
PAGE 10
owner shall not: (i) be liable for any act or omission of any prior lessor or with respect to events occurring prior to acquisition of ownership; (ii) be subject to any offsets or defenses which Lessee might have against any prior lessor, or (iii) be bound by prepayment of more than one (1) month's rent.
30.3 NON-DISTURBANCE. With respect to Security Devices entered into by Lessor after the execution of this Lease, Lessee's subordination of this Lease shall be subject to receiving a commercially reasonable non-disturbance agreement (a "Non-Disturbance Agreement") from the Lender which Non-Disturbance Agreement provides that Lessee's possession of the Premises, and this Lease, including any options to extend the term hereof, will not be disturbed so long as Lessee is not in Breach hereof and attorns to the record owner of the Premises. Further, within sixty (60) days after the execution of this Lease, Lessor shall use its commercially reasonable efforts to obtain a Non- Disturbance Agreement from the holder of any pre-existing Security Device which is secured by the Premises. In the event that Lessor is unable to provide the Non-Disturbance Agreement within said sixty (60) days, then Lessee may, at Lessee's option, directly contact Lessor's lender and attempt to negotiate for the execution and delivery of a Non-Disturbance Agreement.
30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30 shall be effective without the execution of any further documents; provided, however, that, upon written request from Lessor or a Lender in connection with a sale, financing or refinancing of the Premises, Lessee and Lessor shall execute such further writings as may be reasonably required to separately document any subordination, attornment and/or Non-Disturbance Agreement provided for herein.
31. ATTORNEYS' FEES. If any Party or Broker brings an action or proceeding involving the Premises to enforce the terms hereof or to declare rights hereunder, the Prevailing Party (as hereafter defined) in any such proceeding, action, or appeal thereon, shall be entitled to reasonable attorneys' fees. Such fees may be awarded in the same suit or recovered in a separate suit, whether or not such action or proceeding is pursued to decision or judgment. The term, "PREVAILING PARTY" shall include, without limitation, a Party or Broker who substantially obtains or defeats the relief sought, as the case may be, whether by compromise, settlement, judgment, or the abandonment by the other Party or Broker of its claim or defense. The attorneys' fees award shall not be computed in accordance with any court fee schedule, but shall be such as to fully reimburse all attorneys' fees reasonably incurred. In addition, Lessor shall be entitled to attorneys' fees, costs and expenses incurred in the preparation and service of notices of Default and consultations in connection therewith, whether or not a legal action is subsequently commenced in connection with such Default or resulting Breach.
32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents shall have the right to enter the Premises at any time, in the case of an emergency, and otherwise at reasonable times for the purpose of showing the same to prospective purchasers, lenders, or lessees, and making such alterations, repairs, improvements or additions to the Premises as Lessor may deem necessary. All such activities shall be without abatement of rent or liability to Lessee. Lessor may at any time place on the Premises any ordinary "FOR SALE" signs and Lessor may during the last six (6) months of the term hereof place on the Premises any ordinary "FOR LEASE" signs. Lessee may at any time place on or about the Premises any ordinary "FOR SUBLEASE" sign.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, any auction upon the Premises without Lessor's prior written consent. Lessor shall not be obligated to exercise any standard of reasonableness in determining whether to permit an auction.
34. SIGNS. Except for ordinary "For Sublease" signs. Lessee shall not place any sign upon the Premises without Lessor's prior written consent. All signs must comply with all Applicable Requirements.
35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual termination or cancellation hereof, or a termination hereof by Lessor for Breach by Lessee, shall automatically terminate any sublease or lesser estate in the Premises; provided, however, that Lessor may elect to continue any one or all existing subtenancies. Lessor's failure within ten (10) days following any such event to elect to the contrary by written notice to the holder of any such lesser interest, shall constitute Lessor's election to have such event constitute the termination of such interest.
36. CONSENTS. Except as otherwise provided herein, wherever in this Lease the consent of a Party is required to an act by or for the other Party, such consent shall not be unreasonably withheld or delayed. Lessor's actual reasonable costs and expenses (including but not limited to architects', attorneys', engineers' and other consultants' fees) incurred in the consideration of, or response to, a request by Lessee for any Lessor consent, including but not limited to consents to an assignment, a subletting or the presence or use of a Hazardous Substance, shall be paid by Lessee upon receipt of an invoice and supporting documentation therefor. Lessor's consent to any act, assignment or subletting shall not constitute an acknowledgment that no Default or Breach by Lessee of this Lease exists, nor shall such consent be deemed a waiver of any then existing Default or Breach, except as may be otherwise specifically stated in writing by Lessor at the time of such consent. The failure to specify herein any particular condition to Lessor's consent shall not preclude the imposition by Lessor at the time of consent of such further or other conditions as are then reasonable with reference to the particular matter for which consent is being given. In the event that either Party disagrees with any determination made by the other hereunder and reasonably requests the reasons for such determination, the determining party shall furnish its reasons in writing and in reasonable detail within ten (10) business days following such request.
37. GUARANTOR.
37.1 EXECUTION. The Guarantors, if any, shall each execute a guaranty in the form most recently published by the American Industrial Real Estate Association, and each such Guarantor shall have the same obligations as Lessee under this Lease.
37.2 DEFAULT. It shall constitute a Default of the Lessee if any Guarantor fails or refuses, upon request to provide: (a) evidence of the execution of the guaranty, including the authority of the party signing on Guarantor's behalf to obligate Guarantor, and in the case of a corporate Guarantor, a certified copy of a resolution of its board of directors authorizing the making of such guaranty, (b) current financial statements, (c) a Estoppel Certificate, or (d) written confirmation that the guaranty is still in effect.
38. QUIET POSSESSION. Subject to payment by Lessee of the Rent and performance of all of the covenants, conditions and provisions on Lessee's part to be observed and performed under this Lease, Lessee shall have quiet possession and quiet enjoyment of the Premises during the term hereof.
39. OPTIONS.
39.1 DEFINITION. "OPTION" shall mean: (a) the right to extend the term of or renew this Lease or to extend or renew any lease that Lessee has on other property of Lessor; (b) the right of first refusal or first offer to lease either the Premises or other property of Lessor; (c) the right to purchase or the right of first refusal to purchase the Premises or other property of Lessor.
39.2 OPTIONS PERSONAL TO ORIGINAL LESSEE. Each Option granted to Lessee in this Lease is personal to the original Lessee, and cannot be assigned or exercised by anyone other than said original Lessee and only while the original Lessee is in full possession of the Premises and, if requested by Lessor, with Lessee certifying that Lessee has no intention of thereafter assigning or subletting.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple Options to extend or renew this Lease, a later Option cannot be exercised unless the prior Options have been validly exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option: (i) during the period commencing with the giving of any notice of Default and continuing until said Default is cured, (ii) during the period of time any Rent is unpaid (without regard to whether notice thereof is given Lessee), (iii) during the time Lessee is in Breach of this Lease, or (iv) in the event that Lessee has been given three (3) or more notices of separate Default, whether or not the Defaults are cured, during the twelve (12) month period immediately preceding the exercise of the Option.
(b) The period of time within which an Option may be exercised shall not be extended or enlarged by reason of Lessee's inability to exercise an Option because of the provisions of Paragraph 39.4(a).
(c) An Option shall terminate and be of no further force or effect, notwithstanding Lessee's due and timely exercise of the Option, if, after such exercise and prior to the commencement of the extended term, (i) Lessee fails to pay Rent for a period of thirty (30) days after such Rent becomes due (without any necessity of Lessor to give notice thereof), (ii) Lessor gives to Lessee three (3) or more notices of separate Default during any twelve (12) month period, whether or not the Defaults are cured, or (iii) if Lessee commits a Breach of this Lease.
40. MULTIPLE BUILDINGS. If the Premises are a part of a group of buildings controlled by Lessor, Lessee agrees that it will observe all reasonable rules and regulations which Lessor may make from time to time for the management, safety, and care of said properties, including
FORM STN-6-2/97
PAGE 11
the care and cleanliness of the grounds and including the parking, loading and unloading of vehicles, and that Lessee will pay its fair share of common expenses incurred in connection therewith.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to Lessor hereunder does not include the cost of guard service or other security measures, and that Lessor shall have no obligation whatsoever to provide same. Lessee assumes all responsibility for the protection of the Premises. Lessee, its agents and invitees and their property from the acts of third parties.
42. RESERVATIONS. Lessor reserves to itself the right, from time to time, to grant, without the consent or joinder of Lessee, such easements, rights and dedications that Lessor deems necessary, and to cause the recordation of parcel maps and restrictions, so long as such easements, rights, dedications, maps and restrictions do not unreasonably interfere with the use of the Premises by Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to effectuate any such easement rights, dedication, map or restrictions.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any amount or sum of money to be paid by one Party to the other under the provisions hereof, the Party against whom the obligation to pay the money is asserted shall have the right to make payment "under protest" and such payment shall not be regarded as a voluntary payment and there shall survive the right on the part of said Party to institute suit for recovery of such sum. If it shall be adjudged that there was no legal obligation on the part of said Party to pay such sum or any part thereof, said Party shall be entitled to recover such sum or so much thereof as it was not legally required to pay.
44. AUTHORITY. If either Party hereto is a corporation, trust, limited liability company, partnership, or similar entity, each individual executing this Lease on behalf of such entity represents and warrants that he or she is duly authorized to execute and deliver this Lease on its behalf. Each party shall, within thirty
(30) days after request, deliver to the other party satisfactory evidence of such authority.
45. CONFLICT. Any conflict between the printed provisions of this Lease and the typewritten or handwritten provisions shall be controlled by the typewritten or handwritten provisions.
46. OFFER. Preparation of this Lease by either Party or their agent and submission of same to the other Party shall not be deemed an offer to lease to the other Party. This Lease is not intended to be binding until executed and delivered by all Parties hereto.
47. AMENDMENTS. This Lease may be modified only in writing, signed by the Parties in interest at the time of the modification. As long as they do not materially change Lessee's obligations hereunder, Lessee agrees to make such reasonable non-monetary modifications to this Lease as may be reasonably required by a Lender in connection with the obtaining of normal financing or refinancing of the Premises.
48. MULTIPLE PARTIES. If more than one person or entity is named herein as either Lessor or Lessee, such multiple Parties shall have joint and several responsibility to comply with the terms of this Lease.
49. MEDIATION AND ARBITRATION OF DISPUTES. An Addendum requiring the Mediation and/or the Arbitration of all disputes between the Parties and/or Brokers arising out of this Lease [ ] is [X] is not attached to this Lease.
See Addendum for paragraphs 50 and 51.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THE LEASE SHOW THEIR INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE PREMISES.
ATTENTION: NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY ANY BROKER AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT RELATES. THE PARTIES ARE URGED TO:
1. SEEK ADVICE OF COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.
2. RETAIN APPROPRIATE CONSULTANTS TO REVIEW AND INVESTIGATE THE CONDITION OF THE PREMISES, SAID INVESTIGATION SHOULD INCLUDE BUT NOT BE LIMITED TO; THE POSSIBLE PRESENCE OF HAZARDOUS SUBSTANCES, THE ZONING OF THE PREMISES, THE STRUCTURAL INTEGRITY, THE CONDITION OF THE ROOF AND OPERATING SYSTEMS, AND THE SUITABILITY OF THE PREMISES FOR LESSEE'S INTENDED USE.
WARNING: IF THE PREMISES ARE LOCATED IN A STATE OTHER THAN CALIFORNIA, CERTAIN PROVISIONS OF THE LEASE MAY NEED TO BE REVISED TO COMPLY WITH THE LAWS OF THE STATE IN WHICH THE PREMISES ARE LOCATED.
The parties hereto have executed this Lease at the place and on the dates specified above their respective signatures.

Executed at: __________________________   Executed at: _________________________
on: ___________________________________   on: __________________________________
By LESSOR:                                By LESSEE:
   SUMO HOLDINGS IRVINE, LLC, a              AMERICAN REPROGRAPHICS COMPANY,
   California limited liability              LLC, a California limited
   company                                   liability company

By: /s/ Sathy Chandramohan                By:  /s/ Mark W. Legg
Name Printed:  Sathy Chandramohan         Name Printed:  Mark W. Legg
Title:  Managing Member                   Title:  Chief Financial Officer

By: ___________________________________   By: __________________________________

Name Printed: _________________________   Name Printed: ________________________

Title: ________________________________   Title: _______________________________

Address: ______________________________   Address: _____________________________

_______________________________________   ______________________________________

Telephone:(      )_____________________   Telephone:(      )____________________

Facsimile:(      )_____________________   Facsimile:(      )____________________

Federal ID No. ________________________   Federal ID No. _______________________	

NOTE: These forms are often modified to meet changing requirements of law and industry needs. Always write or call to make sure you are utilizing the most current form: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 700 So,
Flower Street, Suite 600, Los Angeles, California 90017, (213) 687-8777, Fax No. (213) 687-8616
(C) COPYRIGHT 1997 - BY AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION. ALL RIGHTS RESERVED, NO PART OF THESE WORKS MAY BE REPRODUCED IN ANY FORM WITHOUT PERMISSION IN WRITING.
FORM STN-6-2/97
PAGE 12
[LOGO]
RENT ADJUSTMENT(S)
STANDARD LEASE ADDENDUM
DATED___________________________________, 1999
BY AND BETWEEN (LESSOR) SUMO HOLDINGS IRVINE, LLC
(LESSEE) AMERICAN REPROGRAPHICS COMPANY, LLC
ADDRESS OF PREMISES: 17721 Mitchell North Irvine, CA 91714
Paragraph 50
A. RENT ADJUSTMENTS:
The monthly rent for each month of the adjustment period(s) specified below shall be increased using the method(s) indicated below:
(Check Method(s) to be Used and Fill in Appropriately)
[X] I. COST OF LIVING ADJUSTMENTS(S) (COLA)
a. On (Fill in COLA Dates): ___________________, 2004 and on each anniversary date thereafter the Base Rent shall be adjusted by the change, if any, from the Base Month specified below, in the Consumer Price Index of the Bureau of Labor Statistics of the U.S. Department of Labor for (select one): [ ] CPI W (Urban Wage Earners and Clerical Workers) or [XX] CPI U (All Urban Consumers), for (Fill in Urban Area):
_____________________________________________________________________, All Items (1982-1984 = 100), herein referred to as "CPI"
b. The monthly rent payable in accordance with paragraph A.I.a. of this Addendum shall be calculated as follows: the Base Rent set forth in paragraph 1.5 of the attached Lease, shall be multiplied by a fraction the numerator of which shall be the CPI of the calendar month two months prior to the month(s) specified in paragraph A.I.a. above during which the adjustment is to take effect, and the denominator of which shall be the CPI of the calendar month which is two months prior to (select one): [ ] the first month of the term of this Lease as set forth in paragraph 1.3 ("Base Month") or [X] (Fill in Other "Base Month"): __________________, 2003. The sum so calculated shall constitute the new monthly rent hereunder, but in no event, shall any such new monthly rent be less than the rent payable for the month immediately preceding the rent adjustment.
c. In the event the compilation and/or publication of the CPI shall be transferred to any other governmental department or bureau or agency or shall be discontinued, then the index most nearly the same as the CPI shall be used to make such calculation. In the event that the Parties cannot agree on such alternative index, then the matter shall be submitted for decision to the American Arbitration Association in accordance with the then rules of said Association and the decision of the arbitrators shall be binding upon the parties. The cost of said Arbitration shall be paid equally by the Parties.
[ ] II. MARKET RENTAL VALUE ADJUSTMENT(S) (MRV) N/A
a. On (Fill in MRV Adjustment Date(s):___________________________

the Base Rent shall be adjusted to the "Market Rental Value" of the property as follows:
1) Four months prior to each Market Rental Value Adjustment Date described above, the Parties shall attempt to agree upon what the new MRV will be on the adjustment date. If agreement cannot be reached within thirty days, then:
(a) Lessor and Lessee shall immediately appoint a mutually acceptable appraiser or broker to establish the new MRV within the next thirty days. Any associated costs will be split equally between the Parties, or
(b) Both Lessor and Lessee shall each immediately make a reasonable determination of the MRV and submit such determination, in writing, to arbitration in accordance with the following provisions:
(i) Within fifteen days thereafter, Lessor and Lessee shall each select an [ ] appraiser or [ ] broker ("Consultant" - check one) of their choice to act as an arbitrator. The two arbitrators so appointed shall immediately select a third mutually acceptable Consultant to act as a third arbitrator.
(ii) The three arbitrators shall within thirty days of the appointment of the third arbitrator reach a decision as to what the actual MRV for the Premises is, and whether Lessor's or Lessee's submitted MRV is the closest thereto. The decision of a majority of the arbitrators shall be binding on the parties. The submitted MRV which is determined to be the closest to the actual MRV shall thereafter be used by the Parties.
(iii) If either of the Parties fails to appoint an arbitrator within the specified fifteen days, the arbitrator timely appointed by one of them shall reach a decision on his or her own, and said decision shall be binding on the Parties.
(iv) The entire cost of such arbitration shall be paid by the party whose submitted MRV is not selected, ie. the one that is NOT the closest to the actual MRV.
2) Notwithstanding the foregoing, the new MRV shall not be less than the rent payable for the month immediately preceding the rent adjustment.
FOR THIS FORM, WRITE: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 700 S. FLOWER STREET, SUITE 600, LOS ANGELES, CALIF. 90017 (C)1997 - AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
RENT ADJUSTMENT(S)
PAGE 1 OF 2
b. Upon the establishment of each New Market Rental Value:
1) the new MRV will become the new "Base Rent" for the purpose of calculating any further Adjustments, and
2) the first month of each Market Rental Value term shall become the new "Base Month" for the purpose of calculating any further Adjustments.
[ ] III. FIXED RENTAL ADJUSTMENT(S) (FRA) N/A
The Base Rent shall be increased to the following amounts on the dates set forth below:

On (Fill in FRA Adjustment Date(s)):     The New Base Rent shall be:

____________________________________     $__________________________________
____________________________________     $__________________________________
____________________________________     $__________________________________
____________________________________     $__________________________________	

B. NOTICE:
Unless specified otherwise herein, notice of any such adjustments, other than Fixed Rental Adjustments, shall be made as specified in paragraph 23 of the Lease.
C. BROKER'S FEE: N/A
The Brokers specified in paragraph 1.10 shall be paid a Brokerage Fee for each adjustment specified above in accordance with paragraph 15 of the Lease.
For this form, write: American Industrial Real Estate Association, 700 S. Flower Street, Suite 600, Los Angeles, Callf. 90017
(C) 1997 - AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
RENT ADJUSTMENT(s)
PAGE 2 of 2
[LOGO]

                OPTION (S) TO EXTEND
               STANDARD LEASE ADDENDUM

DATED__________________________________________, 1999	

BY AND BETWEEN (LESSOR) SUMO HOLDING IRVINE, LLC
(LESSEE) AMERICAN REPROGRAHICS COMPANY, LLC
ADDRESS OF PREMISES: 17721 Mitchell North Irvine, CA 91714
Paragraph 51
A. OPTION(S) TO EXTEND:
Lessor hereby grants to Lessee the option to extend the term of this Lease for 1 additional 60 month period(s) commencing when the prior term expires upon each and all of the following terms and condition:
(i) In order to exercise an option to extend, Lessee must give written notice of such election to Lessor and Lessor must receive the same at least 6 but not more than 9 months prior to the date that the option period would commence, time being of the essence. If proper notification of the exercise of an option is not given and/or received, such option shall automatically expire. Options (If there are more than one) may only be exercised consecutively.
(ii) The provisions of paragraph 39, including those relating to Lessee's Default set forth in paragraph 39.4 of this Lease, are conditions of this Option.
(iii) Except for the provisions of this Lease granting an option or options to extend the term, all of the terms and conditions of this Lease except where specifically modified by this option that shall apply.
(iv) This Option is personal to the original Lessee, and cannot be assigned or exercised by anyone other than said original Lessee and only while the original Lessee is in full possession of the Premises and without the intention of thereafter assigning or subletting.
(v) The monthly rent for each month of the option period shall be calculated as follows, using the method(s) indicated below:
(Check Method(s) to be Used and Fill in Appropriately)
[X] 1. COST OF LIVING ADJUSTMENT(s) (COLA) N/A
a. On (Fill in COLA Dates): ______________________________, 2010 the Base Rent shall be adjusted by the change, if any, from the Base Month specified below, in the Consumer Price Index of the Bureau of Labor Statistics of the U.S. Department of Labor for (select one): [ ] CPI W (Urban Wage Earners and Clerical Workers) or [ ] CPI U (All Urban Consumers), for (Fill in Urban Area):________________________________________________ All Items (1982-1984 = 100), herein referred to as "CPI"
b. The monthly rent payable in accordance with paragraph A.I.a of this Addendum shall be calculated as follows: the Base Rent set forth in paragraph 1.5 of the attached Lease, shall be multiplied by a fraction the numerator of which shall be the CPI of the calendar month two months prior to the month(s) specified in paragraph A.I.a above during which the adjustment is to take effect, and the denominator of which shall be the CPI of the calendar month which is two months prior to (select one): [ ] the first month of the term of this Lease as set forth in paragraph 1.3 ("Base Month"): or [X] (Fill in Other "Base month"): ______________________________, 2009. The sum so calculated shall constitute the new monthly rent hereunder, but in no event, shall any such new monthly rent be less than the rent payable for the month immediately preceding the rent adjustment.
c. In the event the compilation and/or publication of the CPI shall be transferred to any other governmental department or bureau or agency or shall be discontinued, then the index most nearly the same as the CPI shall be used to make such calculation. In the event that the Parties cannot agree on such alternative index, then the matter shall be submitted for decision to the American Arbitration Association in accordance with the then rules of said Association and the decision of the arbitrators shall be binding upon the parties. The cost of said Arbitration shall be paid equally by the Parties.
[X] II MARKET RENTAL VALUE ADJUSTMENT(s) (MRV)
a. On (Fill in MRV Adjustment Date(s)) _____________________________, 2009 the Base Rent shall be adjusted to the "Market Rental Value" of the property as follows:
1) Four months prior to each Market Rental Value Adjustment Date described above, the Parties shall attempt to agree upon what the new MRV will be on the adjustment date. If agreement cannot be reached, within thirty days, then:
(a) Lessor and Lessee shall immediately appoint a mutually acceptable appraiser or broker to establish the new MRV within the next thirty days. Any associated costs will be split equally between the Parties, or
(b) Both Lessor and Lessee shall each immediately make a reasonable determination of the MRV and submit such determination, in writing, to arbitration in accordance with the following the provisions:
(i) Within fifteen days thereafter, Lessor and Lessee shall each select a [X] appraiser or [ ] broker ("CONSULTANT" - check one) of their choice to act as an arbitrator. The two arbitrators so appointed shall immediately select a third mutually acceptable Consultant to act as a third arbitrator.
For this form, write: American Industrial Real Estate Association, 700 S. Flower Street, Suite 600, Los Angeles, Calif. 90017
(C) 1997 - American Industrial Real Estate Association FORM OE - 2-3/97
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(ii) The three arbitrators shall within thirty days of the appointment of the third arbitrator reach a decision as to what the actual MRV for the Premises is, and whether Lessor's or Lessee's submitted MRV is the closest thereto. The decision of a majority of the arbitrators shall be binding on the Parties. The submitted MRV which is determined to be the closest to the actual MRV shall thereafter be used by the Parties.
(iii) If either of the Parties fails to appoint an arbitrator within the specified fifteen days, the arbitrator timely appointed by one of them shall reach a decision on his or her own, and said decision shall be binding on the Parties.
(iv) The entire cost of such arbitration shall be paid by the party whose submitted MRV is not selected, ie. the one that is NOT the closest to the actual MRV.
2) Notwithstanding the foregoing, the new MRV shall not be less than the rent payable for the month immediately preceding the rent adjustment.
b. Upon the establishment of each New Market Rental Value:
1) the new MRV will become the new "Base Rent" for the purpose of calculating any further Adjustments, and
2) the first month of each Market Rental Value term shall become the new "Base Month" for the purpose of calculating any further Adjustments.
[ ] III. FIXED RENTAL ADJUSTMENT(s)(FRA) N/A
The Base Rent shall be increased to the following amounts on the dates set forth below:
On (Fill in FRA Adjustment Date(s)): The New Base Rent shall be:

___________________________________    $ _________________________
___________________________________    $ _________________________
___________________________________    $ _________________________
___________________________________    $ _________________________	

B. NOTICE:
Unless specified otherwise herein, notice of any rental adjustments, other than Fixed Rental Adjustments, shall be made as specified in paragraph 23 of the Lease.
C. BROKER'S FEE: N/A
The Brokers specified in paragraph 1.10 shall be paid a Brokerage Fee for each adjustment specified above in accordance with paragraph 15 of the Lease.
NOTICE: These forms are often modified to meet changing requirements of law and industry needs. Always write or call to make sure you are utilizing the most current form: American Industrial Real Estate Association, 700 S. Flower Street, Suite 600, Los Angeles, CA 90017. (213) 687-8777. Fax No. (213) 687-8616.
(C)1997 - AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION FORM OE-2-3/97
OPTION(S)TO EXTEND
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EXHIBIT 10.13
[LOGO] AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE -- NET
 (DO NOT USE THIS FORM FOR MULTI-TENANT BUILDINGS)
1. BASIC PROVISIONS ("BASIC PROVISIONS").
1.1 PARTIES: This Lease ("LEASE"), dated for reference purposes only,___________________________________________________, 2001, is made by and between SUMO HOLDINGS SACRAMENTO, LLC, a California Limited Liability Company ("LESSOR") and AMERICAN REPROGRAPHICS COMPANY, LLC, a California Limited Liability Company ("LESSEE"), (collectively the "PARTIES," or individually a "PARTY").
1.2 PREMISES: That certain real property, including all improvements therein or to be provided by Lessor under the terms of this Lease, and commonly known as 2210 Magnolia Street, Oakland, CA, located in the County of a Alameda, State of California, and generally described as (describe briefly the nature of the property and, if applicable, the "PROJECT", if the property is located within a Project) The legal description is attached hereto as Exhibit A
("PREMISES"). (See also Paragraph 2)
1.3 TERM: 10 years and 0 months ("ORIGINAL TERM") commencing March 7, 2001 ("COMMENCEMENT DATE") and ending March 6, 2011("EXPIRATION DATE"). (See also Paragraph 3)
1.4 EARLY POSSESSION: N/A ("EARLY POSSESSION DATE"). (See also
Paragraphs 3.2 and 3.3)
1.5 BASE RENT: $ 18,000 per month ("BASE RENT"), payable on the___________________________________________________ day of each month commencing_______________________________________. (See also Paragraph 4)
[x] If this box is checked, there are provisions in this Lease for the Base Rent to be adjusted.
1.6 BASE RENT PAID UPON EXECUTION: $ 18,000 as Base Rent for the period_________________________________________________________________________.
1.7 SECURITY DEPOSIT: $ N/A ("SECURITY DEPOSIT"). (See also Paragraph 5)
1.8 AGREED USE: The conduct of a reprographics business and related uses
(See also Paragraph 6)
1.9 INSURING PARTY: Lessee Lessor is the "INSURING PARTY" unless otherwise stated herein. (See also Paragraph 8)
1.10 REAL ESTATE BROKERS: (See also Paragraph 15)
(a) REPRESENTATION: The following real estate brokers (collectively, the "BROKERS") and brokerage relationships exist in this transaction
(check applicable boxes):
[ ]__________________________ represents Lessor exclusively ("LESSOR'S BROKER");
[ ]_______________________ represents Lessee exclusively ("LESSEE'S BROKER"); or
[ ]__________________________ represents both Lessor and Lessee ("DUAL AGENCY").
(b) PAYMENT TO BROKERS: Upon execution and delivery of this Lease by both Parties, Lessor shall pay to the Broker the fee agreed to in their separate written agreement (or if there is no such agreement, the sum of_____% of the total Base Rent for the brokerage services rendered by said Broker).
1.11 GUARANTOR. The obligations of the Lessee under this Lease are to be guaranteed by N/A ("GUARANTOR"). (See also Paragraph 37)
1.12 ADDENDA AND EXHIBITS. Attached hereto is an Addendum or Addenda consisting of Paragraphs 50 through 52 and Exhibits A, all of which constitute a part of this Lease.
2. PREMISES.
2.1 LETTING. Lessor hereby leases to Lessee, and hereby leases from Lessor, the Premises, for the term, at the rental, and upon all of the terms, covenants and conditions set forth in this Lease. Unless otherwise provided herein, any statement of size set forth in this Lease, or that may have been used in calculating rental, is an approximation which the parties agree is reasonable and the rental based thereon is not subject to revision whether or not the actual size is more or less.
2.2 CONDITION. Lessor shall deliver the Premises to Lessee broom clean and free of debris on the Commencement Date or the Early Possession Date, whichever first occurs ("START DATE"), and, so long as the required service contracts described in Paragraph 7.1(b) below are obtained by
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Lessee within thirty (30) days following the start date, warrants that the existing electrical, plumbing fire sprinkler, lighting, heating, ventilating and air conditioning systems ("HVAC"), loading doors, if any, and all other such elements in the Premises, other than those constructed by Lessee, shall be in good operating condition on said date and that the structural elements of the roof, bearing walls and foundation of any buildings on the Premises (the "BUILDING") shall be free of material defects. If a non-compliance with said warranty exists as of the Start Date, Lessor shall, as Lessor's sole obligation with respect to such matter, except as otherwise provided in this Lease, promptly after receipt of written notice from Lessee setting forth with specificity the nature and extent of such non-compliance, rectify same at Lessor's expense. If, after the Start Date, Lessee does not give Lessor written notice of any non-compliance with this warranty within: (i) one year as to the surface of the roof and the structural portions of the roof, foundations and bearing walls, (ii) six (6) months as to the HVAC systems, (iii) thirty (30) days as to the remaining systems and other elements of the Building, correction of such non-compliance shall be the obligation of Lessee at Lessee's sole cost and expense.
2.3 COMPLIANCE. Lessor warrants that the improvements on the Premises comply with all applicable laws, covenants or restrictions of record, building codes, regulations and ordinances ("APPLICABLE REQUIREMENTS") in effect on the Start Date. Said warranty does not apply to the use to which Lessee will put the Premises or to any Alterations or Utility Installations (as defined in Paragraph 7.3(a)) made or to be made by Lessee. NOTE: Lessee is responsible for determining whether or not the zoning is appropriate for Lessee's intended use, and acknowledges that past uses of the Premises may no longer be allowed. if the Premises do not comply with said warranty, Lessor shall, except as otherwise provided, promptly after receipt of written notice from Lessee setting forth with specificity the nature and extent of such non-compliance, rectify the same at Lessor's expense. If Lessee does not give Lessor written notice of a non-compliance with this warranty within six (6) months following the Start Date, correction of that non-compliance shall be the obligation of Lessee at Lessee's sole cost and expense. If the Applicable Requirements are hereafter changed (as opposed to being in existence at the Start Date, which is addressed in Paragraph 6.2(e) below) so as to require during the term of this Lease the construction of an addition to or an alteration of the Building, the remediation of any Hazardous Substance, or the reinforcement or other physical modification of the Building ("CAPITAL EXPENDITURE"), Lessor and Lessee shall allocate the cost of such work as follows:
(a) Subject to Paragraph 2.3(c) below, if such Capital Expenditures are required as a result of the specific and unique use of the Premises by Lessee as compared with uses by tenants in general, Lessee shall be fully responsible for the cost thereof, provided, however that if such Capital Expenditure is required during the last two (2) years of this Lease and the cost thereof exceeds six (6) months' Base Rent, Lessee may instead terminate this Lease unless Lessor notifies Lessee, in writing, within ten (10) days after receipt of Lessee's termination notice that Lessor has elected to pay the difference between the actual cost thereof and the amount equal to six (6) months' Base Rent. If Lessee elects termination, Lessee shall immediately cease the use of the Premises which requires such Capital Expenditure and deliver to Lessor written notice specifying a termination date at least ninety (90) days thereafter. Such termination date shall, however, in no event be earlier than the last day that Lessee could legally utilize the Premises without commencing such Capital Expenditure.
(b) If such Capital Expenditure is not the result of the specific and unique use of the Premises by Lessee (such as, governmentally mandated seismic modifications), then Lessor and Lessee shall allocate the obligation to pay for such costs pursuant to the provisions of Paragraph 7.1(c); provided, however, that if such Capital Expenditure is required during the last two years of this Lease or if Lessor reasonably determines that it is not economically feasible to pay its share thereof, Lessor shall have the option to terminate this Lease upon ninety (90) days prior written notice to Lessee unless Lessee notifies Lessor, in writing, within ten (10) days after receipt of Lessor's termination notice that Lessee will pay for such Capital Expenditure. If Lessor does not elect to terminate, and fails to tender its share of any such Capital Expenditure, Lessee may advance such funds and deduct same, with Interest, from Rent until Lessor's share of such costs have been fully paid. If Lessee is unable to finance Lessor's share, or if the balance of the Rent due and payable for the remainder of this Lease is not sufficient to fully reimburse Lessee on an offset basis, Lessee shall have the right to terminate this Lease upon thirty
(30) days written notice to Lessor.
(c) Notwithstanding the above, the provisions concerning Capital Expenditures are intended to apply only to non-voluntary, unexpected, and new Applicable Requirements. If the Capital Expenditures are instead triggered by Lessee as a result of an actual or proposed change in use, change in intensity of use, or modification to the Premises then, and in that event, Lessee shall be fully responsible for the cost thereof, and Lessee shall not have any right to terminate this Lease.
2.4 ACKNOWLEDGEMENTS. Lessee acknowledges that: (a) it has been advised by Lessor and/or Brokers to satisfy itself with respect to the condition of the Premises (including but not limited to the electrical, HVAC and fire sprinkler systems, security, environmental aspects, and compliance with Applicable Requirements), and their suitability for Lessee's intended use; (b) Lessee has made such investigation as it deems necessary with reference to such matters and assumes all responsibility therefor as the same relate to its occupancy of the Premises; and (c) neither Lessor, Lessor's agents, nor any Broker has made any oral or written representations or warranties with respect to said matters other than as set forth in this Lease. In addition, Lessor acknowledges that: (a) Broker has made no representations, promises or warranties concerning Lessee's ability to honor the Lease or suitability to occupy the Premises; and (b) it is Lessor's sole responsibility to investigate the financial capability and/or suitability of all proposed tenants.
2.5 LESSEE AS PRIOR OWNER/OCCUPANT. The warranties made by Lessor in Paragraph 2 shall be of no force or effect if immediately prior to the Start Date Lessee was the owner or occupant of the Premises. In such event, Lessee shall be responsible for any necessary corrective work.
3. TERM.
3.1 TERM. The Commencement Date, Expiration Date and Original Term of this Lease are as specified in Paragraph 1.3.
3.2 EARLY POSSESSION. If Lessee totally or partially occupies the Premises prior to the Commencement Date, the obligation to pay Base Rent shall be abated for the period of such early possession. All other terms of this Lease (including, but not limited to, the obligations to pay Real Property Taxes and insurance premiums and to maintain the Premises) shall, however, be in effect during such period. Any such early possession shall not affect the Expiration Date.
3.3 DELAY IN POSSESSION. Lessor agrees to use its best commercially reasonable efforts to deliver possession of the Premises to Lessee by the Commencement Date. If, despite said efforts, Lessor is unable to deliver possession as agreed, Lessor shall not be subject to any liability therefor, nor shall such failure affect the validity of this Lease. Lessee shall not, however, be obligated to pay Rent or perform its other obligations until it receives possession of the Premises. If possession is not delivered within sixty (60) days after the Commencement Date, Lessee may, at its option, by notice in writing within ten (10) days after the end of such sixty (60) day period, cancel this Lease, in which event the Parties shall be discharged from all obligations hereunder. If such written notice is not received by Lessor within said ten (10) day period, Lessee's right to cancel shall terminate. Except as otherwise provided, if possession is not tendered to Lessee by the Start Date and Lessee does not terminate this Lease, as aforesaid, any period of rent abatement that Lessee would otherwise have enjoyed shall run from the date of delivery of possession and continue for a period equal to what Lessee would otherwise have
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enjoyed under the terms hereof, but minus any days of delay caused by the acts or omissions of Lessee. If possession of the Premises is not delivered within four (4) months after the Commencement Date, this Lease shall terminate unless other agreements are reached between Lessor and Lessee, in writing.
3.4 LESSEE COMPLIANCE. Lessor shall not be required to tender possession of the Premises to Lessee until Lessee complies with its obligation to provide evidence of insurance (Paragraph 8.5). Pending delivery of such evidence, Lessee shall be required to perform all of its obligations under this Lease from and after the Start Date, including the payment of Rent, notwithstanding, Lessor's election to withhold possession pending receipt of Such evidence of insurance. Further, if Lessee is required to perform any other conditions prior to or concurrent with the Start Date, the Start Date shall occur but Lessor may elect to withhold possession until such conditions are satisfied.
4. RENT.
4.1. RENT DEFINED. All monetary obligations of Lessee to Lessor under the terms of this Lease (except for the Security Deposit) are deemed to be rent ("RENT").
4.2 PAYMENT. Lessee shall cause payment of Rent to be received by Lessor in lawful money of the United States, without offset or deduction (except as specifically permitted in this Lease), on or before the day on which it is due. Rent for any period during the term hereof which is for less than one (1) full calendar month shall be prorated based upon the actual number of days of said month. Payment of Rent shall be made to Lessor at its address stated herein or to such other persons or place as Lessor may from time to time designate in writing. Acceptance of a payment which is less than the amount then due shall not be a waiver of Lessor's rights to the balance of such Rent, regardless of Lessor's endorsement of any check so stating.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof the Security Deposit as security for Lessee's faithful performance of its obligations under this Lease. If Lessee fails to pay Rent, or otherwise Defaults under this Lease, Lessor may use, apply or retain all or any portion of said Security Deposit for the payment of any amount due Lessor or to reimburse or compensate Lessor for any liability, expense, loss or damage which Lessor may suffer or incur by reason thereof. If Lessor uses or applies all or any portion of said Security Deposit, Lessee shall within ten (10) days after written request therefor deposit monies with Lessor sufficient to restore said Security Deposit to the full amount required by this Lease. If the Base Rent increases during the term of this Lease, Lessee shall, upon written request from Lessor, deposit additional monies with Lessor so that the total amount of the Security Deposit shall at all times bear the same proportion to the increased Base Rent as the initial Security Deposit bore to the initial Base Rent. Should the Agreed Use be amended to accommodate a material change in the business of Lessee or to accommodate a sublessee or assignee, Lessor shall have the right to increase the Security Deposit to the extent necessary, in Lessor's reasonable judgment, to account for any increased wear and tear that the Premises may suffer as a result thereof. If a change in control of Lessee occurs during this Lease and following such change the financial condition of Lessee is, in Lessor's reasonable judgment, significantly reduced, Lessee shall deposit such additional monies with Lessor as shall be sufficient to cause the Security Deposit to be at a commercially reasonable level based on said change in financial condition. Lessor shall not be required to keep the Security Deposit separate from its general accounts. Within fourteen (14) days after the expiration or termination of this Lease, if Lessor elects to apply the Security Deposit only to unpaid Rent and otherwise within thirty (30) days after the Premises have been vacated pursuant to Paragraph 7.4(c) below, Lessor shall return that portion of the Security Deposit not used or applied by Lessor. No part of the Security Deposit shall be considered to be held in trust, to bear interest or to be prepayment for any monies to be paid by Lessee under this Lease.
6. USE.
6.1 USE. Lessee shall use and occupy the Premises only for the Agreed Use, or any other legal use which is reasonably comparable thereto, and for no other purpose. Lessee shall not use or permit the use of the Premises in a manner that is unlawful, creates damage, waste or a nuisance, or that disturbs owners and/or occupants of, or causes damage to neighboring properties. Lessor shall not unreasonably withhold or delay its consent to any written request for a modification of the Agreed Use, so long as the same will not impair the structural integrity of the improvements on the Premises or the mechanical or electrical systems therein, is not significantly more burdensome to the Premises. If Lessor elects to withhold consent, Lessor shall within five (5) business days after such request give written notification of same, which notice shall include an explanation of Lessor's objections to the change in use.
6.2 HAZARDOUS SUBSTANCES.
(a) REPORTABLE USES REQUIRE CONSENT. The term "HAZARDOUS SUBSTANCE" as used in this Lease shall mean any product, substance, or waste whose presence, use, manufacture, disposal, transportation, or release, either by itself or in combination with other materials expected to be on the Premises, is either: (i) potentially injurious to the public health, safety or welfare, the environment or the Premises, (ii) regulated or monitored by any governmental authority, or (iii) a basis for potential liability of Lessor to any governmental agency or third party under any applicable statute or common law theory. Hazardous Substances shall include, but not be limited to, hydrocarbons, petroleum, gasoline, and/or crude oil or any products, by-products or fractions thereof. Lessee shall not engage in any activity in or on the Premises which constitutes a Reportable Use of Hazardous Substances without the express prior written consent of Lessor and timely compliance (at Lessee's expense) with all Applicable Requirements. "REPORTABLE USE" shall mean (i) the installation or use of any above or below ground storage tank, (ii) the generation, possession, storage, use, transportation, or disposal of a Hazardous Substance that requires a permit from, or with respect to which a report, notice, registration or business plan is required to be filed with, any governmental authority, and/or
(iii) the presence at the Premises of a Hazardous Substance with respect to which any Applicable Requirements requires that a notice be given to persons entering or occupying the Premises or neighboring properties. Notwithstanding the foregoing, Lessee may use any ordinary and customary materials reasonably required to be used in the normal course of the Agreed Use, so long as such use is in compliance with all Applicable Requirements, is not a Reportable Use, and does not expose the Premises or neighboring property to any meaningful risk of contamination or damage or expose Lessor to any liability therefor. In addition, Lessor may condition its consent to any Reportable Use upon receiving such additional assurances as Lessor reasonably deems necessary to protect itself, the public, the Premises and/or the environment against damage, contamination, injury and/or liability, including, but not limited to, the installation (and removal on or before Lease expiration or termination) of protective modifications (such as concrete encasements) and/or increasing the Security Deposit.
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable cause to believe, that a Hazardous Substance has come to be located in, on, under, or about the Premises, other than as previously consented to by Lessor, Lessee shall immediately give written notice of such fact to Lessor, and provide Lessor with a copy of any report, notice, claim or other documentation which it has concerning the presence of such Hazardous Substance.
(c) LESSEE REMEDIATION. Lessee shall not cause or permit any Hazardous Substance to be spilled or released in, on, under, or about the Premises (including through the plumbing or sanitary sewer system) and shall promptly, at Lessee's expense, take all investigatory and/or remedial action reasonably recommended, whether or not formally ordered or required, for the cleanup of any contamination of, and for the maintenance, security and/or monitoring of the Premises or neighboring properties, that was caused or materially contributed to by Lessee, or pertaining to or involving any Hazardous
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Substance brought onto the Premises during the term of this Lease, by or for Lessee, or any third party.
(d) LESSEE INDEMNIFICATION. Lessee shall indemnify, defend and hold Lessor, its agents, employees, lenders and ground lessor, if any, harmless from and against any and all loss of rents and/or damages, liabilities, judgments, claims, expenses, penalities, and attorneys' and consultants' fees arising out of or involving any Hazardous Substance brought onto the Premises by or for Lessee, or any third party( provided, however, that Lessee shall have no liability under this Lease with respect to underground migration of any Hazardous Substance under the Premises from adjacent properties). Lessee's obligations shall include, but not be limited to, the effects of any contamination or injury to person, property or the environment created or suffered by Lessee, and the cost of investigation, removal, remediation, restoration and/or abatement, and shall survive the expiration or termination of this Lease. No termination, cancellation or release agreement entered into by Lessor and Lessee shall release Lessee from its obligations under this Lease with respect to Hazardous Substances, unless specifically so agreed by Lessor in writing at the time of such agreement.
(e) LESSOR INDEMNIFICATION. Lessor and its successors and assigns shall indemnify, defend, reimburse and hold Lessee, its employees and lenders, harmless from and against any and all environmental damages, including the cost of remediation, which existed as a result of Hazardous Substances on the Premises prior to the Start Date or which are caused by the gross negligence or willful misconduct of Lessor, its agents or employees. Lessor's obligations, as and when required by the Applicable Requirements, shall include, but not be limited to, the cost of investigation, removal, remediation, restoration and/or abatement, and shall survive the expiration or termination of this Lease.
(f) INVESTIGATIONS AND REMEDIATIONS. Lessor shall retain the responsibility and pay for any investigations or remediation measures required by governmental entities having jurisdiction with respect to the existence of Hazardous Substances on the Premises prior to the Start Date, unless such remediation measure is required as a result of Lessee's use (including "Alterations", as defined in Paragraph 7.3(a) below) of the Premises, in which event Lessee shall be responsible for such payment. Lessee shall cooperate fully in any such activities at the request of Lessor, including allowing Lessor and Lessor's agents to have reasonable access to the Premises at reasonable times in order to carry out Lessor's investigative and remedial responsibilities.
(g) LESSOR TERMINATION OPTION. If a Hazardous Substance Condition occurs during the term of this Lease, unless Lessee is legally responsible therefor (in which case Lessee shall make the investigation and remediation thereof required by the Applicable Requirements and this Lease shall continue in full force and effect, but subject to Lessor's rights under Paragraph 6.2(d) and Paragraph 13), Lessor may, at Lessor's option, either (i) investigate and remediate such Hazardous Substance Condition, if required, as soon as reasonably possible at Lessor's expense, in which event this Lease shall continue in full force and effect, or (ii) if the estimated cost to remediate such condition exceeds twelve (12) times the then monthly Base Rent or $100,000, whichever is greater, give written notice to Lessee, within thirty (30) days after receipt by Lessor of knowledge of the occurrence of such Hazardous Substance Condition, of Lessor's desire to terminate this Lease as of the date sixty (60) days following the date of such notice. In the event Lessor elects to give a termination notice, Lessee may, within ten(10) days thereafter, give written notice to Lessor of Lessee's commitment to pay the amount by which the cost of the remediation of such Hazardous Substance Condition exceeds and amount equal to twelve (12) times the then monthly Base Rent or $100,000, whichever is greater. Lessee shall provide Lessor with said funds or satisfactory assurance thereof within thirty(30) days following such commitment. In such event, this Lease shall continue in full force and effect, and Lessor shall proceed to make such remediation as soon as reasonably possible after the required funds are available. If Lessee does not give such notice and provide the required funds or assurance thereof within the time provide, this Lease shall terminate as of the date specified in Lessor's notice of termination.
6.3 LESSEE'S, COMPLIANCE WITH APPLICABLE REQUIREMENTS. Excepts as otherwise provided in this Lease, Lessee shall, at Lessee's sole expense fully, diligently and in a timely manner, materially comply with all Applicable Requirements, the requirements of any applicable fire insurance underwriter or rating bureau, and the recommendations of Lessor's engineers and/or consultants which relate in any manner to the Premises, without regard to whether said requirements are now effect or become effective after the Start Date. Lessee shall, within ten (10) days after receipt of Lessor's written request, provide Lessors with copies of all permits and other documents, and other information evidencing Lessee's compliance with any Applicable Requirements specified by Lessor, and shall immediately upon receipt, notify Lessor in writing (with copies of any documents involved) of any threatened or actual claim, notice, citation, warning, complaint or report pertaining to or involving the failure of Lessee or the Premises to comply with any Applicable Requirements.
6.4 INSPECTION; COMPLIANCE. Lessor and Lessor's "Lender" (as defined in Paragraph 30 below) and consultants shall have the right to enter into Premises at any time, in the case of an emergency, and otherwise at reasonable times, for the purpose of inspecting the condition of the Premises and for verifying compliance by Lessee with this Lease. The cost of any such inspection shall be paid by Lessor, unless a violation of Applicable Requirements, or a contamination is found to exist or be imminent, or the inspection is requested or ordered by a governmental authority. In such case, Lessee shall upon request reimburse Lessor for the cost of such inspections, so long as such inspection is reasonably related to the violation or contamination.
7. MAINTENANCE; REPAIRS, UTILITY INSTALLATIONS; TRADE FIXTURES AND ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS.
(a) IN GENERAL. Subject to the provisions of Paragraph 2.2 (Condition), 2.3 (Compliance), 6.3 (Lessee's Compliance with Applicable Requirements), 7.2 (Lessor's Obligations), 9 (Damage or Destruction ), and 14 (Condemnation), Lessee shall, at Lessee's sole expense, keep the Premises, Utility Installations, and Alterations in good order, condition and repair (whether or not the portion of the Premises requiring repairs, or the means of repairing the same, are reasonably or readily accessible to Lessee, and whether or not the need for such repairs occurs as a result of Lessee's use, any prior use, the elements or the age of such portion of the Premises), including, but not limited to, all equipment or facilities, such as plumbing, heating, ventilating, air-conditioning, electrical, lighting facilities, boilers, pressure vessels, fire protection system, fixtures, walls (interior and exterior), foundations, ceillings, roofs, floors, windows, doors, plate glass, skylights, landscaping, driveways, parking lots, fences, retaining walls, signs, sidewalks and parkways located in, on, or adjacent to the Premises. Lessee, in keeping the Premises in good order, condition and repair, shall exercise and perform good maintenance practices, specifically including the procurement and maintenance of the service contracts required by Paragraph 7.1(b) below. Lessee's obligations shall include restorations, replacements or renewals when necessary to keep the Premises and all improvement thereon or a part thereof in good order, condition and state of repair. Lessee shall, during the term of this Lease, keep the exterior appearance of the Building in a first-class condition consistent with the exterior appearance of other similar facilities of comparable age and size in the vicinity, including, when necessary, the exterior repainting of the Building.
(b) SERVICE CONTRACTS. Lessee shall, at Lessee's sole expense, procure and maintain contracts, with copies to Lessor, in customary form and substance for, and with contractors specializing and experienced in the maintenance of the following equipment and improvements, if any, if and when installed on the Premises: (i) HVAC equipment, (ii) boiler, and pressure vessels, (iii) fire extinguishing systems, including fire alarm and/or smoke detection, (iv) landscaping and irrigation systems, (v) roof covering and drains, (vi) driveways and parking lots, (vii) clarifiers (viii) basic utility feed to the perimeter of the Building, and (ix) any other equipment, if reasonably required by Lessor.
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(c) REPLACEMENT. Subject to Lessee's indemnification of Lessor as set forth in Paragraph 8.7 below, and without relieving Lessee of liability resulting from Lessee's failure to exercise and perform good maintenance practices, if the Basic Elements described in Paragraph 7.1(b) cannot be repaired other than at a cost which is in excess of 50% of the cost of replacing such Basic Elements, then such Basic Elements shall be replaced by Lessor, and the cost thereof shall be prorated between the Parties and Lessee shall only be obligated to pay, each month during the remainder of the term of this Lease, on the date on which Base Rent is due, an amount equal to the product of multiplying the cost of such replacement by a fraction, the numerator of which is one, and the denominator of which is the number of months of the useful life of such replacement as such useful life is specified pursuant to Federal income tax regulations or guidelines for depreciation thereof (including interest on the unamortized balance as is then commercially reasonable in the judgment of Lessor's accountants), with Lessee reserving the right to prepay its obligation at any time.
7.2 LESSOR'S OBLIGATIONS. Subject to the provisions of Paragraphs 2.2 (Condition), 2.3 (Compliance), 9 (Damage or Destruction) and 14 (Condemnation), it is intended by the Parties hereto that Lessor have no obligation, in any manner whatsoever, to repair and maintain the Premises, or the equipment therein, all of which obligations are intended to be that of the Lessee. It is the intention of the Parties that the terms of this Lease govern the respective obligations of the Parties as to maintenance and repair of the Premises, and they expressly waive the benefit of any statute now or hereafter in effect to the extent it is inconsistent with the terms of this Lease.
7.3 UTILITY INSTALLATIONS; TRADE FIXTURES; ALTERATIONS.
(a) DEFINITIONS; CONSENT REQUIRED. The term "UTILITY INSTALLATIONS" refers to all floor and window coverings, air lines, power panels, electrical distribution, security and fire protection systems, communication systems, lighting fixtures, HVAC equipment, plumbing, and fencing in or on the Premises. The term "TRADE FIXTURES" shall mean Lessee's machinery and equipment that can be removed without doing material damage to the Premises. The term "ALTERATIONS" shall mean any modification of the improvements, other than Utility Installations or Trade Fixtures, whether by addition or deletion. "LESSEE OWNED ALTERATIONS AND/OR UTILITY INSTALLATIONS" are defined as Alterations and/or Utility Installations made by Lessee that are not yet owned by Lessor pursuant to Paragraph 7.4(a). Lessee shall not make any Alterations or Utility Installations to the Premises without Lessor's prior written consent. Lessee may, however, make non-structural Utility Installations to the interior of the Premises (excluding the roof) without such consent but upon notice to Lessor, as long as they are not visible from the outside, do not involve puncturing, relocating or removing the roof or any existing walls, and the cumulative cost thereof during this Lease as extended does not exceed $50,000 in the aggregate or $10,000 in any one year.
(b) CONSENT. Any Alterations or Utility Installations that Lessee shall desire to make and which require the consent of the Lessor shall be presented to Lessor in written form with detailed plans. Consent shall be deemed conditioned upon Lessee's: (i) acquiring all applicable governmental permits,
(ii) furnishing Lessor with copies of both the permits and the plans and specifications prior to commencement of the work, and (iii) compliance with all conditions of said permits and other Applicable Requirements in a prompt and expeditious manner. Any Alterations or Utility Installations shall be performed in a workmanlike manner with good and sufficient materials. Lessee shall promptly upon completion furnish Lessor with as-built plans and specifications. For work which costs an amount equal to the greater of one month's Base Rent, or $10,000, Lessor may condition its consent upon Lessee providing a lien and completion bond in an amount equal to one and one-half times the estimated cost of such Alteration or Utility Installation and/or upon Lessee's posting an additional Security Deposit with Lessor.
(c) INDEMNIFICATION. Lessee shall pay, when due, all claims for labor or materials furnished or alleged to have been furnished to or for Lessee at or for use on the Premises, which claims are or may be secured by any mechanic's or materialmen's lien against the Premises or any interest therein. Lessee shall give Lessor not less than ten (10) days' notice prior to the commencement of any work in, on or about the Premises, and Lessor shall have the right to post notices of non-responsibility. If Lessee shall contest the validity of any such lien, claim or demand, then Lessee shall, at its sole expense defend and protect itself, Lessor and the Premises against the same and shall pay and satisfy any such adverse judgment that may be rendered thereon before the enforcement thereof. If Lessor shall require, Lessee shall furnish a surety bond in an amount equal to one and one-half times the amount of such contested lien, claim or demand, indemnifying Lessor against liability for the same. If Lessor elects to participate in any such action, Lessee shall pay Lessor's attorneys' fees and costs.
7.4 OWNERSHIP; REMOVAL; SURRENDER; AND RESTORATION.
(a) OWNERSHIP. Subject to Lessor's right to require removal or elect ownership as hereinafter provided, all Alterations and Utility Installations made by Lessee shall be the property of Lessee, but considered a part of the Premises. Lessor may, at any time, elect in writing to be the owner of all or any specified part of the Lessee Owned Alterations and Utility Installations. Unless otherwise instructed per Paragraph 7.4(b) hereof, all Lessee Owned Alterations and Utility Installations shall, at the expiration or termination of this Lease, become the property of Lessor and be surrendered by Lessee with the Premises.
(b) REMOVAL. By delivery to Lessee of written notice from Lessor not earlier than ninety (90) and not later than thirty (30) days prior to the end of the term of this Lease. Lessor may require that any or all Lessee Owned Alterations or Utility Installations be removed by the expiration or termination of this Lease. Lessor may require the removal at any time of all or any part of any Lessee Owned Alterations or Utility Installations made without the required consent.
(c) SURRENDER/RESTORATION. Lessee shall surrender the Premises by the Expiration Date or any earlier termination date, with all of the improvements, parts and surfaces thereof broom clean and free of debris, and in good operating order, condition and state of repair, ordinary wear and tear excepted. "Ordinary wear and tear" shall not include any damage or deterioration that would have been prevented by good maintenance practice. Lessee shall repair any damage occasioned by the installation, maintenance or removal of Trade Fixtures, Lessee Owned Alterations and/or Utility Installations, furnishings and equipment as well as the removal of any storage tank installed by or for Lessee, and the removal, replacement, or remediation of any soil, material or groundwater contaminated by Lessee. Trade Fixtures shall remain the property of Lessee and shall be removed by Lessee. The failure by Lessee to timely vacate the Premises pursuant to this Paragraph 7.4(c) without the express written consent of Lessor shall constitute a holdover under the provisions of Paragraph 26 below.
8. INSURANCE; INDEMNITY.
8.1 PAYMENT FOR INSURANCE. Lessee shall pay for all insurance required under Paragraph 8 except to the extent of the cost attributable to liability insurance carried by Lessor under Paragraph 8.2(b) in excess of $2,000,000 per occurrence. Premiums for policy periods commencing prior to or extending beyond the Lease term shall be prorated to correspond to the Lease term. Payment shall be made by Lessee to Lessor within ten (10) days following receipt of an invoice.
8.2 LIABILITY INSURANCE.
(a) CARRIED BY LESSEE. Lessee shall obtain and keep in force a Commercial General Liability Policy of Insurance protecting Lessee and
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Lessor against claims for bodily injury, personal injury and property damage based upon or arising out of the ownership, use, occupancy or maintenance of the Premises and all areas appurtenant thereto. Such insurance shall be on an occurrence basis providing single limit coverage in an amount not less than $2,000,000 per occurrence with an "ADDITIONAL INSURED-MANAGERS OR LESSORS OF PREMISES ENDORSEMENT" and contain the "AMENDMENT OF THE POLLUTION EXCLUSION ENDORSEMENT" for damage caused by heat, smoke or fumes from a hostile fire. The Policy shall not contain any intra-insured exclusions as between insured persons or organizations, but shall include coverage for liability assumed under this Lease as an 'insured contract' for the performance of Lessee's indemnity obligations under this Lease. The limits of said insurance shall not, however, limit the liability of Lessee nor relieve Lessee of any obligation hereunder. All insurance carried by Lessee shall be primary to and not contributory with any similar insurance carried by Lessor, whose insurance shall be considered excess insurance only.
(b) CARRIED BY LESSOR. Lessor shall maintain liability insurance as described in Paragraph 8.2(a), in addition to, and not in lieu of, the insurance required to be maintained by Lessee. Lessee shall not be named as an additional insured therein.
8.3 PROPERTY INSURANCE - BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. The Insuring Party shall obtain and keep in force a policy or policies in the name of Lessor, with loss payable to Lessor, any groundlessor, and to any Lender(s) insuring loss or damage to the Premises. The amount of such insurance shall be equal to the full replacement cost of the Premises, as the same shall exist from time to time, or the amount required by any Lenders, but in no event more than the commercially reasonable and available insurable value thereof. If Lessor is the Insuring Party, however, Lessee Owned Alterations and Utility Installations, Trade Fixtures, and Lessee's personal property shall be insured by Lessee under Paragraph 8.4 rather than by Lessor. If the coverage is available and commercially appropriate, such policy or policies shall insure against all risks of direct physical loss or damage (except the perils of flood and/or earthquake unless required by a Lender), including coverage for debris removal and the enforcement of any Applicable Requirements requiring the upgrading, demolition, reconstruction or replacement of any portion of the Premises as the result of a covered loss. Said policy or policies shall also contain an agreed valuation provision in lieu of any coinsurance clause, waiver of subrogation, and inflation guard protection causing an increase in the annual property insurance coverage amount by a factor of not less than the adjusted U.S. Department of Labor Consumer Price Index for All Urban Consumers for the city nearest to where the Premises are located. If such insurance coverage has a deductible clause, the deductible amount shall not exceed $1,000 per occurrence, and Lessee shall be liable for such deductible amount in the event of an Insured Loss.
(b) RENTAL VALUE. The Insuring Party shall obtain and keep in force a policy or policies in the name of Lessor with loss payable to Lessor and any Lender, insuring the loss of the full Rent for one (1) year. Said insurance shall provide that in the event the Lease is terminated by reason of an insured loss, the period of indemnity for such coverage shall be extended beyond the date of the completion of repairs or replacement of the Premises, to provide for one full year's loss of Rent from the date of any such loss. Said insurance shall contain an agreed valuation provision in lieu of any coinsurance clause, and the amount of coverage shall be adjusted annually to reflect the projected Rent otherwise payable by Lessee, for the next twelve (12) month period. Lessee shall be liable for any deductible amount in the event of such loss.
(c) ADJACENT PREMISES. If the Premises are part of a larger building, or of a group of buildings owned by Lessor which are adjacent to the Premises, the Lessee shall pay for any increase in the premiums for the property insurance of such building or buildings if said increase is caused by Lessee's acts, omissions, use or occupancy of the Premises.
8.4 LESSEE'S PROPERTY/BUSINESS INTERRUPTION INSURANCE.
(a) PROPERTY DAMAGE. Lessee shall obtain and maintain insurance coverage on all of Lessee's personal property, Trade Fixtures, and Lessee Owned Alterations and Utility Installations. Such insurance shall be full replacement cost coverage with a deductible of not to exceed $1,000 per occurrence. The proceeds from any such insurance shall be used by Lessee for the replacement of personal property, Trade Fixtures and Lessee Owned Alterations and Utility Installations. Lessee shall provide Lessor with written evidence that such insurance is in force.
(b) BUSINESS INTERRUPTION. Lessee shall obtain and maintain loss of income and extra expense insurance in amounts as will reimburse Lessee for direct or indirect loss of earnings attributable to all perils commonly insured against by prudent lessees in the business of Lessee or attributable to prevention of access to the Premises as a result of such perils.
(c) NO REPRESENTATION OF ADEQUATE COVERAGE. Lessor makes no representation that the limits or forms of coverage of insurance specified herein are adequate to cover Lessee's property, business operations or obligations under this Lease.
8.5 INSURANCE POLICIES. Insurance required herein shall be by companies duly licensed or admitted to transact business in the state where the Premises are located, and maintaining during the policy term a "General Policyholders Rating" of at least B+, V, as set forth in the most current issue of "Best's Insurance Guide", or such other rating as may be required by a Lender. Lessee shall not do or permit to be done anything which invalidates the required insurance policies. Lessee shall, prior to the Start Date, deliver to Lessor certified copies of policies of such insurance or certificates evidencing the existence and amounts of the required insurance. No such policy shall be cancelable or subject to modification except after thirty (30) days prior written notice to Lessor. Lessee shall, at least thirty (30) days prior to the expiration of such policies, furnish Lessor with evidence of renewals or "insurance binders" evidencing renewal thereof, or Lessor may order such insurance and charge the cost thereof to Lessee, which amount shall be payable by Lessee to Lessor upon demand. Such policies shall be for a term of at least one year, or the length of the remaining term of this Lease, whichever is less. If either Party shall fail to procure and maintain the insurance required to be carried by it, the other Party may, but shall not be required to, procure and maintain the same.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or remedies, Lessee and Lessor each hereby release and relieve the other, and waive their entire right to recover damages against the other, for loss of or damage to its property arising out of or incident to the perils required to be insured against herein. The effect of such releases and waivers is not limited by the amount of insurance carried or required, or by any deductibles applicable hereto. The Parties agree to have their respective property damage insurance carriers waive any right to subrogation that such companies may have against Lessor or Lessee, as the case may be, so long as the insurance is not invalidated thereby.
8.7 INDEMNITY. Except for Lessor's gross negligence or willful misconduct, Lessee shall indemnify, protect, defend and hold harmless the Premises, Lessor and its agents, Lessor's master or ground lessor, partners and Lenders, from and against any and all claims, loss of rents and/or damages, liens, judgments, penalties, attorneys' and consultants' fees, expenses and/or liabilities arising out of, involving, or in connection with, the use and/or occupancy of the Premises by Lessee. If any action or proceeding is brought against Lessor by reason of any of the foregoing matters, Lessee shall upon notice defend the same at Lessee's expense by counsel reasonably satisfactory to Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need not have first paid any such claim in order to be defended or indemnified.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable for injury or damage to the person or goods, wares, merchandise or other property of Lessee, Lessee's employees, contractors, invitees, customers, or any other person in or about the Premises, whether such damage or injury is
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caused by or results from fire, steam, electricity, gas, water or rain, or from the breakage, leakage, obstruction or other defects of pipes, fire sprinklers, wires, appliances, plumbing, HVAC or lighting fixtures, or from any other cause, whether the said injury or damage results from conditions arising upon the Premises or upon other portions of the Building of which the Premises are a part, or from other sources or places. Lessor shall not be liable for any damages arising from any act or neglect of any other tenant of Lessor. Notwithstanding Lessor's negligence or breach of this Lease, Lessor shall under no circumstances be liable for injury to Lessee's business or for any loss of income or profit therefrom.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction to the improvements on the Premises, other than Lessee Owned Alterations and Utility Installations, which can reasonably be repaired in six (6) months or less from the date of the damage or destruction. Lessor shall notify Lessee in writing within thirty (30) days from the date of the damage or destruction as to whether or not the damage is Partial or Total.
(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or destruction to the Premises, other than Lessee Owned Alterations and Utility Installations and Trade Fixtures, which cannot reasonably be repaired in six (6) months or less from the date of the damage or destruction. Lessor shall notify Lessee in writing within thirty (30) days from the date of the damage or destruction as to whether or not the damage is Partial or Total.
(c) "INSURED LOSS" shall mean damage or destruction to improvements on the Premises, other than Lessee Owned Alterations and Utility Installations and Trade Fixtures, which was caused by an event required to be covered by the insurance described in Paragraph 8.3(a), irrespective of any deductible amounts or coverage limits involved.
(d) "REPLACEMENT COST" shall mean the cost to repair or rebuild the improvements owned by Lessor at the time of the occurrence to their condition existing immediately prior thereto, including demolition, debris removal and upgrading required by the operation of Applicable Requirements, and without deduction for depreciation.
(e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the occurrence or discovery of a condition involving the presence of, or a contamination by, a Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the Premises.
9.2 PARTIAL DAMAGE - INSURED LOSS. If a Premises Partial Damage that is an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such damage (but not Lessee's Trade Fixtures or Lessee Owned Alterations and Utility Installations) as soon as reasonably possible and this Lease shall continue in full force and effect; provided, however, that Lessee shall, at Lessor's election, make the repair of any damage or destruction the total cost to repair of which is $10,000 or less, and, in such event, Lessor shall make any applicable insurance proceeds available to Lessee on a reasonable basis for that purpose. Notwithstanding the foregoing, if the required insurance was not in force or the insurance proceeds are not sufficient to effect such repair, the Insuring Party shall promptly contribute the shortage in proceeds (except as to the deductible which is Lessee's responsibility) as and when required to complete said repairs. In the event, however, such shortage was due to the fact that, by reason of the unique nature of the improvements, full replacement cost insurance coverage was not commercially reasonable and available, Lessor shall have no obligation to pay for the shortage in insurance proceeds or to fully restore the unique aspects of the Premises unless Lessee provides Lessor with the funds to cover same, or adequate assurance thereof, within ten (10) days following receipt of written notice of such shortage and request therefor. If Lessor receives said funds or adequate assurance thereof within said ten (10) day period, the party responsible for making the repairs shall complete them as soon as reasonably possible and this Lease shall remain in full force and effect. If such funds or assurance are not received, Lessor may nevertheless elect by written notice to Lessee within ten (10) days thereafter to: (i) make such restoration and repair as is commercially reasonable with Lessor paying any shortage in proceeds, in which case this Lease shall remain in full force and effect, or have this Lease terminate thirty (30) days thereafter. Lessee shall not be entitled to reimbursement of any funds contributed by Lessee to repair any such damage or destruction. Premises Partial Damage due to flood or earthquake shall be subject to Paragraph 9.3, notwithstanding that there may be some insurance coverage, but the net proceeds of any such insurance shall be made available for the repairs if made by either Party.
9.3 PARTIAL DAMAGE - UNINSURED LOSS. If a Premises Partial Damage that is not an Insured Loss occurs, unless caused by a negligent or willful act of Lessee (in which event Lessee shall make the repairs at Lessee's expense), Lessor may either: (i) repair such damage as soon as reasonably possible at Lessor's expense, in which event this Lease shall continue in full force and effect, or (ii) terminate this Lease by giving written notice to Lessee within thirty (30) days after receipt by Lessor of knowledge of the occurrence of such damage. Such termination shall be effective sixty (60) days following the date of such notice. In the event Lessor elects to terminate this Lease, Lessee shall have the right within ten (10) days after receipt of the termination notice to give written notice to Lessor of Lessee's commitment to pay for the repair of such damage without reimbursement from Lessor. Lessee shall provide Lessor with said funds or satisfactory assurance thereof within thirty (30) days after making such commitment. In such event this Lease shall continue in full force and effect, and Lessor shall proceed to make such repairs as soon as reasonably possible after the required funds are available. If Lessee does not make the required commitment, this Lease shall terminate as of the date specified in the termination notice.
9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof, if a Premises Total Destruction occurs, this Lease shall terminate sixty (60) days following such Destruction. If the damage or destruction was caused by the gross negligence or willful misconduct of Lessee, Lessor shall have the right to recover Lessor's damages from Lessee, except as provided in Paragraph 8.6.
9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6) months of this Lease there is damage for which the cost to repair exceeds one (1) month's Base Rent, whether or not an Insured Loss, Lessor may terminate this Lease effective sixty (60) days following the date of occurrence of such damage by giving a written termination notice to Lessee within thirty (30) days after the date of occurrence of such damage. Notwithstanding the foregoing, if Lessee at that time has an exercisable option to extend this Lease or to purchase the Premises, then Lessee may preserve this Lease by, (a) exercising such option and
(b) providing Lessor with any shortage in insurance proceeds (or adequate assurance thereof) needed to make the repairs on or before the earlier of (i) the date which is ten days after Lessee's receipt of Lessor's written notice purporting to terminate this Lease, or (ii) the day prior to the date upon which such option expires. If Lessee duly exercises such option during such period and provides Lessor with funds (or adequate assurance thereof) to cover any shortage in insurance proceeds, Lessor shall, at Lessor's commercially reasonable expense, repair such damage as soon as reasonably possible and this Lease shall continue in full force and effect. If Lessee fails to exercise such option and provide such funds or assurance during such period, then this Lease shall terminate on the date specified in the termination notice and Lessee's option shall be extinguished.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) ABATEMENT. In the event of Premises Partial Damage or Premises Total Destruction or a Hazardous Substance Condition for which Lessee is not responsible under this Lease, the Rent payable by Lessee for the period required for the repair, remediation or restoration of such damage shall be abated in proportion to the degree to which Lessee's use of the Premises is impaired, but not to exceed the proceeds received from the Rental Value insurance. All other obligations of Lessee hereunder shall be performed by Lessee, and Lessor shall have no liability for any such damage, destruction,
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remediation, repair or restoration except as provided herein.
(b) REMEDIES. If Lessor shall be obligated to repair or restore the Premises and does not commence , in a substantial and meaningful way, such repair or restoration within ninety (90) days after such obligation shall accrue, Lessee may, at any time prior to the commencement of such repair or restoration, give written notice to Lessor and to any Lenders of which Lessee has actual notice, of Lessee's election to terminate this Lease on a date not less than sixty (60) days following the giving of such notice. If Lessee gives such notice and such repair or restoration is not commenced within thirty (30) days thereafter, this Lease shall terminate as of the date specified in said notice. If the repair or restoration is commenced within said thirty (30) days, this Lease shall continue in full force and effect. "COMMENCE" shall mean either the unconditional authorization of the preparation of the required plans, or the beginning of the actual work on the Premises, whichever first occurs.
9.7 TERMINATION - ADVANCE PAYMENTS. Upon termination of this Lease pursuant to Paragraph 6.2(g) or Paragraph 9, an equitable adjustment shall be made concerning advance Base Rent and any other advance payments made by Lessee to Lessor. Lessor shall, in addition, return to Lessee so much of Lessee's Security Deposit as has not been, or is not then required to be, used by Lessor.
9.8 WAIVE STATUTES. Lessor and Lessee agree that the terms of this Lease shall govern the effect of any damage to or destruction of the Premises with respect to the termination of this Lease and hereby waive the provisions of any present or future statute to the extent inconsistent herewith.
10. REAL PROPERTY TAXES.
10.1 DEFINITION OF "REAL PROPERTY TAXES." As used herein, the term "REAL PROPERTY TAXES" shall include any form of assessment; real estate, general, special, ordinary or extraordinary, or rental levy or tax (other than inheritance, personal income or estate taxes); improvement bond; and/or license fee imposed upon or levied against any legal or equitable interest of Lessor in the Premises, Lessor's right to other income therefrom, and/or Lessor's business of leasing, by any authority having the direct or indirect power to tax and where the funds are generated with reference to the Building address and where the proceeds so generated are to be applied by the city, county or other local taxing authority of a jurisdiction within which the Premises are located. The term "REAL PROPERTY TAXES" shall also include any tax, fee, levy, assessment or charge, or any increase therein, imposed by reason of events occurring during the term of this Lease, including but not limited to, a change in the ownership of the Premises.
10.2
(a) PAYMENT OF TAXES. Lessee shall pay the Real Property Taxes applicable to the Premises during the term of this Lease. Subject to Paragraph 10.2(b), all such payments shall be made at least ten (10) days prior to any delinquency date. Lessee shall promptly furnish Lessor with satisfactory evidence that such taxes have been paid. If any such taxes shall cover any period of time prior to or after the expiration or termination of this Lease, Lessee's share of such taxes shall be prorated to cover only that portion of the tax bill applicable to the period that this Lease is in effect, and Lessor shall reimburse Lessee for any overpayment. If Lessee shall fail to pay any required Real Property Taxes, Lessor shall have the right to pay the same, and Lessee shall reimburse Lessor therefor upon demand.
(b) ADVANCE PAYMENT. In the event Lessee incurs a late charge on any Rent payment, Lessor may, at Lessor's option, estimate the current Real Property Taxes, and require that such taxes be paid in advance to Lessor by Lessee, either: (i) in a lump sum amount equal to the installment due, at least twenty
(20) days prior to the applicable delinquency date, or (ii) monthly in advance with the payment of the Base Rent. If Lessor elects to require payment monthly in advance, the monthly payment shall be an amount equal to the amount of the estimated installment of taxes divided by the number of months remaining before the month in which said installment becomes delinquent. When the actual amount of the applicable tax bill is known, the amount of such equal monthly advance payments shall be adjusted as required to provide the funds needed to pay the applicable taxes. If the amount collected by Lessor is insufficient to pay such Real Property Taxes when due, Lessee shall pay Lessor, upon demand, such additional sums as are necessary to pay such obligations. All monies paid to Lessor under this Paragraph may be intermingled with other monies of Lessor and shall not bear interest. In the event of a Breach by Lessee in the performance of its obligations under this Lease, then any balance of funds paid to Lessor under the provisions of this Paragraph may, at the option of Lessor, be treated as an additional Security Deposit.
10.3 JOINT ASSESSMENT. If the Premises are not separately assessed, Lessee's liability shall be an equitable proportion of the Real Property Taxes for all of the land and improvements included within the tax parcel assessed, such proportion to be conclusively determined by Lessor from the respective valuations assigned in the assessor's work sheets or such other information as may be reasonably available.
10.4 PERSONAL PROPERTY TAXES. Lessee shall pay, prior to delinquency, all taxes assessed against and levied upon Lessee Owned Alterations, Utility Installations, Trade Fixtures, furnishings, equipment and all personal property of Lessee. When possible, Lessee shall cause such property to be assessed and billed separately from the real property of Lessor. If any of Lessee's said personal property shall be assessed with Lessor's real property, Lessee shall pay Lessor the taxes attributable to Lessee's property within ten (10) days after receipt of a written statement.
11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power, telephone, trash disposal and other utilities and services supplied to the Premises, together with any taxes thereon. If any such services are not separately metered to Lessee, Lessee shall pay a reasonable proportion, to be determined by Lessor, of all charges jointly metered.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED.
(a) Lessee shall not voluntarily or by operation of law assign, transfer, mortgage or encumber (collectively, "ASSIGN OR ASSIGNMENT") or sublet all or any part of Lessee's interest in this Lease or in the Premises without Lessor's prior written consent.
(b) A change in the control of Lessee shall constitute an assignment requiring consent. The transfer, on a cumulative basis, of twenty-five percent (25%) or more of the voting control of Lessee shall constitute a change in control for this purpose.
(c) The involvement of Lessee or its assets in any transaction, or series of transactions (by way of merger, sale, acquisition, financing, transfer leveraged buy-out or otherwise), whether or not a formal assignment or hypothecation of this Lease or Lessee's assets occurs, which results or will result in a reduction of the Net Worth of Lessee by an amount greater than twenty-five percent (25%) of such Net Worth as it was represented at the time of the execution of this Lease or at the time of the most recent assignment to which Lessor has consented, or as it exists immediately prior to said transaction or transactions constituting such reduction, whichever was or is greater, shall be considered an assignment of this Lease to which Lessor may withhold its consent. "NET WORTH OF LESSEE" shall mean the net worth of Lessee (excluding any guarantors) established under generally accepted accounting principles .
(d) An assignment or subletting without consent shall, at Lessor's option, be a Default curable after notice per Paragraph 13.1(c), or a noncurable Breach without the necessity of any notice and grace period. If Lessor elects to treat such unapproved assignment or subletting as a noncurable Breach Lessor may either: (i) terminate this Lease, or (ii) upon thirty (30) days written notice, increase the monthly Base Rent to one hundred ten percent (110%)of the Base Rent then in effect. Further, in the event of such Breach and rental adjustment, (i) the purchase price of any option to purchase the
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Premises held by Lessee shall be subject to similar adjustment to one hundred ten percent (110%) of the price previously in effect, and (ii) all fixed and -non-fixed rental adjustments scheduled during the remainder of the Lease term shall be increased to One Hundred Ten Percent (110%) of the scheduled adjusted rent.
(e) Lessee's remedy for any breach of Paragraph 12.1 by Lessor shall be limited to compensatory damages and/or injunctive relief.
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, any assignment or subletting shall not: (i) be effective without the express written assumption by such assignee or sublessee of the obligations of Lessee under this Lease; (ii) release Lessee of any obligations hereunder; or (iii) alter the primary liability of Lessee for the payment of Rent or for the performance of any other obligations to be performed by Lessee.
(b) Lessor may accept Rent or performance of Lessee's obligations from any person other than Lessee pending approval or disapproval of an assignment. Neither a delay in the approval or disapproval of such assignment nor the acceptance of Rent or performance shall constitute a waiver or estoppel of Lessor's right to exercise its remedies for Lessee's Default or Breach.
(c) Lessor's consent to any assignment or subletting shall not constitute a consent to any subsequent assignment or subletting.
(d) In the event of any Default or Breach by Lessee, Lessor may proceed directly against Lessee, any Guarantors or anyone else responsible for the performance of Lessee's obligations under this lease, including any assignee or sublessee, without first exhausting Lessor's remedies against any other person or entity responsible therefore to Lessor, or any security held by Lessor.
(e) Each request for consent to an assignment or subletting shall be in writing, accompanied by information relevant to Lessor's determination as to the financial and operational responsibility and appropriateness of the proposed assignee or sublessee, including but not limited to the intended use and/or required modification of the Premises, if any, together with a fee of $1,000 or ten percent (10%) of the current monthly Base Rent applicable to the portion of the Premises which is the subject of the proposed assignment or sublease, whichever is greater, as consideration for Lessor's considering and processing said request. Lessee agrees to provide Lessor with such other or additional information and/or documentation as may be reasonably requested.
(f) Any assignee of, or sublessee under, this lease shall, by reason of accepting such assignment or entering into such sublease, be deemed to have assumed and agreed to conform and comply with each and every term, covenant, condition and obligation herein to be observed or performed by Lessee during the term of said assignment or sublease, other than such obligations as are contrary to or inconsistent with provisions of an assignment or sublease to which Lessor has specifically consented to in writing.
12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The following terms and conditions shall apply to any subletting by Lessee of all or any part of the Premises and shall be deemed included in all subleases under this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's interest in all Rent payable on any sublease, and Lessor may collect such Rent and apply same toward Lessee's obligations under this Lease; provided, however, that until a Breach shall occur in the performance of Lessee's obligations, Lessee may collect said Rent. Lessor shall not, by reason of the foregoing or any assignment of such sublease, nor by reason of the collection of Rent, be deemed liable to the sublessee for any failure of Lessee to perform and comply with any of Lessee's obligations to such sublessee. Lessee hereby irrevocably authorizes and directs any such sublessee, upon receipt of a written notice from Lessor stating that a Breach exists in the performance of Lessee's obligations under this Lease, to pay to Lessor all Rent due and to become due under the sublease. Sublessee shall rely upon any such notice from Lessor and shall pay all Rents to Lessor without any obligation or right to inquire as to whether such Breach exists, notwithstanding any claim from Lessee to the contrary.
(b) In the event of a Breach by Lessee, Lessor may, at its option, require sublessee to attorn to Lessor, in which event Lessor shall undertake the obligations of the sublessor under such sublease from the time of the exercise of said option to the expiration of such sublease; provided, however, Lessor shall not be liable for any prepaid rents or security deposit paid by such sublessee to such sublessor or for any prior Defaults or Breaches of such sublessor.
(c) Any matter requiring the consent of the sublessor under a sublease shall also require the consent of Lessor.
(d) No sublessee shall further assign or sublet all or any part of the Premises without Lessor's prior written consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach by Lessee to the sublessee, who shall have the right to cure the Default of Lessee within the grace period, if any, specified in such notice. The sublessee shall have a right of reimbursement and offset from and against Lessee for any such Defaults cured by the sublessee.
13. DEFAULT; BREACH; REMEDIES.
13.1 DEFAULT; BREACH. A "DEFAULT" is defined as a failure by the Lessee to comply with or perform any of the terms, covenants, conditions or rules under this Lease. A "BREACH" is defined as the occurrence of one or more of the following Defaults, and the failure of Lessee to cure such Default within any applicable grace period:
(a) The abandonment of the Premises; or the vacating of the Premises without providing a commercially reasonable level of security, or where the coverage of the property insurance described in Paragraph 8.3 is jeopardized as a result thereof, or without providing reasonable assurances to minimize potential vandalism.
(b) The failure of Lessee to make any payment or Rent or any Security Deposit required to be made by Lessee hereunder, whether to Lessor or to a third party, when due, to provide reasonable evidence of insurance or surety bond, or to fulfill any obligation under this Lease which endangers or threatens life or property, where such failure continues for a period of three
(3) business days following written notice to Lessee.
(c) The failure by Lessee to provide (i) reasonable written evidence of compliance with Applicable Requirements, (ii) the service contracts, (iii) the rescission of an unauthorized assignment or subletting, (iv)a Tenancy Statement, (v) a requested subordination, (vi) evidence concerning any guaranty and/or Guarantor, (vii) any document requested under Paragraph 42 (easements), or (viii) any other documentation or information which Lessor may reasonably require of Lessee under the terms of this Lease, where any such failure continues for a period of ten (10) days following written notice to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or provisions of this Lease, or of the rules adopted under Paragraph 40 hereof, other than those described in subparagraphs 13.1 (a), (b) or (c), above, where such Default continues for a period of thirty (30) days after written notice; provided, however, that if the nature of Lessee's Default is such that more than thirty (30) days are reasonably required for its cure, then it shall not be deemed to be a Breach if Lessee commences such cure within said thirty (30) day period and thereafter diligently prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) the making of any general arrangement or assignment for the benefit of creditors; (ii) becoming a "DEBTOR" as defined in 11 U.S.C. Section 101 or any successor statute thereto (unless, in the case of a petition filed against Lessee, the same is
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dismissed within sixty (60) days); (iii) the appointment of a trustee or receiver to take possession of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where possession is not restored to Lessee within thirty (30) days; or (iv) the attachment, execution or other judicial seizure of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where such seizure is not discharged within thirty (30) days; provided, however, in the event that any provision of this subparagraph 13.1 (e) is contrary to any applicable law, such provision shall be of no force or effect, and not affect the validity of the remaining provisions.
(f) The discovery that any financial statement of Lessee or of any Guarantor given to Lessor was materially false.
(g) If the performance of Lessee's obligations under this Lease is guaranteed: (i) the death of a Guarantor; (ii) the termination of a Guarantor's liability with respect to this Lease other than in accordance with the terms of such guaranty; (iii) a Guarantor's becoming insolvent or the subject of a bankruptcy filing; (iv) a Guarantor's refusal to honor the guaranty; or (v) a Guarantor's breach of its guaranty obligation on an anticipatory basis, and Lessee's failure, within sixty (60) days following written notice of any such event, to provide written alternative assurance or security, which when coupled with the then existing resources of Lessee, equals or exceeds the combined financial resources of Lessee and the Guarantors that existed at the time of execution of this Lease.
13.2 REMEDIES. If Lessee fails to perform any of its affirmative duties or obligations, within ten (10) days after written notice (or in case of an emergency, without notice), Lessor may, at its option, perform such duty or obligation on Lessee's behalf, including but not limited to the obtaining of reasonably required bonds, insurance policies, or governmental licenses, permits or approvals. The costs and expenses of any such performance by Lessor shall be due and payable by lessee upon receipt of invoice therefor. If any check given to Lessor by Lessee shall not be honored by the bank upon which it is drawn, Lessor, at its option, may require all future payments to be made by Lessee to be by cashier's check. In the event of a Breach, Lessor may, with or without further notice or demand, and without limiting Lessor in the exercise of any right or remedy which Lessor may have by reason of such Breach:
(a) Terminate Lessee's right to possession of the Premises by any lawful means, in which case this Lease shall terminate and Lessee shall immediately surrender possession to Lessor. In such event Lessor shall be entitled to recover from Lessee: (i) the unpaid Rent which had been earned at the time of termination; (ii) the worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that the Lessee proves could have been reasonably avoided; (iii) the worth at the time of award of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of such rental loss that the Lessee proves could be reasonable avoided; and (iv) any other amount necessary to compensate Lessor for all the detriment proximately caused by the Lessee's failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom, including but not limited to the cost of recovering possession of the Premises, expenses of reletting, including necessary renovation and alteration of the Premises, reasonable attorneys' fees, and that portion of any leasing commission paid by Lessor in connection with this Lease applicable to the unexpired term of this Lease. The worth at the time of award of the amount referred to in provision (iii) of the immediately preceding sentence shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of the District within which the Premises are located at the time of award plus one percent (1%). Efforts by Lessor to mitigate damages caused by Lessee's Breach of this Lease shall not waive Lessor's right to recover damages under Paragraph 12. If termination of this Lease is obtained through the provisional remedy of unlawful detainer, Lessor shall have the right to recover in such proceeding any unpaid Rent and damages as are recoverable therein, or Lessor may reserve the right to recover all or any part thereof in a separate suit. If a notice and grace period required under Paragraph 13.1 was not previously given, a notice to pay rent or quit, or to perform or quit given to Lessee under the unlawful detainer statute shall also constitute the notice required by Paragraph 13.1. In such case, the applicable grace period required by Paragraph 13.1 and the unlawful detainer statute shall run concurrently, and the failure of Lessee to cure the Default within the greater of the two such grace periods shall constitute both an unlawful detainer and a Breach of this Lease entitling Lessor to the remedies provided for in this Lease and/or by said statute.
(b) Continue the Lease and Lessee's right to possession and recover the Rent as it becomes due, in which event Lessee may sublet or assign, subject only to reasonable limitations. Acts of maintenance, efforts to relet, and/or the appointment of a receiver to protect the Lessor's interests, shall not constitute a termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available under the laws of judicial decisions of the state wherein the Premises are located. The expiration or termination of this Lease and/or the termination of Lessee's right to possession shall not relieve Lessee from liability under any indemnity provisions of this Lease as to matters occurring or accruing during the term hereof or by reason of Lessee's occupancy of the Premises.
13.3 INDUCEMENT RECAPTURE. Any agreement for free or abated rent or other charges, or for the giving or paying by Lessor to or for Lessee of any cash or other bonus, inducement or consideration for Lessee's entering into this Lease, all of which concessions are hereinafter referred to as "INDUCEMENT PROVISIONS," shall be deemed conditioned upon Lessee's full and faithful performance of all of the terms, covenants and conditions of this Lease. Upon Breach of this Lease by Lessee, any such Inducement Provision shall automatically be deemed deleted from this Lease and of no further force or effect, and any rent, other charge, bonus, inducement or consideration theretofore abated, given or paid by Lessor under such an Inducement Provision shall be immediately due and payable by Lessee to Lessor, notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by Lessor of Rent or the cure of the Breach which initiated the operation of this paragraph shall not be deemed a waiver by Lessor of the provisions of this paragraph unless specifically so stated in writing by Lessor at the time of such acceptance.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by Lessee of Rent will cause Lessor to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Such costs include, but are not limited to, processing and accounting charges, and late charges which may be imposed upon Lessor by any Lender. Accordingly, if any Rent shall not be received by Lessor within five (5) days after such amount shall be due, then, without any requirement for notice to Lessee, Lessee shall pay to Lessor a one-time late charge equal to ten percent (10%) of each such overdue amount. The Parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Lessor will incur by reason of such late payment. Acceptance of such late charge by Lessor shall in no event constitute a waiver or Lessee's Default or Breach with respect to such overdue amount, nor prevent the exercise of any of the other rights and remedies granted hereunder. In the event that a late charge is payable hereunder, whether of not collected, for three (3) consecutive installments of Base Rent, then notwithstanding any provision of this Lease to the contrary, Base Rent shall, at Lessor's option, become due and payable quarterly in advance.
13.5 INTEREST. Any monetary payment due Lessor hereunder, other than late charges, not received by Lessor, when due as to scheduled payments (such as Base Rent) or within thirty (30) days following the date on which it was due for non-scheduled payment, shall bear interest from the date when due, as to scheduled payments, or the thirty-first (31st) day after it was due as to non-scheduled payments. The interest("INTEREST") charged shall be equal to the prime rate reported in the Wall Street Journal as published closest prior to the date when due plus four percent (4%), but shall not exceed the maximum rate allowed by law. Interest is payable in addition to the potential late charge provided for in Paragraph 13.4.
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13.6 BREACH BY LESSOR.
(a) NOTICE OF BREACH. Lessor shall not be deemed in breach of this Lease unless Lessor fails within a reasonable time to perform an obligation required to be performed by Lessor. For purposes of this Paragraph, a reasonable time shall in no event be less than thirty(30) days after receipt by Lessor, and any Lender whose name and address shall have been furnished Lessee in writing for such purpose, of written notice specifying wherein such obligation of Lessor has not been performed; provided, however, that if the nature of Lessor's obligation is such that more than thirty (30) days are reasonably required for its performance, then Lessor shall not be in breach if performance is commenced within such thirty (30) day period and thereafter diligently pursued to completion.
(b) PERFORMANCE BY LESSEE ON BEHALF OF LESSOR. In the event that neither Lessor nor Lender cures said breach within thirty (30) days after receipt of said notice, or if having commenced said cure they do not diligently pursue it to completion, then Lessee may elect to cure said breach at Lessee's expense and offset from Rent an amount equal to the greater of one month's Base Rent or the Security Deposit, and to pay an excess of such expense under protest, reserving Lessee's right to reimbursement from Lessor. Lessee shall document the cost of said cure and supply said documentation to Lessor.
14. CONDEMNATION. If the Premises or any portion thereof are taken under the power of eminent domain or sold under the threat of the exercise of said power (collectively "Condemnation"), this Lease shall terminate as to the part taken as of the date the condemning authority takes title or possession, whichever first occurs. If more than ten percent(10%) of any building portion of the Premises, or more than twenty-five percent(25%) of the land area portion of the Premises not occupied by any building, is taken by Condemnation, Lessee may, at Lessee's option, to be exercised in writing within ten (10) days after Lessor shall have given Lessee written notice of such taking (or in the absence of such notice, within ten (10) days after the condemning authority shall have taken possession) terminate this Lease as of the date the condemning authority takes such possession. If Lessee does not terminate this Lease in accordance with the foregoing, this Lease shall remain in full force and effect as to the portion of the Premises remaining, except that the Base Rent shall be reduced in proportion to the reduction in utility of the Premises caused by such Condemnation. Condemnation awards and/or payments shall be the property of Lessor, whether such award shall be made as compensation for diminution in value of the leasehold, the value of the part taken, or for severance damages; provided, however, that Lessee shall be entitled to any compensation for Lessee's relocation expenses, loss of business goodwill and/or Trade Fixtures, without regard to whether or not this Lease is terminated pursuant to the provisions of this Paragraph. All Alterations and Utility Installations made to the Premises by Lessee, for purposes of Condemnation only, shall be considered the property of the Lessee and Lessee shall be entitled to any and all compensation which is payable therefor. In the event that this Lease is not terminated by reason of the Condemnation, Lessor shall repair any damage to the Premises caused by such Condemnation.
15. BROKERS' FEE.
15.1 ADDITIONAL COMMISSION. In addition to the payments owed pursuant to Paragraph 1.10 above, and unless Lessor and the Brokers otherwise agree in writing, Lessor agrees that: (a) if Lessee exercises any Option, (b) if Lessee acquires any rights to the Premises or other premises owned by Lessor and located within the same Project, if any, within which the Premises is located,
(c)if Lessee remains in possession of the Premises, with the consent of Lessor, after the expiration of this Lease, or (d) if Base Rent is increased, whether by agreement or operation of an escalation clause herein, then, Lessor shall pay Brokers a fee in accordance with the schedule of said Brokers in effect at the time of the execution of this Lease.
15.2 ASSUMPTION OF OBLIGATIONS. Any buyer or transferee of Lessor's interest in this Lease shall be deemed to have assumed Lessor's obligation hereunder. Each Broker shall be a third party beneficiary of the provisions of Paragraphs 1.10, 15, 22 and 31, if Lessor fails to pay to a Broker any amounts due as and for commissions pertaining to this Lease when due, then such amounts shall accrue Interest. In addition, if Lessor fails to pay any amounts to Lessee's Broker when due, Lessee's Broker may send written notice to Lessor and Lessee of such failure and if Lessor fails to pay such amounts within ten (10) days after said notice, Lessee shall pay said monies to its Broker and offset such amounts against Rent. In addition, Lessee's Broker shall be deemed to be a third party beneficiary of any commission agreement entered into by and/or between Lessor and Lessor's Broker.
15.3 REPRESENTATIONS AND INDEMNITIES OF BROKER RELATIONSHIPS. Lessee and Lessor each represent and warrant to the other that it has had no dealings with any person, firm, broker or finder (other than the Brokers, if any)in connection with this Lease, and that no one other than said named Brokers is entitled to any commission or finder's fee in connection herewith. Lessee and Lessor do each hereby agree to indemnify, protect, defend and hold the other harmless from and against liability for compensation or charges which may be claimed by any such unnamed broker, finder or other similar party by reason of any dealings or actions of the indemnifying Party, including any costs, expenses, and/or attorneys' fees reasonably incurred with respect thereto.
16. ESTOPPEL CERTIFICATES.
(a) Each Party (as "RESPONDING PARTY") shall within ten (10) days after written notice from the other Party (the "REQUESTING PARTY") execute, acknowledge and deliver to the Requesting Party a statement in writing in form similar to the then most current "ESTOPPEL CERTIFICATE" form published by the American Industrial Real Estate Association, plus such additional information, conformation and/or statements as may be reasonably requested by the Requesting Party.
(b) If the Responding Party shall fail to execute or deliver the Estoppel Certificate within such ten day period, the Requesting Party may execute an Estoppel Certificate stating that: (i) the Lease is in full force and effect without modification except as may be represented by the Requesting Party (ii) there are no uncured defaults in the Requesting Party's performance, and (iii) if Lessor is the Requesting Party, not more than one month's Rent has been paid in advance. Prospective purchasers and encumbrancers may rely upon the Requesting Party's Estoppel Certificate, and the Responding Party shall be estopped from denying the truth of the facts contained in said Certificate.
(c) If Lessor desires to finance, refinance, or sell the Premises, or any part thereof, Lessee and all Guarantors shall deliver to any potential lender or purchaser designated by Lessor such financial statements as may be reasonably required by such lender or purchaser, including, but not limited to, Lessee's financial statements for the past three (3) years. All such financial statements shall be received by Lessor and such lender or purchaser in confidence and shall be used only for the purposes herein set forth.
17. DEFINITION OF LESSOR. The term "LESSOR" as used herein shall mean the owner or owners at the time in question of the fee title to the Premises, or, if this is a sublease, of the Lessee's interest in the prior lease. In the event of a transfer of Lessor's title or interest in the Premises or this Lease, Lessor shall deliver to the transferee or assignee (in cash or by credit) any unused Security Deposit held by Lessor. Except as provided in Paragraph 15, upon such transfer or assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor shall be relieved of all liability with respect to the obligations and /or covenants under this Lease thereafter to be performed by the Lessor. Subject to the foregoing, the obligations and/or covenants in this Lease to be performed by the Lessor shall be binding only upon the Lessor as hereinabove defined. Notwithstanding the above, and subject to the provisions of Paragraph 20 below, the original Lessor under this, and all subsequent holder of the Lessor's interest in this Lease shall remain liable and responsible
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with regard to the potential duties and liabilities of Lessor pertaining to Hazardous Substances as outlined in Paragraph 6 above.
18. SEVERABILITY. The invalidity of any provision of this Lease, as determined by a court of competent jurisdiction, shall in no way affect the validity of any other provision hereof.
19. DAYS. Unless otherwise specifically indicated to the contrary, the word "days" as used in this Lease shall mean and refer to calendar days.
20. LIMITATION ON LIABILITY. Subject to the provisions of Paragraph 17 above, the obligations of Lessor under this Lease shall not constitute personal obligations of Lessor, the individual partners of Lessor or its or their individual partners, directors, officers or shareholders, and Lessee shall look to the Premises, and to no other assets of Lessor, for the satisfaction of any liability of Lessor with respect to this Lease, and shall not seek recourse against the individual partners of Lessor, or its or their individual partners, directors, officers or shareholders, or any of their personal assets for such satisfaction.
21. TIME OF ESSENCE. Time is of the essence with respect to the performance of all obligations to be performed or observed by the Parties under this Lease.
22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains all agreements between the Parties with respect to any matter mentioned herein, and no other prior or contemporaneous agreement or understanding shall be effective. Lessor and Lessee each represents and warrants to the Brokers that it has made, and is relying solely upon, its own investigation as to the nature, quality, character and financial responsibility of the other Party to this Lease and as to the nature, quality and character of the Premises. Brokers have no responsibility with respect thereto or with respect to any default or breach hereof by either Party. The liability (including court costs and Attorneys' fees), of any Broker with respect to negotiation, execution, delivery or performance by either Lessor or Lessee under this Lease or any amendment or modification hereto shall be limited to an amount up to the fee received by such Broker pursuant to this Lease; provided, however, that the foregoing limitation on each Broker's liability shall not be applicable to any gross negligence or willful misconduct of such Broker.
23. NOTICES.
23.1 NOTICE REQUIREMENTS. All notices required or permitted by this Lease shall be in writing and may be delivered in person (by hand or by courier) or may be sent by regular, certified or registered mail or U.S. Postal Service Express Mail, with postage prepaid, or by facsimile transmission, and shall be deemed sufficiently given if served in a manner specified in this Paragraph 23. The addresses noted adjacent to a Party's signature on this Lease shall be that Party's address for delivery or mailing of notices. Either Party may by written notice to the other specify a different address for notice, except that upon Lessee's taking possession of the Premises, the Premises shall constitute Lessee's address for notice. A copy of all notices to Lessor shall be concurrently transmitted to such party or parties at such addresses as Lessor may from time to time hereafter designate in writing.
23.2 DATE OF NOTICE. Any notice sent by registered or certified mail, return receipt requested, shall be deemed given on the date of delivery shown on the receipt card, or if no delivery date is shown, the postmark thereon. If sent by regular mail the notice shall be deemed given forty-eight (48) hours after the same is addressed as required herein and mailed with postage prepaid. Notices delivered by United States Express Mail or overnight courier that guarantee next day delivery shall be deemed given twenty-four (24) hours after delivery of the same to the Postal Service or courier. Notices transmitted by facsimile transmission or similar means shall be deemed delivered upon telephone confirmation of receipt, provided a copy is also delivered via delivery or mail. If notice is received on a Saturday, Sunday or legal holiday, it shall be deemed received on the next business day.
24. WAIVERS. No waiver by Lessor of the Default or Breach of any term, covenant or condition hereof by Lessee, shall be deemed a waiver of any other term, covenant or condition hereof, or of any subsequent Default or Breach by Lessee of the same or of any other term, covenant or condition hereof. Lessor's consent to, or approval of, any act shall not be deemed to render unnecessary the obtaining of Lessor's consent to, or approval of, any subsequent or similar act by Lessee, or be construed as the basis of an estoppel to enforce the provision or provisions of this Lease requiring such consent. The acceptance of Rent by Lessor shall not be a waiver of any Default or Breach by Lessee. Any payment by Lessee may be accepted by Lessor on account of monies or damages due Lessor, notwithstanding any qualifying statements or conditions made by Lessee in connection therewith, which such statements and/or conditions shall be of no force or effect whatsoever unless specifically agreed to in writing by Lessor at or before the time of deposit of such payment.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other, execute, acknowledge and deliver to the other a short form memorandum of this Lease for recording purposes. The Party requesting recordation shall be responsible for payment of any fees applicable thereto.
26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the Premises or any part thereof beyond the expiration or termination of this Lease. In the event that Lessee holds over, then the Base Rent shall be increased to one hundred fifty percent (150%) of the Base Rent applicable during the month immediately preceding the expiration or termination. Nothing contained herein shall be construed as consent boy Lessor to any holding over by Lessee.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed exclusive but shall, wherever possible, be cumulative with all other remedies at law or in equity.
28. COVENANTS AND CONDITIONS; CONSTRUCTION OF AGREEMENT. All provisions of this Lease to be observed or performed by Lessee are both covenants and conditions. In construing this Lease, all headings and titles are for the convenience of the Parties only and shall not be considered a part of this Lease. Whenever required by the context, the singular shall include the plural and vice versa. This Lease shall not be construed as if prepared by one of the Parties, but rather according to its fair meaning as a whole, as if both Parties had prepared it.
29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the parties, their personal representatives, successors and assigns and be governed by the laws of the State in which the Premises are located. Any litigation between the Parties hereto concerning this Lease shall be initiated in the county in which the Premises are located.
30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.
30.1 SUBORDINATION. This Lease and any Option granted hereby shall be subject and subordinate to any ground lease, mortgage, deed of trust, or other hypothecation or security device (collectively, "SECURITY DEVICE"), now or hereafter placed upon the Premises, to any and all advances made on the security thereof, and to all renewals, modifications, and extensions thereof. Lessee agrees that the holders of any such Security Devices (in this Lease together referred to as "Lessor's Lender") shall have no liability or obligation to perform any of the obligations of Lessor under this Lease. Any Lender may elect to have this Lease and/or any Option granted hereby superior to the lien of its Security Device by giving written notice thereof to Lessee, whereupon this Lease and such Options shall be deemed prior to such Security Device, notwithstanding the relative dates of the documentation or recordation thereof.
30.2 ATTORNMENT. Subject to the non-disturbance provisions of Paragraph 30.3, Lessee agrees to attorn to a Lender or any other party who acquires ownership of the Premises by reason of a foreclosure of a Security Device, and that in the event of such foreclosure, such new owner shall not: (i) be liable for any act or omission of any prior lessor or with respect to events occurring prior to acquisition of ownership; (ii) be subject to any offsets or defenses which Lessee might have against any prior lessor; or (iii) be bound by prepayment of more than one (1) month's rent.
30.3 NON-DISTURBANCE. With respect to Security Devices entered into by Lessor after the execution of this Lease, Lessee's subordination of this
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Lease shall be subject to receiving a commercially reasonable non-disturbance agreement (a "NON-DISTURBANCE AGREEMENT") from the Lender which Non-Disturbance Agreement provides that Lessee's possession of the Premises, and this Lease, including any options to extend the term hereof, will not be disturbed so long as Lessee is not in Breach hereof and attorns to the record owner of the Premises. Further, within sixty (60) days after the execution of this Lease, Lessor shall use its commercially reasonable efforts to obtain a Non-Disturbance Agreement from the holder of any pre-existing Security Device which is secured by the Premises. In the event that Lessor is unable to provide the Non-Disturbance Agreement within said sixty (60) days, then Lessee may, at Lessee's option, directly contact Lessor's lender and attempt to negotiate for the execution and delivery of a Non-Disturbance Agreement.
30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30 shall be effective without the execution of any further documents; provided, however, that, upon written request from Lessor or a Lender in connection with a sale, financing or refinancing of the Premises, Lessee and Lessor shall execute such further writings as may be reasonably required to separately document any subordination, attornment and/or Non-Disturbance Agreement provided for herein.
31. ATTORNEYS' FEES. If any Party or Broker brings an action or proceeding involving the Premises to enforce the terms hereof or to declare rights hereunder, the Prevailing Party (as hereafter defined) in any such proceeding, action, or appeal thereon, shall be entitled to reasonable attorneys' fees. Such fees may be awarded in the same suit or recovered in a separate suit, whether or not such action or proceeding is pursued to decision or judgment. The term, "PREVAILING PARTY" shall include, without limitation, a Party or Broker who substantially obtains or defeats the relief sought, as the case may be, whether by compromise, settlement, judgment, or the abandonment by the other Party or Broker of its claim or defense. The attorneys' fees award shall not be computed in accordance with any court fee schedule, but shall be such as to fully reimburse all attorneys' fees reasonably incurred. In addition, Lessor shall be entitled to attorneys' fees, costs and expenses incurred in the preparation and service of notices of Default and consultations in connection therewith, whether or not a legal action is subsequently commenced in connection with such Default or resulting Breach.
32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents shall have the right to enter the Premises at any time, in the case of an emergency, and otherwise at reasonable times for the purpose of showing the same to prospective purchasers, lenders, or lessees, and making such alterations, repairs, improvements or additions to the Premises as Lessor may deem necessary. All such activities shall be without abatement of rent or liability to Lessee. Lessor may at any time place on the Premises any ordinary "FOR SALE" signs and Lessor may during the last six (6) months of the term hereof place on the Premises any ordinary "FOR LEASE" signs. Lessee may at any time place on or about the Premises any ordinary "FOR SUBLEASE" sign.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, any auction upon the Premises without Lessor's prior written consent. Lessor shall not be obligated to exercise any standard of reasonableness in determining whether to permit an auction.
34. SIGNS. Except for ordinary "For Sublease" signs, Lessee shall not place any sign upon the Premises without Lessor's prior written consent. All signs must comply with all Applicable Requirements.
35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual termination or cancellation hereof, or a termination hereof by Lessor for Breach by Lessee, shall automatically terminate any sublease or lesser estate in the Premises; provided, however, that Lessor may elect to continue any one or all existing subtenancies. Lessor's failure within ten (10) days following any such event to elect to the contrary by written notice to the holder of any such lesser interest, shall constitute Lessor's election to have such event constitute the termination of such interest.
36. CONSENTS. Except as otherwise provided herein, wherever in this Lease the consent of a Party is required to an act by or for the other Party, such consent shall not be unreasonably withheld or delayed. Lessor's actual reasonable costs and expenses (including, but not limited to, architects', attorneys', engineers' and other consultants' fees) incurred in the consideration of, or response to, a request by Lessee for any Lessor consent, including, but not limited to, consents to an assignment, a subletting or the presence or use of a Hazardous Substance, shall be paid by Lessee upon receipt of an invoice and supporting documentation therefor. Lessor's consent to any act, assignment or subletting shall not constitute an acknowledgment that no Default or Breach by Lessee of this Lease exists, nor shall such consent be deemed a waiver of any then existing Default or Breach, except as may be otherwise specifically stated in writing by Lessor at the time of such consent. The failure to specify herein any particular condition to Lessor's consent shall not preclude the imposition by Lessor at the time of consent of such further or other conditions as are then reasonable with reference to the particular matter for which consent is being given. In the event that either Party disagrees with any determination made by the other hereunder and reasonably requests the reasons for such determination, the determining party shall furnish its reasons in writing and in reasonable detail within ten (10) business days following such request.
37. GUARANTOR.
37.1 EXECUTION. The Guarantors, if any, shall each execute a guaranty in the form most recently published by the American Industrial Real Estate Association, and each such Guarantor shall have the same obligations as Lessee under this Lease.
37.2 DEFAULT. It shall constitute a Default of the Lessee if any Guarantor fails or refuses, upon request to provide: (a) evidence of the execution of the guaranty, including the authority of the party signing on Guarantor's behalf to obligate Guarantor, and in the case of a corporate Guarantor, a certified copy of a resolution of its board of directors authorizing the making of such guaranty, (b) current financial statements, (c) a Tenancy Statement, or (d) written confirmation that the guaranty is still in effect.
38. QUIET POSSESSION. Subject to payment by Lessee of the Rent and performance of all of the covenants, conditions and provisions on Lessee's part to be observed and performed under this Lease, Lessee shall have quiet possession and quiet enjoyment of the Premises during the term hereof.
39. OPTIONS.
39.1 DEFINITION. "OPTION" shall mean: (a) the right to extend the term of or renew this Lease or to extend or renew any lease that Lessee has on other property of Lessor; (b) the right of first refusal or first offer to lease either the Premises or other property of Lessor; (c) the right to purchase or the right of first refusal to purchase the Premises or other property of Lessor.
39.2 OPTIONS PERSONAL TO ORIGINAL LESSEE. Each Option granted to Lessee in this Lease is personal to the original Lessee, and cannot be assigned or exercised by anyone other than said original Lessee and only while the original Lessee is in full possession of the Premises and, if requested by Lessor, with Lessee certifying that Lessee has no intention of thereafter assigning or subletting.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple Options to extend or renew this Lease, a later Option cannot be exercised unless the prior Options have been validly exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option: (i) during the period commencing with the giving of any notice of Default and continuing until said Default is cured, (iii) during the period of time any Rent is unpaid (without regard to whether notice thereof is given Lessee), (iii) during the time Lessee is in Breach of this Lease, or (iv) in the event that Lessee has been given three (3) or more notices of separate Default, whether or not the
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Defaults are cured, during the twelve (12) month period immediately preceding the exercise of the Option.
(b) The period of time within which an Option may be exercised shall not be extended or enlarged by reason of Lessee's inability to exercise an Option because of the provisions of Paragraph 39.4(a).
(c) An Option shall terminate and be of no further force or effect, notwithstanding Lessee's due and timely exercise of the Option, if, after such exercise and prior to the commencement of the extended term, (i) Lessee fails to pay Rent for a period of thirty (30) days after such Rent becomes due (without any necessity of Lessor to give notice thereof), (ii) Lessor gives to Lessee three (3) or more notices of separate Default during any twelve (12) month period, whether or not the Defaults are cured, or (iii) if Lessee commits a Breach of this Lease.
40. MULTIPLE BUILDINGS. If the Premises are a part of a group of buildings controlled by Lessor, Lessee agrees that it will observe all reasonable rules and regulations which Lessor may make from time to time for the management, safety, and care of said properties, including the care and cleanliness of the grounds and including the parking, loading and unloading of vehicles, and that Lessee will pay its fair share of common expenses incurred in connection therewith.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to Lessor hereunder does not include the cost of guard service or other security measures, and that Lessor shall have no obligation whatsoever to provide same. Lessee assumes all responsibility for the protection of the Premises, Lessee, its agents and invitees and their property from the acts of third parties.
42. RESERVATIONS. Lessor reserves to itself the right, from time to time, to grant, without the consent or joinder of Lessee, such easements, rights and dedications that Lessor deems necessary, and to cause the recordation of parcel maps and restrictions, so long as such easements, rights, dedications, maps and restrictions do not unreasonably interfere with the use of the Premises by Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to effectuate any such easement right, dedication, map or restrictions.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any amount or sum of money to be paid by one Party to the other under the provisions hereof, the Party against whom the obligation to pay the money is asserted shall have the right to make payment "under protest" and such payment shall not be regarded as a voluntary payment and there shall survive the right on the part of said Party to institute suit for recovery of such sum. If it shall be adjudged that there was no legal obligation on the part of said Party to pay such sum or any part thereof, said Party shall be entitled to recover such sum or so much thereof as it was not legally required to pay.
44. AUTHORITY. If either Party hereto is a corporation, trust, limited liability company, partnership, or similar entity, each individual executing this Lease on behalf of such entity represents and warrants that he or she is duly authorized to execute and deliver this Lease on its behalf. Each Party shall, within thirty (30) days after request, deliver to the other Party satisfactory evidence of such authority.
45. CONFLICT. Any conflict between the printed provisions of this Lease and the typewritten or handwritten provisions shall be controlled by the typewritten or handwritten provisions.
46. OFFER. Preparation of this Lease by either Party or their agent and submission of same to the other Party shall not be deemed an offer to lease to the other Party. This Lease is not intended to be binding until executed and delivered by all Parties hereto.
47. AMENDMENTS. This Lease may be modified only in writing, signed by the Parties in interest at the time of the modification. As long as they do not materially change Lessee's obligations hereunder, Lessee agrees to make such reasonable non-monetary modifications to this Lease as may be reasonably required by a Lender in connection with the obtaining of normal financing or refinancing of the Premises.
48. MULTIPLE PARTIES. If more than one person or entity is named herein as either Lessor or Lessee, such multiple Parties shall have joint and several responsibilities to comply with the terms of this Lease.
49. MEDIATION AND ARBITRATION OF DISPUTES. An Addendum requiring the Mediation and/or the Arbitration of all disputes between the Parties and/or Brokers arising out of this Lease [ ] is [ ] is not attached to this Lease.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE PREMISES.
ATTENTION: NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY ANY BROKER AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT RELATES. THE PARTIES ARE URGED TO:
1. SEEK ADVICE OF COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.
2. RETAIN APPROPRIATE CONSULTANTS TO REVIEW AND INVESTIGATE THE CONDITION OF THE PREMISES. SAID INVESTIGATION SHOULD INCLUDE BUT NOT BE LIMITED TO: THE POSSIBLE PRESENCE OF HAZARDOUS SUBSTANCES, THE ZONING OF THE PREMISES, THE STRUCTURAL INTEGRITY, THE CONDITION OF THE ROOF AND OPERATING SYSTEMS, AND THE SUITABILITY OF THE PREMISES FOR LESSEE'S INTENDED USE.
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WARNING: IF THE PREMISES IS LOCATED IN A STATE OTHER THAN CALIFORNIA, CERTAIN PROVISIONS OF THE LEASE MAY NEED TO BE REVISED TO COMPLY WITH THE LAWS OF THE STATE IN WHICH THE PREMISES IS LOCATED.
The parties hereto have executed this Lease at the place and on the dates specified above their respective signatures.

Executed at:_____________________       Executed at:____________________________
on:______________________________       on:_____________________________________

By LESSOR:                              By LESSEE:

SUMO HOLDING SACRAMENTO, LLC, A         AMERICAN REPROGRAPHICS COMPANY,
California Limited Liability            LLC, A California Limited Liability
Company                                 company

By: /s/ Sathy Chandramohan              By: /s/ Mark W. Legg
    -----------------------------           ------------------------------------
Name Printed: Sathy Chandramohan        Name Printed: Mark W. Legg
Title: Managing Member                  Title: Chief Financial Officer

By:______________________________       By:_____________________________________
Name Printed:____________________       Name Printed:___________________________
Title:___________________________       Title:__________________________________
Address:_________________________       Address:________________________________
       __________________________              _________________________________

Telephone:(___) _________________       Telephone:(___) ________________________
Facsimile: (___) ________________       Facsimile: (___) _______________________
Federal ID No. __________________       Federal ID No. _________________________	

NOTE:These forms are often modified to meet the changing requirements of law and industry needs. Always write or call to make sure you are utilizing the most current form: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 700 So.
Flower Street, Suite 600, Los Angeles, California 90017. (213) 687-8777.

     Fax No. (213) 687-8616

(C)1997 - AMERICAN INDUSTRIAL                                   FORM STN-6-2/97E
  REAL ESTATE ASSOCIATION            REVISED	

PAGE 15 OF 15
[LOGO]

            OPTION (S) TO EXTEND
           STANDARD LEASE ADDENDUM

DATED __________, 2001	

BY AND BETWEEN (LESSOR) SUMO HOLDINGS SACRAMENTO, LLC
(LESSEE) AMERICAN REPROGRAPHICS COMPANY, LLC
ADDRESS OF PREMISES: 2210 Magnolia Street, Oakland, CA
Paragraph 51
A. OPTION(S) TO EXTEND:
Lessor hereby grants to Lessee the option to extend the term of this lease for 1 additional 60 month period(s) commencing when the prior term expires upon each and all of the following terms and conditions:
(i) In order to exercise an option to extend, Lessee must give written notice of such election to Lessor and Lessor must receive the same at least 6 but not more than 9 months prior to the date that the option period would commence, time being of the essence. If proper notification of the exercise of an option is not given and/or received, such option shall automatically expire. Options (if there are more than one) may only be exercised consecutively.
(ii) The provisions of paragraph 39, including those relating to Lessee's Default set forth in paragraph 39.4 of this Lease, are conditions of this Option.
(iii) Except for the provisions of this Lease granting an option or options to extend the term, all of the terms and conditions of this Lease except where specifically modified by this option shall apply.
(iv) This Option is personal to the original Lessee, and cannot be assigned or exercised by anyone other than said original Lessee and only while the original Lessee is in full possession of the Premises and without the intention of thereafter assigning or subletting.
(v) The monthly rent for each month of the option period shall be calculated as follows, using the method(s) indicated below:
[X] I. COST OF LIVING ADJUSTMENT(S) (COLA)
(a) On (Fill in COLA Dates): March 7, 2012 and on each anniversary date thereafter the Base Rent shall be adjusted by the change, if any, from the Base Month specified below, in the Consumer Price Index of the Bureau of Labor Statistics of the U.S. Department of Labor for (select one): [ ] CPI W (Urban Wage Earners and Clerical Workers) or [X] CPI U (All Urban Consumers), for (Fill in Urban Area):
San Francisco, Oakland
All Items (1982-1984 = 100), herein referred to as "CPI".
b. The monthly rent payable in accordance with paragraph A.l.a. of this Addendum shall be calculated as follows: the Base Rent set forth in paragraph 1.5 of the attached Lease, shall be multiplied by a fraction the numerator of which shall be the CPI of the calendar month two months prior to the month (s) specified in paragraph A.I.a. above during which the adjustment is to take effect, and the denominator of which shall be the CPI of the calendar month which is two months prior to (select one): [ ] the first month of the term of this Lease as set forth in paragraph 1.3 ("Base Month") or [X] (Fill in Other "Base Month"):
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PAGE 1 of 2
March, 2011. The sum so calculated shall constitute the new monthly rent hereunder, but in no event, shall any such new monthly rent be less than the rent payable for the month immediately preceding the rent adjustment.
c. In the event the compilation and/or publication of the CPI shall be transferred to any other governmental department or bureau or agency or shall be discontinued, then the index most nearly the same as the CPI shall be used to make such calculation. In the event that the Parties cannot agree on such alternative index, then the matter shall be submitted for decision to the American Arbitration Association in accordance with the then rules of said Association and the decision of the arbitrators shall be binding upon the parties. the cost of said Arbitration shall be paid equally by the Parties.
[X] II. MARKET RENTAL VALUE ADJUSTMENT(S) (MRV)
a. On (Fill in MRV Adjustment Date(s)) March 7, 2011 the Base Rent shall be adjusted to the "Market Rental Value" of the property as follows:
1) Four months prior to each Market Rental Value Adjustment Date described above, the Parties shall attempt to agree upon what the new MRV will be on the adjustment date. If agreement cannot be reached, within thirty days, then:
(a) Lessor and Lessee shall immediately appoint a mutually acceptable appraiser of broker to establish the new MRV within the next thirty days. Any associated costs will be split equally between the Parties, or
(b) Both Lessor and Lessee shall each immediately make a reasonable determination of the MRV and submit such determination, in writing, to arbitration in accordance with the following provisions:
(i) Within fifteen days thereafter, Lessor and Lessee shall each select an [X] appraiser or [ ] broker ("CONSULTANT" - check one) of their choice to act as an arbitrator. The two arbitrators so appointed shall immediately select a third mutually acceptable Consultant to act as a third arbitrator.
(ii) The three arbitrators shall within thirty days of the appointment of the third arbitrator reach a decision as to what the actual MRV for the Premises is, and whether Lessor's or Lessee's submitted MRV is the closest thereto. The decision of a majority of the arbitrators shall be binding on the Parties. The submitted MRV which is determined to be the closest to the actual MRV shall thereafter be used by the Parties.
(iii) If either of the Parties fails to appoint an arbitrator within the specified fifteen days, the arbitrator timely appointed by one of them shall reach a decision on his or her own, and said decision shall be binding on the Parties.
(iv) The entire cost of such arbitration shall be paid by the party whose submitted MRV is not selected, ie. the one that is NOT the closest to the actual MRV.
2) Notwithstanding the foregoing, the new MRV shall not be less than the rent payable for the month immediately preceding the rent adjustment.
b. Upon the establishment of each new market rental value:
1) the new MRV will become the new "Base Rent" for the purpose of calculating any further Adjustments, and
2) the first month of each Market Rental Value term shall become the new "Base Month" for the purpose of calculating any further Adjustments.
[ ] III. FIXED RENTAL ADJUSTMENT(S) (FRA)
The Base Rent shall be increased to the following amounts on the dates set forth below:

On (Fill in FRA  Adjustment Date(s)):       The New Base Rent shall be:
______________________________________      $______________________________
______________________________________      $______________________________
______________________________________      $______________________________
______________________________________      $______________________________	

B. NOTICE:
Unless specified otherwise herein, notice of any rental adjustments, other than Fixed Rental Adjustments, shall be made as specified in paragraph 23 of the Lease.
C. BROKER'S FEE
The Brokers specified in paragraph 1.10 shall be paid a Brokerage Fee for each adjustment specified above in accordance with paragraph 15 of the Lease.
(C) 1997- AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION FORM OE-2-3/97E
PAGE 2 of 2
[AIR LOGO]
RENT ADJUSTMENT (S)
STANDARD LEASE ADDENDUM
DATED ________, 2001
BY AND BETWEEN (LESSOR) SUMO HOLDINGS SACRAMENTO, LLC
(LESSEE) AMERICAN REPROGRAPHICS COMPANY, LLC
ADDRESS OF PREMISES: 2210 Magnolia Street, Oakland, CA
Paragraph 50
A. RENT ADJUSTMENTS:
The monthly rent for each month of the adjustment period(s) specified below shall be increased using the method(s) indicated below:
(Check Method(s) to be Used and Fill in Appropriately)
[X] I. COST OF LIVING ADJUSTMENT(S) (COLA)
a. On (Fill in COLA Dates): March 7, 2006 and on each anniversary date thereafter, the Base Rent shall be adjusted by the change, if any, from the Base Month specified below, in the Consumer Price Index of the Bureau of Labor Statistics of the U.S. Department of Labor for (select one): [ ] CPI W (Urban Wage Earners and Clerical Workers) or [X] CPI U (All Urban Consumers), for (Fill in Urban Area): San Francisco - Oakland - San Jose 1982 - 84 = 100 All items (1982 - 1984 = 100), herein referred to as "CPI".
b. The monthly rent payable in accordance with paragraph A.I.a. of this Addendum shall be calculated as follows: the Base Rent set forth in paragraph 1.5 of the attached Lease, shall be multiplied by a fraction the numerator of which shall be the CPI of the calendar month two months prior to the month(s) specified in paragraph A.I.a. above during which the adjustment is to take effect, and the denominator of which shall be the CPI of the calendar month which is two months prior to (select one): [ ] the first month of the term of this Lease as set forth in paragraph 1.3 ("Base Month") or [X] (Fill in Other "Base Month"): March ___, 2005. The sum so calculated shall constitute the new monthly rent hereunder, but in no event, shall any such new monthly rent be less than the rent payable for the month immediately preceding the rent adjustment.
c. In the event the compilation and/or publication of the CPI shall be transferred to any other governmental department or bureau or agency or shall be discontinued, then the index most nearly the same as the CPI shall be used to make such calculation. In the event that the Parties cannot agree on such alternative index, then the matter shall be submitted for decision to the American Arbitration Association in accordance with the then rules of said Association and the decision of the arbitrators shall be binding upon the parties. The cost of said Arbitration shall be paid equally by the Parties.
[ ] II. MARKET RENTAL VALUE ADJUSTMENT(S) (MRV)
a. On (Fill in MRV Adjustment Date(s): N/A the Base Rent shall be adjusted to the "Market Rental Value" of the property as follows:
1) Four months prior to each Market Rental Value Adjustment Date described above, the Parties shall attempt to agree upon what the new MRV will be on the adjustment date. If agreement cannot be reached within thirty days, then:
FOR THIS FORM, WRITE: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 700 S. FLOWER STREET, SUITE 600, LOS ANGELES, CALIF. 90017
(C)1997 - AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION FORM RA-2-3/97E
RENT ADJUSTMENTS
PAGE 1 OF 2
(a) Lessor and Lessee shall immediately appoint a mutually acceptable appraiser or broker to establish the new MRV within the next thirty days. Any associated costs will be split equally between the Parties, or
(b) Both Lessor and Lessee shall each immediately make a reasonable determination of the MRV and submit such determination, in writing, to arbitration in accordance with the following provisions:
(i) Within fifteen days thereafter, Lessor and Lessee shall each select an [ ] appraiser or [ ] broker ("Consultant" - check one) of their choice to act as an arbitrator. The two arbitrators so appointed shall immediately select a third mutually acceptable Consultant to act as a third arbitrator.
(ii) The Three arbitrators shall within thirty days of the appointment of the third arbitrator reach a decision as to what the actual MRV for the Premises is, and whether Lessor's or Lessee's submitted MRV is the closest thereto. The decision of a majority of the arbitrators shall be binding on the Parties. The submitted MRV which is determined to be the closest to the actual MRV shall thereafter be used by the Parties.
(iii) If either of the Parties fails to appoint an arbitrator within the specified fifteen days, the arbitrator timely appointed by one of them shall reach a decision on his or her own, and said decision shall be binding on the Parties.
(iv) The entire cost of such arbitration shall be paid by the party whose submitted MRV is not selected, ie. the one that is NOT the closest to the actual MRV.
2) Notwithstanding the foregoing, the new MRV shall not be less than the rent payable for the month immediately preceding the rent adjustment.
b. Upon the establishment of each New Market Rental Value:
1) the new MRV will become the new "Base Rent" for the purpose of calculating any further Adjustments, and
2) the first month of each Market Rental Value term shall become the new 'Base Month' for the purpose of calculating any further Adjustments.
[ ] III. FIXED RENTAL ADJUSTMENT(S) (FRA)
The Base Rent shall be increased to the following amounts on the dates set forth below:

On (Fill in FRA Adjustment Date(s)):     The New Base Rent shall be:

___________________________________      $_________________________
___________________________________      $_________________________
___________________________________      $_________________________
___________________________________      $_________________________	

B. NOTICE:
Unless specified otherwise herein, notice of any such adjustments, other than Fixed Rental Adjustments, shall be made as specified in paragraph 23 of the Lease.
C. BROKER'S FEE:
The Brokers specified in paragraph 1.10 shall be paid a Brokerage Fee for each adjustment specified above in accordance with paragraph 15 of the Lease.
FOR THIS FORM, WRITE: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 700 S. FLOWER STREET, SUITE 600, LOS ANGELES, CALIF. 90017
(C)1997 - AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION FORM RA-2-3/97E
RENT ADJUSTMENTS
PAGE 2 OF 2
ADDENDUM TO THE
STANDARD INDUSTRIAL/COMMERCIAL SINGLE LEASE-NET
 Dated March 7, 2001
By and Between (Lessor) SUMO HOLDINGS
(Lessee) AMERICAN REPROGRAPHICS COMPANY, LLC
Address of Premises: 2210 Magnolia Street, Oakland, CA
Paragraph 52:
Lessor and Lessee acknowledge that Lessor is in the process of acquiring title to the Premises and that this Lease shall become effective on Lessor's acquiring title to the Premises. In the event that Lessor is unable to acquire title on or before March 7, 2001, either Party may thereafter terminate this Lease and be released from any further obligations thereunder by providing written notice to the other party.
 
EXHIBIT 10.14
LEASE AGREEMENT BETWEEN
SUMO HOLDINGS SACRAMENTO, LLC
AND
FORD GRAPHICS GROUP, L.L.C.
LEASE AGREEMENT BETWEEN
SUMO HOLDINGS SACRAMENT, LLC
AND
FORD GRAPHICS GROUP, L.L.C.
PREAMBLE
THIS LEASE is entered into on December 1, 1997, by and between SUMO HOLDINGS SACRAMENTO, LLC, a California limited liability company, having its principal place of business located at 900 Palm Avenue, South Pasadena, California 91030, (hereinafter referred to as "Landlord") and FORD GRAPHICS GROUP, L.L.C., a California limited liability company, having its principal place of business located at 900 Palm Avenue, South Pasadena, California, 91030 (hereinafter referred to as "Tenant").
Landlord hereby Leases to Tenant on the terms and conditions set forth in this Lease certain real property located in the City and County of Sacramento, California, described in Exhibit "A", attached hereto and incorporated by reference (hereinafter referred to as "Premises").
ARTICLE 1
TERM OF LEASE
1.1 ORIGINAL TERM:
The term of this Lease shall be for a period of fifteen (15) years commencing at 12:01 A.M. on December 1, 1997 and ending at 11:59 P.M. on November 30, 2012, unless extended or terminated sooner as provided in this Lease.
1.2 OPTION TO EXTEND TERM:
Tenant shall have a one-time option to extend the term of this lease for an additional period of five (5) years commencing on expiration of the original term specified in Section 1.01 of this Lease provided:
(a) Tenant has fully and faithfully performed all the terms, covenants, and conditions of this Lease for the original tern specified in Section 1.01 herein.
(b) Written notice of Tenant's election to renew the term of this Lease is delivered by Tenant to Landlord at least six (6) months prior to the expiration of the Lease's original term.
(c) The renewed term of this Lease shall be subject to the same terms and conditions as are contained in this Lease, except that the amount of rent payable under this Lease for the renewed term shall be adjusted based on the then fair market value of the Premises, determined in accordance with Section 2.01(b) of this Lease.
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1.3 HOLDING OVER:
If Tenant holds over and continues in possession of the Premises after termination of the term of this Lease, including any extended term, Tenant's continued occupancy of the Premises shall be deemed merely a tenancy from month to month and be subject to the provisions of this Lease, excluding the right of first refusal as defined in Section 1.04, and provided that the monthly amount of rent due shall be determined in accordance with Section 2.01(b) of this Lease.
1.4 RIGHT OF FIRST REFUSAL TO PURCHASE LEASED PREMISES:
(a) If Landlord, during the lease term or any extension of the term, elects to sell all or any portion of the Premises. Tenant shall have the right of first refusal to meet any bona fide offer of sale from a third party on the same terms and conditions of that offer, including but not limited to the price and date for close of escrow, provided Tenant is not then in default under this Lease. On receipt of an acceptable bona fide third party offer for purchase of the Premises, Landlord shall notify Tenant in writing of the offer and its terms and conditions. Tenant, within thirty (30) days after the date of Landlord's notice to Tenant, shall notify Landlord in writing whether or not Tenant agrees to purchase the Premises on the same terms and conditions as contained in the third party offer. A failure by Tenant to give Landlord any written notification within the prescribed time period shall be deemed notice to Landlord that Tenant does not elect to purchase the Premises. If Tenant elects not to purchase the Premises, Landlord shall be free to sell the premises or portion thereof to that third party in accordance with the terms and conditions of the third party offer; provided, however, that any material change in such terms and conditions shall be deemed a new offer triggering this right of first refusal.
(b) The right of first refusal granted to Tenant shall exclude all of the following transfers: any transfer by Landlord to individuals holding an ownership interest in Landlord; any transfer resulting from the Landlord's death; any transfer by Landlord to Landlord's spouse or any of Landlord's children; and any transfer by Landlord to any other entity in which Landlord or its owners hold a fifty-one percent (51%) or greater ownership interest. The right of first refusal granted to Tenant also shall not apply in the event of foreclosure (or a deed in lieu of foreclosure) or to a sale of the Premises by a lender who has foreclosed.
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(c) The right of first refusal granted to Tenant under this lease is personal, and Tenant shall have no right to assign or transfer the right of first refusal either separately from or together with a transfer of Tenant's leasehold interest.
ARTICLE 2
RENT AND TAXES
2.1 FIXED RENT:
(a) Tenant agrees to pay to Landlord during the first seventy-two (72) months of the original term of this Lease TWENTY THOUSAND NINE HUNDRED DOLLARS ($20,900) per month. For the remaining original term of the Lease, the amount of the monthly rent shall equal the property's fair market rental value as of December 1, 2003, as determined in good faith by Landlord. Should Tenant dispute Landlord's determination of the property's fair market rental value, the parties agree that the fair market rental value shall be determined by arbitration held in accordance with the rules of the American Arbitration Association in effect at that time. The written decision of the arbitrators shall be binding on Tenant and Landlord. The costs of such arbitration shall be borne equally by Tenant and Landlord. Such arbitration hearing shall be held in Los Angeles, California. Such rent shall be payable on the first day of each and every month occurring during the term of this Lease at the address set forth in this Lease for mailing notices to Landlord, or at any other place or places that Landlord may, from time to time, designate by written notice given to Tenant.
(b) Should Tenant elect to extend the original term of this Lease, the annual rent to be paid by Tenant under this Lease during the extended term described in Section 1.02 shall equal one hundred percent (100%) of the property's fair market rental value three (3) months prior to the expiration of the Lease, or the adjusted monthly rental amount determined pursuant to Section 2.01(a) of this Lease, whichever is greater. Should Tenant dispute Landlord's determination of the property's fair market rental value, the parties agree that the fair market rental value shall be determined by arbitration held in accordance with the rules of the American Arbitration Association in effect at that time. The written decision of the arbitrators shall be binding on Tenant and Landlord. The costs of such arbitration shall be borne equally by Tenant and Landlord. Such arbitration hearing shall be held in Los Angeles. California..
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The annual rent for the renewed term shall be payable in equal monthly installments and otherwise paid in the same manner as rent is required under
Section 2.01 to be paid during the original term of this Lease. Landlord shall give Tenant written notice at least six (6) months prior to expiration of the original term of any expected rent increase determined under this section.
2.2 LATE PAYMENT CHARGES:
Tenant shall pay a late charge equal to five percent (5%) of the amount of each installment of fixed rent or any other sum owing from Tenant to Landlord under the terms hereof which is not received by Landlord within ten (10) days after its due date. The late age shall increase to ten percent (10%) of the amount owing, if such amount is overdue thirty (30) days or more. In addition to late charges; interest shall accrue on the unpaid balance at ten percent (10%) per annum compounded monthly from the time such amount becomes due until such amounts are paid in full. No interest shall accrue if the rent and other amounts owed are received by Landlord within ten (10) days of the time they first became due.
2.3 TAXES TO BE PAID BY TENANT:
(a) In addition to the rent specified in Section 2.01 of this Lease, Tenant shall pay all real property taxes and general and special assessments levied or assessed against the Premises during the term of this Lease.
(b) Tenant's obligation to pay all real property taxes and general and special assessment on the Premises shall also include the obligation to pay any increases in real property taxes and general and special assessments, whether the increase results from an increase in the property tax rate and/or in the valuation of the Premises.
(c) If the Premises are assessed and taxed as part of a larger parcel of real property owned by Landlord (referred to in this Lease as the "Tax Parcel") , the amount payable under this section by Tenant shall be the portion of the tax bill for the Tax Parcel for bears the same ratio to the total tax bill for the Tax Parcel as the value of the Premises bears to the value of the entire Tax Parcel, determined from the worksheets of the county assessor for the county in which the Premises are located or by appraisal by an independent real estate appraiser selected by the parties.
(d) The taxes and assessments levied against the Premises during the first and last years of the term of this Lease shall be prorated between Landlord and Tenant for purposes of this section as of 12:01 A.M. on date of commencement and termination respectively of this Lease.
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(e) If any tax. assessment or charge may be paid in one sum ear in installments, Tenant may elect either method of payment and its election shall be binding on Landlord. If Tenant makes the election to pay any tax, assessment, or charge in installments and any installment is payable after termination of this Lease, the unpaid installment shall be prorated as of the date of termination and the amount payable after the date of termination shall be paid by Landlord.
(f) Tenant shall not be required to pay any estate, gift, inheritance, succession, transfer. franchise, income, or other taxes of a similar nature that may be payable by Landlord or Landlord's legal representative, successors, or assigns. Tenant also shall not be required to pay any tax that might become due on account of Landlord's ownership of property other than the Premise, notwithstanding that tax may become a lien on the Premises or be collectible from it.
(g) Tenant shall have the right, at Tenant's sole cost and expense, to protest or contest in good faith any tax or assessment, or any increase in any tax or assessment, levied or assessed against the Premises, or to defer payment of the tax or assessment until final determination of the issue. On final determination, Tenant shall immediately pay the amount of the judgment rendered and all costs, charges, interest, and related penalties. The right grant to Tenant in this section is conditioned upon Tenant's deposit with Landlord the fall amount of that disputed tax or assessment plus the amount of any penalty that will be imposed on the Premises for failure to timely pay the tax or assessment, and one (1) year's interest at the rate charged by the government entity imposing the tax or assessment on the amount of the tax or assessment; provided, however, that such deposit shall be held in an interest bearing account and refunded with such interest in the event and to the extent the tax assessment is successfully contested. Landlord shall, upon the request of Tenant, cooperate with Tenant in any legal proceedings described under this subparagraph.
ARTICLE 3
REPAIRS. MAINTENANCE, AND ALTERATIONS
3.1 PRESENT CONDITION OF PREMISES:
Tenant hereby acknowledges that it has inspected the Premises and all improvements existing thereon, including any and all buildings on and appurtenances to the Premises, and agrees to accept the Premises as is.
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3.2 MAINTENANCE AND REPAIR BY TENANT:
At all times during the term of this Lease, including any extensions thereof, Tenant shall, at its own cost and expense and at no cost and expense to Landlord, maintain the Premises and all portions of the Premises in good order and repair, and make all repairs and replacements that may become necessary to the Premises, any buildings or improvement on the Premises, or any sidewalks, landscaping, driveways, or parking areas that are part of or appurtenant to the Premises. Any and all repairs and replacements required by this section, both ordinary and extraordinary and both structural. and nonstructural, shall be made promptly by Tenant as required and shall be of quality and workmanship comparable to that existing at the Premises on the date hereof and shall comply with all applicable laws, regulations, and ordinances of any governmental authority with jurisdiction.
3.3 REPAIRS BY LANDLORD FOR TENANT'S ACCOUNT:
If, at any time during the term of this Lease, including any extensions thereof, Tenant fails to maintain the premises or make any repairs or replacements as required by Section 3.02 of this Lease, Landlord may, at its discretion, enter the Premises and perform such maintenance or make such repairs or replacements for the account of Tenant as shall be necessary to fulfill Tenant's covenants hereunder; provided, however, that Landlord shall first notify Tenant of such repairs or replacements and Tenant shall have ten (10) business days to make arrangements for such repairs or replacements to Landlord's reasonable satisfaction. Any sums expended by Landlord in making such repairs or replacements, together with interest thereon at an annual rate of seven and one half percent (7.5%) from the date expended by Landlord until the date repaid by Tenant, shall be due and payable by Tenant to Landlord with the next due payment of rent under this Lease.
3.4 ALTERATIONS AND IMPROVEMENTS:
Tenant shall have the right to make alterations and improvements to the Premises, subject to the following terms and conditions:
(a) No alterations or improvements made by Tenant shall in any way impair the structural stability of any building or improvement on the Premises or diminish the value of the Premises.
(b) All alterations or improvements requiring an expenditures greater than TEN THOUSAND DOLLARS ($10,000) shall be first approved in writing by Landlord.
(c) Tenant shall keep all of the Premises and every part thereof, including buildings and other improvements at any time located thereon, free and clear of any and all mechanics', materialmen's, and other liens arising out of, or in connection with, any work or services performed, or materials or appliances furnished to Tenant as part of any alterations, improvements, or repairs that Tenant
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may make, or cause to be made, on or, about the Premises, or any obligations of any kind incurred by Tenant. Tenant further agrees to promptly and fully discharge any and all claims on which such liens might be based, and to hold Landlord free and harmless from any and all such liens and claims of liens and suits or other proceedings pertaining thereto. Should Tenant desire to contest any lien that may attach to the Premises, Tenant shall first notify Landlord in writing of Tenant's intention so to do within five (5) business days of the lien having been filed. In such a case, Tenant shall not be considered in default hereunder until ten (10) business days air the final determination of the validity thereof, within which time Tenant shall satisfy and discharge the Rest to the extent held valid. The satisfaction and discharge of any such lien shall not, in any case, be delayed until execution is had on any judgment rendered on the lien, and that delay shall be a default of Tenant under this Lease. In the event of any such contest, Tenant shall protect and indemnify Landlord against all loss, cost, expense, and damage resulting from the contest.
(d) All alterations and improvements made to the Premises shall become the property of Landlord and shall remain on and be surrendered with the Premises at the expiration or earlier termination of this Lease, including any extension thereof. Notwithstanding any other provision in this Lease, Tenant shall have the right to remove its trade fixtures from the Premises at the expiration or earlier termination of this Lease term provided Tenant is not then in default under this Lease and provided that Tenant shall repair any damage to the Premises caused by that removal.
(e) All alterations and improvements shall comply with the applicable laws, ordinances, and regulations of any governmental authority with jurisdiction over the Premises.
3.5 SURRENDER OF PREMISES:
On expiration of the term of this Lease, including any extension thereof, or on earlier termination of this Lease, Tenant shall surrender the Premises, all building or improvements on the Premises, and all things appurtenant to the Premises, to Landlord in substantially the same condition as exists on the date of this Lease, reasonable wear and tear excepted.
3.6 LANDLORD'S RIGHT OF INSPECTION:
Landlord or its duly authorized agents may enter the Premises accompanied by Tenant's designated employee at any and all reasonable times during the term of this Lease upon twenty-four (24) hours notice, including any extended term, to determine Tenant's compliance with the terms and
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conditions of this Lease or to perform any other acts authorized by this Lease to be performed by Landlord or reasonably necessary to protect Landlord's rights under this Lease.
ARTICLE 4
USE OF PREMISES
4.1 PERMITTED AND PROHIBITED USE OF PREMISES:
Tenant may use the Premises for any lawful purpose without the written consent of Landlord. In addition, Tenant may use or cause to be used, at its own risk, any hazardous or toxic substances or materials, or store or dispose of any such substances or materials on the Premises, provided that Tenant shall maintain the Premises in a clean and sanitary manner and shall comply with all laws, ordinances, rules, and regulations applicable to the Premises, enacted or promulgated by any public or governmental authority or agency having jurisdiction over the Premises.
4.2 SIGNS AND ADVERTISING:
Tenant may erect and maintain any signs on the Premises relating to its business, provided that such signs:
(a) are approved, in writing, by Landlord;
(b) comply with all laws, ordinances, rules, and regulations applicable to the Premises, including those enacted or promulgated by any public or governmental authority or agency having jurisdiction over the Premises;
(c) are removed at Tenant's sole cost and expense without damage to the Premises, or any improvement thereon, upon expiration or sooner termination of this Lease;
(d) are erected by Tenant for its own advertising purposes
ARTICLE 5
INSURANCE AND ALLOCATION OF THE RISK OF LOSS
5.1 ALLOCATION OF THE RISK OF LOSS:
Tenant shall, at all times during the term of this lease, including any extensions, bear the sole risk of loss resulting from the damage or destruction of any part of the Premises which are the subject matter of this Lease.
5.2 FIRE INSURANCE:
(a) Tenant shall, at its own cost and expense, and at all parties during the full term of this Lease,
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including any extended term, keep all buildings, improvements, equipment, and other structures on the Premises insured for their "Full Replacement Cost" against loss or destruction by fire or such other perils; including vandalism and malicious mischief, as are commonly covered under a standard extended coverage endorsement in Log Angeles County, California. Any proceeds received under any policy described in this section shall be used to fund the repair or replacement of the damaged building or improvement pursuant to Section 6.01 of this Lease. Landlord shall be named as an additional insured on the policies and the policies shall contain cross-liability endorsements.
(b) "Full Replacement Cost," as used in Section 5.02(a), means the actual cost or replacement for the building, equipment, and other improvements ore the Premises, as determined from time to time. If, at any time during the term of this Lease, Landlord believes that the Full Replacement Cost has increased, Landlord shall notify Tenant in writing. If Tenant agrees with the increased Full Replacement Cost set forth in Landlord's notice, Tenant shall, within thirty (30) days of receipt of the notice, increase the amount of insurance carried to the amount stated in the notice. If, however, the parties disagree as to the value of the property's Full Replacement Cost, the insurance carrier that is then carrying the largest amount of fire and extended coverage on the Premises shall make a determination as to the property's Full Replacement Cost. The insurer's determination shall be final and Tenant shall, if necessary, immediately increase the amount of insurance carried on the Premises to the amount determined by that carrier. Notwithstanding any provision to the contrary, increases in coverage pursuant to this section may not be made more often than once per calendar year, unless otherwise agreed by Landlord and Tenant in a separate writing. Notwithstanding the preceding sentence, if Tenant makes improvements or alterations to the Premises during any given year of the term of this Lease, Landlord may request an increase in coverage pursuant to the provisions of this section.
5.3 LIABILITY AND PROPERTY INSURANCE:
(a) Tenant shall, at its own cost and expense secure and maintain during the entire term of this Lease and any extended term of this Lease, public liability, property damage, and products liability insurance, insuring
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both Tenant and its employees against all bodily injury, property damage, personal injury, or other loss or liability that might arise in connection with Tenant's occupation and use of the Premises under this Lease.
(b) Landlord shall be named as an additional insured and the policy or policies shall contain cross-liability endorsements.
(c) If the limits of liability and property damage insurance carried by Tenant are materially less than the amount or type of insurance typically carried by owners or tenants of properties located in the same county in which the Premises are Located, which are similar to and operated for similar business purposes as the Premises, Landlord may elect to require Tenant to increase the amount of specific coverage, change the type of policy carried, or both. If Landlord so elects, Tenant shall be notified in writing of the specific change in policy amount or type required and shall have 30 days after the date of Landlord's notice to effect the change in amount or type of policy. If, however, the parties' disagree as to the necessary amount of coverage, the insurance carrier that is then carrying the largest amount of liability and property insurance coverage on the Premises shall make determination as to the necessary amount of coverage. The insurer's determination shall be final and Tenant shall, if necessary, immediately increase the amount of insurance carried on the Premises to the amount determined by that carrier. Notwithstanding any provision to the contrary, increases in coverage pursuant to this section may not be made more often an once per calendar year, unless otherwise agreed by Landlord and Tenant in a separate writing. Notwithstanding the preceding sentence, if Tenant makes improvements or alterations to the Premises during any given year of the term of this Lease, Landlord may request an increase in coverage pursuant to the provisions of this section.
5.4 BUSINESS INTERRUPTION INSURANCE:
Tenant shall procure and maintain, at its own cost and expense, business interruption insurance for and during the term of this Lease, and in an amount sufficient to ensure that the rent provided for in Section 2.01 will be paid to Landlord for a period of up to one (1) year in the event the Premises or buildings thereon are destroyed or damaged so as to render operation of Tenant's business impossible or impracticable.
5.5 TENANT'S PERSONAL PROPERTY:
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Tenant Shall at all tines during the term of this Lease and at Tenant's sole expense, keep its personal property, including trade fixtures and equipment and all inventory of Tenant that may be in the Premises from time to time, insured against loss or damage by fire and by any peril included within fire and extended coverage insurance for an amount that will insure the ability of Tenant to fully replace the trade fixtures, equipment, and merchandise.
5.6 WORKERS' COMPENSATION INSURANCE:
Tenant shall maintain in effect throughout the term of this Lease, at Tenant's sole expense, Workers' Compensation insurance in accordance with the laws of California.
5.7 CANCELLATION CLAUSE:
Any policy of insurance required under this Article 5 shall be written by insurance companies authorized to do business in California. Each policy of insurance procured by Tenant pursuant to this Article 5 shall expressly provide that it cannot be canceled for any reason or altered in any manner unless at least thirty (30) days prior written notice has been given by the insurance company issuing the policy to Landlord in the manner specified in this Lease for service of notice on Landlord by Tenant.
5.8 DEPOSIT OF INSURANCE POLICIES WITH LANDLORD:
Promptly following the issuance, reissuance, or renewal of any insurance policy required by this Lease, Tenant shall cause a duplicate copy of the policy or a certificate evidencing the policy signed by the insurance company issuing the policy or its agent to be given to Landlord.
5.9 BLANKET INSURANCE POLICY:
In order to satisfy its obligations under this Article 5, Tenant may at any time during the term of this Lease, have in full force and effect a "blanket" policy of insurance insuring the Premises as well as other property owned or occupied by Tenant, provided the blanket policy does not in any way diminish the amount or coverage of the insurance required under this Article, and further provided that the blanket policy otherwise meets all requirements of this Article.
5.10 LANDLORD'S RIGHT TO PROCURE INSURANCE:
If at any time Tenant fails to procure or maintain the insurance required by this Article 5, Landlord may obtain that insurance and pay the premiums on it for the benefit of Tenant. Any amounts paid by Landlord to procure or maintain insurance pursuant to this section shall be immediately due and repayable to Landlord by Tenant with the next then due installment of rent under this Lease; failure to repay at that time any amount expended by Landlord shall be considered the same as a failure to pay rent and a default by Tenant under this Lease.
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ARTICLE 6
DESTRUCTION OF PREMISES
6.1 TENANT'S DUTY TO REPAIR OR RESTORE:
(a) If any improvements, including buildings and other structures, located on the Premises are damaged or destroyed during the term of this Lease, or any renewal or extension thereof, regardless of the nature of such damage or destruction. Tenant shall repair that damage as soon as reasonably possible and restore the Premises and improvements to substantially the same condition as existed before the damage or destruction, to the extent that the proceeds of the insurance policies covering the occurrence are sufficient to cover the actual cost of repair and restoration.
(b) If the damage or destruction is caused either by a peril against which fire and extended coverage insurance is required by this Lease to be carried or by a peril against which insurance is not required to be carried by this Lease, Tenant expressly waives any right under Civil Code Sections 1931-1933 to terminate this Lease for damage or destruction to the Premises.
6.2 LIMITATION OF LEASE FOR CERTAIN LOSSES:
(a) Notwithstanding any other provision of this Lease, if more than fifty percent {50%) of the Premises are damaged or destroyed, including any buildings or movements thereon, Tenant may elect not to rebuild and terminate this Lease by giving Landlord written notice of the termination. The notice must be given within sixty (60) days after occurrence of the damage or destruction.
(b) Tenant or Landlord shall also have the right to terminate this Lease by giving written notice of termination to the other not later than sixty (60) days after occurrence of the damage or destruction under either of the following circumstances:
(1) If the Premises are damaged or destroyed from any cause whatsoever, insured or uninsured, and the laws then in existence do not permit the repair or restoration of the Premises provided for in this Article; or
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(2) If the Premises are destroyed from any cause whatsoever, Insured or uninsured, during the last six (6) months of the original term of this Lease (provided that Tenant has not elected before the date of damage or destruction to extend the term of this Lease in accordance with the provisions of Section 1.02) or during the last six (6) months of the extended term, if any, of this Lease.
(c) Any termination shall become effective as of the date of the notice of termination, In the event of a termination under subsection 6.02(a) or 6.02(b), Tenant shall not be entitled to collect any insurance proceeds attributable to insurance policies covering the Premises or improvements, except those proceeds attributable to Tenant's personal property and trade fixtures, business interruption or liability for claims in which Tenant is a party defendant.
(d) If this Lease is terminated pursuant to either subsection 6.02(a) or 6.02(b) above, rent, taxes. assessments, and other sums payable by Tenant under this Lease shall be abated as of the date of the casualty. If any taxes, assessments, or rent has been paid in advance by Tenant, Landlord shall refund it to Tenant for the unexpired period for which the payment has been made.
6.3 TIME FOR CONSTRUCTION OF REPAIRS:
Any and all repairs and restoration of improvements required by this Article shall be commenced by Tenant within a reasonable time after occurrence of the damage or destruction requiring the repairs or restoration; shall be diligently pursued after being commenced; and shall be completed within a reasonable time after the loss. If Landlord, in its discretion, determines that it must make the necessary repairs and restoration, Landlord shall cause the repairs and restoration to be completed not later than one (1) year after occurrence of the event causing destruction subject to force majeure.
6.4 PAYMENT OF INSURANCE PROCEEDS:
For any damage to the Premises caused by a peril covered by insurance required under this Lease to be carried and maintained by Tenant, the proceeds shall be paid directly to the Tenant for the purpose of making the necessary repairs to the Premises.
ARTICLE 7
CONDEMNATION
7.1 CONDEMNATION DEFINED:
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(a) The term "Total Condemnation" as used in this Article shall mean the taking by eminent domain ("Condemnation") by a public or quasi-public agency or entity having the power of eminent domain ("Condemner") of:
(1) More than fifty percent (50%) of the total ground area of the Premises; or
(2) Less than fifty percent (50%) of the ground area of the Premises at a time when the remaining buildings or improvements on the Premises cannot reasonably be restored to a condition suitable for Tenant's occupancy for the uses permitted by this Lease within ninety (90) normal eight-hour working days under all laws and regulations then applicable; or
(3) Less than fifty percent (50%) of the ground area of the Premises in such a manner that Tenant is materially prevented from carrying on its then current operations on the remaining portion of the Premises at no material additional costs than were incurred immediately prior to the taking.
(b) The term "Partial Condemnation" as used in this Article shall mean any Condemnation of a portion of the Premises that is not a Total Condemnation under Section 7.01(a) of this Lease.
7.2 EFFECT OF CONDEMNATION:
(a) If a Total Condemnation of the Premises should occur during the term of this Lease, this Lease shall terminate without further notice as of 12:01 A.M. on the date actual physical possession of the Condemned property is taken by the Condemner. All rent payable under this Lease shall be prorated as of 12:01 A.M. on that date and a prompt refund or payment of rent for the unexpired period of this Lease shall be made by Landlord to Tenant. On the making of that rent adjustment, both Landlord and Tenant will be released and discharged from any and all further obligations under this Lease.
In the event of a Partial Condemnation of the Premises, this Lease shall terminate as to the portion of the Premises taken on the date actual physical possession of that portion is taken by the Condemner but shall remain in full force anal effect as to the remainder of the Premises; provided, however, that promptly after the taking of actual physical possession by the Condemner of the portion taken by Condemnation. Landlord shall restore, at Landlord's own cost and expense, the improvements on the remainder of the Premises to a condition making the Premises tenantable by
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Tenant, to the satisfaction of Tenant in its reasonable discretion, for the then current uses. Any rent payable under this Lease after the date actual physical possession is taken by the Condemner of the portion of the Premises condemned shall be reduced by the percentage the ground area of the portion taken by eminent domain bears to the total ground area of the Premises on the date of this Lease. In addition, the rent payable under this Lease shall be further abated during the time and to the extent Tenant is prevented from occupying all of the remainder of the Premises by the work of restoration required by this section to be performed by Landlord.
7.3 LANDLORD'S POWER TO SELL IN LIEU OF CONDEMNATION:
Landlord may, without any obligation or liability to Tenant and without affecting the validity or continuation of this Lease other than as expressly provided in this Article, agree to sell or convey to the Condemner, without first requiring that an action or proceeding for Condemnation be instituted or tried, the portion of the Premises sought by the Condemner free from this Lease and the rights of Tenant in the Premises other than as provided in this Article 7.
7.4 CONDEMNATION AWARD
All compensation and damages awarded or paid for the Condemnation of the Premises or any portion thereof, or for any sale in lieu of Condemnation as authorized by Section 7.03 of this Lease, shall, except as otherwise expressly provided in this section, belong to and be the sole property of Landlord. Tenant hereby assigns to Landlord any claim Tenant might have except for this provision against Landlord, the Premises, or Condemner for diminution in value of the leasehold estate created by this Lease or the value of the unexpired term of this Lease; provided, however, that Tenant is entitled to seek to recover froth the Condemner, but not from Landlord:
(a) The cost of removing any trade fixtures, furniture, or equipment from the portion of the Premises taken by Condemnation;
(b) The value of any improvements installed by Tenant on the portion of the Prices taken by Condemnation that Tenant has a right to remove under this Lease but that Tenant elects not to remove; and
(c) The then amortized value of all improvements made by Tenant on the portion of the Prices taken by Condemnation that could not be removed by Tenant on expiration of this Lease either because of provisions of this Lease or because the improvements would have no economic value on removal from the Premises,
ARTICLE 8
INDEMNIFICATION
8.1 TENANT'S HOLD-HARMLESS CLAUSE:
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Except as otherwise provided in Section 8.02, Tenant shall indemnify and holds Landlord and the property of Landlord, including the Premises, free and harmless from any and all liability, claims, loss, damages, or expenses, including attorney's fees and costs, arising by reason of the death or injury of any person, including Tenant or any person who is an employee or agent of Tenant, or by reason of damage to or destruction of any property, including property owned by Tenant or any person who is an employee or agent of Tenant, caused or allegedly caused by: (1) any cause whatsoever while that person or property is in or on the Premises or in any way connected with the Premises or with any improvements or personal property on the Premises; (2) some condition of the Premises or some building or improvement on the Premises; (3) some act or omission on the Premises of Tenant or any person in, on, or about the Premises with the permission and consent of Tenant; or (4) any matter connected with Tenant's occupation and use of the Premises.
8.2 LANDLORD'S HOLD HARMLESS CLAUSE:
Notwithstanding the provisions of Section 8.01 of this Lease, Tenant shall be under no duty to indemnify and hold Landlord harmless from any liability, claims, or damages arising because of Landlord's failure to make any repairs required by this Lease to be made by Landlord or because of any negligence or willful acts of misconduct by Landlord or by any person who is an agent or employee of Landlord acting in the course and scope of its agency or employment. Landlord agrees to indemnify, defend, protect, and hold Tenant free and harmless from and against any liability, claims, or damages arising from or in connection with Landlord's failure to make any repairs required by this Lease to be made by Landlord or because of any negligence or willful acts of misconduct by Landlord or by any person who is an agent or employee of Landlord acting in the course and scope of its agency or employment.
ARTICLE 9
DEFAULT AND REMEDIES
9.1 REMEDIES ON TENANT'S DEFAULT:
If Tenant breaches this Lease or breaches this Lease and abandons the Premises before the natural expiration of the term of this Lease, Landlord, in addition to any other remedy given by law or equity, may:
(a) Continue this Lease in effect by not terminating Tenant's right to possession of the Premises, in which case Landlord shall be entitled to enforce all Landlord's rights and remedies under this Lease, including the right to recover the rent specified in this Lease as it becomes due under this Lease.
(b) Terminate this Lease and recover from Tenant:
(1) The worth, at the time of award, of the unpaid rent that had been earned at the time of termination of the Lease;
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(2) The worth, at the time of award, of the amount by which the unpaid rent that would have been earned after termination of the Lease until the time of award exceeds the amount of rental loss that Tenant proves could have been reasonably avoided;
(3) The worth, at the time of award, of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of rental loss that Tenant proves could be reasonably avoided; and
(4) Any other amount necessary to compensate Landlord for all damage approximately caused by Tenant's failure to perform the obligations under this Lease; or
(c) Terminate the Lease and, in addition to any recoveries Tenant may seek under paragraph (b) of this Section 9.01, bring an action to reenter and regain possession of the Premises in the manner provided by the laws of unlawful detainer then in effect in California.
9.2 TERMINATION BY LANDLORD:
No act of Landlord, including but not limited to Landlord's entry an the Premises or efforts to relet the Premises, or the giving by Landlord to Tenant of a notice of default, shall be construed as an election to terminate this Lease unless a written notice of the Landlord's election to terminate is given to Tenant or unless termination of this Lease is decreed by a court of competent jurisdiction.
9.3 DEFAULT BY TENANT:
All covenants and agreements contained in this Lease are declared to be conditions to this Lease and to the term hereby leased to Tenant. The occurrence of any of the following shall constitute a material default and breach of this Lease by Tenant:
(a) Tenant's failure to pay rent when due when the failure continues for ten (10) business days after written notice to pay that rent or surrender possession of the Premises is served on Tenant by Landlord; or
(b) Any failure to perform any other covenant, condition, or agreement contained in this Lease when the failure is not cured within thirty (30) days after written notice of the specific failure is given by Landlord to Tenant; or
(c) The bankruptcy or insolvency of Tenant, the making by Tenant of any general assignment for
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the benefit of creditors; the filing by or against Tenant of a petition to have Tenant adjudged a bankrupt or of a petition for reorganization or arrangement under the Bankruptcy Act (unless, in the case of a petition filed against Tenant, it is dismissed within sixty (60) days); the appointment of a trustee or receiver to take possession of substantially all of Tenant's assets located at the Premises or of Tenant's interest in this Lease, if possession is not restored to Tenant within thirty (30) days; or the attachment, execution, or other judicial seizure of substantially all of Tenant's assets located at the Promises or of Tenant's interest in this Lease, when that seizure is not discharged within thirty (30) days.
(d) The abandonment or vacating of the Premises by Tenant (which, for purposes of this Lease, shall mean Tenant's failure to occupy and operate the Premises for business for a period of at least 30 consecutive days).
9.4 NUISANCE:
Notwithstanding any provision to the contrary, including the permitted uses of the Premises by the Tenant described in Section 4.01, Tenant shall not commit or permit any act constituting a nuisance, whether such nuisance arises from noise, odor, smoke. sewerage, chemical wastes or otherwise. Furthermore, Tenant shall not obstruct or cause to be obstructed any public or private roadway or sidewalk leading onto the Premises or any area adjacent thereto. The commission of any act of nuisance, shall constitute a default by Tenant of the terms of this Lease.
9.5 CUMULATIVE REMEDIES:
The remedies granted to Landlord in this Article 9 shall not be exclusive but shall be cumulative and in addition to all other remedies now or hereafter allowed by law or authorized in this Lease.
9.6 WAIVER OF BREACH:
The waiver by Landlord of any breach by Tenant of any of the provisions of this Lease shall not constitute a continuing waiver or a waiver of any subsequent default or breach by Tenant either of the same or a different provision of this Lease.
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ARTICLE 10
MISCELLANEOUS
10.1 ASSIGNMENT AND SUBLETTING:
Tenant shall not encumber, assign, or otherwise transfer this Lease, any right or interest in this Lease, or any right or interest in the Premises or any of the improvements that may now or hereafter be constructed or installed on the Premises without first obtaining the written consent of Landlord, which consent shall not be unreasonably withheld. Tenant shall not sublet the Premises or any part thereof, nor allow any other person, other than Tenant's agents, servants, and employees, to occupy the Premises or any part of the Premises without the prior written consent of Landlord, which consent shall not be unreasonably withheld. Any encumbrance, assignment, transfer, or subletting without the prior written consent of Landlord, whether voluntary or involuntary, by operation of law or otherwise, is void and shall, at the option of Landlord, terminate this Lease.
10.2 UTILITIES:
Tenant shall pay all charges incurred for the furnishing of gas, electricity, water, telephone service, garbage or refuse service, and other public utilities to the Premises during the term of this Lease. Landlord hereby represents and warrants that all necessary utilities are in place and not subject to assessment.
10.3 NOTICES:
Except as otherwise expressly provided by law, any and all notices or other communications required or permitted by this Lease or by law to be served on or given to either party to this Lease by the other party shall be in writing and shall be deemed duly served and given when personally delivered to the party to whom it is directed or to any managing employee or officer of that party or, in lieu of personal service, when deposited in the United States mail, first-class postage prepaid, addressed to Tenant at 900 Palm Avenue, South Pasadena, California. 91030 or to Landlord at 900 Palm Avenue, South Pasadena, California, 91030. Either party, Landlord or Tenant, may change its address for purposes of this section by giving written notice of that change to the other party in the manner provided in this section.
10.4 ATTORNEYS' FEES:
If any litigation, including arbitration proceedings, is commenced between the parties to this Lease concerning the Premises, this Lease, or the rights and duties of either in relation to this Lease, the party prevailing in that litigation shall be entitled, in addition to any other relief that may be granted in the litigation, to a reasonable sum as and for its attorneys' fees in the litigation, which shall be determined by the court in that litigation or in a separate action brought for that purpose.
10.5 BINDING OF HEIRS AND SUCCESSORS:
This Lease shall be binding on and shall inure to the benefit of the heirs, executors, administrators, successors, and assigns of each Landlord and Tenant, but nothing contained in this section shall be construed as a consent by Landlord to any assignment of this Lease or any interest in this Lease by Tenant.
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10.6 TIME OF THE ESSENCE:
Time is expressly declared to be of the essence in this Lease.
10.7 COMPLETE AGREEMENT:
This instrument constitutes the sole and only agreement between Landlord and Tenant respecting the Premises, the leasing of the Premises to Tenant, and the Lease terms contained in this Lease, and correctly sets forth the obligations of Landlord and Tenant to each other as of its date. Any agreements or representations respecting the Premises or their leasing by Landlord to Tenant not expressly set forth in this instrument are null and void.
10.8 SEVERABILITY:
In the event that a court of competent jurisdiction finds any of the terms of this Lease either partially or wholly invalid or unenforceable, for any reason whatsoever, such holding shall have no effect on the remaining terms contained herein not so held, and this Lease shall be construed, if possible, as if such invalid or unenforceable terms had not been included herein.
10.9 GOVERNING LAW/VENUE:
The parties intend that in the event either party brings an action under this Lease, such action shall be governed by the laws of the State of California. Sole and proper venue for such action shall be the City and County of Los Angeles, State of California.
10.10 QUIET ENJOYMENT:
Upon payment by Tenant of the rent and additional rent and the performance of all the covenants, conditions and provisions on Tenant's part to be performed under this Lease, Tenant shall have quiet enjoyment of the Premises for the entire term of this Lease, subject to of the provisions of this Lease.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the dates set forth below.
WITNESSES:

DATED:  December 1, 1997                SUMO HOLDINGS SACRAMENTO, LLC,
                                        A CALIFORNIA LIMITED LIABILITY COMPANY:

----------------------------------
First Witness
                                        By: /s/ S. CHANDRAMOHAN
                                            -------------------
                                            S. CHANDRAMOHAN
                                            Its:  Manager

----------------------------------                 "LANDLORD"
Second Witness
                                        FORD GRAPHICS GROUP, LLC,
                                        A CALIFORNIA LIMITED LIABILITY COMPANY:

----------------------------------
First Witness
                                        By: /s/ S. CHANDRAMOHAN
                                            -------------------
                                            S. CHANDRAMOHAN
                                            Its:  Manager

----------------------------------               "TENANT"
Second Witness	

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EXHIBIT A
DESCRIPTION OF LEASED PROPERTY
Real property located at 1322 V Street. Sacramento, California 90015 and
more precisely described as follows:
Parcel No. 1:
The West one-half of Lot 3, in the Block bounded by "V" and "W" 13th and 14th Streets of the City of Sacramento, according to the official map or plan thereof.
Parcel No. 2:
The East one-half of Lot 3, in the Block bounded by "V" and "W" 13th and 14th Streets of the City of Sacramento, according to the official map or plan thereof.
Parcel No. 3:
The North one-half of Lot 4, in the Block bounded by "V" and "W" 13th and 14th Streets of the City of Sacramento, according to the official map or plan thereof.
Parcel No. 4:
The South one-quarter of Lot 4, in the Block bounded by "V" and "W" 13th and 14th Streets of the City of Sacramento, according to the official map or plan thereof.
Parcel No.. 5:
The North one-half of the South one-half of Lot 4, in the Block bounded by "V" and "W" 13th and 14th Streets of the City of Sacramento, according to the official map or plan thereof.
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EXHIBIT 10.15
LEASE AGREEMENT
THIS AGREEMENT OF LEASE, made this 7th day of December, 1995 by and between Richard L. Dietrick and Garnetta J. Dietrick (hereinafter called "Landlord") and Leet-Melbrook, Inc. (hereinafter called "Tenant") .
W I T N E S S E T H:
1. DEMISED PREMISES. Landlord, for and in consideration of the covenants and agreements herein set forth, and the rent hereafter specifically reserved, does hereby lease to Tenant, the entire building located at 18810 Woodfield Road, Gaithersburg, Maryland (hereinafter called the "Building" or "Demised Premises").
2. TERM.
(a) Subject to and upon the terms and conditions, set forth herein, this lease shall continue in force for a term of five (5) years beginning on the 15th day of January, 1996 ("Commencement Date"), and ending on the 14th day of January 2001 ("Termination Date").
(b) Provided the Tenant is not then in Default, Tenant shall have the right, exercisable not less than six (6) months prior to the Termination Date, to extend this Lease for an addition period of five (5) years, upon the same terms and conditions as set forth herein for the initial term (other than his option to extend).
3. RENT AND OTHER CHARGES.
(a) Tenant covenants and agrees to pay to Landlord for the Demised Premises, without previous notice or demand, and without deduction, set-off or abatement, basic annual rent in the amount of One Hundred Forty-One Thousand Two Hundred Dollars ($141,200) payable in equal monthly installments, in advance, of Eleven Thousand Seven Hundred Sixty-Six Dollars and 67/100 ($11,766.67) (hereinafter referred to as the "basic monthly rent"), on the first day of each and every calendar month during the term hereof Rent for any partial month shall be prorated at the rate of one-thirtieth (1/30th) of the basic monthly rent per day. Notwithstanding the foregoing, the first two months rent otherwise payable hereunder shall be abated and Tenant's first monthly payment shall be due March 15, 1996.
(b) Commencing with the second lease year and for each subsequent lease year during the original and any extended term, basic annual rent shall be increased annually by an amount equal to two percent (2%) of the basic annual rent payable during the preceding lease year.
(c) Tenant shall pay as additional rent and without notice, abatement, deduction or set-off, all sums, costs and expenses which Tenant, in any of the provisions of this Lease, or through a separate agreement relating to the Demised Premises, assumes or agrees to pay, including but not limited to tenant work, and in the event of any non-payment thereof, the Landlord shall have (in addition to all other rights and remedies) all the rights and remedies provided herein or by law in the case of non-payment of the basic monthly rent.
(d) All payments due to Landlord, including the basic monthly rent, additional rent, and all other reimbursements and charges due under the terms of this Lease, shall be made at 14727 Crossway Road, Rockville, Maryland 20853, or such other address of which Tenant is given written notice by Landlord. Rent checks are to be made payable to Richard and Garnetta Dietrick, or such other person, firm or corporation as the Landlord may hereafter designate in writing.
(e) Tenant covenants and agrees to pay, as additional rent, interest at the rate of one and one-half percent (1 1/2%) per month if any payments are not received within ten (10) days of their due date. Notwithstanding the foregoing, Landlord shall waive application of the late payment penalty with respect to the first late payment in any calendar year, provided that payment is received by Landlord within two (2) days after notice from Landlord to Tenant that the payment was not received by the due date.
4. INSURANCE AND TAXES.
Landlord shall pay all real estate taxes and the cost of insurance carried by Landlord with respect to the Building.
5. TENDER OF POSSESSION. Landlord shall tender possession of the Demised Premises to Tenant on the Commencement Date, "As Is." "As Is" shall mean in good order and condition, broom clean and in compliance with existing building codes. Tenant may inspect building prior to occupancy. Any damage or faults noted upon inspection will be Landlord's responsibility to repair. Landlord shall not be obligated to, and shall not, perform any alterations or improvements to the Demised Premises. Landlord shall not be liable or responsible for any claims, damages or liabilities by reason of any delay in tender of possession, nor shall the obligations of the Tenant provided herein be excused by reason of any such delay, except that Tenant shall not be obligated to pay rent until Landlord has tendered possession of the Demised Premises. If Landlord shall not have tendered possession of the Demised Premises, within thirty (30) days from said commencement date, Tenant may, at Tenant's option, and as Tenant's sole remedy, by notice in writing to the Landlord, cancel this Lease with immediate return of security deposit. Upon occupancy of the Demised Premises Tenant shall immediately execute an agreement specifying the commencement and termination date of this Lease.
6. DEPOSITS. Tenant, concurrently with the execution of this Lease, has deposited with the Landlord a Security Deposit in the amount of Eleven Thousand Seven Hundred Sixty-Six Thousand and 67/100 ($11,766.67), to be held by Landlord, and shall be applied by Landlord toward the cost of repairing or replacing any equipment damaged or removed by Tenant or its guests, agents or employees from the Demised Premises by Tenant or its-guest, agents or employees and toward repair of damage (other than ordinary wear and tear) to the Demised Premises caused or permitted by Tenant or its guests, agents or employees or for any other liabilities or indebtedness of Tenant to Landlord with notice to Tenant. This deposit is not to be used or applied by Tenant as a substitute for rent due any month but may be so applied by Landlord at any time at Landlord's option. The use, application or retention of the Security Deposit, or any portion thereof shall not prevent Landlord, from exercising any other right or remedy provided by this Lease or by law and shall not operate as a limitation on any recovery to which Landlord may otherwise be entitled. If any portion of the Security Deposit is used,
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applied or retained by Landlord in accordance with this Lease, Tenant agrees, within ten (10) days after written demand therefor is made by Landlord, to deposit cash with the Landlord in an amount sufficient to restore the Security Deposit to its original amount. Landlord will promptly place the security deposit in a checking account at a Federally insured financial institution and the interest shall accrue to Tenant's benefit and be returned to Tenant within thirty (30) days if and when it is entitled to the refund of the security deposit.
7. MAINTENANCE. Tenant agrees that it, at its sole expense, will keep the Demised Premises, plumbing systems, electrical and HVAC system and structural components of the Demised premises, in good order and condition and will, at the expiration or other termination of this Lease, surrender and deliver up the same broom clean and in like good order and condition as the same now is or shall be at the commencement of the term hereof, ordinary wear and tear and damage by the elements, fire and other unavoidable casualty not due to the negligence of Tenant excepted.
Tenant shall also maintain the parking areas and shall arrange for seasonal maintenance for the HVAC system. Tenant shall be responsible for keeping grounds and walkways free of debris. Tenant shall be responsible for snow and ice removal on walkways.
Landlord will, at its sole expense, keep in good repair the roof and exterior walls.
During the first year of the initial term only and except for routine maintenance which shall always be the responsibility of the Tenant, Landlord will make all necessary repairs and replacement for the heating, ventilating and air-conditioning systems and equipment installed by Landlord and serving the Demised Premises unless damaged by act or neglect of Tenant.
Landlord will arrange and pay for maintenance of landscaping and lawn areas. Landlord will arrange and pay for removal of snow and ice from parking areas servicing the building, within-a reasonable time after accumulation thereof.
8. USE OF DEMISED PREMISES. Tenant shall use the Demised Premises in accordance with, all applicable zoning and other governmental regulations. Tempt will not obstruct, interfere or conflict with the fire laws) or regulations, or with any insurance policy upon the Building or any part thereof, or with any statutes, rules or regulations now existing or subsequently enacted or established by the local, state or federal governments. Nor will the Tenant use or permit the Demised Premises, or any part thereof, to be used for any residential, disorderly, unlawful or hazardous purpose, nor for any purpose other than hereinbefore specified, without the prior written consent of Landlord.
9. LEASEHOLD IMPROVEMENTS AND ALTERATIONS. Tenant agrees to install a drop ceiling and make other improvements to the Demised Premises, as more fully set forth in Exhibit A attached hereto and made a part hereof. The cost of any leasehold improvements will be borne by Tenant.
Tenant agrees not to make any additions or alterations, structural or otherwise, in or upon the Demised Premises, without first having obtained the Landlord's written
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consent, which consent shall not unreasonably be withheld, delayed or conditioned. All additions, alterations, installations, changes, replacements or improvements, other than Tenant's trade fixtures upon the Demised Premises shall remain upon the Demised Premises, and be surrendered with the Demised Premises at the expiration or other termination of this Lease without disturbance, molestation or injury. Should the Landlord elect that certain alterations, installations, changes, replacements, additions to or improvements upon the Demised Premises be removed upon expiration or other termination of this Lease, or any renewal period hereof, Tenant hereby agrees to cause the same to be removed at Tenant' s sole cost and expense, and to repair any damage to the Demised Premises arising from the installation of or the removal of same, and should Tenant fail to remove the same, then and in such event the Landlord shall cause same to be removed at Tenant's sole risk and expense.
All of such alterations, decorations, additions or improvements permitted by Landlord must conform to all rules and regulations established from time to time by the Underwriters' Association of the local area and conform to all requirements of Federal, state and local governments. As a condition precedent to Landlord's consent, Tenant agrees to obtain and deliver to Landlord written and unconditional waivers of mechanic's and materialmen's liens upon the land and Building of which Demised Premises are a part, for all work, labor and services to be performed and materials to be furnished by them in connection with such work. If, notwithstanding the foregoing, any mechanic's or materialmen's lien is filed against the Demised Premises, the Building and/or land, for work claimed to have been done for or materials claimed to have been furnished to Tenant, such lien shall be discharged by Tenant within ten (10) days thereafter, at Tenant's sole cost and expense, by the payment thereof or by filing any bond required by law. If Tenant shall fail to discharge any such mechanic's or materialmen's lien, Landlord may, at its option, discharge the same and treat the "cost thereof as additional rent payable with the' monthly installment of rent next becoming due; it being hereby expressly covenanted and agreed that such discharge by Landlord shall not be deemed to waive or release the default of Tenant. Tenant shall also deliver to Landlord prior to the commencement of any tenant work a builder's risk and general liability policy naming Landlord as an additional insured with policy limits satisfactory to Landlord.
10. SIGNS AND ADVERTISING. Signs, advertising or notice may be inscribed, affixed or displayed on the outside of the building as approved in writing in advance by Landlord, such approval not to be unreasonably withheld, delayed or conditioned and then only in such place, number, size, color and style as approved by Landlord, and if any such sign, advertisement or notice is improperly exhibited, Landlord shall have the right to remove the same, and Tenant shall be" liable for any and all expenses incurred by Landlord by said removal. Any such permitted use shall be at the sole expense and cost of the Tenant.
11. REPAIR OF DAMAGE. All injury to the Demised Premises or the Building caused by moving any property of Tenant into or out of the Building, and all breakage done by Tenant or the agents, servants, employees and visitors of Tenant, shall be repaired by Tenant, at the expense of Tenant. In the event that Tenant shall fail to do so, then the Landlord shall have the right to make such necessary repairs, alterations and replacements (structural, non-structural or otherwise) , and any charge or cost so incurred by the Landlord shall be paid by Tenant, with the right on the part of the Landlord to elect, in its discretion, to regard the same as additional rent, in which event such cost or charge shall become additional rent payable with the
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installment of rent next becoming or thereafter falling due under the terms of this Lease. This provision shall be construed as an additional remedy granted to the Landlord, and not in limitation of any other rights and remedies which the Landlord has or may have in said circumstances.
12. INSURANCE.
(a) Landlord shall insure the Building against damage by fire, including extended coverage, in any amount Landlord in its sole discretion shall deem adequate, and shall maintain such insurance throughout the term of this Lease. Tenant shall fully insure all of its property in the Demised Premises against damage by fire, extended coverage, vandalism and malicious mischief and water damage. In addition, Tenant shall also maintain with respect to the Demised Premises, comprehensive public liability insurance for bodily injury and property damage naming Landlord as an additional insured, in such amounts as are adequate to protect Landlord against liability for injury to on death of any person in connection with the use, operation or Condition of the Demised Premises. Such insurance at all times shall be in an amount not less that Three Million Dollars ($3,000,000) for injuries to persons in one accident and not less than One Million Dollars ($1,000,000) for injury to any one person and not less than One Million Dollars ($1,000,000) for property damage, which limits may be increased from time to time to amounts not to exceed those customary for similarly sized Tenants in the Gaithersburg area.
(b) Tenant shall deliver certificates of insurance indicating the above-specified coverage to the Landlord upon the commencement of the term of this Lease, and continuing evidence of such coverage annually. Such insurance policy or policies shall be in a form reasonably satisfactory to the Landlord, and shall be placed with a company qualified to do business in the jurisdiction in which the Demised Premises are located, and shall provide that it (they) cannot be canceled without at least ten (10) days prior written notice to the Landlord.
(c) Neither Landlord nor Tenant shall be liable (by way of subrogation or otherwise) to the other party (or to any insurance company insuring the other party) for any loss or damage to any property of the other, even though such loss or damage might have been occasioned by the negligence of the Landlord or Tenant, or their respective agents, employees or invitees. This release shall be in effect only so long as the applicable insurance policies shall contain a clause or endorsement to the effect that the aforementioned waiver shall not affect the right of the insured to recover under such policies; each party shall use its best efforts (including payment of additional premium) to have its insurance policies contain the standard wavier of subrogation clause. In the event Landlord's or Tenant's insurance carrier declines to include a standard waiver of subrogation clause, Landlord or Tenant as the case may be, shall promptly notify the other party, in which event, the other party shall not be required to have its insurance policies contain such wavier of subrogation clause and this paragraph 12(c) shall be of no force and effect.
13. SERVICES AND UTILITIES. Landlord shall make available electricity and water servicing the building at Tenant's sole cost. Tenant shall arrange for the cost of all such utilities to be billed directly to it, and shall pay all such charges promptly when due. The electrical wiring and other equipment in the Building are not represented by Landlord to be
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adequate for any particular use and the Landlord does not provide any uninterruptable power source, power filters or conditioners. Tenant agrees that it will not make any use of the electrical equipment of the Building which exceeds the capacity of such equipment. Tenant shall arrange for its own cleaning service as necessary to keep the Demised Premises in a clean and orderly condition, and shall separately contract with a trash disposal service for removal of all trash from the Demised Premises, with storage thereof to be maintained in a closed dumpster in accordance with applicable law.
14. DEFAULT. If Tenant shall:
(a) Fail to pay any rent or other sum due hereunder at the time the same shall become due and payable and after ten (10) days' written notice from Landlord, provided that Landlord shall not be obligated to notify Tenant of failure to receive the rent more than twice a year during the term of this Lease, and extension thereof, any subsequent failure to constitute an immediate event of default;
(b) Violate or fail or neglect to keep or perform any of the covenant's conditions and agreements herein contained on the part of Tenant to be kept and performed within twenty-one (21) days after written notice to correct same (which period shall be extended if the same is impractical of cure within such twenty-one (21) day period and Tenant has commenced and is diligently pursuing cure) ;
(c) Permit the Demised Premises to become vacant or deserted;
Then Tenant shall be in default hereunder and at the option of the Landlord, Tenant's right of possession shall cease and terminate, and the Landlord shall be entitled to possession of the Demised Premises, and Landlord may proceed to recover possession under and by virtue of the provisions of the laws of the state in which the Demised Premises are located, or by such other proceedings, including re-entry and possession as may be applicable, any notice to quit, or of intention to re-enter the same, being hereby expressly waived by Tenant. In the event of such re-entry by process of law or otherwise, Tenant agrees to remain answerable for any and all damage, including, but not limited to, reasonable attorneys' fees, brokerage fees, and expenses of placing the Demised Premises in first class rentable condition, deficiency or loss of rent which the Landlord may sustain by such re-entry, whether or not the Landlord re-lets the premises, and the Landlord shall have the full power, which is hereby accepted by Tenant, to re-let the said premises for and on behalf of Tenant, and upon such-reletting, the Landlord shall have the right each month to sue for and recover any loss of rents or monthly deficits, with the right reserved to the Landlord to bring any action(s) or proceeding(s) for the recovery of any deficits remaining unpaid without being obligated to await the end of the term of this Lease for a final determination of Tenant's account. Tenant shall further be liable for and Landlord shall be entitled to prove and collect the unamortized costs of tenant improvements paid for by Landlord. The commencement or maintenance of any one or more actions shall not bar the Landlord from bringing other or subsequent actions for further accruals pursuant to provisions of this paragraph. Anything to the contrary herein notwithstanding, Landlord may, at its option, await the expiration of the term of this Lease before seeking to recover any such deficits, in which event, the cause of action shall not be deemed to have accrued until the date of expiration of said term.
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It is further stipulated and agreed that, in the event of the termination of the term of this Lease by the happening of any such event, the Landlord shall become entitled to recover as and for liquidated damages caused by such breach of the provisions of this Lease, an amount equal to the then cash value of the difference between the rent reserved hereunder for the unexpired portion of the term, and the then cash rental value of the Demised Premises for such unexpired portion of the term hereby, unless the statute which governs or shall govern the proceeding in which such damages are to be proved limits or shall limit the amount of such claim capable of being so proved, in which case the Landlord shall be entitled to prove as and for !liquidated damages in an amount equal to the maximum amount allowed by or under any such statute. The provisions of this paragraph of this Lease shall be without prejudice to the Landlord's right to prove and collect in full damages for rent accrued prior to the termination of this lease, but not paid. In calculating such liquidated damages, the then cash rental value of the Demised Premises shall be deemed prima facia to be the rental realized upon any re-letting, if such re-letting can be accomplished by the Landlord within a reasonable time after termination of this Lease. The then cash value of the difference between said cash rental value of the Demised Premises and the rent reserved hereunder for the unexpired portion of the term hereby demised shall be deemed to be that principal sum, if invested at five percent (5%) per annum simple interest, which will yield said difference, counting said principal sum and interest, over the period of time in question. Notwithstanding the foregoing, Landlord agrees to use its best efforts to mitigate any damages it may incur as a result of Tenant's default, provided that Landlord shall not be required to accept any replacement Tenant deemed by Landlord to be a substantial credit risk or which Landlord, in its sole discretion, deems undesirable for the Building.
In the event of the employment of an attorney by the Landlord or Tenant because of the violation by the other party of any term or provision of the Lease, including non-payment of rent as due, the prevailing party shall be entitled to collect from the other reasonable attorneys' fees and all other costs incurred therein.
15. BANKRUPTCY. If the Tenant shall (i) make an assignment for the benefit of creditors, (ii) be unable to pay its debts as they become due in the normal course, (iii) or acquiesce in a petition in any court (whether or not, pursuant to any statute of the United States or of any state) in any bankruptcy, reorganization, composition, extension, arrangement or insolvency proceedings, or (iv) make an application in any such proceedings for, or acquiesce in, the appointment of a trustee or receiver for it, over all or any portion of its property, or (v) if any petition shall be filed against Tenant in any court (whether or not pursuant to any statute of the United States or of any state) in bankruptcy, reorganization, composition, extension, arrangement or insolvency proceedings, and (i) Tenant shall thereafter be adjudicated a bankrupt or insolvent, or (ii) such petition shall be approved by any such court, or (iii) such proceedings shall not be dismissed, discontinued or vacated within sixty
(60) days after such petition is filed; then, in any of said events, this lease shall immediately cease and terminate, at the option of the Landlord, with the same force and effect as though the date of occurrence of said event was the day fixed herein for expiration of the term of this Lease.
16. NO WAIVER. If under the provisions of this Lease, a compromise or settlement thereof shall be made, it shall not be considered a waiver of any breach of any covenant, condition, or agreement herein contained, and no waiver of any breach of any
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covenant, condition or agreement herein contained shall operate as a waiver of the covenant, condition or agreement itself, or of any subsequent breach, except to the extent expressly set forth in the compromise, settlement or waiver. No payment by Tenant or receipt by the Landlord of a lesser amount than the monthly installments of rent herein stipulated shall be deemed to be other than on account of earliest stipulated rent, nor shall any statement by Tenant on any check, or any letter from Tenant accompanying any check or payment as rent, be deemed an accord and satisfaction, unless Landlord expressly agrees thereto, and the Landlord may accept any such check or payment without prejudice to the Landlord's right to recover the balance of such rent, or to pursue any other remedy in this Lease. No re-entry by the Landlord, and no acceptance by Landlord of keys from Tenant, shall be considered an implied acceptance of a surrender of this lease.
17. LANDLORD'S CURE OF DEFAULT BY TENANT REIMBURSEMENT OF EXPENSES. If the Tenant defaults in the making of any payment or in the doing of any act herein required to be made or done by Tenant, then the Landlord may, but shall not be required to, make such payment or do such act, and if the Landlord shall incur any charge or expense on behalf of Tenant under the terms of this Lease, the amount of the expense thereof, if made or done by the Landlord, shall be paid by Tenant to Landlord, and shall constitute additional rent hereunder, due and payable with the monthly installment of rent next due and payable after Landlord sends a written invoice therefor; provided, however, that the making of such payment or the doing of such act by the Landlord shall not operate to cure such default by Tenant, or to estop Landlord from the pursuit of any remedy to which Landlord would otherwise by entitled.
18. INSPECTION AND SHOWING OF PREMISES. Tenant agrees that it will allow the Landlord, its agents or employees, to enter the Demised Premises at all reasonable times during normal business hours by appointment with an officer of the Company, without charge therefore to Landlord, and without diminution of the rent payable by Tenant, to examine, inspect or to protect the same, or to prevent damage or injury to the same, or to make such alterations and repairs as the Landlord may deem necessary, and to exhibit the same to prospective tenants or prospective purchasers during the last six (6) months of the Lease term.
19. LIABILITY FOR DAMAGE TO PERSONAL PROPERTY- AND PERSON:
INDEMNIFICATION. Landlord shall not be liable for any accident or damage caused by electric lights or wires, or any accident or damage which may occur through the operation of heating, electrical or plumbing apparatus, or any accident or injury occurring in connection with said Building and its services, unless caused by the gross negligence of Landlord. Landlord will not be liable for loss of or damage to property of Tenant caused by rain, snow, water or steam that may leak into or flow from any part of said Building through any defects in the roof or plumbing or from any other source, not resulting from acts of gross negligence on the part of Landlord. All goods, property or personal effects stored or placed by Tenant in or about the Building shall be at the risk of the Tenant, unless the loss is caused by gross negligence of Landlord. Notwithstanding any other provisions of this Lease to the contrary, except to the extent expressly prohibited by law, Tenant hereby waives any claim it might have against landlord or any partner, officer, director, employee of agent of Landlord for any consequential damages sustained by Tenant arising out of the loss or damage to any person or property of Tenant.
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Each party hereto shall indemnify the other and shall save them harmless from and against any and all claims, actions, damages, liability and expense, including reasonable architects' and attorneys' fees, in connection with loss of life, personal injury and/or damage to property occasioned wholly or in part by any action or omission of such party, its agents, servants, employees, assignees or invitees. In case either party shall, without fault on their part, be made a party(ies) to any litigation commenced by or against the other, then the other party shall protect and hold them harmless, and shall pay all costs, expenses and reasonable attorneys' fees incurred or paid by such party in connection with such litigation.
20. CONDUCT OF BUSINESS. The Landlord assumes no liability or responsibility whatever with respect to the conduct and operation of Tenant's business to be conducted in the Demised Premises, nor with respect to the conduct and operation of any other use of the Demised Premises which the Landlord may by prior written consent permit.
21. DESTRUCTION. In case of damage by fire or other casualty to the Demised Premises, Tenant shall be required to pay rent covering only that part of the Demised Premises that remains tenantable; based on the ratio that the amount of square foot area remaining that can be occupied bears to the total square foot area of all of the Demised Premises. If during the term of this Lease the entire Demised Premises or any substantial part thereof shall be so damaged by fire or other casualty as to be untenantable, then unless said damage can be repaired within ninety (90) days thereafter as herein specified, either party hereto, upon written notice to the other party, given at any time following the expiration of such ninety (90)-day period may terminate this Lease in which case the rent and additional rent shall be apportioned and paid to the date of said fire or other casualty. The period of ninety (90) days shall be extended for such time that Landlord is delayed in substantially completing such repair or restoration by causes such as strikes, unavailability of materials or any other cause which is beyond the reasonable control of Landlord. No compensation or claim or diminution of rent will be allowed or paid, by Landlord, by reason of inconvenience, annoyance or injury to business, arising from the necessity may occur, as determined in the sole discretion of Landlord. Landlord shall have no obligation to replace or repair Tenant's equipment fixtures or personal property which is to be insured by Tenant. For purposes of this paragraph, a substantial part shall mean ten percent (10%) or more of the Demised Premises.
22. CONDEMNATION. If any portion of the Demised Premises less than a substantial part thereof shall be taken or condemned or sold for public or quasi-public use or purpose by or to any competent authority, then this Lease shall not terminate except as to the part taken and shall terminate as to the part taken and shall terminate as to the part taken effective as of the date when title vests in any such authority. Tenant agrees that if the Demised Premises, or a substantial portion thereof, shall be taken or condemned or sold for public or quasi-public use or purpose by or to any competent authority, this Lease shall fully terminate as of the date when the title vests in such authority. Tenant shall have no claim against the Landlord, and shall not have any claim or right to any portion of the amount that may be awarded as damages or paid as a result of any such condemnation; and all rights by Tenant to damages therefor, if any, are hereby assigned by Tenant to the Landlord. Provided, however, that Tenant shall have the right to make any separate claim it may have for damages as a result of such condemnation to the extent that the same will not reduce the award otherwise payable to Landlord. And upon such condemnation or taking, the term of this Lease shall cease and terminate as to the entire Demised
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Premises or the applicable portion thereof from the date when title vests in such governmental authority, and Tenant shall have no claim against the Landlord for the value of any unexpired term of this Lease, leasehold improvements or goodwill. For purposes of this paragraph, a substantial part shall mean ten percent (10%) or more of the Demised Premises.
23. ASSIGNMENT AND SUBLETTING.
(a) Tenant will not sublet the Demised Premises or any part thereof, or transfer possession or occupancy thereof , to any person, partnership, firm or corporation, or transfer or assign this Lease, without the prior written consent of Landlord, with consent shall not unreasonably be withheld or delayed, nor shall any subletting or assignment hereof be effected by operation of law or otherwise than by the prior written consent of Landlord, which consent shall not unreasonably be withheld or delayed. Any transfer of interests comprising in excess of fifty percent (50%) of the voting interests in Tenant shall constitute an assignment. Consent to one assignment, transfer or subletting to another person, partnership, firm or corporation shall not be deemed to be a consent to any subsequent assignment, transfer or subletting to another person, partnership, firm or corporation. Any assignment or subletting consented to by.-Landlord shall not relieve Tenant of any of its primary responsibility for all obligations under this lease, and such consent by Landlord shall not be effective unless and until (i) Tenant gives written notice thereof to Landlord, and (ii) such transferee, assignee or sublessee shall deliver to Landlord (a) a written agreement in form and substance satisfactory to Landlord pursuant to which such transferee, assignee or sublessee assumes all of the obligations and liabilities of tenant hereunder, and (b) a certified copy of the assignment agreement or sublease. Any assignment, transfer or subletting without Landlord's written consent shall be void, and shall, at the option of Landlord, constitute a default under the terms of this Lease.
24. HOLDING OVER. In the event that Tenant shall not immediately surrender the Demised Premises on the date of expiration of the term hereof, after receipt of written notice from landlord, Tenant shall, by virtue of the provisions hereof, become a Tenant by the month at a monthly rent equal to the greater of (i) the then fair market rental value of the Demised Premises or (ii) one hundred fifty percent (150%) of the monthly rental in effect during the last month of the term of this Lease, which said monthly tenancy shall commence with the first day next after the expiration of the terms of this Lease, provided, however, that Landlord shall not be entitled to increase the rent payable by Tenant pursuant to this paragraph until thirty (30) days after notice to Tenant that it intends to do so. The Tenant as a monthly tenant shall be subject to all of the conditions and covenants of this Lease as though the same had originally been a monthly tenancy. Tenant shall give to Landlord at least thirty (30) days' written notice of any intention to quit the Demised Premises, and Tenant shall be entitled to thirty (30) days' written notice to quit the Demised Premises, except in the event of nonpayment of rent in advance or of the breach of any other covenant by the Tenant. Notwithstanding the foregoing, in the event that Tenant shall hold over after the expiration of the term hereby created, and if Landlord shall desire to regain possession of the Demised Premises promptly at the expiration of the term of this Lease, then at any time prior to Landlord's acceptance of rent from Tenant as a monthly tenant hereunder, Landlord at its option, may forthwith re-enter and take possession of the Demised Premises without process, or by any legal process in force in the jurisdiction in which the Demised Premises are located.
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25. SUBORDINATION. This Lease is subject and subordinate to any mortgage and/or deed of trust (which terms shall include both construction and permanent financing) which may now or hereafter encumber or otherwise affect the Demised Premises, and to all renewals, extensions, modifications, consolidations, replacements, recasting and/or refinancings thereof. This clause shall be self-operative, and no further instrument of subordination shall be required by any mortgagee or trustee to effect the subordination of this Lease. Nonetheless, in confirmation of such subordination, Tenant shall, at Landlord's request, within five (5) days after delivery to Tenant, execute any reasonably requisite or appropriate certificate or document. Tenant agrees that in the event that any proceedings are brought for the foreclosure of any such mortgage, Tenant shall attorn to the purchaser at such foreclosure sale, if requested to do so by such purchaser, and to recognize such purchaser as the Landlord under this Lease, and Tenant waives the provisions of any statute or rule of law, now or hereafter in effect, which may give or purport to give Tenant any right to terminate or otherwise adversely affect this Lease and the obligations of Tenant hereunder. In the event that Tenant fails to deliver such document to Landlord within the time periods required above, Tenant hereby appoints Landlord its Attorney-in-fact for the limited purpose of executing and delivering such documents.
26. ESTOPPEL CERTIFICATES. Tenant agrees, at any time and from time to time, upon not less than five (5) days prior written notice by Landlord, to execute, acknowledge and deliver to Landlord, a statement in writing (i) certifying that this Lease is unmodified and in full force and effect, or, if there have been modifications, that this Lease is in full force and effect as modified, and stating any such modifications; (ii) certifying that Tenant has accepted possession of the Demised Premises, and that any improvements required by the terms of this Lease to be made by the Landlord have been completed to the satisfaction of the Tenant, or if such improvements have not been made, specifying those that have not; (iii) stating that no rent under this Lease has been paid more than thirty (30) days in advance of its due date; (iv) stating the address to which notices to Tenant should be sent; (v) certifying that Tenant, as of the date of any such certification, has no charge, lien or claim, of set-off under this Lease, or otherwise, against rents or other charges due or to become due hereunder; and (vi) stating whether or not, to the best of Tenant's knowledge, Landlord is in default in the performance of any' covenant, agreement or condition contained in this Lease, and, if so, specifying each such default of which Tenant may have knowledge. Any such statement delivered pursuant hereto may be relied upon by any owner of the Building, any prospective purchaser of the Building, any mortgagee or prospective mortgagee of the Building or of Landlord's interest, or any prospective assignee c >f any such mortgagee. In the event that Tenant fails to deliver such document to Landlord within the time periods required above, Tenant hereby appoints Landlord its Attorney-in-fact for the limited purpose of executing and delivering such documents.
27. NOTICES. All notices required or desired to be given hereunder by either party to the other shall be hand delivered, or given by certified or registered mail, first-class postage prepaid, return receipt requested. Notice to the respective parties shall be addressed as follows:
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If to the Landlord:
Richard Dietrick
14727 Crossway Road
Rockville, MD 20853
with a copy to:
Lawrence S. Stern, Esq.
4550 Montgomery Avenue, #775N
Bethesda, MD 20814
If to the Tenant:
Prior to the Commencement Date
Leet-Melbrook, Inc.
9319 Gaither Road
Gaithersburg, Maryland 20977
After the Commencement Date
Leet-Melbrook, Inc.
18810 Woodfield Rd.
Gaithersburg, Maryland 20879
Either party may, by like written notice, designate a new address to which such notices shall be directed. Notice shall be deemed received three (3) days after given as provided herein, or when actually received, whichever is earlier.
28. NO PARTNERSHIP. Nothing contained in this Lease shall be deemed or construed to create a partnership or joint venture of or between Landlord and Tenant, or create any other' relationship between the parties hereto other than that of Landlord and Tenant.
29. NO REPRESENTATIONS BY LANDLORD. Neither Landlord nor any agent or employee of Landlord has made any representations or promises, with respect to the Demised Premises or the Building except as herein expressly set forth, and no rights, privileges, easements or licenses are acquired by Tenant except as herein set forth. The Tenant by taking possession of the Demised Premises, shall accept the same "as is." Such taking of possession shall be conclusive evidence that the Demised Premises and the Building are in good and satisfactory condition at the time of such taking of possession.
30. BROKERAGE. Landlord and, Tenant each represent that they had no dealings with any real estate broker, finder or other person, with respect to this Lease in any manner, except McShea. Landlord and Tenant agree to indemnify and hold each other harmless against and from any claims for any brokerage commission or other fees and all costs, expenses and liabilities in connection therewith, including, without limitation, attorneys' fees and expenses, arising out of any dealings by Tenant with any other broker. Landlord shall pay any
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commissions or fees that are payable to McShea with respect to this Lease, in accordance with the provisions of a separate commission contract.
31. WAIVER OF TRIAL BY JURY. Except as prohibited by applicable law, the parties hereto shall, and they hereby do, waive trial by jury in any action, proceeding or counterclaim brought by either of the parties hereto against the other on any matters whatsoever arising out of or in any way connected with this Lease, the relationship of Landlord and Tenant, Tenant's use and occupancy of the Demised Premises and/or any claim of injury or damage. In the event the Landlord commences any proceedings for non-payment of rent, minimum rent or additional rent, Tenant will not interpose any counterclaim of whatever nature or description in any such proceedings. This shall not, however, be construed as a waiver of Tenant's right to assert such claims in any separate action brought by Tenant.
32. QUIET ENJOYMENT. Upon payment by Tenant of all items of rent, additional rent, and any and all other sums to be paid by Tenant to Landlord hereunder, and the observance and performance of all of the covenants, terms and conditions to be observed and performed by Tenant, Tenant shall have the peaceful and quiet use of the Demised Premises, and all rights, servitude and privileges belonging, or in any way pertaining thereto or granted hereby, for the term of this Lease, without hindrance or interruption by Landlord, or any other person or persons lawfully claiming by, through or under Landlord, subject nevertheless to the terms and conditions of this Lease, and to any mortgage, deed of trust, ground lease or agreement to which this Lease, and/or Landlord's interest in the Demised Premises and the Building of which they are a part, is subordinate. Landlord warrants that it has full right and authority to enter into this Lease for the full term hereof.
33. BINDING EFFECT OF LEASE. It is agreed that all rights, remedies and liabilities herein given to or imposed upon either of the parties hereto, shall extend to their respective heirs, executors, administrators, and except as otherwise expressly provided in this Lease, their successors and assigns. Landlord may freely and fully assign its interest hereunder. The term "Landlord" shall mean only the owner at the time in question of the Building or of a lease of the building, so that in the event of any transfer or transfers of title to the Building or of Landlord's interest in a lease of the Building, the transferor shall be and hereby is relieved and freed of all obligations of Landlord under this Lease accruing after such transfer, and it shall be deemed, without further agreement, that such transferee has assumed and agreed to perform and observe all obligations of Landlord herein during the period it is the holder of Landlord's interest under this Lease.
Neither party shall be required to perform any of its obligations under this Lease, nor be liable for loss damage for failure to do so, where such failure arises from or through acts of God, strikes, lockouts, labor difficulties, explosions, sabotage, accidents, riots, civil commotions, acts of war, results of any warfare or warlike conditions in this or any foreign country, fire and casualty, legal requirements, energy shortage, or causes beyond the reasonable control of such party, unless such loss or damage results from willful misconduct or negligence by such party or its employees. This paragraph shall under no circumstances apply with respect to any obligation to make payments of rent or other amounts due hereunder.
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34. APPLICABLE LAW AND CONSTRUCTION. The laws of the jurisdiction in which the Demised Premises are located shall govern the validity, performance and enforcement of this Lease. If any provision of this Lease shall at any time be deemed to be invalid or illegal by any court of competent jurisdiction, this Lease shall not be invalidated thereby; and in such event, this lease shall be read and construed as if such invalid or illegal provision only had not been contained herein, thereby preserving all or the other terms, conditions and provisions of this Lease.
35. GENDER. Feminine or neuter pronouns shall be substituted for the masculine form, and the plural substituted for the singular number, in any place or places herein which the context may require such substitution or substitutions. The Landlord herein for convenience has been referred to in neuter form.
36. PARKING. Tenant shall have exclusive use of the parking areas pertinent to the Demised Premises which currently consist of approximately 60 parking spaces.
37. ENTIRE AGREEMENT. This Lease, together with accompanying Exhibits, contains the entire and only agreement between the parties and no oral statements or representations or prior written matter not contained or referred to in this instrument shall have any force or effect. This Lease shall not be modified in any way except by a writing subscribed by both parties hereto. The failure of the Landlord to insist upon strict performance by the Tenant of any of the covenants or conditions of this Lease in any one or more instances shall not be construed as a waiver or relinquishment for the future of any such covenants or conditions, but the same shall be and remain in full force and effect. No waiver of any provision of this Lease shall be deemed to have been made, unless it be in writing and signed by the party to be charged therewith.
38. Right of First Refusal.
Continuing while the Lease remains in effect, in the event that Landlord receives a bona fide offer for the purchase of the Building, which offer Landlord would like to accept, Landlord shall notify Tenant, in writing, and furnish to Tenant a copy of such bona fide offer. Tenant shall then have a period of ten (10) days within which to elect to purchase the Building at the same price and terms that are contained in the bona fide offer. Such election must be made in writing within such ten (10) day period. In the event that Tenant exercises its option to purchase the Building within the required time period, then Landlord shall sell, and Tenant shall purchase, the Building pursuant to the terms of the bona fide offer. If Tenant has not so exercised its option to purchase the Building within the required time period, then Landlord shall be free to consummate the sale of the Building to the party making the bona fide offer pursuant to the price and terms of the bona fide offer.
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IN WITNESS WHEREOF, the undersigned have executed this Lease effective the date first above written.

WITNESS:                                  LANDLORD: /s/ RICHARD L. DIETRICK

                                        BY: /s/ GARNETTA J. DIETRICK
__________________________________          ------------------------------
                                            LEET-MELBROOK, INC.
ATTEST:

/s/ EILEEN M. HALEY                     BY: /s/ JAMES E. PENROD
----------------------------------          ------------------------------
SECRETARY                                   PRESIDENT	

15
EXHIBIT A
TENANT'S INITIAL ALTERATIONS
16
 
EXHIBIT 10.16
[LOGO] AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE -- NET
 (DO NOT USE THIS FORM FOR MULTI-TENANT BUILDINGS)
1. BASIC PROVISIONS ("BASIC PROVISIONS").
1.1 PARTIES: This Lease ("LEASE"), dated for reference purposes only, September 23, 2003, is made by and between SUMO HOLDINGS COSTA MESA, LLC ("LESSOR") and AMERICAN REPROGRAPHICS COMPANY, dba CONSOLIDATED REPROGRAPHICS ("LESSEE"), (collectively the "PARTIES," or individually a "PARTY").
1.2 PREMISES: That certain real property, including all improvements therein or to be provided by Lessor under the terms of this Lease, and commonly known as 345 Clinton Street, Costa Mesa, located in the County of Orange, State of California, and generally described as (describe briefly the nature of the property and, if applicable, the "PROJECT", if the property is located within a Project) an approximate 42,200 square foot building located on an approximate 2.7 acre parcel of land ("PREMISES"). (See Paragraph 2)
1.3 TERM: 10 years and 0 months ("ORIGINAL TERM") commencing January 1, 2004 ("COMMENCEMENT DATE") and ending December 31, 2013 ("EXPIRATION DATE").
(See also Paragraph 3)
1.4 EARLY POSSESSION: October 1, 2003 ("EARLY POSSESSION DATE"). (See also
Paragraphs 3.2 and 3.3)
1.5 BASE RENT: $34,015.00 per month ("BASE RENT"), payable on the first day of each month commencing January 1, 2004. (See also Paragraph 4)
[X] If this box is checked, there are provisions in this Lease for the Base Rent to be adjusted.
1.6 BASE RENT AND OTHER MONIES PAID UPON EXECUTION:
(a) BASE RENT: $- for the period _________________________________
(b) SECURITY DEPOSIT: $34,015.00 ("SECURITY DEPOSIT"). (See also
Paragraph 5)
(c) ASSOCIATION FEES: $-- for the period _________________________
(d) OTHER: $-- for_______________
(e) TOTAL DUE UPON EXECUTION OF THIS LEASE: $34,015.00.
1.7 AGREED USE: Conducting a graphic reproduction and supply sales business and all related uses (See also Paragraph 6)
1.8 INSURING PARTY: Lessor is the "INSURING PARTY" unless otherwise stated herein. (See also Paragraph 8)
1.9 REAL ESTATE BROKERS: (See also Paragraph 15)
(a) REPRESENTATION: The following real estate brokers (the "BROKERS") and brokerage relationships exist in this transaction (check applicable boxes):
[ ] N/A represents Lessor exclusively ("LESSOR'S BROKER");
[ ] N/A represents Lessee exclusively ("LESSEE'S BROKER"); or
[ ] N/A represents both Lessor and Lessee ("DUAL AGENCY").
(b) PAYMENT TO BROKERS: Upon execution and delivery of this Lease by both Parties, Lessor shall pay to the Broker the fee agreed to in their separate written agreement (or if there is no such agreement, the sum of N/A or N/A % of the total Base Rent) for the brokerage services rendered by the Brokers.
1.10 GUARANTOR. The obligations of the Lessee under this Lease are to be guaranteed by N/A ("GUARANTOR"). (See also Paragraph 37)
1.11 ATTACHMENTS. Attached hereto are the following, all of which constitute a part of this Lease:
[X] an Addendum consisting of Paragraphs 51 (Rent Adjustment (s )) through _______________;
[ ] a plot plan depicting the Premises;
(C)2001 - AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION FORM STN-7-4/01E
PAGE 1 OF 16
[ ] a current set of the Rules and Regulations:
[ ] a Work Letter;
[ ] other (specify):____________________________________________________________

2. PREMISES.
2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby leases from Lessor, the Premises, for the term, at the rental, and upon all of the terms, covenants and conditions set forth in this Lease. Unless otherwise provided herein, any statement of size set forth in this Lease, or that may have been used in calculating Rent, is an approximation which the Parties agree is reasonable and any payments based thereon are not subject to revision whether or not the actual size is more or less. NOTE: LESSEE IS ADVISED TO VERIFY THE ACTUAL SIZE PRIOR TO EXECUTING THIS LEASE.
2.2 CONDITION. Lessor shall deliver the Premises to Lessee broom clean and free of debris on the Commencement Date or the Early Possession Date, whichever first occurs ("START DATE"), and. so long as the required service contracts described in Paragraph 7.1(b) below are obtained by Lessee and in effect within thirty days following the Start Date, warrants that the existing electrical, plumbing, fire sprinkler, lighting, heating, ventilating and air conditioning systems ("HVAC"), loading doors, sump pumps, if any, and all other such elements in the Premises, other than those constructed by Lessee, shall be in good operating condition on said date and that the structural elements of the roof, bearing walls and foundation of any buildings on the Premises (the "BUILDING") shall be free of material defects. If a non-compliance with said warranty exists as of the Start Date, or if one of such systems or elements should malfunction or fail within the appropriate warranty period. Lessor shall, as Lessor's sole obligation with respect to such matter, except as otherwise provided in this Lease, promptly after receipt of written notice from Lessee setting forth with specificity the nature and extent of such non-compliance, malfunction or failure, rectify same at Lessor's expense. The warranty periods shall be as follows: (i) 6 months as to the HVAC systems, and (ii) 30 days as to the remaining systems and other elements of the Building. If Lessee does not give Lessor the required notice within the appropriate warranty period, correction of any such non-compliance, malfunction or failure shall be the obligation of Lessee at Lessee's sole cost and expense.
2.3 COMPLIANCE. Lessor warrants that the improvements on the Premises comply with the building codes, applicable laws, covenants or restrictions of record, regulations, and ordinances ("APPLICABLE REQUIREMENTS") that were in effect at the time that each improvement, or portion thereof, was constructed. Said warranty does not apply to the use to which Lessee will put the Premises, modifications which may be required by the Americans with Disabilities Act or any similar laws as a result of Lessee's use (see Paragraph 50), or to any Alterations or Utility Installations (as defined in Paragraph 7.3(a)) made or to be made by Lessee. NOTE: LESSEE IS RESPONSIBLE FOR DETERMINING WHETHER OR NOT THE APPLICABLE REQUIREMENTS, AND ESPECIALLY THE ZONING, ARE APPROPRIATE FOR LESSEE'S INTENDED USE, AND ACKNOWLEDGES THAT PAST USES OF THE PREMISES MAY NO LONGER BE ALLOWED. If the Premises do not comply with said warranty, Lessor shall, except as otherwise provided, promptly after receipt of written notice from Lessee setting forth with specificity the nature and extent of such non-compliance, rectify the same at Lessor's expense. If Lessee does not give Lessor written notice of a non-compliance with this warranty within 6 months following the Start Date, correction of that non-compliance shall be the obligation of Lessee at Lessee's sole cost and expense. If the Applicable Requirements are hereafter changed so as to require during the term of this Lease the construction of an addition to or an alteration of the Premises and/or Building, the remediation of any Hazardous Substance, or the reinforcement or other physical modification of the Unit, Premises and/or Building ("CAPITAL EXPENDITURE"), Lessor and Lessee shall allocate the cost of such work as follows:
(a) Subject to Paragraph 2.3(c) below, if such Capital Expenditures are required as a result of the specific and unique use of the Premises by Lessee as compared with uses by tenants in general, Lessee shall be fully responsible for the cost thereof, provided, however that if such Capital Expenditure is required during the last 2 years of this Lease and the cost thereof exceeds 6 months' Base Rent, Lessee may instead terminate this Lease unless Lessor notifies Lessee, in writing, within 10 days after receipt of Lessee's termination notice that Lessor has elected to pay the difference between the actual cost thereof and an amount equal to 6 months' Base Rent. If Lessee elects termination, Lessee shall immediately cease the use of the Premises which requires such Capital Expenditure and deliver to Lessor written notice specifying a termination date at least 90 days thereafter. Such termination date shall, however, in no event be earlier than the last day that Lessee could legally utilize the Premises without commencing such Capital Expenditure.
(b) If such Capital Expenditure is not the result of the specific and unique use of the Premises by Lessee (such as, governmentally mandated seismic modifications), then Lessor and Lessee shall allocate the obligation to pay for such costs pursuant to the provisions of Paragraph 7.1(d); provided, however, that if such Capital Expenditure is required during the last 2 years of this Lease or if Lessor reasonably determines that it is not economically feasible to pay its share thereof. Lessor shall have the option to terminate this Lease upon 90 days prior written notice to Lessee unless Lessee notifies Lessor, in writing, within 10 days after receipt of Lessor's termination notice that Lessee will pay for such Capital Expenditure. If Lessor does not elect to terminate, and fails to tender its share of any such Capital Expenditure, Lessee may advance such funds and deduct same, with Interest, from Rent until Lessor's share of such costs have been fully paid. If Lessee is unable to finance Lessor's share, or if the balance of the Rent due and payable for the remainder of this Lease is not sufficient to fully reimburse Lessee on an offset basis, Lessee shall have the right to terminate this Lease upon 30 days written notice to Lessor.
(c) Notwithstanding the above, the provisions concerning Capital Expenditures are intended to apply only to non-voluntary, unexpected, and new Applicable Requirements. If the Capital Expenditures are instead triggered by Lessee as a result of an actual or proposed change in use, change in intensity of use, or modification to the Premises then, and in that event, Lessee shall either: (i) immediately cease such changed use or intensity of use and/or take such other steps as may be necessary to eliminate the requirement for such Capital Expenditure, or (ii) complete such Capital Expenditure at its own expense. Lessee shall not, however, have any right to terminate this Lease.
2.4 ACKNOWLEDGEMENTS. Lessee acknowledges that: (a) it has been advised by Lessor and/or Brokers to satisfy itself with respect to the condition of the Premises (including but not limited to the electrical, HVAC and fire sprinkler systems, security, environmental aspects, and compliance with Applicable Requirements and the Americans with Disabilities Act), and their suitability for Lessee's intended use, (b) Lessee has made such investigation as it deems necessary with reference to such matters and assumes all responsibility therefor as the same relate to its occupancy of the Premises, and (c) neither Lessor, Lessor's agents, nor Brokers have made any oral or written representations or warranties with respect to said matters other than as set forth in this Lease. In addition, Lessor acknowledges that: (i) Brokers have made no representations, promises or warranties concerning Lessee's ability to honor the Lease or suitability to occupy the Premises, and (ii) it is Lessor's sole responsibility to investigate the financial capability and/or suitability of all proposed tenants.
2.5 LESSEE AS PRIOR OWNER/OCCUPANT. The warranties made by Lessor in Paragraph 2 shall be of no force or effect if immediately prior to the Start Date Lessee was the owner or occupant of the Premises. In such event, Lessee shall be responsible for any necessary corrective work.
3. TERM.
3.1 TERM. The Commencement Date. Expiration Date and Original Term of this Lease are as specified in Paragraph 1.3.
3.2 EARLY POSSESSION. If Lessee totally or partially occupies the Premises prior to the Commencement Date, the obligation to pay Base Rent shall be abated for the period of such early possession. All other terms of this Lease (including but not limited to the obligations to pay Real Property Taxes and insurance premiums and to maintain the Premises) shall, however, be in effect during such period. Any such early possession shall not affect the Expiration Date.
3.3 DELAY IN POSSESSION. Lessor agrees to use its best commercially reasonable efforts to deliver possession of the Premises to Lessee by the Commencement Date. If, despite said efforts, Lessor is unable to deliver possession by such failure date. Lessor shall not be subject to any liability therefor, nor shall such affect the validity of this Lease. Lessee shall not, however, be obligated to pay Rent or perform its other obligations until Lessor delivers possession of the
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Premises and any period of rent abatement that lessee would otherwise have enjoyed shall run from the date of delivery of possession and continue for a period equal to what Lessee would otherwise have enjoy under the terms hereof, but minus any days of delay caused by the acts or omissions of Lessee, if possession is not delivered within 60 days after the Commencement Date. Lessee may, at its option, by notice in writing within 10 days after the end of such 60 day period cancel this Lease, in which event the Parties shall be discharged from all obligations hereunder. If such written notice is not received by Lessor within said 10 day period. Lessee's right to cancel shall terminate. If possession of the Premises is not delivered within 120 days after the Commencement Date, this Lease shall terminate unless other agreements are reached between Lessor and Lessee, in writing.
3.4 LESSEE COMPLIANCE. Lessor shall not be required to deliver possession of the Premises to Lessee until Lessee complies with its obligation to provide evidence of insurance (Paragraph 8.5). Pending delivery of such evidence. Lessee shall be required to perform all of its obligations under this Lease from and after the Start Dale, including the payment of Rent, notwithstanding Lessor's election to withhold possession pending receipt of such evidence of insurance Further, if Lessee is required to perform any other conditions prior to or concurrent with the Start Date. The Start Date shall occur but Lessor may elect to withhold possession until such conditions are satisfied.
4. RENT.
4.1. RENT DEFINED. All monetary obligations of Lessee to Lessor under the terms of this Lease (except for the Security Deposit) are deemed to be rent ("RENT").
4.2 PAYMENT. Lessee shall cause payment of Rent to be received by Lessor in lawful money of the United States on or before the day on which it is due, without offset or deduction (except as specifically permitted in this Lease). Rent for any period during the term hereof which is for less than one full calendar month shall be prorated based upon the actual number of days of said month. Payment of Rent shall be made to Lessor at its address stated herein or to such other persons or place as Lessor may from time to time designate in writing. Acceptance of a payment which is less than the amount then due shall not be a waiver of Lessor's rights to the balance of such Rent, regardless of Lessor's endorsement of any check so stating. In the event that any check, draft, or other instrument of payment given by Lessee to Lessor is dishonored for any reason. Lessee agrees to pay to Lessor the sum of $25 in addition to any Late Charge and Lessor, at its option, may require all future payments to be made by Lessee to be by cashier's check. Payments will be applied first to accrued late charges and attorney's fees, second to accrued interest, then to Base Rent and Operating Expense Increase, and any remaining amount to any other outstanding charges or costs.
4.3 ASSOCIATION FEES. in addition to the Base Rent, Lessee shall pay to Lessor each month an amount equal to any owner's association or condominium fees levied or assessed against the Premises. Said monies shall be paid at the same time and in the same manner as the Base Rent.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof the Security Deposit as security for Lessee's faithful performance of its obligations under this Lease. If Lessee fails to pay Rent, or otherwise Defaults under this Lease. Lessor may use, apply or retain all or any portion of said Security Deposit for the payment of any amount due Lessor or to reimburse or compensate Lessor for any liability, expense, loss or damage which Lessor may suffer or incur by reason thereof. If Lessor uses or applies all or any portion of the Security Deposit. Lessee shall within 10 days after written request therefor deposit monies with Lessor sufficient to restore said Security Deposit to the full amount required by this Lease. If the Base Rent increases during the term of this Lease, Lessee shall, upon written request from Lessor, deposit additional moneys with Lessor so that the total amount of the Security Deposit shall at all times bear the same proportion to the increased Base Rent as the initial Security Deposit bore to the initial Base Rent. Should the Agreed Use be amended to accommodate a material change in the business of Lessee or to accommodate a sublessee or assignee, Lessor shall have the right to increase the Security Deposit to the extent necessary, in Lessor's reasonable judgment, to account for any increased wear and tear that the Premises may suffer as a result thereof. If a change in control of Lessee occurs during this Lease and following such change the financial condition of Lessee is, in Lessor's reasonable judgment, significantly reduced, Lessee shall deposit such additional monies with Lessor as shall be sufficient to cause the Security Deposit to be at a commercially reasonable level based on such change in financial condition. Lessor shall not be required to keep the Security Deposit separate from its general accounts. Within 14 days after the expiration or termination of this Lease, if Lessor elects to apply the Security Deposit only to unpaid Rent, and otherwise within 30 days after the Premises have been vacated pursuant to Paragraph 7.4(c) below, Lessor shall return that portion of the Security Deposit not used or applied by Lessor. No part of the Security Deposit shall be considered to be held in trust, to bear interest or to be prepayment for any monies to be paid by Lessee under this Lease.
6 USE.
6.1 USE. Lessee shall use and occupy the Premises only for the Agreed Use. or any other legal use which is reasonably comparable thereto, and or no other purpose. Lessee shall not use or permit the use of the Premises in a manner that is unlawful, creates damage, waste or a nuisance, or that disturbs occupants of or causes damage to neighboring premises or properties. Lessor shall not unreasonably withhold or delay its consent to any written request for a modification of the Agreed Use, so long as the same will not impair the structural integrity of the improvements on the Premises or the mechanical or electrical systems therein, and/or is not significantly more burdensome to the Premises. If Lessor elects to withhold consent, Lessor shall within 7 days after such request give written notification of same, which notice shall include an explanation of Lessor's objections to the change in the Agreed Use.
6.2 HAZARDOUS SUBSTANCES.
(a) REPORTABLE USES REQUIRE CONSENT. The term "HAZARDOUS SUBSTANCE" as used in this Lease shall mean any product, substance, or waste whose presence, use, manufacture, disposal, transportation, or release, either by itself or in combination with other materials expected to be on the Premises, is either: (i) potentially injurious to the public health, safety or welfare, the environment or the Premises, (ii) regulated a monitored by any governmental authority, or (iii) a basis for potential liability of Lessor to any governmental agency or third party under any applicable statute or common law theory. Hazardous Substances shall include, but not be limited to, hydrocarbons, petroleum, gasoline, and/or crude oil or any products, by-products or fractions thereof. Lessee shall not engage in any activity in or on the Premises which constitutes a Reportable Use of Hazardous Substances without the express prior written consent of Lessor and timely compliance (at Lessee's expense) with all Applicable Requirements. "REPORTABLE USE" shall mean (i) the installation or use of any above or below ground storage tank, (ii) the generation, possession, storage, use, transportation, or disposal of a Hazardous Substance that requires a permit from, or with respect to which a report, notice, registration or business plan is required to be filed with, any governmental authority, and/or
(iii) the presence at the Premises of a Hazardous Substance with respect to which any Applicable Requirements requires that a notice be given to persons entering or occupying the Premises or neighboring properties. Notwithstanding the foregoing, Lessee may use any ordinary and customary materials reasonably required to be used in the normal course of the Agreed Use. ordinary office supplies (copier toner, liquid paper, glue, etc.) and common household cleaning materials, so long as such use is in compliance with all Applicable Requirements, is not a Reportable Use, and does not expose the Premises or neighboring property to any meaningful risk of contamination or damage or expose Lessor to any liability therefor. In addition. Lessor may condition its consent to any Reportable Use upon receiving such additional assurances as Lessor reasonably deems necessary to protect itself, the public, the Premises and/or the environment against damage, contamination, injury and/or liability, including, but not limited to, the installation (and removal on or before Lease expiration or termination) of protective modifications (such as concrete encasements) and/or increasing the Security deposit.
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable cause to believe, that a Hazardous Substance has come to be Located in, on under or about the Premises, other than as previously consented to by Lessor, Lessee shall immediately give written notice of such fact to Lessor, and provide lessor with a copy of any report, notice, claim or other documentation which it has concerning the presence of such Hazardous Substance.
(c) LESSEE REMEDIATION. Lessee shall not cause or permit any Hazardous Substance to be spilled or released in, on, under, or about the premises (including through the plumbing or sanitary sewer system) and shall promptly, at Lessee's expense, comply with all Applicable Requirements and take all investigatory and/or remedial action reasonably recommended, whether or not formally ordered or required, for the cleanup of any contamination of, and for the maintenance security and/or monitoring of the Premises or neighboring properties, that was caused or materially contributed to by Lessee, or pertaining to or
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involving any Hazardous Substance brought onto the premises during the term of this Lease, by or for Lessee many third party.
(d) LESSEE INDEMNIFICATION. Lessee shall indemnify, defend and hold Lessor, its agents, employees, lenders and ground lessor, if any harmless from and against any and all loss of rents and/or damages, liabilities, judgments, claims, expenses, penalties and attorneys' and consultants' fees arising out of or involving any Hazardous Substance brought onto the Premises by a for Lessee, or any third party (provided however that Lessee shall have no liability under this Lease with respect to underground migration of any Hazardous Substance under the Premises from adjacent properties not caused or contributed to by Lessee). Lessee's obligations shall include, but not be limited to, the effects of any contamination or injury to person, property or the environment created or suffered by Lessee, and the cost of investigation, removal, remediation, restoration and/or abatement, and shall survive the expiration or termination of this Lease. No termination, cancellation or release agreement entered into by Lessor and Lessee shall release Lessee from its obligations under this Lease with respect to Hazardous Substances. unless specifically so agreed by Lessor in writing at the time of such agreement.
(e) LESSOR INDEMNIFICATION. Lessor and its successors and assigns shall indemnify, defend, reimburse and hold Lessee. its employees and lenders, harmless from and against any and all environmental damages, including the cost of remediation, which result from Hazardous Substances which existed on the Premises prior to Lessee's occupancy or which are caused by the gross negligence or willful misconduct of Lessor, its agents or employees. Lessor's obligations, as and when required by the Applicable Requirements, shall include, but not be limited to, the cost of investigation, removal, remediation, restoration and/or abatement, and shall survive the expiration or termination of this Lease.
(f) INVESTIGATIONS AND REMEDIATIONS. Lessor shall retain the responsibility and pay for any investigations or remediation measures required by governmental entities having jurisdiction with respect to the existence of Hazardous Substances on the Premises prior to Lessee's occupancy, unless such remediation measure is required as a result of Lessee's use (including "Alterations", as defined in paragraph 7.3(a) below) of the Premises, in which event Lessee shall be responsible for such payment. Lessee shall cooperate fully in any such activities at the request of Lessor, including allowing Lessor and Lessor's agents to have reasonable access to the Premises at reasonable times in order to carry out Lessor's investigative and remedial responsibilities.
(g) LESSOR TERMINATION OPTION. If a Hazardous Substance Condition (see Paragraph 9.1(e)) occurs during the term of this Lease, unless Lessee is legally responsible therefor (in which case Lessee shall make the investigation and remediation thereof required by the Applicable Requirements and this Lease shall continue in full force and effect, but subject to Lessor's rights under Paragraph 6.2(d) and Paragraph 13). Lessor may, at Lessor's option, either (i) investigate and remediate such Hazardous Substance Condition, if required, as soon as reasonably possible at Lessor's expense, in which event this Lease shall continue in full force and effect, or (ii) if the estimated cost to remediate such condition exceeds 12 times the then monthly Base Rent or $100,000, whichever is greater, give written notice to Lessee, within 30 days after receipt by Lessor of knowledge of the occurrence of such Hazardous Substance Condition, of Lessor's desire to terminate this Lease as of the date 60 days following the date of such notice. In the event Lessor elects to give a termination notice, Lessee may, within 10 days thereafter, give written notice to Lessor of Lessee's commitment to pay the amount by which the cost of the remediation of such Hazardous Substance Condition exceeds an amount equal to 12 times the then monthly Base Rent or $100,000, whichever is greater. Lessee shall provide Lessor with said funds or satisfactory assurance thereof within 30 days following such commitment. In such event, this Lease shall continue in full force and effect, and Lessor shall proceed to make such remediation as soon as reasonably possible after the required funds are available. If Lessee does not give such notice and provide the required funds or assurance thereof within the time provided, this Lease shall terminate as of the date specified in Lessor's notice of termination.
6.3 LESSEE'S COMPLIANCE WITH APPLICABLE REQUIREMENTS. Except as otherwise provided in this Lease. Lessee shall, at Lessee's sole expense fully, diligently and in a timely manner, materially comply with all Applicable Requirements, the requirements of any applicable fire insurance underwriter or rating bureau, and the recommendations of Lessor's engineers and/or consultants which relate in any manner to the such Requirements, without regard to whether such Requirements are now in effect or become effective after the Start Date. Lessee shall, within 10 days after receipt of Lessor's written request, provide Lessor with copies of all permits and other documents, and other information evidencing Lessee's compliance with any Applicable Requirements specified by Lessor, and shall immediately upon receipt, notify Lessor ,in writing (with copies of any documents involved) of any threatened or actual claim, notice, citation, warning, complaint or report pertaining to or involving the failure of Lessee or the Premises to comply with any Applicable Requirements.
6.4 INSPECTION; COMPLIANCE. Lessor and Lessors "LENDER" (as defined in Paragraph 30) and consultants shall have the right to enter into Premises at any time, in the case of an emergency, and otherwise at reasonable times after reasonable notice for the purpose of inspecting the condition of the Premises and for verifying compliance by Lessee with this Lease. The cost of any such inspections shall be paid by Lessor, unless a violation of Application Requirements, or a Hazardous Substance Condition, (see paragraph 9.1) is found to exist or be imminent, or the inspection is requested or ordered by a governmental authority. In such case, Lessee shall upon request reimburse Lessor for the cost of such inspection, so long as such inspection is reasonably related to the violation or contamination. In addition, Lessee shall provide copies of all relevant material safety data sheets (MSDS) to Lessor within 10 days of the receipt of 3 written request therefor.
MAINTENANCE; REPAIRS, UTILITY INSTALLATIONS; TRADE FIXTURES AND
ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS.
(a) IN GENERAL. Subject to the provisions of Paragraph 2.2 (Condition), 2.3 (Compliance). 6.3 (Lessee's Compliance with Applicable Requirements), 7.2 (Lessor's Obligations), 9 (Damage or Destruction), and 14 (Condemnation), Lessee shall, at Lessee's sole expense keen the premises, Utility Installations (intended for Lessee's exclusive use, no matter where located), and Alterations in good order, condition and repair (whether or not the portion of the 'premises requiring repairs, or the means of repairing the same, are reasonably or readily accessible to Lessee, and whether or not the need for such repairs occurs is a result of Lessee's use. any prior use. the elements or the age of such portion of the Premises), including, but not limited to all equipment or facilities, such as plumbing, HVAC equipment, electrical, lighting facilities, boilers, pressure vessels, fire protection system, fixtures, walls (interior and exterior) foundations, ceilings, roofs, drainage systems, floors, windows, doors, plate glass, skylights, landscaping, driveways, parking lots, fences retaining walls signs sidewalks and arkways located in, on, or adjacent to the Premises. Lessee, in keeping the Premises in good order, condition and repair, shall exercise and perform good maintenance practices, specifically including the procurement and maintenance of the service contracts required by Paragraph 7.1(b) below Lessee's obligations shall include restorations, replacements or renewals when necessary to keep the Premises and all improvements thereon or a part thereof in good order, condition and state of repair. Lessee shall, during the term of this Lease, keep the exterior appearance of the Building in a first-class condition (including e.g. graffiti removal) consistent with the exterior appearance of other similar facilities of comparable age and size in the vicinity, including, when necessary, the exterior repainting of the building.
(b) SERVICE CONTRACTS. Lessee shall, at Lessee's sole expense, procure and maintain contracts, with copies to Lessor, in customary form and substance for, and with contractors specializing and experienced in the maintenance of the following equipment and improvements, if any, if and when installed on the Premises: (i) HVAC equipment, (ii) boiler, and pressure vessels, (iii) fire extinguishing systems, including fire alarm and/or smoke detection (iv) landscaping and irrigation systems, (v) roof covering and drains,
(vi) clarifiers (vii) basic utility feed to the perimeter of the Building, and
(vii) any other equipment, if reasonably required by Lessor. However, Lessor reserves the right, upon notice to Lessee, to procure and maintain any or all of such service contracts, and if Lessor so elects. Lessee shall reimburse Lessor, upon demand, for the cost thereof.
(c) FAILURE TO PERFORM. If Lessee fails to perform Lessee's obligations under this Paragraph 7.1. Lessor may enter upon the Premises after 10 years prior written notice to Lessee (except in the case of an emergency, in which case no notice shall be required), perform such obligations on Lessee's behalf and the Premises in good order, condition and repair, and Lessee shall promptly pay to Lessor a sum equal to 115% of the cost thereof
(d) REPLACEMENT. Subject to Lessee's indemnification of Lessor as set forth in Paragraph 8.7 below. and without relieving Lessee of liability resulting from Lessees failure to exercise and perform good maintenance practices, if an item described in Paragraph 7.1(b) cannot be repaired other than at a cost which is in excess of 50% of the cost of replacing such item, then such item shall be replaced by Lessor, and the cost thereof shall be prorated between the parties and Lessee shall only be obligated to pay, each month during the remainder of the term of this Lease, on the date on which Base Rent is due an amount equal to the
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product of multiplying the cost of such replacement by a fraction, the numerator of which is one, and the denominator of which is 144 (ie. 1/144th of the cost per month). Lessee shall pay interest on the unamortized balance at a rate that is commercially reasonable in the judgment of Lessor's accountants. Lessee may however, prepay its obligation at any time.
7.2 LESSOR'S OBLIGATIONS. Subject to the provisions of Paragraphs 2.2 (Condition). 2.3 (Compliance). 9 (Damage or Destruction) and 14 (Condemnation), it is intended by the Parties hereto that Lessor have no obligation in any manner whatsoever, to repair and maintain the Premises, or the equipment therein, all of which obligations are intended to be that of the Lessee, It is the intention of the Parties that the terms of this Lease govern the respective obligations of the Parties as to maintenance and repair of the Premises, and they expressly waive the benefit of any statute now or hereafter in effect to the extent it is inconsistent with the terms of this Lease.
7.3 UTILITY INSTALLATIONS; TRADE FIXTURES; ALTERATIONS.
(a) DEFINITIONS. The term "UTILITY INSTALLATIONS" refers to all floor and window coverings, air and/or vacuum lines, power panels electrical distribution, security and fire protection systems, communication cabling, lighting fixtures. HVAC equipment, plumbing, and fencing in or on the Premises. The term "TRADE FIXTURES" shall mean Lessee's machinery and equipment that can be removed without doing material damage to the Premises. The term "ALTERATIONS" shall mean any modification of the improvements, other than Utility Installations or Trade Fixtures, whether by addition or deletion. "LESSEE OWNED ALTERATIONS AND/OR UTILITY INSTALLATIONS" are defined as Alterations and/or Utility Installations made by Lessee that are not yet owned by Lessor pursuant to Paragraph 7.4(a)
(b) CONSENT. Lessee shall not make any Alterations or Utility Installations to the Premises without Lessor's prior written consent. Lessee may however, make non-structural Utility Installations to the interior of the Premises (excluding the roof) without such consent tout upon notice to Lessor, as long as they are not visible from the outside, do not involve puncturing, relocating or removing the roof or any existing walls, will not affect the electrical, plumbing, HVAC and/or life safety systems, and the cumulative cost thereof during this Lease as extended does not exceed a sum equal to 3 month's Base Rent in the aggregate or a sum equal to one month's Base Rent in any one year. Notwithstanding the foregoing, Lessee shall not make or permit any roof penetrations and/or install anything on the roof without the prior written approval of Lessor. Lessor may, as a precondition to granting such approval, require Lessee to utilize a contractor chosen and/or approved by Lessor. Any Alterations or Utility Installations that Lessee shall desire to make and which require the consent of the Lessor shall be presented to Lessor in written form with detailed plans. Consent shall be deemed conditioned upon Lessee's: (i) acquiring all applicable governmental permits, (ii) furnishing Lessor with copies of both the permits and the plans and specifications prior to commencement of the work, and (iii) compliance with all conditions of said permits and other Applicable Requirements in a prompt and expeditious manner. Any Alterations or Utility Installations shall be performed in a workmanlike manner with good and sufficient materials. Lessee shall promptly upon completion furnish Lessor with as-built plans and specifications. For work which costs an amount in excess of one month's Base Rent, Lessor may condition its consent upon Lessee providing a lien and completion bond in an amount equal to 150% of the estimated cost of such Alteration or Utility Installation and/or upon Lessee's posting an additional Security Deposit with Lessor.
(c) LIENS; BONDS. Lessee shall pay, when due, all claims for labor or materials furnished or alleged to have been furnished to or for Lessee at or for use on the Premises, which claims are or may be secured by any mechanic's or materialmen's lien against the Premises or any interest therein. Lessee shall give Lessor not less than 10 days notice prior to the commencement of any work in, on or about the Premises, and Lessor shall have the right to post notices of non-responsibility. If Lessee shall contest the validity of any such lien, claim or demand, then Lessee shall, at its sole expense defend and protect itself. Lessor and the Premises against the same and shall pay and satisfy any such adverse judgment that may be rendered thereon before the enforcement thereof. If Lessor shall require. Lessee shall furnish a surety bond in an amount equal to 150% of the amount of such contested lien, claim or demand, indemnifying Lessor against liability for the same. If Lessor elects to participate in any such action. Lessee shall pay Lessor's attorneys' fees and costs.
7.4 OWNERSHIP; REMOVAL; SURRENDER; AND RESTORATION.
(a) OWNERSHIP. Subject to Lessor's right to require removal or elect ownership as hereinafter provided, all Alterations and Utility Installations made by Lessee shall be the property of Lessee, but considered a part of the Premises. Lessor may, at any time, elect in writing to be the owner of all or any specified part of the Lessee Owned Alterations and Utility Installations. Unless otherwise instructed per paragraph 7.4(b) hereof, all Lessee Owned Alterations and Utility Installations shall, at the expiration or termination of this Lease, become the property of Lessor and be surrendered by Lessee with the Premises.
(b) REMOVAL. By delivery to Lessee of written notice from Lessor not earlier than 90 and not later than 30 days prior to the end of the term of this Lease. Lessor may require that any or all Lessee Owned Alterations or Utility Installations be removed by the expiration or termination of this Lease. Lessor may require the removal at any time of all or any part of any Lessee Owned Alterations or Utility Installations made without the required consent.
(c) SURRENDER; RESTORATION. Lessee shall surrender the Premises by the Expiration Date or any earlier termination date, with all of the improvements, parts and surfaces thereof broom clean and free of debris, and in good operating order, condition and state of repair, ordinary wear and tear excepted "Ordinary wear and tear" shall not include any damage or deterioration that would have been prevented by good maintenance practice. Notwithstanding the foregoing, if this Lease is for 12 months a less, then Lessee shall surrender the Premises in the same condition as delivered to Lessee on the Start Date with NO allowance for ordinary wear and tear. Lessee shall repair any damage occasioned by the installation, maintenance or removal of Trade Fixtures, Lessee owned Alterations and/or Utility Installations, furnishings, and equipment as well as the removal of any storage tank installed by or for Lessee. Lessee shall completely remove from the Premises any and all Hazardous Substances brought onto the Premises by or for Lessee, or any third party (except Hazardous Substances which were deposited via underground migration from areas outside of the Premises, or if applicable, the Project) even if such removal would require Lessee to perform or pay for work that exceeds statutory requirements. Trade Fixtures shall remain the property of Lessee and shall be removed by Lessee. Any personal property of lessee not removed on or before the Expiration Date or any earlier termination date shall be deemed to have been abandoned by Lessee and may be disposed of or retained by Lessor as Lessor may desire. The failure by Lessee to timely vacate the Premises pursuant to this Paragraph 7.4(c) without the express written consent of Lessor shall constitute a holdover under the provisions of Paragraph 26 below.
8. INSURANCE; INDEMNITY.
8.1 PAYMENT FOR INSURANCE. Lessee shall pay for all insurance required under Paragraph 8 except to the extent of the cost attributable to liability insurance carried by Lessor under Paragraph 8.2(b) in excess of $2,000,000 per occurrence. Premiums for policy periods commencing prior to or extending beyond the Lease term shall be prorated to correspond to the Lease term. Payment shall be made by Lessee to Lessor within 10 days following receipt of an invoice.
8.2 LIABILITY INSURANCE.
(a) CARRIED BY LESSEE. Lessee shall obtain and keen in force a Commercial General Liability policy of insurance protecting Lessee and Lessor is an additional insured against claims for bodily injury, personal injury and property damage based upon or arising out of the ownership, use, occupancy or Maintenance of the Premises and all areas appurtenant thereto. Such insurance shall be on an occurrence basis providing single limit coverage in an amount not less than $1,000,000 per occurrence with an annual aggregate of not less than $2,000,000, an "Additional Insured-Managers or Lessors of Premises Endorsement" and contain the "Amendment of the Pollution Exclusion Endorsement" for damage caused by heat, smoke or fumes from a hostile fire. The policy shall not contain any intra-insured exclusions as between insured persons or organizations, but shall include coverage for liability assumed under this Lease as an "insured contract"or the performance of Lessee's indemnity obligations under this Lease. The limits of said insurance shall not, however, limit the liability of Lessee nor relieve Lessee of any obligation hereunder. All insurance carried by Lessee shall be primary to and not contributory with any similar insurance carried by Lessor, whose insurance shall be considered excess insurance only.
(b) CARRIED BY LESSOR. Lessor shall maintain liability insurance as described in Paragraph 8.2(a). in addition to, and not in lieu of, the insurance required to be maintained by Lessee. Lessee shall not be named as an additional insured therein.
8.3 PROPERTY INSURANCE-BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. The Insuring Party shall obtain and keep in force a policy or policies in the name of Lessor, with loss payable Lessor. any ground-lessor, and to any Lender insuring loss or damage to the Premises. The amount of such insurance shall be equal to the full replacement cost
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of the Premises, as the same shall exist from time to time, or the amount required by any Lender, but in no event more than the commercially reasonable and available insurable value thereof. If Lessor is the insuring Party, however, Lessee Owned Alterations and Utility Installations. Trade Fixtures, and Lessee's personal property shall be insured by Lessee under Paragraph 8.4 rather than by Lessor. If the coverage is available and commercially appropriate, such policy or policies shall insure against all risks of direct physical loss or damage (except the perils of flood and/or earthquake unless required by a Lender), including coverage for debris removal and the enforcement of any Applicable Requirements requiring the upgrading, demolition, reconstruction or replacement of any portion of the Premises as the result of a covered loss. Said policy or policies shall also contain an agreed valuation provision in lieu of any coinsurance clause, waiver of subrogation, and inflation guard protection causing an increase in the annual property insurance coverage amount by a factor of not less than the adjusted U.S. Department of Labor Consumer Price index for All Urban Consumers for the city nearest to where the Premises are located. If such insurance coverage has a deductible clause, the Deductible amount shall not exceed $1,000 per occurrence, and Lessee shall be liable for such deductible amount in the event of an Insured Loss.
(b) RENTAL VALUE. The insuring Party shall obtain and keep in force a policy or policies in the name of Lessor with loss payable to Lessor and any Lender, insuring the loss of the full Rent for one year with an extended period of indemnity for an additional 180 days ("Rental Value insurance"). Said insurance shall contain an agreed valuation provision in lieu of any coinsurance clause, and the amount of coverage shall be adjusted annually to reflect the projected Rent otherwise payable by Lessee, for the next 12 month period. Lessee shall be liable for any deductible amount in the event of such loss.
(c) ADJACENT PREMISES. If the Premises are part of a larger building, or of a group of buildings owned by Lessor which are adjacent to the Premises, the Lessee shall pay for any increase in the premiums for the property insurance of such building or buildings if said increase is caused by Lessee's acts, omissions, use or occupancy of the Premises.
8.4 LESSEE'S PROPERTY; BUSINESS INTERRUPTION INSURANCE.
(a) PROPERTY DAMAGE. Lessee shall obtain and maintain insurance coverage on all of Lessee's personal property, Trade Fixtures, and Lessee Owned Alterations and Utility Installations. Such insurance shall be full replacement cost coverage with a deductible of not to exceed $1,000 per occurrence. The proceeds from any such insurance shall be used by Lessee for the replacement of personal property, Trade Fixtures and Lessee Owned Alterations and Utility Installations. Lessee shall provide Lessor with written evidence that such insurance is in force.
(b) BUSINESS INTERRUPTION. Lessee shall obtain and maintain loss of income and extra expense insurance in amounts as will reimburse Lessee for direct or indirect loss of earnings attributable to all perils commonly insured against by prudent lessees in the business of Lessee or attributable to prevention of access to the Premises as a result of such perils.
(c) NO REPRESENTATION OF ADEQUATE COVERAGE. Lessor makes no representation that the limits or forms of coverage of insurance specified herein are adequate to cover Lessee's property, business operations or obligations under this Lease.
8.5 INSURANCE POLICIES. Insurance required herein shall be by companies duly licensed or admitted to transact business in the state where the Premises are located, and maintaining during the policy term a "General Policyholders Rating" of at least B+, V, as set forth in the most current issue of "Best's Insurance Guide", or such other rating as may be required by a Lender. Lessee shall not do or permit to be done anything which invalidates the required insurance policies. Lessee shall, prior to the Start Date, deliver to Lessor certified copies of policies of such insurance or certificates evidencing the existence and amounts of the required insurance. No such policy shall be cancelable or subject to modification except after 30 days prior written notice to Lessor. Lessee shall, at least 30 days prior to the expiration of such policies, furnish Lessor with evidence of renewals or "insurance binders" evidencing renewal thereof, or Lessor may order such insurance and charge the cost thereof to Lessee, which amount shall be payable by Lessee to Lessor upon demand. Such policies shall be for a term of at least one year, or the length of the remaining term of this Lease, whichever is less. If either Party shall fail to procure and maintain the insurance required to be carried by it, the other Party may, but shall not be required to, procure and maintain the same.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or remedies, Lessee and Lessor each hereby release and relieve the other, and waive their entire right to recover damages against the other, for loss of or damage to its property arising out of or incident to the perils required to be insured against herein. The effect of such releases and waivers is not limited by the amount of insurance carried or required, or by any deductibles applicable hereto. The Parties agree to have their respective property damage insurance carriers waive any right to subrogation that such companies may have against Lessor or Lessee, as the case may be, so long as the insurance is not invalidated thereby.
8.7 INDEMNITY. Except for Lessor's gross negligence or willful misconduct, Lessee shall indemnify, protect, defend and hold harmless the Premises, Lessor and its agents, Lessor's master or ground lessor, partners and Lenders, from and against any and all claims, loss of rents and/or damages, liens, judgments, penalties, attorneys' and consultants' fees, expenses and/or liabilities arising out of, involving, or in connection with, the use and/or occupancy of the Premises by Lessee. If any action or proceeding is brought against Lessor by reason of any of the foregoing matters. Lessee shall upon notice defend the same at Lessee's expense by counsel reasonably satisfactory to Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need not have first paid any such claim in order to be defended or indemnified.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable for injury or damage to the person or goods, wares, merchandise or other property of Lessee, Lessee's employees, contractors, invitees, customers, or any other person in or about the Premises, whether such damage or injury is caused by or results from fire, steam, electricity, gas, water or rain, or from the breakage, leakage, obstruction or other defects of pipes, fire sprinklers, wires, appliances, plumbing, HVAC or lighting fixtures, or from any other cause, whether the said injury or damage results from conditions arising upon the Premises or upon other portions of the building of which the Premises are a part, or from other sources or places. Lessor shall not be liable for any damages arising from any act or neglect of any other tenant of Lessor nor from the failure of Lessor to enforce the provisions of any other lease in the Project. Notwithstanding Lessor's negligence or breach of this Lease, Lessor shall under no circumstances be liable for injury to Lessee's business or for any loss of income or profit therefrom.
8.9 FAILURE TO PROVIDE INSURANCE. Lessee acknowledges that any failure on its part to obtain or maintain the insurance required herein will expose Lessor to risks and potentially cause Lessor to incur costs not contemplated by this Lease, the extent of which will be extremely difficult to ascertain. Accordingly, for any month or portion thereof that Lessee does not maintain the required insurance and/or does not provide Lessor with the required binders or certificates evidencing the existence of the required insurance, the Base Rent shall be automatically increased, without any requirement for notice to Lessee, by an amount equal to 10% of the then existing Base Rent or $100, whichever is greater. The parties agree that such increase in Base Rent represents fair and reasonable compensation for the additional risk/costs that Lessor will incur by reason of Lessee's failure to maintain the required insurance. Such increase in Base Rent shall in no event constitute a waiver of Lessee's Default or Breach with respect to the failure to maintain such insurance, prevent the exercise of any of the other rights and remedies granted hereunder. nor relieve Lessee of its obligation to maintain the insurance specified in this Lease.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction to the improvements on the Premises, other than Lessee Owned Alterations and Utility Installations, which can reasonably be repaired in 6 months or less from the date of the damage or destruction. Lessor shall notify Lessee in writing within 30 days from the date of the damage or destruction as to whether or not the damage is Partial or Total.
(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or destruction to the Premises, other than Lessee Owned Alterations and Utility installations and Trade Fixtures, which cannot reasonably be repaired in 6 months or less from the date of the damage or destruction. Lessor shall notify Lessee in writing within 30 days from the date of the damage or destruction as to whether or not the damage is Partial or Total.
(c) "INSURED LOSS" shall mean damage or destruction to improvements on the Premises, other than Lessee Owned Alterations and Utility installations and Trade Fixtures, which was caused by an event required to be covered by the insurance described in Paragraph 8.3(a), irrespective of any deductible amounts or coverage limits involved.
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(d) "REPLACEMENT COST" shall mean the cost to repair or rebuild the improvements owned by Lessor at the time of the occurrence to then condition existing immediately prior thereto, including demolition, debris removal and upgrading required by the operation of Applicable Requirements, and without deduction for depreciation.
(e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the occurrence or discovery of a condition involving the presence of, or a contamination by a Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the Premises which requires repair, remediation, or restoration.
9.2 PARTIAL DAMAGE - INSURED LOSS. If a Premises Partial Damage that is an insured Loss occurs, then Lessor shall, at Lessor's expense repair such damage (but not Lessee's Trade Fixtures or Lessee Owned Alterations and Utility Installations) as soon as reasonably possible and this Lease shall continue in full force and effect; provided, however, that Lessee shall, at Lessor's election, make the repair of any damage or destruction the total cost to repair of which is $10,000 or less, and, in such event. Lessor shall make any applicable insurance proceeds available to Lessee on a reasonable basis for that purpose Notwithstanding the foregoing, if the required insurance was not in force or the insurance proceeds are not sufficient to effect such repair, the Insuring Party shall promptly contribute the shortage in proceeds (except as to the deductible which is Lessee's responsibility) as and when required to complete said repairs. In the event, however, such shortage was due to the fact that, by reason of the unique nature of the improvements, full replacement cost insurance coverage was not commercially reasonable and available. Lessor shall have no obligation to pay for the shortage in insurance proceeds or to fully restore the unique aspects of the Premises unless Lessee provides Lessor with the funds to cover same, or adequate assurance thereof, within 10 days following receipt of written notice of such shortage and request therefor. If Lessor receives said funds or adequate assurance thereof within said 10 day period, the party responsible for making the repairs shall complete them as soon as reasonably possible and this Lease shall remain in full force and effect. If such funds or assurance are not received, Lessor may nevertheless elect by written notice to Lessee within 10 days thereafter to: (i) make such restoration and repair as is commercially reasonable with Lessor paying any shortage in proceeds, in which case this Lease shall remain in full force and effect, or
(ii) have this Lease terminate 30 days thereafter. Lessee shall not be entitled to reimbursement of any funds contributed by Lessee to repair any such damage or destruction. Premises Partial Damage due to flood or earthquake shall be subject to Paragraph 9.3, notwithstanding that there may be some insurance coverage, but the net proceeds of any such insurance shall be made available for the repairs if made by either Party.
9.3 PARTIAL DAMAGE - UNINSURED LOSS. If a Premises Partial Damage that is not an Insured Loss occurs, unless caused by a negligent or willful act of Lessee (in which event Lessee shall make the repairs at Lessee's expense), Lessor may either: (i) repair such damage as soon as reasonably possible at Lessor's expense, in which event this Lease shall continue in full force and effect, or (ii) terminate this Lease by giving written notice to Lessee within 30 days after receipt by Lessor of knowledge of the occurrence of such damage. Such termination shall be effective 60 days following the date of such notice. In the event Lessor elects to terminate this Lease. Lessee shall have the right within 10 days after receipt of the termination notice to give written notice to Lessor of Lessee's commitment to pay for the repair of such damage without reimbursement from Lessor. Lessee shall provide Lessor with said funds or satisfactory assurance thereof within 30 days after making such commitment. In such event this Lease shall continue in full force and effect, and Lessor shall proceed to make such repairs as soon as reasonably possible after the required funds are available. If Lessee does not make the required commitment, this Lease shall terminate as of the date specified in the termination notice.
9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof, if a Premises Total Destruction occurs, this Lease shall terminate 60 days following such Destruction. If the damage or destruction was caused by the gross negligence or willful misconduct of Lessee. Lessor shall have the right to recover Lessor's damages from Lessee, except as provided in Paragraph 8.6.
9.5 DAMAGE NEAR END OF TERM. If at any time during the last 6 months of this Lease there is damage for which the cost to repair exceeds one month's Base Rent, whether or not an Insured Loss. Lessor may terminate this Lease effective 60 days following the date of occurrence of such damage by giving a written termination notice to Lessee within 30 days after the date of occurrence of such damage. Notwithstanding the foregoing, if Lessee at that time has an excisable option to extend this Lease or to purchase the Premises, then Lessee may preserve this Lease by, (a) exercising such option and (b) providing Lessor with any shortage in insurance proceeds (or adequate assurance thereof) needed to make the repairs on or before the earlier of (i) the date which is 10 days after Lessee's receipt of Lessor's written notice purporting to terminate this Lease, or (ii) the day prior to the date upon which such option expires. If Lessee duly exercises such option during such period and provides Lessor with funds (or adequate assurance thereof) to cover any shortage in insurance proceeds. Lessor shall at Lessor's commercially reasonable expense, repair such damage as soon as reasonably possible and this Lease shall continue in full force and effect. If Lessee fails to exercise such option and provide such funds or assurance during such period, then this Lease shall terminate on the date specified in the termination notice and Lessee's option shall be extinguished.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) ABATEMENT. In the event of Premises Partial Damage or Premises Total Destruction or a Hazardous Substance Condition for which Lessee is not responsible under this Lease, the Rent payable by Lessee for the period required for the repair, remediation or restoration of such damage shall be abated in proportion to the degree to which Lessee's use of the Premises is impaired, but not to exceed the proceeds received from the Rental Value insurance. All other obligations of Lessee hereunder shall be performed by Lessee, and Lessor shall have no liability for any such damage, destruction, remediation, repair or restoration except as provided herein.
(b) REMEDIES. If Lessor shall be obligated to repair or restore the Premises and does not commence, in a substantial and meaningful way, such repair or restoration within 90 days after such obligation shall accrue, Lessee may, at any time prior to the commencement of such repair or restoration, give written notice to Lessor and to any Lenders of which Lessee has actual notice, of Lessee's election to terminate this Lease on a date not less than 60 days following the giving of such notice. If Lessee gives such notice and such repair or restoration is not commenced within 30 days thereafter, this Lease shall terminate as of the date specified in said notice. If the repair or restoration is commenced within such 30 days, this Lease shall continue in full force and effect. "Commence" shall mean either the unconditional authorization of the preparation of the required plans, or the beginning of the actual work on the Premises, whichever first occurs.
9.7 TERMINATION; ADVANCE PAYMENTS. Upon termination of this Lease pursuant to Paragraph 6.2(g) or Paragraph 9, an equitable adjustment shall be made concerning advance Base Rent and any other advance payments made by Lessee to Lessor. Lessor shall, in addition, return to Lessee so much of Lessee's Security Deposit as has not been, or is not then required to be, used by Lessor.
9.8 WAIVE STATUTES. Lessor and Lessee agree that the terms of this Lease shall govern the effect of any damage to or destruction of the Premises with respect to the termination of this Lease and hereby waive the provisions of any present or future statute to the extent inconsistent herewith.
10. REAL PROPERTY TAXES.
10.1 DEFINITION. As used herein, the term "REAL PROPERTY TAXES" shall include any form of assessment; real estate, general, special, ordinary or extraordinary, or rental levy or tax (other than inheritance, personal income or estate taxes); improvement bond; and/or license fee imposed upon or levied against any legal or equitable interest of Lessor in the Premises or the Project, Lessor's right to other income therefrom, and/or Lessor's business of leasing, by any authority having the direct or indirect power to tax and where the funds are generated with reference to the Building address and where the proceeds so generated are to be applied by the city, county or other local taxing authority of a jurisdiction within which the Premises are located. Real Properly Taxes shall also include any tax, fee levy, assessment or charge, or any increase therein: (i) imposed by reason of events occurring during the term of this Lease, including but not limited to, a change in the ownership of the Premises, and (ii) levied or assessed on machinery or equipment provided by Lessor to Lessee pursuant to this Lease.
10.2 PAYMENT OF TAXES. In addition to Base Rent, Lessee shall pay to Lessor an amount equal to the Real Property Tax installment due at least 20 days prior to the applicable delinquency date. If any such installment shall cover any period of time prior to or after the expiration or termination of this Lease Lessee's share of such installment shall be prorated. In the event Lessee incurs a late charge on any Rent payment. Lessor may estimate the current Real Property Taxes, and require that such taxes be paid in advance to Lessor by Lessee monthly in advance with the payment of the Base Rent. Such monthly payments shall be in amount equal to the amount of the estimated installment of taxes divided by the number of months remaining before the month in which said installment becomes
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delinquent. When the actual amount of the applicable tax bill is known, the amount of such equal monthly advance payments shall be adjusted as required to provide the funds needed to pay the applicable taxes. If the amount collected by Lessor upon demand, such additional sum as is necessary. Advance payments may be intermingled with other moneys of Lessor and shall not bear interest. In the event of a Breach by Lessee in the performance of its obligations under this Lease, then any such advance payments may be treated by Lessor as an additional Security Deposit.
10.3 JOINT ASSESSMENT. If the Premises are not separately assessed. Lessee's liability shall be an equitable proportion of the Real Property Taxes for all of the land and improvements included within the tax parcel assessed, such proportion to be conclusively determined by Lessor from the respective valuations assigned in the assessor's work sheets or such other information as may be reasonably available.
10.4 PERSONAL PROPERTY TAXES. Lessee shall pay, prior to delinquency, all taxes assessed against and levied upon Lessee Owned Alterations, Utility Installations. Trade Fixtures, furnishings, equipment and all personal property of Lessee. When possible, Lessee shall cause its Lessee Owned Alterations and Utility Installations, Trade Fixtures, furnishings, equipment and all other personal property to be assessed and billed separately from the real property of Lessor If any of Lessee's said property shall be assessed with Lessor's real property, Lessee shall pay Lessor the taxes attributable to Lessee's property within 10 days after receipt of a written statement setting forth the taxes applicable to Lessee's property.
11. UTILITIES AND SERVICES. Lessee shall pay for all water, gas, heat, light, power, telephone, trash disposal and other utilities and services supplied to the Premises, together with any taxes thereon. If any such services are not separately metered or billed to Lessee, Lessee shall pay a reasonable proportion, to be determined by Lessor, of all charges jointly metered or billed. There shall be no abatement of rent and Lessor shall not be liable in any respect whatsoever for the inadequacy, stoppage, interruption or discontinuance of any utility or service due to riot, strike, labor dispute, breakdown, accident, repair or other cause beyond Lessor's reasonable control or in cooperation with governmental request or directions.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED.
(a) Lessee shall not voluntarily or by operation of law assign, transfer, mortgage or encumber (collectively, "ASSIGN OR ASSIGNMENT") or sublet all or any part of Lessee's interest in this Lease or in the Premises without Lessor's prior written consent.
(b) Unless Lessee is a corporation and its stock is publicly traded on a national stock exchange, a change in the control of Lessee shall constitute an assignment requiring consent. The transfer, on a cumulative basis, of 25% or more of the voting control of Lessee shall constitute a change in control for this purpose.
(c) The involvement of Lessee or its assets in any transaction, or series of transactions (by way of merger, sale, acquisition, financing, transfer, leveraged buy-out or otherwise), whether or not a formal assignment or hypothecation of this Lease or Lessee's assets occurs, which results or will result in a reduction of the Net Worth of Lessee by an amount greater than 25% of such Net Worth as it was represented at the time of the execution of this Lease or at the time of the most recent assignment to which Lessor has consented, or as it exists immediately prior to said transaction or transactions constituting such reduction, whichever was or is greater, shall be considered an assignment of this Lease to which Lessor may withhold its consent. "NET WORTH OF LESSEE" shall mean the net worth of Lessee (excluding any guarantors) established under generally accepted accounting principles.
(d) An assignment or subletting without consent shall, at Lessor's option, be a Default curable after notice per Paragraph 13.1(c), or a noncurable Breach without the necessity of any notice and grace period. If Lessor elects to treat such unapproved assignment or subletting as a nondurable Breach, Lessor may either: (i) terminate this Lease, or (ii) upon 30 days written notice, increase the monthly Base Rent to 110% of the Base Rent then in effect. Further, in the event of such Breach and rental adjustment, (i) the purchase price of any option to purchase the Premises held by Lessee shall be subject to similar adjustment to 110% of the price previously in effect, and (ii) all fixed and non-fixed rental adjustments scheduled during the remainder of the Lease term shall be increased to 110% of the scheduled adjusted rent.
(e) Lessee's remedy for any breach of Paragraph 12.1 by Lessor shall be limited to compensatory damages and/or injunctive relief.
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, no assignment or subletting shall: (i) be effective without the express written assumption by such assignee or sublessee of the obligations of Lessee under this Lease, (ii) release Lessee of any obligations hereunder, or (iii) alter the primary liability of Lessee for the payment of Rent or for the performance of any other obligations to be performed by Lessee.
(b) Lessor may accept Rent or performance of Lessee's obligations from any person other than Lessee pending approval or disapproval of an assignment. Neither a delay in the approval or disapproval of such assignment nor the acceptance of Rent or performance shall constitute a waiver or estoppel of Lessor's right to exercise its remedies for Lessee's Default or Breach.
(c) Lessor's consent to any assignment or subletting shall not constitute a consent to any subsequent assignment or subletting.
(d) In the event of any Default or Breach by Lessee, Lessor may proceed directly against Lessee, any Guarantors or anyone else responsible for the performance of Lessee's obligations under this Lease, including any assignee or sublessee, without first exhausting Lessor's remedies against any other person or entity responsible therefor to Lessor, or any security held by Lessor.
(e) Each request for consent to an assignment or subletting shall be in writing, accompanied by information relevant to Lessor's determination as to the financial and operational responsibility and appropriateness of the proposed assignee or sublessee, including but not limited to the intended use and/or required modification of the Premises, if any, together with a fee of $500 as consideration for Lessor's considering and processing said request. Lessee agrees to provide Lessor with such other or additional information and/or documentation as may be reasonably requested. (See also Paragraph 36)
(f) Any assignee of, or sublessee under, this Lease shall, by reason of accepting such assignment or entering into such sublease, be deemed to have assumed and agreed to conform and comply with each and every term, covenant, condition and obligation herein to be observed or performed by Lessee during the term of said assignment or sublease, other than such obligations as are contrary to or inconsistent with provisions of an assignment or sublease to which Lessor has specifically consented to in writing.
(g) Lessor's consent to any assignment or subletting shall not transfer to the assignee or sublessee any Option granted to the original Lessee by this Lease unless such transfer is specifically consented to by Lessor in writing. (See Paragraph 39.2)
12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The following terms and conditions shall apply to any subletting by Lessee of all or any part of the Premises and shall be deemed included in all subleases under this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's interest in all Rent payable on any sublease, and Lessor may collect such Rent and apply same toward Lessee's obligations under this Lease: provided, however, that until a Breach shall occur in the performance of Lessee's obligations, Lessee may collect said Rent. In the event that the amount collected by Lessor exceeds Lessee's obligations any such excess shall be refunded to Lessee. Lessor shall not, by reason of the foregoing or any assignment of such sublease, nor by reason of the collection of Rent, be deemed liable to the sublessee for any failure of Lessee to perform and comply with any of Lessee's obligations to such sublessee. Lessee hereby irrevocably authorizes and directs any such sublessee, upon receipt of a written notice from Lessor stating that a Breach exists in the performance of Lessee's obligations under this Lease, to pay to Lessor all Rent due and to become due under the sublease. Sublessee shall rely upon any such notice from Lessor and shall pay all Rents to Lessor without any obligation or right to inquire as to whether such Breach exists, notwithstanding any claim from Lessee to the contrary.
(b) In the event of a Breach by Lessee, Lessor may, at its option, require sublessee to attorn to Lessor, in which event Lessor shall undertake the obligations of the sublessor under such sublease from the time of the exercise of said option to the expiration of such sublease: provided, however, Lessor shall not be liable for any prepaid rents or security deposit paid by such sublessee to such sublessor or for any prior Defaults or Breaches of such sublessor.
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(c) Any matter requiring the consent of the sublessor under a sublease shall also require the consent of Lessor.
(d) No sublessee shall further assign or sublet all or any part of the Premises without Lessor's prior written consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach by Lessee to the sublessee. Who shall have the right to cure the Default of Lessee within the grace period, if any, specified in such notice. The sublessee shall have a right of reimbursement and offset from and against Lessee for any such Defaults cured by the sublessee.
13. DEFAULT; BREACH; REMEDIES.
13.1 DEFAULT; BREACH. A "DEFAULT" is defined as a failure by the Lessee to comply with or perform any of the terms, covenants, conditions or Rules and Regulations under this Lease. A "BREACH" is defined as the occurrence of one or more of the following Defaults, and the failure of Lessee to cure such Default within any applicable grace period:
(a) The abandonment of the Premises; or the vacating of the Premises without providing a commercially reasonable level of security, or where the coverage of the property insurance described in Paragraph 8.3 is jeopardized as a result thereof, or without providing reasonable assurances to minimize potential vandalism.
(b) The failure of Lessee to make any payment of Rent or any Security Deposit required to be made by Lessee hereunder, whether to Lessor or to a third party, when due, to provide reasonable evidence of insurance or surety bond, or to fulfill any obligation under this Lease which endangers or threatens life or property, where such failure continues for a period of 3 business days following written notice to Lessee.
(c) The failure by Lessee to provide (i) reasonable written evidence of compliance with Applicable Requirements (ii) the service contracts, (iii) the rescission of an unauthorized assignment or subletting, (iv) an Estoppel Certificate, (v) a requested subordination, (vi) evidence concerning any guaranty and/or Guarantor, (vii) any document requested under Paragraph 42,
(viii) material safety data sheets (MSDS), or (ix) any other documentation or information which Lessor may reasonably require of Lessee under the terms of this Lease, where any such failure continues for a period of 10 days following written notice to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or provisions of this Lease, or of the rules adopted under Paragraph 40 hereof, other than those described in subparagraphs 13.1(a), (b) or (c), above, where such Default continues for a period of 30 days after written notice; provided however, that if the nature of Lessee's Default is such that more than 30 days are reasonably required for its cure, then it shall not be deemed to be a Breach if Lessee commences such cure within said 30 day period and thereafter diligently prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) the making of any general arrangement or assignment for the benefit of creditors; (ii) becoming a "debtor" as defined in 11 U.S.C. Section 101 or any successor statute thereto (unless, in the case of a petition filed against Lessee, the same is dismissed within 60 days); (iii) the appointment of a trustee or receiver to take possession of substantially all of Lessee's assets located at the Premises or of Lessees, interest in this Lease, where possession is not restored to Lessee within 30 days; or (iv) the attachment, execution or other judicial seizure of substantially all of Lessee's assets located at the Premises or of Lessee's interest in this Lease, where such seizure is not discharged within 30 days; provided, however, in the event that any provision of this subparagraph
(e) is contrary to any applicable law, such provision shall be of no force or effect, and not affect the validity of the remaining, provisions.
(f) The discovery that any financial statement of Lessee or of any Guarantor given to Lessor was materially false.
(g) If the performance of Lessee's obligations under this Lease is guaranteed: (i) the death of a Guarantor, (ii) the termination of a Guarantor's liability with respect to this Lease other than in accordance with the terms of such guaranty, (iii) a Guarantor's becoming insolvent or the subject of a bankruptcy filing, (iv) a Guarantors refusal to honor the guaranty, or (v) a Guarantor's breach of its guaranty obligation on an anticipatory basis, and Lessee's failure, within 60 days following written notice of any such event, to provide written alternative assurance or security, which, when coupled with the then existing resources of Lessee, equals or exceeds the combined financial resources of Lessee and the Guarantors that existed at the time of execution of this Lease.
13.2 REMEDIES. If Lessee fails to perform any of its affirmative duties or obligations, within 10 days after written notice (or in case of an emergency, without notice), Lessor may, at its option, perform such duty or obligation on Lessee's behalf, including but not limited to the obtaining of reasonably required bonds, insurance policies, or governmental licenses, permits or approvals. Lessee shall pay to Lessor an amount equal to 115% of the costs and expenses incurred by Lessor in such performance upon receipt of an invoice therefor. In the event of a Breach, Lessor may, with or without further notice or demand, and without limiting Lessor in the exercise of any right or remedy which Lessor may have by reason of such Breach:
(a) Terminate Lessee's right to possession of the Premises by any lawful means, in which case this Lease shall terminate and Lessee shall immediately surrender possession to Lessor. In such event Lessor shall be entitled to recover from Lessee: (i) the unpaid Rent which had been earned at the time of termination; (ii) the worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that the Lessee proves could have been reasonably avoided; (iii) the worth at the time of award of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of such rental loss that the Lessee proves could be reasonably avoided; and (iv) any other amount necessary to compensate Lessor for all the detriment proximately caused by the Lessee's failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom, including but not limited to the cost of recovering possession of the Premises, expenses reletting, including necessary renovation and alteration of the Premises, reasonable attorneys' fees, and that portion of any leasing commission paid by Lessor in connection with this Lease applicable to the unexpired term of this Lease. The worth at the time of award of the amount referred to in provision (iii) of the immediately preceding sentence shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of the District within which the Premises are located at the time of award plus one percent. Efforts by Lessor to mitigate damages caused by Lessee's Breach of this Lease shall not waive Lessor's right to recover damages under Paragraph 12. If termination of this Lease is obtained through the provisional remedy of unlawful detainer. Lessor shall have the right to recover in such proceeding any unpaid Rent and damages as are recoverable therein, or Lessor may reserve the right to recover all or any part thereof in a separate suit. If a notice and grace period required under Paragraph 13.1 was not previously given, a notice to pay rent or quit, or to perform or quit given to Lessee under the unlawful detainer statute shall also constitute the notice required by Paragraph 13.1. In such case, the applicable grace period required by Paragraph 13.1 and the unlawful detainer statute shall run concurrently, and the failure of Lessee to cure the Default within the greater of the two such grace periods shall constitute both an unlawful detainer and a Breach of this Lease entitling Lessor to the remedies provided for in this Lease and/or by said statute.
(b) Continue the Lease and Lessee's right to possession and recover the Rent as it becomes due, in which event Lessee may sublet or assign, subject only to reasonable limitations. Acts of maintenance, efforts to relet, and/or the appointment of a receiver to protect the Lessor's interests, shall not constitute a termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available under the laws or judicial decisions of the state wherein the Premises are located. The expiration or termination of this Lease and/or the termination of Lessee's right to possession shall not relieve Lessee from liability under any indemnity provisions of his Lease as to matters occurring or accruing during the term hereof or by reason of Lessee's occupancy of the Premises.
13.3 INDUCEMENT RECAPTURE. Any agreement for free or abated rent or other charges, or for the giving or paying by Lessor to or for Lessee of any cash or other bonus, inducement or consideration for Lessee's entering into this Lease, all of which concessions are hereinafter referred to as "INDUCEMENT PROVISIONS," shall be deemed conditioned upon Lessee's full and faithful performance of all of the terms, covenants and conditions of this Lease. Upon Breach of his Lease by Lessee, any such Inducement Provision shall automatically be deemed deleted from this Lease and of no further force or effect, and any rent, other charge, bonus, inducement or consideration theretofore abated, given or paid by Lessor under such an inducement Provision shall be immediately due and payable by Lessee to Lessor, notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by Lessor of rent or the cure of the Breach which initiated the operation of this paragraph shall not be deemed a waiver by Lessor of the provisions of this paragraph unless specifically so stated in writing by Lessor at the time of such acceptance.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by Lessee of Rent will cause Lessor to incur costs not contemplated by this lease, the exact amount of which will be extremely difficult to ascertain. Such costs include, but are not limited to, processing and accounting charges, and late
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charges which may be imposed upon Lessor by Lender. Accordingly, if any Rent shall not be received Lessor within 5 days after such amount shall be due, then, without any requirement for notice to Lessee, Lessee shall immediately pay to Lessor a one-time late charge equal to 10% of each such overdue amount or $100, whichever is greater. The Parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Lessor will incur by reason of such late payment. Acceptance of such late charge by Lessor shall in no event constitute a waiver of Lessee's Default or Breach with respect to such overdue amount, nor prevent the exercise of any of the other rights and remedies granted hereunder. In the event that a late charge is payable hereunder, whether or not collected, for 3 consecutive installments of Base Rent, then notwithstanding any provision of this Lease to the contrary. Base Rent shall, at Lessor's option, become due and payable quarterly in advance.
13.5 INTEREST. Any monetary payment due Lessor hereunder, other than late charges, not received by Lessor, when due as to scheduled payments (such as Base Rent) or within 30 days following the date on which it was due for non-scheduled payment, shall bear interest from the date when due, as to scheduled payments, or the 31st day after it was due as to non-scheduled payments. The interest ("INTEREST") charged shall be computed at the rate of 10% per annum but shall not exceed the maximum rate allowed by law. Interest is payable in addition to the potential late charge provided for in Paragraph 13.4.
13.6 BREACH BY LESSOR.
(a) NOTICE OF BREACH. Lessor shall not be deemed in breach of this Lease unless Lessor fails within a reasonable time to perform an obligation required to be performed by Lessor. For purposes of this Paragraph, a reasonable time shall in no event be less than 30 days after receipt by Lessor, and any Lender whose name and address shall have been furnished Lessee in writing for such purpose, of written notice specifying wherein such obligation of Lessor has not been performed; provided, however, that if the nature of Lessor's obligation is such that more than 30 days are reasonably required for its performance, then Lessor shall not be in breach if performance is commenced within such 30 day period and thereafter diligently pursued to completion.
(b) PERFORMANCE BY LESSEE ON BEHALF OF LESSOR. In the event that neither Lessor nor Lender cures said breach within 30 days after receipt of said notice, or if having commenced said cure they do not diligently pursue it to completion, then Lessee may elect to cure said breach at Lessee's expense and offset from Rent the actual and reasonable cost to perform such cure, provided however, that such offset shall not exceed an amount equal to the greater of one month's Base Rent or the Security Deposit, reserving Lessee's right to seek reimbursement from Lessor. Lessee shall document the cost of said cure and supply said documentation to Lessor.
14. CONDEMNATION. If the Premises or any portion thereof are taken under the power of eminent domain or sold under the threat of the exercise of said power (collectively "CONDEMNATION"), this Lease shall terminate as to the part taken as of the dale the condemning authority takes title or possession, whichever first occurs. If more than 10% of the Building, or more than 25% of that portion of the Premises not occupied by any building, is taken by Condemnation, Lessee may, at Lessee's option, to be exercised in writing within 10 days after Lessor shall have given Lessee written notice of such taking (or in the absence of such notice, within 10 days after the condemning authority shall have taken possession) terminate this Lease as of the date the condemning authority takes such possession. If Lessee does not terminate this Lease in accordance with the foregoing, this Lease shall remain in full force and effect as to the portion of the Premises remaining, except that the Base Rent shall be reduced in proportion to the reduction in utility of the Premises caused by such Condemnation. Condemnation awards and/or payments shall be the property of Lessor, whether such award shall be made as compensation for diminution in value of the leasehold, the value of the part taken, or for severance damages; provided, however, that Lessee shall be entitled to any compensation for Lessee's relocation expenses, loss of business goodwill and/or Trade Fixtures, without regard to whether or not this Lease is terminated pursuant to the provisions of this Paragraph. All Alterations and Utility Installations made to the Premises by Lessee, for purposes of Condemnation only, shall be considered the property of the Lessee and Lessee shall be entitled to any and all compensation which is payable therefor. In the event that this Lease is not terminated by reason of the Condemnation, Lessor shall repair any damage to the Premises caused by such Condemnation.
15. BROKERAGE FEES.
15.1 ADDITIONAL COMMISSION. In addition to the payments owed pursuant to Paragraph 1.9 above, and unless Lessor and the Brokers otherwise agree in writing, Lessor agrees that: (a) if Lessee exercises any Option, (b) if Lessee acquires any rights to the Premises or other premises owned by Lessor and located within the same Project, if any, within which the Premises is located,
(c) if Lessee remains in possession of the Premises, with the consent of Lessor, after the expiration of this Lease, or (d) if Base Rent is increased, whether by agreement or operation of an escalation clause herein, then, Lessor shall pay Brokers a fee in accordance with the schedule of the Brokers in effect at the time of the execution of this Lease.
15.2 ASSUMPTION OF OBLIGATIONS. Any buyer or transferee of Lessor's interest in this Lease shall be deemed to have assumed Lessor's obligation hereunder. Brokers shall be third party beneficiaries of the provisions of Paragraphs 1.9, 15, 22 and 31. If Lessor fails to pay to Brokers any amounts due as and for brokerage fees pertaining to this Lease when due, then such amounts shall accrue Interest. In addition, if Lessor fails to pay any amounts to Lessee's Broker when due, Lessee's Broker may send written notice to Lessor and Lessee of such failure and if Lessor fails to pay such amounts within 10 days after said notice, Lessee shall pay said monies to its Broker and offset such amounts against Rent. In addition, Lessee's Broker shall be deemed to be a third party beneficiary of any commission agreement entered into by and/or between Lessor and Lessor's Broker for the limited purpose of collecting any brokerage fee owed.
15.3 REPRESENTATIONS AND INDEMNITIES OF BROKER RELATIONSHIPS. Lessee and Lessor each represent and warrant to the other that it has had no dealings with any person, firm, broker or finder (other than the Brokers, if any) in connection with this Lease, and that no one other than said named Brokers is entitled to any commission or finder's fee in connection herewith. Lessee and Lessor do each hereby agree to indemnify, protect, defend and hold the other harmless from and against liability for compensation or charges which may be claimed by any such unnamed broker, finder or other similar party by reason of any dealings or actions of the indemnifying Party, including any costs, expenses, attorneys' fees reasonably incurred with respect thereto.
16. ESTOPPEL CERTIFICATES.
(a) Each Party (as "RESPONDING PARTY") shall within 10 days after written notice from the other Party (the "REQUESTING PARTY") execute, acknowledge and deliver to the Requesting Party a statement in writing in form similar to the then most current "ESTOPPEL CERTIFICATE" form published by the American Industrial Real Estate Association, plus such additional information, confirmation and/or statements as may be reasonably requested by the Requesting Party.
(b) If the Responding Party shall fail to execute or deliver the Estoppel Certificate within such 10 day period, the Requesting Party may execute an Estoppel Certificate stating that: (i) the Lease is in full force and effect without modification except as may be represented by the Requesting Party, (ii) there are no uncured defaults in the Requesting Party's performance, and (iii) if Lessor is the Requesting Party, not more than one month's rent has been paid in advance Prospective purchasers and encumbrancers may rely upon the Requesting Party's Estoppel Certificate, and the Responding Party shall be estopped from denying the truth of the facts contained in said Certificate.
(c) If Lessor desires to finance, refinance, or sell the Premises, or any part thereof, Lessee and all Guarantors shall deliver to any potential lender or purchaser designated by Lessor such financial statements as may be reasonably required by such lender or purchaser, including but not limited to Lessee's financial statements for the past 3 years. All such financial statements shall be received by Lessor and such lender or purchaser in confidence and shall be used only for the purposes herein set forth.
17. DEFINITION OF LESSOR. The term "LESSOR" as used herein shall mean the owner or owners at the time in question of the fee title to the Premises, or, if this is a sublease, of the Lessee's interest in the prior lease. In the event of a transfer of Lessor's title or interest in the Premises or this Lease, Lessor shall deliver to the transferee or assignee (in cash or by credit) any unused Security Deposit held by Lessor. Except as provided in Paragraph 15. upon such transfer or assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor shall be relieved of all liability with respect to the obligations and/or covenants under this Lease
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thereafter to be performed by the Lessor. Subject to the foregoing, the obligations and/or covenants in this lease to be performed by the Lessor shall be binding only upon the Lessor as hereinabove defined.
18. SEVERABILITY. The invalidity of any provision of this Lease, as determined by a court of competent jurisdiction, shall in no way affect the validity of any other provision hereof.
19. DAYS. Unless otherwise specifically indicated to the contrary, the word "days" as used in this Lease shall mean and refer to calendar days.
20. LIMITATION ON LIABILITY. The obligations of Lessor under this Lease shall not constitute personal obligations of Lessor or its partners, members, directors, officers or shareholders, and Lessee shall look to the Premises, and to no other assets of Lessor, for the satisfaction of any liability of Lessor with respect to this Lease, and shall not seek recourse against Lessor's partners, members, directors, officers or shareholders, or any of their personal assets for such satisfaction.
21. TIME OF ESSENCE. Time is of the essence with respect to the performance of all obligations to be performed or observed by the Parties under this Lease.
22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains all agreements between the Parties with respect to any matter mentioned herein, and no other prior or contemporaneous agreement or understanding shall be effective. Lessor and Lessee each represents and warrants to the Brokers that it has made, and is relying solely upon, its own investigation as to the nature, quality, character and financial responsibility of the other Party to this Lease and as to the use, nature, quality and character of the Premises. Brokers have no responsibility with respect thereto or with respect to any default or breach hereof by either Party. The liability (including court costs and attorneys' fees), of any Broker with respect to negotiation, execution, delivery or performance by either Lessor or Lessee under this Lease or any amendment or modification hereto shall be limited to an amount up to the fee received by such Broker pursuant to this Lease; provided, however, that the foregoing limitation on each Broker's liability shall not be applicable to any gross negligence or willful misconduct of such Broker.
23. NOTICES.
23.1 NOTICE REQUIREMENTS. All notices required or permitted by this Lease or applicable law shall be in writing and may be delivered in person (by hand or by courier) or may be sent by regular, certified or registered mail or U.S. Postal Service Express Mail, with postage prepaid, or by facsimile transmission, and shall be deemed sufficiently given if served in a manner specified in this Paragraph 23. The addresses noted adjacent to a Party's signature on this Lease shall be that Party's address for delivery or mailing of notices. Either Party may by written notice to the other specify a different address for notice, except that upon Lessee's taking possession of the Premises, the Premises shall constitute Lessee's address for notice. A copy of all notices to Lessor shall be concurrently transmitted to such party or parties at such addresses as Lessor may from time to time hereafter designate in writing.
23.2 DATE OF NOTICE. Any notice sent by registered or certified mail, return receipt requested, shall be deemed given on the date of delivery shown on the receipt card, or if no delivery date is shown, the postmark thereon. If sent by regular mail the notice shall be deemed given 48 hours after the same is addressed as required herein and mailed with postage prepaid. Notices delivered by United States Express Mail or overnight courier that guarantee next day delivery shall be deemed given 24 hours after delivery of the same to the Postal Service or courier. Notices transmitted by facsimile transmission or similar means shall be deemed delivered upon telephone confirmation of receipt (confirmation report from fax machine is sufficient), provided a copy is also delivered via delivery or mail. If notice is received on a Saturday, Sunday or legal holiday, it shall be deemed received on the next business day.
24. WAIVERS. No waiver by Lessor of the Default or Breach of any term, covenant or condition hereof by Lessee, shall be deemed a waiver of any other term, covenant or condition hereof, or of any subsequent Default or Breach by Lessee of the same or of any other term, covenant or condition hereof. Lessor's consent to, or approval of, any act shall not be deemed to render unnecessary the obtaining of Lessor's consent to, or approval of, any subsequent or similar act by Lessee, or be construed as the basis of an estoppel to enforce the provision or provisions of this Lease requiring such consent. The acceptance of Rent by Lessor shall not be a waiver of any Default or Breach by Lessee. Any payment by Lessee may be accepted by Lessor on account of moneys or damages due Lessor, notwithstanding any qualifying statements or conditions made by Lessee in connection therewith, which such statements and/or conditions shall be of no force or effect whatsoever unless specifically agreed to in writing by Lessor at or before the time of deposit of such payment.
25. DISCLOSURES REGARDING THE NATURE OF A REAL ESTATE AGENCY RELATIONSHIP.
(a) When entering into a discussion with a real estate agent regarding a real estate transaction, a Lessor or Lessee should from the outset understand what type of agency relationship or representation it has with the agent or agents in the transaction. Lessor and Lessee acknowledge being advised by the Brokers in this transaction, as follows:
(i) Lessor's Agent. A Lessor's agent under a listing agreement with the Lessor acts as the agent for the Lessor only. A Lessor's agent or subagent has the following affirmative obligations: To the Lessor: A fiduciary duty of utmost care, integrity, honesty, and loyalty in dealings with the Lessor. To the Lessee and the Lessor: a. Diligent exercise of reasonable skills and care in performance of the agent's duties. b. A duty of honest and fair dealing and good faith. c. A duty to disclose all facts known to the agent materially affecting the value or desirability of the property that are not known to, or within the diligent attention and observation of, the Parties. An agent is not obligated to reveal to either Party any confidential information obtained from the other Party which does not involve the affirmative duties set forth above.
(ii) Lessee's Agent. An agent can agree to act as agent for the Lessee only. In these situations, the agent is not the Lessor's agent, even if by agreement the agent may receive compensation for services rendered, either in full or in part from the Lessor. An agent acting only for a Lessee has the following affirmative obligations. To the Lessee: A fiduciary duty of utmost care, integrity, honesty, and loyalty in dealings with the Lessee. To the Lessee and the Lessor: a. Diligent exercise of reasonable skills and care in performance of the agent's duties. b. A duty of honest and fair dealing and good faith. c. A duty to disclose all facts known to the agent materially affecting the value or desirability of the property that are not known to, or within the diligent attention and observation of, the Parties. An agent is not obligated to reveal to either Party any confidential information obtained from the other Party which does not involve the affirmative duties set forth above.
(iii) Agent Representing Both Lessor and Lessee. A real estate agent, either acting directly or through one or more associate licenses, can legally be the agent of both the Lessor and the Lessee in a transaction, but only with the knowledge and consent of both the Lessor and the Lessee. In a dual agency situation, the agent has the following affirmative obligations to both the Lessor and the Lessee: a. A fiduciary duty of utmost care, integrity, honesty and loyalty in the dealings with either Lessor or the Lessee. b. Other duties to the Lessor and the Lessee as stated above in subparagraphs (i) or
(ii). In representing both Lessor and Lessee, the agent may not without the express permission of the respective Party, disclose to the other Party that the Lessor will accept rent in an amount less than that indicated in the listing or that the Lessee is willing to pay a higher rent than that offered. The above duties of the agent in a real estate transaction do not relieve a Lessor or Lessee from the responsibility to protect their own interests. Lessor and Lessee should carefully read all agreements to assure that they adequately express their understanding of the transaction. A real estate agent is a person qualified to advise about real estate. If legal or tax advice is desired consult a competent professional.
(b) Brokers have no responsibility with respect to any default or breach hereof by either Party. The liability (including court costs and attorneys' fees), of any Broker with respect to any breach of duty, error or omission relating to this Lease shall not exceed the fee received by such Broker pursuant to this Lease; provided, however, that the foregoing limitation on each Broker's liability shall not be applicable to any gross negligence or willful misconduct of such Broker.
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(c) Lessor and Lessee agree to identify to Brokers as "Confidential" any communication or information given Brokers that is considered by such Party to be confidential.
26. NO RIGHT TO HOLDOVER . Lessee has no right to retain possession of the Premises or any part thereof beyond the expiration or termination of this Lease. In the event that Lessee holds over, then the Base Rent shall be increased to 150% of the Base Rent applicable immediately preceding the expiration or termination Nothing contained herein shall be construed as consent by Lessor to any holding over by Lessee.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed exclusive but shall, wherever possible, be cumulative with all other remedies at law or in equity.
28. COVENANTS AND CONDITIONS; CONSTRUCTION OF AGREEMENT. All provisions of this Lease to be observed or performed by Lessee are both covenants and conditions. In construing this Lease, all headings and titles are for the convenience of the Parties only and shall not be considered a part of this Lease. Whenever required by the context, the singular shall include the plural and vice versa. This Lease shall not be construed as if prepared by one of the Parties, but rather according to its fair meaning as a whole, as if both Parties had prepared it.
29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the Parties, their personal representatives, successors and assigns and be governed by the laws of the State in which the Premises are located. Any litigation between the Parties hereto concerning this Lease shall be initiated in the country in which the Premises are located.
30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.
30.1 SUBORDINATION. This Lease and any Option granted hereby shall be subject and subordinate to any ground lease, mortgage, deed of trust, or other hypothecation or security device (collectively, "SECURITY DEVICE"), now or hereafter placed upon the Premises, to any and all advances made on the security hereof, and to all renewals, modifications, and extensions thereof. Lessee agrees that the holders of any such Security Devices (in this Lease together referred to as "LENDER") shall have no liability or obligation to perform any of the obligations of Lessor under this Lease. Any Lender may elect to have this Lease and/or any Option granted hereby superior to the lien of its Security Device by giving written notice thereof to Lessee, whereupon this Lease and such Options shall be deemed prior to such Security Device, notwithstanding the relative dates of the documentation or recordation thereof.
30.2 ATTORNMENT. In the event that Lessor transfers title to the Premises, or the Premises are acquired by another upon the foreclosure or termination of a Security Device to which this Lease is subordinated (i) Lessee shall, subject to the non-disturbance provisions of Paragraph 30.3, attorn to such new owner, and upon request, enter into a new lease, containing all of the terms and provisions of this Lease, with such new owner for the remainder of the term hereof, or, at the election of such new owner, this Lease shall automatically become a new Lease between Lessee and such new owner, upon all of the terms and conditions hereof, for the remainder of the term hereof, and (ii) Lessor shall thereafter be relieved of any further obligations hereunder and such new owner shall assume all of Lessor's obligations hereunder, except that such new owner shall not: (a) be liable for any act or omission of any prior lessor or with respect to events occurring prior to acquisition of ownership; (b) be subject to any offsets or defenses which Lessee might have against any prior lessor, (c) be bound by prepayment of more than one month's rent, or (d) be liable for the return of any security deposit paid to any prior lessor.
30.3 NON-DISTURBANCE. With respect to Security Devices entered into by Lessor after the execution of this Lease, Lessee's subordination of this Lease shall be subject to receiving a commercially reasonable non-disturbance agreement (a "NON-DISTURBANCE AGREEMENT") from the Lender which Non-Disturbance Agreement provides that Lessee's possession of the Premises, and this Lease, including any options to extend the term hereof, will not be disturbed so long as Lessee is not in Breach hereof and attorns to the record owner of the Premises. Further, within 60 days after the execution of this Lease, Lessor shall use its commercially reasonable efforts to obtain a Non-Disturbance Agreement from the holder of any pre-existing Security Device which is secured by the Premises. In the event that Lessor is unable to provide the Non-Disturbance Agreement within said 60 days, then Lessee may, at Lessee's options directly contact Lender and attempt to negotiate for the execution and delivery of a Non-Disturbance Agreement.
30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30 shall be effective without the execution of any further documents; provided, however, that, upon written request from Lessor or a Lender in connection with a sale, financing or refinancing of the Premises. Lessee and Lessor shall execute such further writings as may be reasonably required to separately document any subordination, attornment and/or Non-Disturbance Agreement provided for herein.
31. ATTORNEYS' FEES. If any Party or Broker brings an action or proceeding involving the Premises whether founded in tort, contract or equity, or to declare rights hereunder, the Prevailing Party (as hereafter defined) in any such proceeding, action, or appeal thereon, shall be entitled to reasonable attorneys' fees. Such fees may be awarded in the same suit or recovered in a separate suit, whether or not such action or proceeding is pursued to decision or judgment. The term, "PREVAILING PARTY" shall include, without limitation, a Party or Broker who substantially obtains or defeats the relief sought, as the case may be, whether by compromise, settlement, judgment, or the abandonment by the other Party or Broker of its claim or defense. The attorneys' fees award shall not be computed in accordance with any court fee schedule, but shall be such as to fully reimburse all attorneys' fees reasonably incurred. In addition, Lessor shall be entitled to attorneys' fees, costs and expenses incurred in the preparation and service of notices of Default and consultations in connection therewith whether or not a legal action is subsequently Commenced in connection with such Default or resulting Breach ($200 is a reasonable minimum per occurrence for such services and consultations).
32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents shall have the right to enter the Premises at any time, in the case of an emergency, and otherwise at reasonable times after reasonable prior notice for the purpose of showing the same to prospective purchasers, lenders, or tenants,and making such alterations, repairs, improvements or additions to the Premises as Lessor may deem necessary or desirable and the erecting, using and maintaining of utilities, services, pipes and conduits through the Premises and/or other premises as long as there is no material adverse effect to Lessee's use of the Premises. All such activities shall be without abatement of rent or liability to Lessee.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, any auction upon the Premises without Lessor's prior written consent. Lessor shall not be obligated to exercise any standard of reasonableness in determining whether to permit an auction.
34. SIGNS. Lessor may place on the Premises ordinary "For Sale" signs at any time and ordinary "For Lease" signs during the last 6 months of the term thereof. Except for ordinary "for sublease" signs, Lessee shall not place any sign upon Premises without Lessor's prior written consent. All signs must comply with all Applicable Requirements.
35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual termination or cancellation hereof, or a termination hereof by Lessor for Breach by Lessee, shall automatically terminate any sublease or lesser estate in the premises; provided, however, that Lessor may elect to continue any one or all existing subtenancies. Lessor's failure within 10 days following any such event to elect the contrary by written notice to the holder of any such lesser interest, shall constitute Lessor's election to have such event constitute the termination of such interest.
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36. CONSENTS. Except as otherwise provided herein, wherever in this Lease the consent of a Party required to an act by or for the other Party, such consent shall not be unreasonably withheld or delayed. Lessor's actual reasonable costs and expenses (including but not limited to architects', attorneys', engineers' and other consultants' fees) incurred in the consideration of or response to, a request by Lessee for any Lessor consent, including but not limited to consents to an assignment, a subletting or the presence or use of a Hazardous Substance, shall be paid by Lessee upon receipt of an invoice and supporting documentation, therefor. Lessor's consent to any act assignment or subletting shall not constitute an acknowledgment that no Default or Breach by Lessee of this Lease exists, nor shall such consent be deemed a waiver of any then existing Default or Breach, except as may be otherwise specifically stated in writing by Lessor at the time of such consent. The failure to specify herein any particular condition to Lessor's consent shall not preclude the imposition by Lessor at the time of consent of such further or other conditions as are then reasonable with reference to the particular matter for which consent is being given. In the event that either Party disagrees with any determination made by the other hereunder and reasonably requests the reasons for such determination, the determining party shall furnish its reasons in writing and in reasonable detail within 10 business days following such request.
37. GUARANTOR.
37.1 EXECUTION. The Guarantors, if any, shall each execute a guaranty in the form most recently published by the American Industrial Real Estate Association, and each such Guarantor shall have the same obligations as Lessee under this Lease.
37.2 DEFAULT. It shall constitute a Default of the Lessee if any Guarantor fails or refuses, upon request to provide: (a) evidence of the execution of the guaranty, including the authority of the party signing on Guarantor's behalf to obligate Guarantor, and in the case of a corporate Guarantor, a certified copy of a resolution of its board of directors authorizing the making of such guaranty, (b) current financial statements, (c) an Estoppel Certificate, or (d) written confirmation that the guaranty is still in effect.
38. QUIET POSSESSION. Subject to payment by Lessee of the Rent and performance of all of the covenants, conditions and provisions on Lessee's part to be observed and performed under this Lease, Lessee shall have quiet possession and quiet enjoyment of the Premises during the term hereof.
39. OPTIONS. If Lessee is granted an Option, as defined below, then the following provisions shall apply:
39.1 DEFINITION. "OPTION" shall mean: (a) the right to extend the term of or renew this Lease or to extend or renew any lease that Lessee has on other property of Lessor; (b) the right of first refusal or first offer to lease either the Premises or other property of Lessor; (c) the right to purchase or the right of first refusal to purchase the Premises or other property of Lessor.
39.2 OPTIONS PERSONAL TO ORIGINAL LESSEE. Any Option granted to Lessee in this Lease is personal to the original Lessee, and cannot be assigned or exercised by anyone other than said original Lessee and only while the original Lessee is in full possession of the Premises and, if requested by Lessor, with Lessee certifying that Lessee has no intention of thereafter assigning or subletting.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple Options to extend or renew this Lease, a later Option cannot be exercised unless the prior Options have been validly exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option: (i) during the period commencing with the giving of any notice of Default and continuing until said Default is cured, (ii) during the period of time any Rent is unpaid (without regard to whether notice thereof is given Lessee), (iii) during the time Lessee is in Breach of this Lease, or (iv) in the event that Lessee has been given 3 or more notices of separate Default, whether or not the Defaults are cured, during the 12 month period immediately preceding the exercise of the Option.
(b) The period of time within which an Option may be exercised shall not be extended or enlarged by reason of Lessee's inability to exercise an Option because of the provisions of Paragraph 39.4(a).
(c) An Option shall terminate and be of no further force or effect, notwithstanding Lessee's due and timely exercise of the Option, if, after such exercise and prior to the commencement of the extended term or completion of the purchase, (i) Lessee fails to pay Rent for a period of 30 days after such Rent becomes due (without any necessity of Lessor to give notice thereof), or (ii) if Lessee commits a Breach of this Lease.
40. MULTIPLE BUILDINGS. If the Premises are a part of a group of buildings controlled by Lessor, Lessee agrees that it will abide by and conform to all reasonable rules and regulations which Lessor may make from time to time for the management, safety, and care of said properties, including the care and cleanliness of the grounds and including the parking, loading and unloading of vehicles, and to cause its employees, suppliers, shippers, customers, contractors and invitees to so abide and conform. Lessee also agrees to pay its fair share of common expenses incurred in connection with such rules and regulations.
41. SECURITY MEASURES. Lessee hereby acknowledges that the Rent payable to Lessor hereunder does not include the cost of guard service or other security measures, and that Lessor shall have no obligation whatsoever to provide same. Lessee assumes all responsibility for the protection of the Premises. Lessee, its agents and invitees and their property from the acts of third parties.
42. RESERVATIONS. Lessor reserves to itself the right, from time to time, to grant, without the consent or joinder of Lessee, such easements, rights and dedications that Lessor deems necessary, and to cause the recordation of parcel maps and restrictions, so long as such easements, rights, dedications, maps and restrictions do not unreasonably interfere with the use of the Premises by Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to effectuate any such easement rights, dedication, map or restrictions.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any amount or sum of money to be paid by one Party to the other under the provisions hereof, the Party against whom the obligation to pay the money is asserted shall have the right to make payment "under protest" and such payment shall not be regarded as a voluntary payment and there shall survive the right on the part of said Party to institute suit for recovery of such sum. If it shall be adjudged that there was no legal obligation on the part of said Party to pay such sum or any part thereof, said Party shall be entitled to recover such sum or so much thereof as it was not legally required to pay.
44. AUTHORITY; MULTIPLE PARTIES; EXECUTION.
(a) If either Party hereto is a corporation, trust, limited liability company, partnership, or similar entity, each individual executing this Lease on behalf of such entity represents and warrants that he or she is duly authorized to execute and deliver this Lease on its behalf. Each party shall, within 30 days after request, deliver to the other party satisfactory evidence of such authority.
(b) If this Lease is executed by more than one person or entity as "Lessee", each such person or entity shall be jointly and severally liable hereunder. It is agreed that any one of the named Lessees shall be empowered to execute any amendment to this Lease, or other document ancillary thereto and bind all of the named Lessees, and Lessor may rely on the same as if all of the named Lessees had executed such document.
(c) This Lease may be executed by the Parties in counterparts, each of which shall be deemed an original and all of which together shall constitute one and the same instrument.
45. CONFLICT. Any conflict between the printed provisions of this Lease and typewritten or handwritten provisions shall be controlled by the typewritten or handwritten provisions.
(C)2001 - AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION FORM STN-7-4/01E
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46. OFFER. Preparation of this Lease by either Party or their agent and submission of same to the other Party shall not be deemed an offer to lease to the other Party. This Lease is not intended to be binding until executed and delivered by all Parties hereto.
47. AMENDMENTS. This Lease may be modified only in writing, signed by the Parties in interest at the time of the modification. As long as they do not materially change Lessee's obligations hereunder. Lessee agrees to make such reasonable non-monetary modifications to this Lease as may be reasonably required by a Lender in connection with the obtaining of normal financing or refinancing of the Premises.
48. WAIVER OF JURY TRIAL. THE PARTIES HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING INVOLVING THE PROPERTY OR ARISING OUT OF THIS AGREEMENT.
49. MEDIATION AND ARBITRATION OF DISPUTES. An Addendum requiring the Mediation and/or the Arbitration of all disputes between the Parties and/or Brokers arising out of this Lease [ ] is [X] is not attached to this Lease.
50. AMERICANS WITH DISABILITIES ACT. Since compliance with the Americans with Disabilities Act (ADA) is dependent upon Lessee's specific use of the Premises, Lessor makes no warranty or representation as to whether or not the Premises comply with ADA or any similar legislation. In the event that Lessee's use of the Premises requires modifications or additions to the Premises in order to be in ADA compliance. Lessee agrees to make any such necessary modifications and/or additions at Lessee's expense.
(C)2001 - AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION FORM STN-7-4/01E
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LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE PREMISES.
ATTENTION: NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY ANY BROKER AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT RELATES. THE PARTIES ARE URGED TO:
1.SEEK ADVICE OF COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.
2. RETAIN APPROPRIATE CONSULTANTS TO REVIEW AND INVESTIGATE THE CONDITION OF THE PREMISES. SAID INVESTIGATION SHOULD INCLUDE BUT NOT BE LIMITED TO: THE POSSIBLE PRESENCE OF HAZARDOUS SUBSTANCES, THE ZONING OF THE PREMISES, THE STRUCTURAL INTEGRITY, THE CONDITION OF THE ROOF AND OPERATING SYSTEMS, AND THE SUITABILITY OF THE PREMISES FOR LESSEE'S INTENDED USE.
WARNING: IF THE PREMISES IS LOCATED IN A STATE OTHER THAN CALIFORNIA, CERTAIN PROVISIONS OF THE LEASE MAY NEED TO BE REVISED TO COMPLY WITH THE LAWS OF THE STATE IN WHICH THE PREMISES IS LOCATED.
The parties hereto have executed this Lease at the place and on the dates specified above their respective signatures.

Executed at: GLENDALE,CA                                       Executed at: GLENDALE, CA
on: September 16, 2003                                         on: September  , 2003

BY LESSOR:                                                     By LESSEE:
SUMO HOLDINGS COSTA MESA, LLC                                  AMERICAN REPROGRAPHICS COMPANY, dba
                                                               CONSOLIDATED REPROGRAPHICS

By: /s/ Sathiyamurthy Chandramohan                             By: /s/ Mark W. Legg
    ------------------------------                                 -----------------

Name Printed: Sathiyamurthy Chandramohan                       Name Printed: Mark W. Legg
Title: Managing Member                                         Title: Chief Financial Officer

By: _____________________________________________________      By: ________________________________________________
Name Printed: ___________________________________________      Name Printed: ______________________________________
Title: __________________________________________________      Title: _____________________________________________
Address: ________________________________________________      Address: ___________________________________________
_________________________________________________________      ____________________________________________________
Telephone/Facsimile: ____________________________________      Telephone/Facsimile: _______________________________
Federal ID No. __________________________________________      Federal ID No. _____________________________________

BROKER:                                                        BROKER:
N/A                                                            N/A
Attn: ___________________________________________________      Attn: ______________________________________________
Title: __________________________________________________      Title: _____________________________________________
Address: ________________________________________________      Address: ___________________________________________
_________________________________________________________      ____________________________________________________
Telephone/Facsimile: ____________________________________      Telephone/Facsimile: _______________________________
Federal ID No. __________________________________________      Federal ID No. _____________________________________	

NOTE: These forms are often modified to meet the changing requirements of law and industry needs. Always write or call to make sure you are utilizing the most current form: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 700 So. Flower Street, Suite 600.
(C)2001 - AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION FORM STN-7-4/01E
PAGE 15 OF 16
Los Angeles, California 90017 (213) 687-8777. Fax No. (213) 687-8616
(C) Copyright 1997 - By American Industrial Real Estate Association. All rights reserved. No part of these works may be reproduced in any form without permission in writing.
(C)2001 - AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION FORM STN-7-4/01E
PAGE 16 OF 16
[LOGO]
RENT ADJUSTMENT(S)
STANDARD LEASE ADDENDUM
DATED September 23, 2003
BY AND BETWEEN (LESSOR) SUMO HOLDINGS COSTA MESA, LLC
(LESSEE) AMERICAN REPROGRAPHICS COMPANY, dba
CONSOLIDATED REPROGRAPHICS
ADDRESS OF PREMISES: 345 Clinton Street, Costa Mesa, California
Paragraph 51
A. RENT ADJUSTMENTS:
The monthly rent for each month of the adjustment period(s) specified below shall be increased using the method(s) indicated below:
(Check Method(s) to be Used and Fill in Appropriately)
[ ] I. COST OF LIVING ADJUSTMENT(S) (COLA)
a. On (Fill in COLA Dates):______________________________________________
 the Base Rent shall be adjusted by the change, if any, from the Base Month specified below, in the Consumer Price Index of the Bureau of Labor Statistics of the U.S. Department of Labor for (select one): [ ] CPI W (Urban Wage Earners and Clerical Workers) or [ ] CPI U (All Urban Consumers), for (Fill in Urban Area):_________________________________________________________________________, All Items (1982-1984 = 100), herein referred to as "CPI".
b. The monthly rent payable in accordance with paragraph A.I.a. of this Addendum shall be calculated as follows: the Base Rent set forth in paragraph 1.5 of the attached Lease, shall be multiplied by a fraction the numerator of which shall be the CPI of the calendar month 2 months prior to the month(s) specified in paragraph A.I.a. above during which the adjustment is to take effect, and the denominator of which shall be the CPI of the calendar month which is 2 months prior to (select one): [ ] the first month of the term of this Lease as set forth in paragraph 1.3 ("Base Month") or [ ] (Fill in Other "Base Month"):_______________________________________________________________________. The sum so calculated shall constitute the new monthly rent hereunder, but in no event, shall any such new monthly rent be less than the rent payable for the month immediately preceding the rent adjustment.
c. In the event the compilation and/or publication of the CPI shall be transferred to any other governmental department or bureau or agency or shall be discontinued, then the index most nearly the same as the CPI shall be used to make such calculation. In the event that the Parties cannot agree on such alternative index, then the matter shall be submitted for decision to the American Arbitration Association in accordance with the then rules of said Association and the decision of the arbitrators shall be binding upon the parties. The cost of said Arbitration shall be paid equally by the Parties.
[ ] II. MARKET RENTAL VALUE ADJUSTMENT(S) (MRV)
a. On (Fill in MRV Adjustment Date(s):___________________________________
 the Base Rent shall be adjusted to the "Market Rental Value" of the property as follows:
1) Four months prior to each Market Rental Value Adjustment Date described above, the Parties shall attempt to agree upon what the new MRV will
(C)2000 - AMERICAN INDUSTRIAL REVISED FORM RA-3-8/00E REAL ESTATE ASSOCIATION
RENT ADJUSTMENT(S)
PAGE 1 OF 2
be on the adjustment date. If agreement cannot be reached within thirty days, then:
(a) Lessor and Lessee shall immediately appoint a mutually acceptable appraiser or broker to establish the new MRV within the next 30 days. Any associated costs will be split equally between the Parties, or
(b) Both Lessor and Lessee shall each immediately make a reasonable determination of the MRV and submit such determination, in writing, to arbitration in accordance with the following provision:
(i) Within 15 days thereafter, Lessor and Lessee shall each select an [ ] appraiser or [ ] broker ("CONSULTANT" - CHECK ONE) of their choice to act as an arbitrator. The two arbitrators so appointed shall immediately select a third mutually acceptable Consultant to act as a third arbitrator.
(ii) The 3 arbitrators shall within 30 days of the appointment of the third arbitrator reach a decision as to what the actual MRV for the Premises is, and whether Lessor's or Lessee's submitted MRV is the closest thereto. The decision of a majority of the arbitrators shall be binding on the Parties. The submitted MRV which is determined to be the closest to the actual MRV shall thereafter be used by the Parties.
(iii) If either of the Parties fails to appoint an arbitrator within the specified 15 days, the arbitrator timely appointed by one of them shall reach a decision on his or her own, and said decision shall be binding on the Parties.
(iv) The entire cost of such arbitration shall be paid by the party whose submitted MRV is not selected, ie. the one that is NOT the closest to the actual MRV.
2) Notwithstanding the foregoing, the new MRV shall not be less than the rent payable for the month immediately preceding the rent adjustment.
b. Upon the establishment of each New Market Rental Value:
1) the new MRV will become the new "Base Rent" for the purpose of calculating any further Adjustments, and
2) the first month of each Market Rental Value term shall become the new 'Base Month' for the purpose of calculating any further Adjustments.
[X] III. FIXED RENTAL ADJUSTMENT(s) (FRA)
The Base Rent shall be increased to the following amounts on the dates set forth below:

On (Fill in FRA Adjustment Date(s)):     The New Base Rent shall be:

January 1, 2006                              $34,916.00
January 1, 2008                              $36,019.00
January 1, 2010                              $37,155.00
January 1, 2012                              $38,326.00	

B. NOTICE:
Unless specified otherwise herein, notice of any such adjustments, other than Fixed Rental Adjustments, shall be made as specified in paragraph 23 of the Lease.
NOTE: THESE FORMS ARE OFTEN MODIFIED TO MEET CHANGING REQUIREMENTS OF LAW AND NEEDS OF THE INDUSTRY. ALWAYS WRITE OR CALL TO MAKE SURE YOU ARE UTILIZING THE MOST CURRENT FORM: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 700 S. FLOWER STREET, SUITE 600, LOS ANGELES, CALIF. 90017
(C)2000 - AMERICAN INDUSTRIAL REVISED FORM RA-3-8/00E REAL ESTATE ASSOCIATION
RENT ADJUSTMENT(S)
PAGE 2 OF 2
 
EXHIBIT 10.17
CHS Management IV, L.P.
10 South Wacker Drive
Suite 3175
Chicago, IL 60606
April 10, 2000
American Reprographics Company, L.L.C.
900 Palm Avenue
South Pasadena, CA 91030
Gentlemen:
CHS Management IV, L.P., a Delaware limited partnership ("CHS"), desires to perform certain management services for American Reprographics Company, L.L.C., a California limited liability company, and its subsidiaries and affiliates ("ARC"), and ARC desires CHS to perform the management services as set forth herein.
ARC hereby engages CHS to provide, and CHS agrees to provide, certain management services for ARC including, without limitation, consultation regarding the business and operations of ARC, locating investment opportunities for ARC and other management services reasonably requested by ARC.
CHS's obligation to provide such management services for ARC shall commence on the date hereof and, unless sooner terminated as provided herein or as mutually agreed upon by the parties, shall terminate on the fifth (5th) anniversary of the date hereof but is automatically renewable unless either party terminates upon thirty days prior written notice. As compensation for CHS's management services to be rendered hereunder, ARC shall pay CHS an annual fee (the "CHS Management Fees") in the initial amount of Five Hundred Thousand Dollars ($500,000) payable on a monthly basis in arrears with respect to the period through December 31, 2000. Such fee shall continue unless increased in accordance with the terms hereof. In addition, ARC shall reimburse CHS for all reasonable direct expenses incurred by CHS in connection with providing the management services described herein.
Subsequent to December 31, 2000 the so-called "EBITDA" of ARC for the calendar year 2000 shall be determined in accordance with ARC's historical practices. If such EBITDA for 2000 exceeds the EBITDA for calendar year 1999, the $500,000 CHS Management Fees shall be increased with respect to the period commencing on January 1, 2001 and ending through and
American Reprographics Company, L.L.C.
March __, 2000
Page 2
including December 31, 2001, to the amount determined by multiplying $500,000 by a fraction the numerator of which is the year 2000 EBITDA and the denominator of which is the year 1999 EBITDA. Such new amount of CHS Management Fees shall be the applicable amount unless further increased in accordance with the following. Subsequent to the end of calendar year 2001, and each calendar year thereafter, the EBITDA of ARC shall be computed for the preceding calendar year. If the EBITDA as so calculated exceeds the highest annual EBITDA of ARC for each preceding calendar year from and including calendar year 1999, then the CHS Management Fees shall be increased for the calendar year in which the calculation is being made. The increased amount shall be determined by multiplying the CHS Management Fees then being paid for the preceding calendar year by a fraction the numerator of which is the EBITDA for the calendar year preceding the year in which the calculation is being made and the denominator of which is the highest EBITDA for a prior calendar year from and including calendar year 1999. Notwithstanding anything to the contrary herein contained, (A) once increased in accordance with the foregoing, the CHS Management Fees shall be subject only to increase and shall not be subject to reduction, and (B) the CHS Management Fees shall not exceed $1,000,000 annually.
This agreement may be terminated by the Board of Managers of ARC in the event the Board of Managers determine in good faith that CHS has materially failed to diligently provide the management services provided herein to ARC. In the event of such termination by the Board of Managers, ARC's obligations hereunder shall cease and CHS shall forfeit all right to receive any future compensation hereunder, except that CHS shall be entitled to its pro rata share of compensation for services already performed as of the date of termination and to reimbursement for all reasonable direct expenses incurred by CHS as of such date in connection with providing the management services described herein.
* * * * * *
American Reprographics Company, L.L.C.
March __, 2000
Page 3
Very truly yours,
CHS Management IV, L.P.
By: Code, Hennessy & Simmons, L.L.C., its
general partner

By: /s/ PETER M. GOTSCH
    ---------------------------------

Its:_________________________________	

Accepted and Agreed to this 10th day of
April, 2000.
American Reprographics Company, L.L.C.

By: /s/ S. CHANDRAMOHAN
    ----------------------------------
    Title:____________________________	

EXHIBIT 10.19
INDEMNIFICATION AGREEMENT
THIS AGREEMENT (the "Indemnification Agreement") is dated April 10, 2000, by and among ARC Acquisition Co., L.L.C., a Delaware limited liability company ("Purchaser"), American Reprographics Holdings, L.L.C., a California limited liability company ("Holdco"), American Reprographics Company LLC, a California limited liability company (the "Company"), Sathiyamurthy Chandramohan ("Mohan"), Kumarakulasingam Suriyakumar ("Suri"), Micro Device Inc., a California corporation ("Micro"), Dietrich-Post Company, a California corporation ("DP"), ZS Fund L.P., a Delaware limited partnership ("ZS"), and ZS Ford L.L.C. a Delaware limited liability company ("ZS Ford" ) (each party signatory hereto other than Purchaser, Holdco and the Company being referred to herein as an "Indemnitor," and, collectively, as the "Indemnitors"). ZS and ZS Ford are sometimes referred to herein as the "ZS Entities", and Mohan, Suri and Micro are sometimes referred to as the "MS Parties".
RECITALS
A. Purchaser, Holdco, Company, and certain members of Holdco (the "Members") have entered into a Recapitalization and Purchase Agreement dated as of April 6, 2000 (the "Recap Agreement") pursuant to which Holdco and its Subsidiaries will be recapitalized through the steps described in the Recap Agreement and certain obligations of such entities will be satisfied (such transactions and steps being referred to herein as the "Recapitalization") and following which Purchaser will purchase from the Sellers (as defined in the Recap Agreement) certain Units of Holdco upon the terms and subject to the conditions provided in the Recap Agreement immediately following the Recapitalization.
B. It is a condition to the consummation of the Recapitalization by the Purchaser that prior to or concurrent with the Recapitalization the Indemnitors enter into and approve this Indemnification Agreement.
C. For purposes of this Agreement, Purchaser, the Company and Holdco and their respective Affiliates, subsidiaries, shareholders, members, managers, officers, directors, lenders and agents, and the heirs, successors and assigns of each of the foregoing are herein referred to as a "Purchaser Indemnitee" and, collectively, the "Purchaser Indemnitees."
AGREEMENTS
Therefore, for the promises contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:
1. Definitions. Unless otherwise defined herein, terms used herein shall have the meanings ascribed to them in the Recap Agreement. As used in this Indemnification Agreement, the following terms shall have the following meanings:
(a) "Damages" means all liabilities, obligations, judgments, demands, claims, actions or causes of action, regulatory, legislative or judicial proceedings or investigations, assessments, levies, losses, fines, penalties, damages, costs and expenses. Without limiting the generality of the foregoing, Damages shall include, without limitation, reasonable attorneys', arbitrators', accountants', investigators', and experts fees and expenses, sustained or incurred in connection with the enforcement by a Purchaser Indemnitee of its rights and remedies under this Indemnification Agreement, or sustained or incurred in connection with the defense or investigation of any Third Party Claim (as herein defined);
1
(b) "Third Party Claim" shall mean any claim, action, suit, proceeding, investigation, or like matter which is asserted or threatened by a Person other than the parities, hereto, their successors and permitted assigns, against any Purchaser Indemnitee or to which a Purchaser Indemnitee is subject.
2. Indemnitor Indemnification Obligations. Indemnitors severally, and not jointly, shall indemnify, save and keep the Purchaser Indemnitees harmless from and against all Damages sustained or incurred by any Purchaser Indemnitee as a result of, or arising out of, by virtue of, or in connection with: (i) any liability, obligation or claim (including Third Party Claims) arising out of or relating to the Ford Graphics Group, L.L.C. Key Employee Incentive Compensation Plan dated as of November 20, 1997 (the "Plan") or any awards issued or payments made thereunder or claimed to be required to be issued or paid thereunder or in connection therewith or any other actions taken with respect thereto, and (ii) any liability or other obligation with respect to termination of the Plan. The ZS Entities and the MS Parties shall not be required to indemnify the Purchaser Indemnitees pursuant to this Section 2 for an amount in excess of their respective Indemnification Amounts. As used herein, the term "Indemnification Amounts" shall mean (i) in the case of the ZS Entities, fifty percent (50%) of the Damages described in this Section 2 and (ii) in the case of the MS Parties, fifty percent (50%) of the Damages described in this Section 2.
3. Procedures. With respect to procedural matters, claims for indemnification shall be governed by Section 9.2(d) of the Recap Agreement as if such claims were being made under the Recap Agreement.
4. Subrogation. Indemnitors shall not be entitled to require that any action be brought against any other Person before action is brought against it hereunder by the Purchaser Indemnitee, but shall be subrogated to any right of action to the extent that it has paid or successfully defended against any Third Party Claim.
5. Miscellaneous.
(a) Notices. All notices required or permitted to be given hereunder shall be in writing and may be delivered by hand, by facsimile, by nationally recognized private courier, or by United States mail. Notices delivered by mail shall be deemed given three (3) business days after being deposited in the United States mail, postage prepaid, registered or certified mail, return receipt requested. Notices delivered by hand, by facsimile or by nationally recognized private courier shall be deemed given on the day of receipt (if such day is a business day or, if such day is not a business day, the next succeeding business day); provided, however, that a notice delivered by facsimile shall only be effective if and when confirmation is received of receipt of the facsimile at the number provided in this Section 7(a). All notices shall be addressed as follows:
If to Purchaser, to:
ARC Acquisition Co., L.L.C.
c/o Code Hennessy & Simmons
10 South Wacker Drive, Suite 3175
Chicago, IL 60606
Facsimile: (312) 876-3854 Attention: Thomas J. Formolo Marcus L. George
with a copy (which shall not constitute notice to the Purchaser) to:
Altheimer & Gray
2
10 South Wacker Drive, Suite 4000 Chicago, IL 60606
Facsimile: (312) 715-4800 Attention: S. Michael Peck James R. Cruger
If to Holdco, to:
c/o American Reprographics Company, L.L.C.
900 Palm Avenue
South Pasadena, CA 91030
Attention: Sathy Chandramohan Suri Suriyakumar Facsimile: (626) 441-6649
and to:
ZS Fund L.P.
120 West 45th Street
Suite 2600
New York, NY 10036
Attention: Robert A. Home Douglas A. Brown Facsimile: (212) 398-1808
with a copy (which shall not constitute notice to the Company) to:
Kirkland & Ellis
153 East 53rd Street
New York, NY 10022
Attention: Patrick C. Gallagher Geoffrey W. Levin Facsimile: (212) 446-4900
and to:
Hanson, Bridgett, Marcus, Vlahos & Rudy 333 Market Street
23rd Floor
San Francisco, CA 04105 Attention: Richard J. Stratton Fred B. Weil Facsimile: (415) 541-9366
If to ZS, to:
c/o ZS Fund L.P.
120 West 45th Street
Suite 2600
New York, NY 10036
Attention: Robert A. Horne
3
Douglas A. Brown Facsimile: (212) 398-1808
with a copy (which shall not constitute notice to the Company) to:
Kirkland & Ellis
153 East 53rd Street
New York, NY 10022
Attention: Patrick C. Gallagher Geoffrey W. Levin Facsimile: (212) 446-4900
and/or to such other respective addresses and/or addressees as may be designated by notice given in accordance with the provisions of this Section 7(a).
(b) Applicable Law. This Indemnification Agreement shall be governed and controlled as to validity, enforcement, interpretation, construction, effect and in all other respects by the internal laws of the State of Illinois applicable to contracts made in that State.
(c) Binding Effect; Benefit. This Indemnification Agreement shall inure to the benefit of and be binding upon the parties hereto, and their successors and permitted assigns. Nothing in this Indemnification Agreement, express or implied, is intended to confer on any person other than the parties hereto, and their respective successors and permitted assigns any rights, remedies, obligations or liabilities under or by reason of this Indemnification Agreement.
(d) Assignability. This Indemnification Agreement shall not be assignable by the parties without the prior written consent of the other parties, except that at or prior to the Closing Purchaser may assign its rights and delegate its duties under this Indemnification Agreement to a subsidiary entity or to any affiliate and may assign its rights under this Indemnification Agreement to its lenders for collateral security purposes, and after the Closing, Purchaser, Holdco or Company may assign their respective rights and delegate its duties under this Indemnification Agreement to any third party.
(e) Amendments. This Indemnification Agreement shall not be modified or amended except pursuant to an instrument in writing executed and delivered on behalf of each of the parties hereto.
(f) Headings. The headings contained in this Indemnification Agreement are for convenience of reference only and shall not affect the meaning or interpretation of this Indemnification Agreement.
(g) Counterparts. This Indemnification Agreement may be executed in multiple counterparts, each of which shall be deemed to be an original, and all such counterparts shall constitute but one instrument.
(h) Further Assurances. The parties shall execute such further documents, and perform such further acts, as may be necessary to otherwise comply with the terms of this Indemnification Agreement, the Recap Agreement, the Operating Agreement and the other Transaction Documents and consummate the transactions contemplated hereby and thereby.
4
(i) Severability. The invalidity of any provision of this Indemnification Agreement or a portion of a provision shall not affect the validity of any other provision of this Indemnification Agreement or the remaining portion of the applicable provision.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
5
IN WITNESS WHEREOF, the parties hereto have caused this Indemnification Agreement to be duly executed as of the day and year first above written.
ARC ACQUISITION CO., L.L.C.

By:   /s/ MARCUS GEORGE
      ------------------------------
      Name:  Marcus George
      Title: Secretary	

6
AMERICAN REPROGRAPHICS COMPANY HOLDINGS,
L.L.C.

By:   /s/ S. CHANDRAMOHAN
      ----------------------------------

      Name:  S. Chandramohan
      Title: CEO	

AMERICAN REPROGRAPHICS COMPANY, L.L.C.

By:   /s/ S. CHANDRAMOHAN
      ----------------------------------
      Name:  S. Chandramohan
      Title: President

/s/ S. CHANDRAMOHAN
----------------------------------------
SATHIYAMURTHY CHANDRAMOHAN

/s/ K. SURIYAKUMAR
----------------------------------------
KUMARAKULASINGAM SURIYAKUMAR	

MICRO DEVICE, INC.

By:   /s/ S. CHANDRAMOHAN
      ----------------------------------
      Name:  S. Chandramohan
      Title: President	

SIGNATURES TO INDEMNIFICATION AGREEMENT CONTINUED ON NEXT PAGE
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ZS FORD L.P.
By: ZS FORD L.L.C., its general partner

By:   /s/ ROBERT HORNE
      -----------------------------------
      Name:  Robert A. Horne
      Title: Manager	

ZS FORD L.L.C.

By:   /s/ ROBERT HORNE
      -----------------------------------
      Name:  Robert A. Horne
      Title: Manager	

8
 
EXHIBIT 10.20
INVESTOR REGISTRATION RIGHTS AGREEMENT
THIS INVESTOR REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made as of April 10, 2000, by and among American Reprographics Holdings, L.L.C., a California limited liability company ("Holdings"), ARC Acquisition Co., L.L.C., a Delaware limited liability company ("Company"), Sathiyamurthy Chandramohan ("Mohan"), Kumarakulasingam Suriyakumar ("Suri"), GS Mezzanine Partners II, L.P., a Delaware limited partnership ("GS"), GS Mezzanine Partners II Offshore, L.P., a Cayman Islands exempted limited partnership. ("GS Offshore", and together with GS or any Affiliate (as defined below) of GS to which GS or GS Offshore may assign its rights hereunder, the "GS Parties"). Company, Mohan, Suri and the GS Parties are collectively referred to herein as the "Unitholders," and are individually referred to herein as a "Unitholder." Otherwise undefined capitalized terms used herein are defined in Section 9 hereof.
In consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties to this Agreement hereby agree as follows:
1. Demand Registrations.
(a) Requests for Registration.
(i) Subject to Sections 1(b) through 1(e), inclusive, below, at any time following a Qualified Public Offering of Common Units, the holders of at least a majority of the Company Registrable Securities or the M&S Registrable Securities may request registration under the Securities Act of all or any portion of such Company Registrable Securities or M&S Registrable Securities on Form S-1 or any similar long-form registration ("Long-Form Registrations") or, if available, on Form S-2 or S-3 or any similar short-form registration ("Short-Form Registrations"). All registrations requested pursuant to this Section 1(a) are referred to herein as "Demand Registrations."
(ii) Subject to Sections 1(c), 1(d) and 1(e) below, at any time following a Qualified Public Offering of Common Units, the holders of at least a majority of the GS Registrable Securities may request one (1) Demand Registration.
Each request for a Demand Registration shall specify the approximate number of Company Registrable Securities, M&S Registrable Securities or GS Registrable Securities (as the case may be) requested to be registered and the anticipated per Common Unit price range for such offering. Within ten (10) days after receipt of any such request, Holdings shall give written notice of such requested registration to all other holders of Registrable Securities and, subject to Section 1(d) below, will include in such registration, in addition to the Company Registrable Securities, M&S Registrable Securities or GS Registrable Securities (as the case may be) that are requested to be registered pursuant hereto, all other Registrable Securities with respect to which Holdings has
received written requests for inclusion therein within fifteen (15) days after the receipt of Holdings' notice.
(b) Long-Form Registrations. The holders of a majority of the Company Registrable Securities and the holders of M&S Registrable Securities shall each be entitled (as a group) to request up to two (2) Long-Form Registrations, respectively. Holdings will pay all Registration Expenses (as defined below in Section 5) for such Long Form Registrations. All Long-Form Registrations shall be underwritten registrations.
(c) Short-Form Registrations. The holders of a majority of the Company Registrable Securities and the holders of a majority of the M&S Registrable Securities shall each be entitled (as a group) to request up to two
(2) Short-Form Registrations, respectively. Holdings will pay all Registration Expenses for such Short Form Registrations. The holders of a majority of the GS Registrable Securities shall be entitled to request one (1) Short-Form Registration on Form S-3 or any successor or similar form in which Holdings will pay all Registration Expenses. Demand Registrations will be Short-Form Registrations whenever Holdings is permitted to use any applicable short form. After Holdings has become subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, Holdings shall use its best efforts to make Short-Form Registrations on Form S-3 available for the sale of Registrable Securities. All Short-Form Registrations shall be underwritten registrations, unless otherwise agreed to by Holdings. In the event the holders of GS Registrable Securities request a Demand Registration pursuant to Section 1(a)(ii) above, but are unable to sell at least fifty percent (50%) of the GS Registrable Securities requested to be included in such Demand Registration because of a reduction in the amount which may be sold pursuant to Section 1(d) below, the holders of such GS Registrable Securities shall be entitled to withdraw such Demand Registration upon written notice to Company and Holdings (in which case Holdings shall, at its option, be entitled to promptly withdraw such Demand Registration), and, in such event, such withdrawn registration will not be considered a Demand Registration.
(d) Priority on Demand Registrations. Holdings will not include in any Demand Registration any securities which are not Registrable Securities without the prior written consent of the holders of a majority of the Registrable Securities included in such registration. If a Demand Registration is an underwritten offering and the managing underwriters advise Holdings in writing that, in their opinion, the number of Registrable Securities and, if permitted hereunder, other securities requested to be included in such offering, exceeds the number of Registrable Securities and other securities, if any, which can be sold therein without adversely affecting the marketability of the offering, Holdings will include in such registration: (i) first, the number of Registrable Securities requested to be included in such registration which in the opinion of such underwriters can be sold without adverse effect, pro rata among the respective holders thereof on the basis of the number of Registrable Securities owned by each such holder, and (ii) second, other securities requested to be included in such Demand Registration, pro rata among the holders of such securities on the basis of the number of such securities owned by each such holder.
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(e) Restrictions on Demand Registrations. Holdings will have the right not to effect any Demand Registration within six (6) months after the effective date of a previous Long-Form Registration or Short-Form Registration with respect to Holdings, provided, however, that (i) the right of Holdings not to effect a Demand Registration pursuant to this Section 1 (e) shall only be effective with respect to a Short Form Registration if it is an underwritten registration and (ii) Holdings shall have the right not to effect a Demand Registration pursuant to this Section 1(e) only once in any twelve (12) month period. Holdings may postpone, for up to six (6) months (from the date of the request), the filing or the effectiveness of a registration statement for a Demand Registration if. Holdings' board of directors believes that such Demand Registration would reasonably be expected to have an adverse effect on any proposal or plan by Holdings or any Subsidiary thereof to engage in any acquisition of assets (other than in the ordinary course of business) or any stock purchase, merger, consolidation, tender offer, reorganization, or similar transaction; provided; however, that in such event, the holders of Registrable Securities initially requesting such Demand Registration will be entitled to withdraw such request and, if such request is withdrawn, such Demand Registration shall be treated as if it had never been made in the first instance, and Holdings will pay all Registration Expenses in connection with such registration. Holdings may delay a Demand Registration hereunder only once in any twelve (12)-month period.
(f) Selection of Underwriters. The holders of a majority of the Registrable Securities initially requesting registration hereunder will have the right to select the investment banker(s) and manager(s) to administer the offering under such Demand Registration, subject to Holdings' approval, which will not be unreasonably withheld.
(g) Other Registration Rights. Except as provided in this Agreement, Holdings will not grant to any Persons the right to request that Holdings register any equity securities of Holdings, or any securities convertible into or exchangeable or exercisable for any such securities, without the prior written consent of the holders of at least a majority of the Company Registrable Securities.
2. Piggyback Registrations.
(a) Right to Piggyback. Whenever Holdings proposes to register any of its equity securities under the Securities Act (other than pursuant to a Demand Registration (which is addressed in Section 1, above, rather than this
Section 2) or a registration on Form S-4 or S-8 or any successor or similar forms) and the registration form to be used may be used for the registration of Registrable Securities (a "Piggyback Registration"), whether or not for sale for its own account, Holdings will give prompt written notice to all holders of Registrable Securities of its intention to effect such a registration and, subject to Sections 2(c) and 2(d) below, will include in such registration all Registrable Securities with respect to which Holdings has received written requests for inclusion therein within fifteen (15) days after the receipt of Holdings' notice; provided that with respect to any Piggyback Registration, the holders of a majority of the Registrable Securities shall have the right to waive and forego, as against themselves and all other holders of Registrable
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Securities, the inclusion of any Registrable Securities in such Piggyback Registration on a pro rata basis for all such Registrable Securities.
(b) Piggyback Expenses. In all Piggyback Registrations, the Registration Expenses of the holders of Registrable Securities will be paid by Holdings.
(c) Priority on Primary Registrations. If a Piggyback Registration is an underwritten primary registration on behalf of Holdings, and the managing underwriters advise Holdings in writing (with a copy to each party hereto requesting registration of Registrable Securities) that, in their opinion, the number of securities requested to be included in such registration exceeds the number which can be sold in such offering without adversely affecting the marketability of such offering, Holdings will include in such registration: (i) first, the securities that Holdings proposes to sell, (ii) second, the Registrable Securities requested to be included in such registration, pro rata among the holders thereof on the basis of the number of Registrable Securities owned by each such holder, and (iii) third, other securities requested to be included in such registration pro rata among the holders of such securities on the basis of the number of such other securities owned by each such holder.
(d) Priority on Secondary Registrations. If a Piggyback Registration is an underwritten secondary registration on behalf of holders of Holdings' securities (it being understood that secondary registrations on behalf of holders of Registrable Securities are addressed in Section 1, above, rather than in this Section 2(d), and the managing underwriters advise Holdings in writing that, in their opinion, the number of securities requested to be included in such registration exceeds the number which can be sold in such offering without adversely affecting the marketability of the offering. Holdings will include in such registration: (i) first, the securities requested to be included therein by the holders requesting such registration, (ii) second, the Registrable Securities requested to be included in such registration, pro rata among the holders of such Registrable Securities on the basis of the number of Registrable Securities owned by each such requesting holder, and (iii) third, other securities requested to be included in such registration pro rata among the holders of such other securities on the basis of the number of such securities owned by each such holder.
(e) Selection of Underwriters. If any Piggyback Registration is an underwritten offering, the selection of the investment banker(s) and manager(s) for the offering must be approved by the holders of a majority of the Registrable Securities included in such Piggyback Registration, which approval shall not be unreasonably withheld.
(f) Withdrawal by Holdings. If, at any time after giving notice of its intention to register any of its securities as set forth in Section 2(a) and before the effective date of such registration statement filed in connection with such registration, Holdings shall determine, for any reason, not to register such securities, Holdings may, at its sole discretion, give written notice of such determination to each holder of Registrable Securities and thereupon shall be relieved of its obligation to register any Registrable Securities in connection with such registration (but not from its obligation to pay the Registration Expenses in connection therewith as provided herein).
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(g) Other Registrations. If Holdings has previously filed a registration statement with respect to Registrable Securities pursuant to
Section 1, above, or pursuant to this Section 2, and if such previous registration has not been withdrawn or abandoned, Holdings will not file or cause to be effected any other registration of any of its equity securities or securities convertible into or exchangeable or exercisable for its equity securities under the Securities Act (except on Form S-4 or S-8 or any successor form), whether on its own behalf or at the request of any holder or holders of such securities, until a period of at least six (6) months has elapsed from the effective date of such previous registration.
3. Holdback Agreements.
(a) Each holder of Registrable Securities agrees not to effect any public sale or distribution (including sales pursuant to Rule 144) of equity securities of Holdings, or any securities, options, or rights convertible into or exchangeable or exercisable for such securities, during the seven (7) days before and the one hundred eighty (180)-day period beginning on the effective date of any underwritten public Offering of Holdings' equity securities (including Demand and Piggyback Registrations) (except as part of such underwritten registration), unless the underwriters managing the registered public offering otherwise agree.
(b) Holdings agrees: (i) not to effect any public sale or distribution of its equity securities, or any securities convertible into or exchangeable or exercisable for such securities, during the seven (7) days before and the one hundred eighty (180)-day period beginning on the effective date of any underwritten public offering of Holdings' equity securities (including Demand and Piggyback Registrations) (except as part of such underwritten registration or pursuant to registrations on Form S-4 or S-8 or any successor form), unless the underwriters managing the registered public offering otherwise agree, and (ii) to cause each holder of its Common Units, or any securities convertible into or exchangeable or exercisable for Common Units, purchased or otherwise acquired from Holdings at any time after the date of this Agreement (other than in a registered public offering) to agree not to effect any public sale or distribution (including sales pursuant to Rule 144) of any such securities during any such period (except as part of such underwritten registration, if otherwise permitted), unless the underwriters managing the registered public offering otherwise agree.
4. Registration Procedures. Whenever the holders of Registrable Securities have requested that any Registrable Securities be registered pursuant to this Agreement. Holdings will use its best efforts to effect the registration and the sale of such Registrable Securities in accordance with the intended method of disposition thereof and, pursuant thereto, Holdings will as expeditiously as possible:
(a) prepare and (within sixty (60) days after the end of the period within which requests for registration may be given to Holdings) file with the Securities and Exchange Commission a registration statement with respect to such Registrable Securities and thereafter use its best efforts to cause such registration statement to become effective as soon as practicable but no later than one hundred twenty (120) days after the applicable request date (provided that, before
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filing a registration statement or prospectus or any amendments or supplements thereto, Holdings will furnish to the counsel selected by the holders of a majority of the Registrable Securities covered by such registration statement copies of all such documents proposed to be filed, which documents will be subject to review of such counsel);
(b) prepare and file with the Securities and Exchange Commission such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective for a period of either: (i) not less than six
(6) months (subject to extension pursuant to Section 7(b)) or, if such registration statement relates to an underwritten offering, such longer period as in the opinion of counsel for the underwriters a prospectus is required by law to be delivered in connection with sales of Registrable Securities by an underwriter or dealer, or (ii) such shorter period as will terminate when all of the securities covered by such registration statement during such period have been disposed of in accordance with the intended methods of disposition by the seller or sellers thereof set forth in such registration statement (but in any event, not before the expiration of any longer period required under the Securities Act), and to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement until such time as all of such securities have been disposed of in accordance with the intended methods of disposition by the seller or sellers thereof set forth in such registration statement;
(c) furnish to each seller of Registrable Securities such number of copies of such registration statement, each amendment and supplement thereto, the prospectus included in such registration statement (including each preliminary prospectus), and such other documents as such seller may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such seller;
(d) use its best efforts to register or qualify such Registrable Securities under such other securities or blue sky laws of such jurisdictions as any seller reasonably requests and do any and all other acts and things which may be reasonably necessary or advisable to enable such seller to consummate the disposition in such jurisdictions of the Registrable Securities owned by such seller (provided that Holdings will not be required to: (i) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this subsection, (ii) subject itself to taxation in any such jurisdiction, or (iii) consent to general service of process in any such jurisdiction);
(e) notify each seller of such Registrable Securities, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, upon discovery that, or upon the discovery of the happening of any event as a result of which, the prospectus included in such registration statement contains an untrue statement of a material fact or omits any fact necessary to make the statements therein not misleading in the light of the circumstances under which they were made, and, at the request of any such seller, Holdings will prepare and furnish to such seller a reasonable number of copies of a supplement or amendment to such prospectus so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus will not contain an untrue
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statement of a material fact or omit to state any fact necessary to make the statements therein not misleading in the light of the circumstances under which they were made:
(f) use best efforts to cause all such Registrable Securities to be listed on each securities exchange on which similar securities issued by Holdings are then listed and, if not so listed, to be listed on a securities exchange or the National Association of Securities Dealers ("NASD") automated quotation system and, if listed on the NASD automated quotation system, use its best efforts to secure designation of all such Registrable Securities covered by such registration statement as a "national market system security" of The Nasdaq Stock Market within the meaning of Rule 11Aa2-1 of the Securities and Exchange Commission or, failing that, to secure The Nasdaq Stock Market's authorization for such Registrable Securities and, without limiting the generality of the foregoing, to arrange for at least two (2) market makers to register as such with respect to such Registrable Securities with the NASD;
(g) use best efforts to provide a transfer agent and registrar for all such Registrable Securities not later than the effective date of such registration statement;
(h) enter into such customary agreements (including underwriting agreements in customary form) and take all such other actions as the holders of a majority of the Registrable Securities being sold or the underwriters, if any, reasonably request in order to expedite or facilitate the disposition of such Registrable Securities (including, without limitation, effecting a stock split, combination of shares, recapitalization, or reorganization);
(i) make available for inspection by any seller of Registrable Securities, any underwriter participating in any disposition pursuant to such registration statement, and any attorney, accountant, or other agent retained by any such seller or underwriter, all financial and other records, pertinent corporate and business documents and properties of Holdings, and cause Holdings' officers, directors, employees, agents, representatives, and independent accountants to supply all information reasonably requested by any such seller, underwriter, attorney, accountant, or agent in connection with such registration statement;
(j) otherwise use its best efforts to comply with all applicable rules and regulations of the Securities and Exchange Commission, and make available to its security holders, as soon as reasonably practicable, an earnings statement covering the period of at least twelve (12) months, beginning with the first day of Holdings' first full calendar quarter after the effective date of the registration statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder;
(k) permit any holder of Registrable Securities which holder, in its sole and exclusive judgment, might be deemed to be an underwriter or a controlling person of Holdings to participate in the preparation of such registration or comparable statement and to require the insertion therein of material, furnished to Holdings in writing, which in the reasonable judgment of such holder and its counsel should be included;
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(l) in the event of the issuance of any stop order suspending the effectiveness of a registration statement, or of any order suspending or preventing the use of any related prospectus or suspending the qualification of any securities included in such registration statement for sale in any jurisdiction. Holdings will use its reasonable best efforts promptly to obtain the withdrawal of such order;
(m) use its reasonable best efforts to cause such Registrable Securities covered by such registration statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to enable the sellers thereof to consummate the disposition of such Registrable Securities;
(n) use best efforts to obtain a cold comfort letter from Holdings' independent public accountants in customary form and covering such matters of the type customarily covered by cold comfort letters, which letter shall be addressed to the underwriters, and Holdings shall use its reasonable best efforts to cause such cold comfort letter to also be addressed to the holders of such Registrable Securities; and
(o) use best efforts to obtain an opinion from Holdings' outside counsel in customary form and covering such matters of the type customarily covered by such opinions, which opinion shall be addressed to the underwriters and the holders of such Registrable Securities.
If any such registration or comparable statement refers to any holder by name or otherwise as the holder of any securities of Holdings and if such holder, in its sole and exclusive judgment, is or might be deemed to be an underwriter or a controlling person of Holdings, such holder shall have the right to require: (i) the insertion therein of language, in form and substance satisfactory to such holder and presented to Holdings in writing, to the effect that the holding by such holder of such securities is not to be construed as a recommendation by such holder of the investment quality of Holdings' securities covered thereby, and that such holding does not imply that such holder shall assist in meeting any future financial requirements of Holdings, or (ii) in the event that such reference to such holder by name or otherwise is not required by the Securities Act or any similar federal or state statute then in force the deletion of the reference to such holder; provided that, with respect to this clause (ii), such holder shall furnish to Holdings an opinion of counsel to such effect, which opinion and counsel shall be reasonably satisfactory to Holdings. Holdings may require each seller of Registrable Securities as to which any registration is being effected to furnish Holdings with such information regarding such seller and the distribution of such securities as Holdings may from time to time reasonably request in writing.
5. Registration Expenses.
(a) All expenses incident to Holdings' performance of or compliance with this Agreement, including, without limitation, all registration and filing fees, fees and expenses of compliance with securities or blue sky laws, printing expenses, messenger and delivery expenses, fees and disbursements of custodians, fees and disbursements of counsel for Holdings, and all
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independent certified public accountants, underwriters (excluding discounts and commissions), and other Persons retained by Holdings (all such expenses being herein called "Registration Expenses"), will be borne as provided in this Agreement, except that Holdings will, in any event, pay its internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit or quarterly review, the expense of any liability insurance, and the expenses and fees for listing the securities to be registered on each securities exchange on which similar securities issued by Holdings are then listed or, if none are so listed, on a securities exchange or the NASD automated quotation system.
(b) In connection with each Demand Registration and each Piggyback Registration, Holdings shall reimburse the holders of Registrable Securities for the reasonable fees and disbursements of one (1) counsel chosen by the holders of a majority of the Registrable Securities initiating such Demand Registration or the holders of a majority of the Registrable Securities included in such Piggyback Registration, as the case may be.
(c) To the extent Registration Expenses are not required to be paid by Holdings, each holder of securities included in any registration hereunder will pay those Registration Expenses allocable to the registration of such holder's securities so included, and any Registration Expenses not so allocable will be borne by all sellers of securities included in such registration in proportion to the aggregate selling price of each seller's securities to be so registered.
6. Indemnification.
(a) Holdings agrees to indemnify and hold harmless, to the full extent permitted by law, each holder of Registrable Securities, its officers, directors, agents, partners, members, stockholders and employees and each Person who controls such holder (within the meaning of the Securities Act) (each an "Indemnitee" and, collectively, the "Indemnities") against any and all losses, claims, damages, liabilities, joint or several, together with reasonable costs and expenses (including reasonable attorney's fees), to which such indemnified party may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages, or liabilities (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of, are based upon, are caused by, or result from: (i) any untrue or alleged untrue statement of material fact contained (A) in any registration statement, prospectus, or preliminary prospectus or any amendment thereof or supplement thereto, or (B) in any application or other document or communication (in this Section 6 collectively called an "Application") executed by or on behalf of Holdings or based upon written information furnished by or on behalf of Holdings filed in any jurisdiction in order to qualify any securities covered by such registration statement under the "blue sky" or securities laws thereof, or (ii) any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, and Holdings will reimburse such holder and each Indemnitee for any legal or any other expenses incurred by them in connection with investigating or defending any such loss, claim, liability, action, or proceeding; provided, however, that Holdings shall not be liable in any such case to any such Person to the extent that any such loss, claim, damage, liability (or action or proceeding in respect thereof), or expense arises out of, is based upon,
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is caused by, or results from an untrue statement or alleged untrue statement, or omission or alleged omission, made in such registration statement any such prospectus or preliminary prospectus or any amendment or supplement thereto, or in any Application, in reliance upon, and in conformity with, written information prepared and furnished to Holdings by such Person expressly for use therein or by such Person's failure to deliver a copy of the registration statement or prospectus or any amendments or supplements thereto after Holdings has furnished such Person with a sufficient number of copies of the same. In connection with any underwritten offering. Holdings will indemnify such underwriters, their officers and directors, and each Person who controls such underwriters (within the meaning of the Securities Act) to the same extent as provided above with respect to the indemnification of the holders of Registrable Securities.
(b) In connection with any registration statement in which a holder of Registrable Securities is participating, each such holder will furnish to Holdings in writing such information and affidavits as Holdings reasonably requests for use in connection with any such registration statement or prospectus and, to the full extent permitted by law will indemnify and hold harmless the other holders of Registrable Securities and Holdings, and their respective directors, officers, agents, and employees and each other Person who controls Holdings (within the meaning of the Securities Act) against any losses, claims, damages, liabilities, joint or several, together with reasonable costs and expenses (including reasonable attorney's fees), to which such indemnified party may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages, or liabilities (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of, are based upon, are caused by, or result from: (i) any untrue or alleged untrue statement of material fact contained in the registration statement, prospectus or preliminary prospectus or any amendment thereof or supplement thereto or in any Application, or (ii) any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, but only to the extent that such untrue statement or omission is made in such registration statement, any such prospectus or preliminary prospectus or any amendment or supplement thereto, or in any Application, in reliance upon and in conformity with written information prepared and furnished to Holdings by such holder expressly for use therein; provided, however, that the obligation to indemnify will be individual to each holder and will be limited to the net amount of proceeds received by such bolder from the sale of Registrable Securities pursuant to such registration statement.
(c) Any Person entitled to indemnification hereunder will (i) give prompt written notice to the indemnifying party of any claim with respect to which it seeks indemnification (provided that the failure to give prompt notice shall not impair any Person's right to indemnification hereunder to the extent such failure has not prejudiced the indemnifying party), and (ii) unless in such indemnified party's reasonable judgment a conflict of interest between such indemnified and indemnifying parties may exist with respect to such claim, permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party. If such defense is assumed, the indemnifying party will not be subject to any liability for any settlement made by the indemnified party without its consent (but such consent will not be unreasonably withheld). An indemnifying party who is not entitled to, or elects not to, assume the defense of a
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claim will not be obligated to pay the fees and expenses of more than one counsel for all parties indemnified by such indemnifying party with respect to such claim, unless in the reasonable judgment of any indemnified party a conflict of interest may exist between such indemnified party and any other of such indemnified parties with respect to such claim.
(d) The indemnifying party shall not, except with the approval of each indemnified party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to each indemnified party of a release from all liability in respect to such claim or litigation without any payment or consideration provided by such indemnified party.
(e) If the indemnification provided for in this Section 6 is unavailable to, or is insufficient to hold harmless, an indemnified party under the provisions above in respect to any losses, claims, damages, or liabilities referred to therein, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, or liabilities (i) in such proportion as is appropriate to reflect the relative benefits received by Holdings on the one hand and the sellers of Registrable Securities and any other sellers participating in the registration statement on the other hand from the sale of Registrable Securities pursuant to the registered offering of securities as to which indemnity is sought, or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of Holdings on the one hand and of the sellers of Registrable Securities and any other sellers participating in the registration statement on the other hand in connection with the registration statement on the other in connection with the statement or omissions which resulted in such losses, claims, damages, or liabilities, as well as any other relevant equitable considerations. The relative benefits received by Holdings on the one hand and the sellers of Registrable Securities and any other sellers participating in the registration statement on the other hand shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) to Holdings bear to the total net proceeds from the offering (before deducting expenses) to the sellers of Registrable Securities and any other sellers participating in the registration statement. The relative fault of Holdings on the one hand and of the sellers of Registrable Securities and any other sellers participating in the registration statement on the other hand shall be determined by reference to, among other things, whether the untrue or alleged omission to state a material fact relates to information supplied by Holdings or by the sellers of Registrable Securities or other sellers participating in the registration statement and the parties' relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission.
(f) Holdings and the sellers of Registrable Securities agree that it would not be just and equitable if contribution pursuant to this Section 6 were determined by pro rata allocation (even if the sellers of Registrable Securities were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an indemnified party as a result of the losses, claims, damages, and liabilities referred to in the immediately preceding
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paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 6, no seller of Registrable Securities shall be required to contribute any amount if excess of the net proceeds received by such seller from the sale of Registrable Securities covered by the registration statement filed pursuant hereto. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation.
(g) The indemnification and contribution by any such party provided for under this Agreement shall be in addition to any other rights to indemnification or contribution which any indemnified party may have pursuant to law or contract and will remain in full force and effect regardless of any investigation made or omitted by or on behalf of the indemnified party or any officer, director, or controlling Person of such indemnified party and will survive the transfer of securities.
7. Participation in Underwritten Registrations.
(a) No Person may participate in any registration hereunder which is underwritten unless such Person: (i) agrees to sell such Person's securities on the basis provided in any underwriting arrangements approved by the Person or Persons entitled hereunder to approve such arrangements (including, without limitation, pursuant to the terms of any over-allotment or "green shoe" option requested by the managing underwriter(s); provided that no holder of Registrable Securities will be required to sell more than the number of Registrable Securities that such holder has requested Holdings to include in any registration), and (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements, and other documents reasonably required under the terms of such underwriting arrangements.
(b) Each Person that is participating in any registration hereunder agrees that, upon receipt of any notice from Holdings of the happening of any event of the kind described in Section 4(e) above, such Person will forthwith discontinue the disposition of its Registrable Securities pursuant to the registration statement until such Person's receipt of the copies of a supplemented or amended prospectus as contemplated by such Section 4(e). In the event that Holdings shall give any such notice, the applicable time period mentioned in Section 4(b) during which a Registration Statement is to remain effective shall be extended by the number of days during the period from and including the date of the giving of such notice pursuant to this Section 7 to and including the date when each seller of a Registrable Security covered by such registration statement shall have received the copies of the supplemented or amended prospectus contemplated by Section 4(e).
8. Current Public Information. At all times after Holdings has filed a registration statement with the Securities and Exchange Commission pursuant to the requirements of either the Securities Act or the Securities Exchange Act, Holdings will file all reports required to be filed by
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it under the Securities Act and the Securities Exchange Act and the rules and regulations adopted by the Securities and Exchange Commission thereunder, and will take such further action as any holder or holders of Registrable Securities may reasonably request, all to the extent required to enable such holders to sell Registrable Securities pursuant to Rule 144 adopted by the Securities and Exchange Commission under the Securities Act (as such rule may be amended from time to time) or any similar rule or regulation hereafter adopted by the Securities and Exchange Commission.
9. Definitions
"Affiliate" means, as to any specified Person, (i) any shareholder, equity owner, officer, or director of such Person and their family members or
(ii) any other Person which, directly or indirectly or indirectly, controls, is controlled by, employed by or is under common control with, any of the foregoing. For the purposes of this definition, "control" means the possession of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise.
"Company Registrable Securities" means: (i) all Common Units originally issued, directly or indirectly to Company, (ii) all Common Units issued or issuable, directly or indirectly, with respect to the securities referred to in clause (i) above upon exercise, conversion, or exchange or by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation, or other reorganization, and (iii) any other Common Units held by Persons holding securities described in clauses (i) and (ii) above. As to any particular Company Registrable Securities, such securities shall cease to be Company Registrable Securities when they have been distributed to the public pursuant to an offering registered under the Securities Act or sold to the public through a broker, dealer, or market maker in compliance with Rule 144 under the Securities Act (or any similar rule then in force) or repurchased by Holdings or any Subsidiary thereof or purchased or otherwise acquired by any employee of Holdings, and, if such Company Registrable Securities are purchased or otherwise acquired by any employee of Holdings, then such Company Registrable Securities shall be deemed Registrable Securities. For purposes of this Agreement, a Person shall be deemed to be a holder of Company Registrable Securities, and the Company Registrable Securities shall be deemed to be in existence, whenever such Person has the right to acquire directly or indirectly such Company Registrable Securities (upon conversion or exercise in connection with a transfer of securities or otherwise, but disregarding any restrictions or limitations upon the exercise of such right), whether or not such acquisition has actually been effected, and such Person shall be entitled to exercise the rights of a holder of Company Registrable Securities hereunder.
"Common Unit" means: (i) a Unit having the rights and obligations specified with respect to Common Units in the Operating Agreement, (ii) common stock or other securities issued in exchange for Common Units pursuant to a recapitalization or reorganization undertaken in connection with an IPO (as defined in the Operating Agreement), including without limitation, securities issued in connection with the contribution of assets or securities of Holdings or its subsidiaries to a newly formed corporation, and (iii) any securities issued or issuable directly or
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indirectly with respect to the securities referred to in clauses (i) and (ii), above, by way of stock dividend or stock split or in connection with a combination of units, recapitalization, merger, consolidation, or other reorganization.
"GS Registrable Securities" means: (i) all Common Units originally issued, directly or indirectly to any GS Parties, (ii) all Common Units issued or issuable, directly or indirectly, with respect to the securities referred to in clause (i) above upon exercise, conversion, or exchange or by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation, or other reorganization, and (iii) any other Common Units held by Persons holding securities described in clauses (i) and (ii) above. As to any particular GS Registrable Securities, such securities shall cease to be GS Registrable Securities when they have been distributed to the public pursuant to an offering registered under the Securities Act or sold to the public through a broker, dealer, or market maker in compliance with Rule 144 under the Securities Act (or any similar rule then in force) or repurchased by Holdings or any Subsidiary thereof or purchased or otherwise acquired by any employee of Holdings, and, if such GS Registrable Securities are purchased or otherwise acquired by any employee of Holdings, then such GS Registrable Securities shall be deemed Registrable Securities. For purposes of this Agreement, a Person shall be deemed to be a holder of GS Registrable Securities, and the GS Registrable Securities shall be deemed to be in existence, whenever such Person has the right to acquire directly or indirectly such GS Registrable Securities (upon conversion or exercise in connection with a transfer of securities or otherwise, but disregarding any restrictions or limitations upon the exercise of such right), whether or not such acquisition has actually been effected, and such Person shall be entitled to exercise the rights of a holder of GS Registrable Securities hereunder.
"Holdings" means American Reprographics Holdings, L.L.C., a California limited liability company, and any successor entity or corporation created in connection with an IPO (as defined in the Operating Agreement).
"M&S Registrable Securities" means: (i) all shares of Common Units originally issued, directly or indirectly to Mohan and Suri or entities in which they control a majority of the voting common stock, (ii) all shares of Common Units issued or issuable, directly or indirectly, with respect to the securities referred to in clause (i) above upon exercise, conversion, or exchange or by way of stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation, or other reorganization, and (iii) any other Common Units held by Persons holding securities described in clauses (i) and (ii) above. As to any particular M&S Registrable Securities, such securities shall cease to be M&S Registrable Securities when they have been distributed to the public pursuant to an offering registered under the Securities Act or sold to the public through a broker, dealer, or market maker in compliance with Rule 144 under the Securities Act (or any similar rule then in force) or repurchased by Holdings or any Subsidiary thereof or purchased or otherwise acquired by any employee of Holdings, and, if such M&S Registrable Securities are purchased or otherwise acquired by any employee of Holdings, then such M&S Registrable Securities shall be deemed Registrable Securities. For purposes of this Agreement, a Person shall be deemed to be a holder of M&S Registrable Securities, and the M&S Registrable
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Securities shall be deemed to be in existence, whenever such Person has the right to acquire directly or indirectly such M&S Registrable Securities (upon conversion or exercise in connection with a transfer of securities or otherwise, but disregarding any restrictions or limitations upon the exercise of such right), whether or not such acquisition has actually been effected, and such Person shall be entitled to exercise the rights of a holder of M&S Registrable Securities hereunder.
"Operating Agreement" means the Amended and Restated Operating Agreement of American Reprographics Holdings, L.L.C.
"Person" means an individual, a partnership, a joint venture, an association, a joint stock company, a corporation, a limited liability company, a trust (including any beneficiary thereof), an unincorporated organization, and a governmental entity or any department, agency, or political subdivision thereof.
"Qualified Public Offering" means a sale of equity securities of Holdings in an underwritten (firm commitment) public offering registered under the Securities Act, with gross proceeds of not less than Twenty-five Million Dollars ($25,000,000.00), and resulting in the listing of Holdings' Common Units on a nationally recognized stock exchange, including without limitation, The Nasdaq Stock Market National Market System.
"Registrable Securities" means, collectively, the Company Registrable Securities, the GS Registrable Securities and the M&S Registrable Securities.
"Securities Act" means the Securities Act of 1933, as amended, or any similar federal law then in force.
"Securities and Exchange Commission" includes any governmental body or agency succeeding to the functions thereof.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as amended, or any similar federal law then in force.
"Subsidiary" or "Subsidiaries" means, with respect to any Person, any corporation, limited liability company, partnership, association, or other business entity of which (i) if a corporation, a majority of the total voting power of shares of stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers, or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person or one or more of the other Subsidiaries of such Person or a combination thereof, or (ii) if a limited liability company, partnership, association, or other business entity, a majority of the partnership or other similar ownership interest thereof is at the time owned or controlled, directly or indirectly, by any Person or one or more Subsidiaries of such Person or a combination thereof. For purposes hereof, a Person or Persons shall be deemed to have a majority ownership interest in a limited liability company, partnership, association, or other business entity if such Person or Persons shall be allocated a
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majority of limited liability company, partnership, association, or other business entity gains or losses or shall be or control any managing director or general partner of such limited liability company, partnership, association, or other business entity.
"Unit" means a unit of interest in Company held by a Member or other Economic Owner (as defined in the Operating Agreement), in certain allocations of Net Profits and Net Losses of the Company (as defined in the Operating Agreement) and in certain distributions with respect thereto.
10. Miscellaneous.
(a) No Inconsistent Agreements. Holdings will not hereafter enter into any agreement with respect to Holdings' securities which is inconsistent with or violates the rights granted to the holders of Registrable Securities in this Agreement.
(b) Adjustments Affecting Registrable Securities. Holdings will not take any action, or permit any change to occur, with respect to Holdings' securities which would materially and adversely affect the ability of the holders of Registrable Securities to include such Registrable Securities in a registration undertaken pursuant to this Agreement or which would adversely affect the marketability of such Registrable Securities in any such registration (including, without limitation, effecting a stock split, combination of shares, or other recapitalization).
(c) Amendment and Waiver. Except as otherwise provided herein, no modification, amendment or waiver of any provision of this Agreement will be effective against Holdings or the holders of Registrable Securities, unless such modification, amendment, or waiver is approved in writing by Holdings and the holders of at least a majority of the Registrable Securities; provided, however, that in the event that such amendment or waiver would materially and adversely affect a holder or group of holders of Registrable Securities in a manner substantially different than any other holders of Registrable Securities, then such amendment or waiver will require the consent of such holder of Registrable Securities or a majority of the Registrable Securities held by such group of holders materially and adversely affected. Notwithstanding the foregoing, if an amendment or modification of this Agreement serves merely to add a party hereto, then such amendment or modification will be effective against Holdings and the holders of Registrable Securities if such amendment or modification is approved in writing by Holdings, at least a majority of the holders of Registrable Securities, and such new party hereto. The failure of any party to enforce any of the provisions of this Agreement will in no way be construed as a waiver of such provisions and will not affect the right of such party thereafter to enforce each and every provision of this Agreement in accordance with its terms.
(d) Severability. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal, or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality, or unenforceability will not affect any other
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provision or any other jurisdiction, but this Agreement will be reformed, construed, and enforced in such jurisdiction as if such invalid, illegal, or unenforceable provision had never been contained herein.
(e) Entire Agreement. Except as otherwise expressly set forth herein, this Agreement, those documents expressly referred to herein, and the other documents of even date herewith embody the complete agreement and understanding among the parties and supersede and preempt any prior understandings, agreements, or representations by or among the parties, written or oral, which may have related to the subject matter hereof in any way.
(f) Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors and assigns. In addition, and whether or not any express assignment shall have been made, the provisions of this Agreement which are for the benefit of the holders of Registrable Securities (or any portion thereof) as such shall be for the benefit of, and enforceable by, any subsequent holder of any Registrable Securities (or of such portion thereof).
(g) Counterparts. This Agreement may be executed in separate counterparts each of which will be an original and all of which taken together shall constitute one and the same agreement.
(h) Remedies. Any Person having rights under any provision of this Agreement shall be entitled to enforce their rights under this Agreement specifically to recover damages by reason of any breach of any provision of this Agreement and to exercise all other rights existing in their favor. The parties hereto agree and acknowledge that money damages may not be an adequate remedy for any breach of the provisions of this Agreement and that any Unitholder may in its sole discretion apply to any court of competent jurisdiction for specific performance and/or injunctive relief (without posting a bond or other security) in order to enforce or prevent any violation of the provisions of this Agreement.
(i) Notices. Any notice provided for in this Agreement must be in writing and must be either personally delivered, sent by first class mail (postage prepaid and return receipt requested), or sent by reputable overnight courier service (charges prepaid) to Holdings at the address set forth below and to the other parties at their respective addresses indicated on Holdings' records, or at such address or to the attention of such other Person as the recipient party has specified by prior written notice to the sending party. Notices will be deemed to have been given hereunder when delivered personally, three (3) days after deposit in the U.S. mail, and one (1) day after deposit with a reputable overnight courier service. The address of Holdings is:
American Reprographics Holdings, L.L.C.
900 Palm Avenue
South Pasadena, CA 91030
Attention: Sathy Chandramohan
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Suri Suriyakumar Facsimile: (626)441-6649
with copies to:
ARC Acquisition Co., L.L.C.
c/o Code, Hennessy & Simmons
10 South Wacker Drive, Suite 3175
Chicago, IL 60606
Attention: Thomas J. Forrnolo
Marcus J. George
and
Altheimer & Gray
10 S. Wacker Drive
Suite 4000
Chicago, Illinois 60606
Attention: S. Michael Peck
James R. Cruger
and
Hanson, Bridgett, Marcus, Vlahos, Rudy LLP
333 Market Street
23rd Floor
San Francisco, CA 94105
Attention: Fred B. Weil
(k) Governing Law. This Agreement and the exhibits and schedules hereto shall be governed by, and construed in accordance with, the laws of the State of Illinois, without giving effect to any choice of law or conflict of law rules or provisions (whether of the State of Illinois or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Illinois.
(l) No Strict Construction. The language used in this Agreement shall be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction shall be applied against any party.
(m) Business Days. If any time period for giving notice or taking action hereunder expires on a day which is a Saturday, Sunday or legal holiday in the state in which Holdings' chief executive office is located, the time period shall automatically be extended to the business day immediately following such Saturday, Sunday or legal holiday.
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(n) Descriptive Headings. The descriptive headings of this Agreement are inserted for convenience only and do not constitute a part of this Agreement.
* * * * *
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GS MEZZANINE PARTNERS II, L.P.
By: GS Mezzanine Advisors II, LLC
Its: General Partner

By:  /s/ KATHERINE L. NISSENBAUM
     -----------------------------
Its:
       KATHERINE L. NISSENBAUM
            VICE PRESIDENT	

(Continuation of Registration Agreement Signature Page)
GS MEZZANINE PARTNERS II OFFSHORE, LP
BY: GS Mezzanine Advisors II, LLC
Its: General Partner

By:  /s/ KATHERINE L. NISSENBAUM
     -----------------------------
Its:
       KATHERINE L. NISSENBAUM
            VICE PRESIDENT	

(Continuation of Registration Agreement Signature Page)
IN WITNESS WHEREOF, this Agreement has been executed as of the date first written above.
"Mohan"

/s/ SATHIYAMURTHY CHANDRAMOHAN

SATHIYAMURTHY CHANDRAMOHAN	

Notice Address:
(Continuation of Registration Agreement Signature Page)
IN WITNESS WHEREOF, this Agreement has been executed as of the date first written above.
"Suri"

/s/ KUMARAKULASINGAM  SURIYAKUMAR

KUMARAKULASINGAM  SURIYAKUMAR	

Notice Address:
(Continuation of Registration Agreement Signature Page)
IN WITNESS WHEREOF, the parties hereto have executed this Registration Agreement on the day and year first above written.
AMERICAN REPROGRAPHICS HOLDINGS, L.L.C.

By: /s/ Sathiyamurthy Chandramohan
    ------------------------------------
    Name:  Sathiyamurthy Chandramohan
    Title: Chief Executive Officer	

(Continuation of Registration Agreement Signature Page)
 
EXHIBIT 10.22
WARRANT AGREEMENT
DATED AS OF APRIL 10, 2000
BY AND AMONG
AMERICAN REPROGRAPHICS HOLDINGS, L.L.C.
GS MEZZANINE PARTNERS II, L.P.
AND
GS MEZZANINE PARTNERS II OFFSHORE, L.P.
WARRANT AGREEMENT, dated as of April 10, 2000, by and between American Reprographics Holdings, L.L.C., a California limited liability company ("Holdings") and GS Mezzanine Partners IL L.P., a limited partnership organized under the laws of Delaware ("GS Mezzanine"), GS Mezzanine Partners II Offshore, L.P., an exempted limited partnership organized under the laws of the Cayman Islands ("GS Offshore", together with GS Mezzanine, the "Purchasers").
RECITALS
WHEREAS, Holdings and the parties listed on the signature pages thereof have entered into a Purchase Agreement, dated as of April 10, 2000 (as amended, supplemented or modified from time to time, the "Purchase Agreement"), with the Purchasers, pursuant to which Holdings has agreed to issue and sell to the Purchasers (i) $94,564,690 aggregate face amount of Senior Discount Notes due 2009 (the "Original Holdings Notes"), issued pursuant to an Indenture, dated the date hereof, from Holdings to Wilmington Trust Company, a Delaware banking corporation, Trustee (as amended, supplemented or modified from time to time, the "Holdings Indenture"), and (ii) warrants (such warrants and all warrants issued in exchange, substitution or replacement therefor, the "Original Warrants") to purchase up to an aggregate of 3,580.24 Common Units of Holdings (the "Common Units") (subject to adjustment as provided in Section 11), exercisable at any time prior to the Expiration Date, at an exercise price of $1,382.59 per unit (the Common Units issuable on exercise of the Original Warrants being herein called the "Original Warrant Shares");
WHEREAS, Holdings has an option, under the circumstances described in the Purchase Agreement, to issue and sell to the Purchasers certain additional Senior Discount Notes due 2009 (the "Additional Holdings Notes", and together with the Original Holdings Notes and any notes issued in exchange, substitution or replacement for the Original Holdings Notes and the Additional Holdings Notes, the "Holdings Notes"), and in connection with the issuance and sale of the Additional Holdings Notes, Holdings will issue to the Purchasers Additional Warrants (such warrants and all warrants issued in exchange, substitution or replacement therefor, the "Additional Warrants", and together with the Original Warrants, the "Warrants") to purchase the number of Common Units of Holdings (the "Additional Warrant Shares", and together with the Original Warrant Shares, the "Warrant Shares") (subject to adjustment as provided in Section 11), which bears the same proportion to the Original Warrant Shares as the purchase price payable by the Purchasers for the Additional Holdings Notes bears to the purchase price paid by the Purchasers for the Original Holdings Notes, exercisable at any time prior to the Expiration Date, at an exercise price determined as set forth in Section 2.4(e) of the Purchase Agreement;
WHEREAS, the parties hereto desire to enter into this Agreement in order to set forth the terms and conditions of the Warrants;
NOW, THEREFORE, in consideration of the premises and the mutual agreements herein set forth, the parties hereto agree as follows:
SECTION 1. DEFINITIONS.
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As used in this Agreement, the following capitalized terms will have the respective meanings:
"Additional Holdings Notes" shall have the meaning set forth in the Recitals.
"Additional Warrants" shall have the meaning set forth in the Recitals.
"Additional Warrant Shares" shall have the meaning set forth in the Recitals.
"Affiliate" of any specified Person means any other Person, directly or indirectly, controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control" when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing.
"Agreement" and all references thereto means this Agreement as it may from time to time be amended, supplemented or modified.
"Applicable Share" shall have the meaning set forth in Section 11(f).
"Board" means the Board of Advisors of Holdings, as defined in the Holdings Operating Agreement, or any successor governing body of Holdings.
"Commission" means the Securities and Exchange Commission.
"Common Units" shall have the meaning set forth in the Recitals.
"Conversion Right" shall have the meaning set forth in Section 7.
"Current Market Price" shall have the meaning set forth in Section 11(f).
"Co-Sale" shall have the meaning assigned to such term in the Purchase Agreement.
"Estimated Tax Distribution" shall have the meaning assigned to such term in the Holdings Operating Agreement.
"Exercise Price" shall have the meaning set forth in Section 7.
"Exercise Rate" shall have the meaning set forth in Section 11.
"Expiration Date" shall have the meaning set forth in Section 7.
"Final Tax Distribution" shall have the meaning assigned to such term in the Holdings Operating Agreement.
"GS Mezzanine" shall have the meaning set forth in the preamble to this Agreement.
"GS Offshore" shall have the meaning set forth in the preamble to this Agreement.
2
"Holdings" shall have the meaning set forth in the first paragraph of this Agreement.
"Holdings Indenture" shall have the meaning set forth in the Recitals.
"Holdings Notes" shall have the meaning set forth in the Recitals.
"Holdings Operating Agreement" shall have the meaning assigned to such term in the Purchase Agreement.
"Independent Financial Expert" shall have the meaning set forth in Section 12.
"Independent Expert" shall have the meaning set forth in Section 12.
"Manager" shall have the meaning assigned to such term in the Holdings Operating Agreement.
"Original Holdings Notes" shall have the meaning set forth in the Recitals.
"Original Warrants" shall have the meaning set forth in the Recitals.
"Original Warrants Shares" shall have the meaning set forth in the Recitals.
"Person" means any individual, corporation, partnership, limited liability company, association, joint venture, trust, unincorporated organization, government or any agency or political subdivision thereof or other entity.
"Purchase Agreement" shall have the meaning set forth in the Recitals.
"Purchasers" shall have the meaning set forth in the Recitals.
"Recapitalization Agreement" shall have the meaning assigned to such term in the Purchase Agreement.
"Register Office" shall have the meaning set forth in Section 6.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Financial Officer" means the chief financial officer, principal accounting officer, treasurer or controller of Holdings.
"Transaction" shall have the meaning set forth in Section 11(j).
"Transfer Agent" shall have the meaning set forth in Section 10.
"Transfer Notice" shall have the meaning set forth in Section 6.
"Value Report" shall have the meaning set forth in Section 12.
3
"Warrant holder(s) or "holders of Warrant certificates" means, in each case, registered holders of Warrant certificates.
"Warrants" shall have the meaning set forth in the Recitals.
"Warrant Shares" shall have the meaning set forth in the Recitals.
SECTION 2. WARRANT CERTIFICATES
The Warrant certificates to be issued and delivered pursuant to this Agreement shall be in registered form only and shall be substantially in the form set forth in Exhibit A attached hereto.
SECTION 3. ISSUANCE OF WARRANTS.
Holdings, (a) simultaneously with the Closing (as defined in the Purchase Agreement), shall deliver to each Purchaser duly executed Original Warrant certificates registered in the name of each Purchaser for the purchase of the number of Original Warrant Shares set forth opposite the name of such Purchaser on Schedule A, to this Agreement and (b) simultaneously with each Additional Closing (as defined in the Purchase Agreement), shall deliver to each Purchaser duly executed Additional Warrant certificates registered in the name of each Purchaser for the purchase of the number of Additional Warrant Shares which bears the same proportion to the aggregate number of the Additional Warrant Shares as the number of Original Warrant Shares for which the Original Warrants purchased by such Purchaser at the Closing are exercisable bears to the aggregate number of the Original Warrant Shares.
SECTION 4. EXECUTION OF WARRANT CERTIFICATES.
Warrant certificates evidencing Warrants, each Warrant to purchase initially one Common Unit, shall be duly executed, on the date of this Agreement (in the case of Original Warrants) and on the date of each Additional Closing (in the case of Additional Warrants), by Holdings and delivered to the registered holders of the Warrants in accordance with the provisions of Section
3. Warrant certificates shall be signed on behalf of Holdings by its Manager or, upon conversion of Holdings into a corporation, by the Chief Executive Officer, the President, the Chief Operating Officer, any Vice-President, its Secretary or any Assistant Secretary of such corporation. Each such signature upon the Warrant certificates may be in the form of a facsimile signature of the present or any future Chairman of the Board, Manager, the Chief Executive Officer, the President, the Chief Operating Officer, any Vice-President, its Secretary or any Assistant Secretary and may be imprinted or otherwise reproduced on the Warrant certificates and, for that purpose, Holdings may adopt and use the facsimile signature of any person who shall have been Chairman of the Board, a Manager, the Chief Executive Officer, the President, the Chief Operating Officer, any Vice-President, its Secretary or any Assistant Secretary notwithstanding the fact that at the time the Warrant certificates shall be delivered or disposed of such Person shall have ceased to hold such office. In case any Manager or officer of Holdings who shall have signed any of the Warrant certificates shall cease to hold such office before such Warrant certificates shall have been delivered or disposed of by Holdings, such Warrant certificates nevertheless may be delivered or disposed of as though such Person had not ceased to hold such office. Any Warrant certificate may be signed on behalf of Holdings by any Person who, at the actual date of the execution of such Warrant certificate, shall be a Manager or
4
a proper officer of Holdings to sign such Warrant certificate, although at the date of the execution of this Agreement such Person did not hold such office.
SECTION 5. REGISTRATION.
Holdings shall number and register the Warrant certificates in a register as they are issued by Holdings. Holdings may deem and treat the registered holder(s) of the Warrant certificates as the absolute owner(s) thereof (notwithstanding any notation of ownership or other writing thereon made by anyone), for all purposes, and Holdings shall not be affected by any notice to the contrary.
SECTION 6. REGISTRATION OF TRANSFERS AND EXCHANGES.
Holdings shall cause to be kept at its principal office (the "Register Office") a register in which, subject to such reasonable regulations as it may prescribe, Holdings shall provide for the registration of Warrant certificates and of transfers or exchanges of Warrant certificates at the Warrant holder's option. Holdings shall promptly register the transfer of any outstanding Warrant certificates upon the records to be maintained by it for that purpose, upon surrender thereof. Upon any such registration of transfer, a new Warrant certificate shall be issued to the transferee(s) and the surrendered Warrant certificate shall be canceled by Holdings. Canceled Warrant certificates shall thereafter be disposed of in a manner satisfactory to Holdings in accordance with any applicable laws. Whenever any Warrant certificates are surrendered for exchange, Holdings shall execute and deliver the Warrant certificates that the Warrant holder making the exchange is entitled to receive. All Warrant certificates issued upon any registration of transfer or exchange of Warrant certificates shall be the valid obligations of Holdings, evidencing the same obligations, and entitled to the same benefits under this Agreement, as the Warrant certificates surrendered for such registration of transfer or exchange. Every Warrant certificate surrendered for registration of transfer or exchange shall (if so required by Holdings) be duly endorsed, or be accompanied by a written instrument of transfer in the form of Exhibit B attached hereto, duly executed by the Warrant holder or its attorney duly authorized in writing. No service charge will be made for any registration of transfer or exchange upon surrender of Warrant certificates or any issuance of Warrant certificates pursuant to Section 3 or this Section 6, but Holdings may require payment of a sum sufficient to cover any stamp or other governmental charge or tax which may be imposed in connection with any such transfer or exchange. Any Warrant certificate when duly endorsed in blank (with signature guaranteed) shall be deemed negotiable. The holder of any Warrant certificate duly endorsed in blank may be treated by Holdings and all other Persons dealing therewith as the absolute owner thereof for any purpose and as the Person entitled to exercise the rights represented thereby, or to the transfer thereof on the register of Warrants maintained by Holdings, any notice to the contrary notwithstanding; but until such transfer on such register, Holdings may treat the registered Warrant holder as the owner for all purposes. In addition to any other legend which may be required by applicable law, each Warrant certificate representing Warrants and each certificate representing Warrant Shares issued upon exercise of the Warrant shall have endorsed to the extent appropriate, upon its face the following words:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS
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AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY JURISDICTION. SUCH SECURITIES MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED, ASSIGNED, ENCUMBERED, HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO (I) A REGISTRATION STATEMENT WITH RESPECT TO SUCH SECURITIES THAT IS EFFECTIVE UNDER SUCH ACT OR APPLICABLE STATE SECURITIES LAW, OR (II) ANY EXEMPTION FROM REGISTRATION UNDER SUCH ACT, OR APPLICABLE STATE SECURITIES LAW, RELATING TO THE DISPOSITION OF SECURITIES, INCLUDING RULE 144.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ALSO ARE SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER AS SET FORTH IN THE HOLDINGS OPERATING AGREEMENT OF AMERICAN REPROGRAPHICS HOLDINGS, L.L.C. ("HOLDINGS"), DATED AS OF APRIL 10, 2000, AND INVESTOR UNITHOLDERS AGREEMENT OF HOLDINGS, DATED AS OF APRIL 10, 2000, COPIES OF EACH OF WHICH MAY BE OBTAINED FROM HOLDINGS. NO TRANSFER OF SUCH SECURITIES WILL BE MADE ON THE BOOKS OF HOLDINGS UNLESS ACCOMPANIED BY EVIDENCE OF COMPLIANCE WITH THE TERMS OF SUCH AGREEMENTS.
Prior to any transfer or attempted transfer of any Warrants, the holder of such Warrants shall give 10 days' prior written notice (a "Transfer Notice") to Holdings of such holder's intention to effect such transfer, describing the manner and circumstances of the proposed transfer, and, if requested by Holdings, obtain from counsel to such holder, who shall be reasonably satisfactory to Holdings, an opinion that the proposed transfer of such Warrants may be effected without registration under the Securities Act, unless such requirement is waived by Holdings. After receipt of the Transfer Notice and opinion (unless waived by Holdings), Holdings shall, within five days thereof, so notify the holder of such Warrants and such holder shall thereupon, subject to compliance with the other restrictions on transfer contained herein, be entitled to transfer such Warrants, in accordance with the terms of the Transfer Notice. Each Warrant issued upon such transfer shall bear the restrictive legend with respect to the Securities Act set forth above, unless, in the opinion of counsel to such holder (which opinion must be reasonably satisfactory to Holdings and its counsel), such legend is not required in order to ensure compliance with the Securities Act. The holder of the Warrants giving the Transfer Notice shall not be entitled to transfer such Warrants until receipt of notice from Holdings under this Section 6.
In addition to the transfer restrictions set forth in the preceding paragraph, no Warrants may be transferred in violation of the Holdings Operating Agreement or the Co-Sale Agreement, as long as they remain in effect. So long as the Holdings Operating Agreement and the Co-Sale Agreement remain in effect, each transferee of any Warrant, as a condition to such transfer, shall become a party to the Holdings Operating Agreement and to the Co-Sale Agreement and agree to be bound by their respective terms. Each Warrant issued upon such transfer shall bear the restrictive legend with respect to the Holdings Operating Agreement and the Co-Sale Agreement
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set forth above, unless the Holdings Operating Agreement and the Co-Sale Agreement shall terminate in accordance with their respective terms.
SECTION 7. TERMS OF WARRANTS; EXERCISE OF WARRANTS.
Subject to the terms of this Agreement, the Warrants may be exercised at any time after the date hereof. Each Warrant, when exercised in accordance with the terms hereof and upon payment in cash (or by tendering the Holdings Notes, as provided in the next succeeding paragraph) of the exercise price of $1,382.59 per unit (the "Exercise Price") will entitle the holder thereof to acquire from Holdings (and Holdings shall issue to such holder of a Warrant) one fully paid and nonassessable unit of Holdings' authorized but unissued Common Units (subject to adjustment as provided in Section 11). No cash dividend shall be paid to a holder of Warrant Shares issuable upon the exercise of Warrants unless such holder was, as of the record date for the declaration of such dividend, the record holder of such Warrant Shares.
A Warrant may be exercised upon surrender to Holdings at the Register Office of the certificate or certificates evidencing the Warrants to be exercised with the form of election to purchase on the reverse thereof duly filled in and signed, together with payment to Holdings of the Exercise Price for each Warrant Share then exercised. To the extent any holder of a Warrant surrenders with such Warrant any Holdings Note then held by such holder, such holder shall be deemed to have paid that portion of the aggregate Exercise Price for all Warrant Shares then exercised equal to 100% of that portion of the Accreted Value (as defined in the Holdings Indenture) of, together with all accrued and unpaid interest on such portion of, any Holdings Note of such holder cancelled pursuant to this paragraph up to but excluding the date of such issuance of such Holdings Note which the holder thereof directs Holdings to accept as payment of such aggregate Exercise Price, which Holdings Note shall be cancelled and not reissued. To the extent the face amount of such surrendered Holdings Note is greater than the aggregate amount of the Exercise Price for all Warrant Shares then paid for by surrender thereof (exclusive of the portion of such exercise price paid for by interest, if any, on such Surrendered Note), Holdings shall deliver a new Holdings Note to the tendering holder thereof, in accordance with the provisions of the Holdings Indenture, dated the date of the original issuance of the tendered Holdings Note, in the face amount which bears the same proportion to the face amount of such surrendered Note immediately prior to such redemption as the unredeemed portion of the Accreted Value of such surrendered Note bears to the Accreted Value of such surrendered Note immediately prior to such redemption.
In lieu of payment of the Exercise Price pursuant to the preceding paragraph, the Warrant holder shall have the right to require Holdings to convert the Warrants, in whole or in part and at any time or times (the "Conversion Right"), into Warrant Shares by surrendering to Holdings the certificate or certificates evidencing the Warrant to be converted with the form of notice of conversion on the reverse thereof duly filled in and signed. Upon exercise of the Conversion Right, Holdings shall deliver to the Warrant holder (without payment by the holder of the Warrant of any Exercise Price) that number of Warrant Shares which is equal to the quotient obtained by dividing (x) the value of the number of Warrants being exercised at the time the Warrants are exercised (determined by subtracting the aggregate Exercise Price for all such Warrants immediately prior to the exercise of the Warrants from the aggregate Current Market Price (determined pursuant to Section 11(f) of that number of Warrant Shares purchasable upon
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exercise of such Warrants immediately prior to the exercise of the Warrants
(taking into account all applicable adjustments pursuant to Section 11) by (y)
the Current Market Price of one Common Unit immediately prior to the exercise of the Warrants.
Subject to the provisions of Section 8, upon surrender of the Warrant certificate or certificates, Holdings shall issue and deliver with all reasonable dispatch, to or upon the written order of the Warrant holder and in such name or names as the Warrant holder may designate, a certificate or certificates for the number of Warrant Shares issuable or other securities or property to which such holder is entitled hereunder upon the exercise of such Warrants, including, at Holdings' option, any cash payable in lieu of fractional interests as provided in Section 13. Such certificate or certificates shall be deemed to have been issued and any Person so designated to be named therein shall be deemed to have become a holder of record of such Warrant Shares as of the date of the surrender of such Warrants and payment of the Exercise Price. Holdings may issue fractional Common Units upon exercise of any Warrants in accordance with Section 13.
The Warrants shall be exercisable, at the election of the holders thereof, either in full or from time to time in part and, in the event that a certificate evidencing Warrants is exercised in respect of fewer than all of the Warrant Shares issuable on such exercise at any time prior to the Expiration Date, a new certificate evidencing the remaining Warrant or Warrants will be issued, and Holdings will duly execute and deliver the required new Warrant certificate or certificates pursuant to the provisions of Section 4 and this Section 7.
All Warrant certificates surrendered upon exercise of Warrants shall be canceled by Holdings. Such canceled Warrant certificates shall then be disposed of in a manner satisfactory to Holdings and in accordance with any applicable law. Holdings shall account promptly in writing with respect to Warrants exercised and all monies received for the purchase of the Warrant Shares through the exercise of such Warrants. In the event that Holdings shall purchase or otherwise acquire Warrants, Holdings may elect to have the Warrants canceled and retired. Holdings shall keep copies of this Agreement and any notices given or received hereunder available for inspection by the registered Warrant holders during normal business hours and upon reasonable notice at the Register Office.
Upon exercise of Warrants, the holder of Warrant Shares shall be admitted as a member of Holdings, in accordance with the Holdings Operating Agreement (which shall so provide).
SECTION 8. PAYMENT OF TAXES.
Holdings will pay all taxes and other governmental charges attributable to the initial issuance of Warrant Shares upon the exercise of Warrants; provided, however, that Holdings shall not be required to pay any such taxes or charges which may be payable in respect of any transfer involved in the issue of any Warrant certificates or any certificates for Warrant Shares in a name other than that of the registered holder of a Warrant certificate surrendered upon the exercise of a Warrant, and Holdings shall not be required to issue or deliver such Warrant certificates unless or until the Person or Persons requesting the issuance thereof shall have paid to Holdings the amount of such taxes or charges or shall have established to the satisfaction of Holdings that such taxes or charges have been paid.
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SECTION 9. MUTILATED OR MISSING WARRANT CERTIFICATES.
In case any of the Warrant certificates shall be mutilated, lost, stolen or destroyed, Holdings may in its discretion issue in exchange and substitution for and upon cancellation of the mutilated Warrant certificate, or in lieu of and substitution for the Warrant certificate lost, stolen or destroyed, a new Warrant certificate of like tenor and representing an equivalent number of Warrants, but only upon receipt of evidence satisfactory Holdings of such loss, theft or destruction of such Warrant certificate and indemnity and security therefor, if requested, also satisfactory (provided that if the Warrant holder is a Purchaser or another Warrant holder with a minimum net worth of at least $50,000,000, such Person's own unsecured agreement of indemnity shall be deemed to be satisfactory) to Holdings. Applicants for such substitute Warrant certificates shall also comply with such other reasonable regulations and pay such other reasonable charges as Holdings may prescribe.
SECTION 10. RESERVATIONS OF WARRANT SHARES.
Holdings (i) shall at all times reserve and keep available, free from preemptive rights, out of the aggregate of its authorized but unissued Common Units, for the purpose of enabling it to satisfy any obligation to issue Warrant Shares upon exercise of Warrants, the maximum number of Common Units which would then be deliverable upon the exercise of all outstanding Warrants if all such outstanding Warrants were then exercisable and (ii) if then converted into a corporation shall not take any action which results in any adjustment of the number of Warrant Shares if the total number of Warrant Shares issuable after the action upon the exercise of all of the Warrant Shares would exceed the total number of shares of common stock then authorized by Holdings' articles of incorporation and available for the purpose of issue upon such exercise.
The transfer agent for the Common Units (which may be Holdings if it is acting as transfer agent) (the "Transfer Agent") and every subsequent transfer agent for any units of Holdings' equity issuable upon the exercise of any of the rights of purchase aforesaid will be irrevocably authorized and directed at all times to reserve such number of authorized units as shall be required for such purpose. Holdings will keep a copy of this Agreement on file with the Transfer Agent for any units of Holdings' equity issuable upon the exercise of the rights of purchase represented by the Warrants. Holdings will supply such Transfer Agent with duly executed stock certificates for purposes of honoring all outstanding Warrants upon exercise thereof in accordance with the terms of this Agreement and Holdings will provide or otherwise make available any cash which may be payable as provided in Section 13. Holdings will furnish such Transfer Agent a copy of all notices of adjustments and certificates related thereto which are transmitted to each Warrant holder pursuant to Section 14.
Holdings covenants that all Warrant Shares which may be issued upon exercise of Warrants have been duly authorized and will, upon payment of the Exercise Price or upon the exercise of the Conversion Right and issuance, be duly and validly issued, fully paid and nonassessable, free of preemptive rights and free from all taxes, liens, charges and security interests with respect to the issue thereof.
SECTION 11. ADJUSTMENT OF NUMBER OF WARRANT SHARES.
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Each Warrant will initially be exercisable by the holder thereof into one unit of Common Stock at the Exercise Price. The number of Warrant Shares that may be purchased upon the exercise of each Warrant (the "Exercise Rate") will be subject to adjustment from time to time upon the occurrence of the events enumerated in this Section 11. For purposes of this Section 11, "Common Stock" means the Common Units and any other equity of Holdings into or for which such Common Units are converted or exchanged as a result of a conversion of Holdings into a corporation in connection with an IPO or pursuant to any merger, consolidation, or recapitalization involving Holdings, in each case, for which the Warrants may be exercised and where, as a result of this definition, the term refers to more than one class of securities, the adjustment provisions of this Section 11 shall be equitably adjusted to achieve as nearly as practicable the intended result as evidenced by the text of such adjustment provisions.
(a) Adjustments for Change in Common Stock. If at any time after the date of this Agreement Holdings:
(1) pays a dividend or makes a distribution on its Common Stock exclusively in shares of its Common Stock;
(2) subdivides its outstanding units of Common Stock into a greater number of units;
(3) combines its outstanding units of Common Stock into a smaller number of units;
(4) pays a dividend or makes a distribution on its Common Stock in units of its equity other than Common Stock; or
(5) issues by reclassification of its Common Stock any equity of Holdings;
then the Exercise Rate in effect immediately prior to such action shall be proportionately adjusted upon occurrence of such event so that the holder of any Warrant thereafter exercised may receive the aggregate number and kind of units of equity of Holdings which such holder would have owned immediately following such action if such Warrant had been exercised immediately prior to such action. If upon exercise of a Warrant after an adjustment to the Exercise Rate pursuant to clauses (4) or (5) of this Section 11(a), the holder of such Warrant may receive units of two or more classes or series of equity of Holdings, the exercise rights and the Exercise Rate of each class of equity shall thereafter be subject to further adjustment on terms comparable to those applicable to Common Stock in this Section 11. The adjustment pursuant to this Section 11(a) shall be made successively each time that any event listed in this Section 11(a) above shall occur.
(b) Adjustment for Rights Issue. In case Holdings shall issue to all holders of Common Stock, or shall make a dividend or other distribution on the Common Stock consisting exclusively of, rights, options or warrants entitling the holders thereof to subscribe for or purchase Common Stock or securities convertible into or exchangeable for Common Stock at a price per unit (determined in the case of such rights, options, warrants or convertible or exchangeable securities, by dividing (x) the total consideration payable to Holdings upon exercise, conversion or exchange of such rights, options, warrants or convertible or exchangeable
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securities, by (y) the total number of units of such class or series of Common Stock covered by such rights, options, warrants or convertible or exchangeable securities) less than the Current Market Price (determined as provided in paragraph (f) of this Section 11) on the date fixed for the determination of unitholders entitled to receive such rights, options, or warrants or convertible or exchangeable securities, the number of Warrant Shares for which each Warrant may be exercised shall be determined (and the Exercise Rate shall be appropriately adjusted) by multiplying the number of Warrant Shares issuable upon exercise of such Warrant immediately prior to the close of business on the date fixed for the determination of unitholders entitled to receive such rights, options or warrants, or convertible or exchangeable securities, by a fraction (not less than one) of which the numerator shall be the number of units of Common Stock outstanding immediately after giving effect to such dividend or other distribution (and assuming that such rights, options, warrants or convertible or exchangeable securities had been fully exercised or converted, as the case may be) and the denominator of which shall be the number of units of Common Stock outstanding at the close of business on the date fixed for the determination of unitholders entitled to receive such rights, options, or warrants or convertible or exchangeable securities plus the number of units of Common Stock determined by dividing the aggregate consideration that would be received by Holdings for the additional units of Common Stock to be issued, purchased or subscribed for upon exercise of such rights, options or warrants or upon conversion or exchange of such convertible or exchangeable securities by the Current Market Price (determined as provided in paragraph (f) of this
Section 11) on the date fixed for the determination of unitholders entitled to receive such rights, options or warrants, or convertible or exchangeable securities; provided, however, that no further adjustment to the number of Warrant Shares shall be made upon the subsequent issue or sale of Common Stock pursuant to such rights, options or warrants or convertible or exchangeable securities. For the purposes of this paragraph (b), the number of units of Common Stock at any time outstanding shall include units issuable in respect of scrip certificates issued in lieu of fractions of Common Stock.
(c) Adjustments for Issuances. In case Holdings shall issue Common Stock or rights, options or warrants entitling the holders thereof to subscribe for or purchase Common Stock or securities convertible into or exchangeable for Common Stock for a consideration per unit of Common Stock (determined in the case of such rights, options, warrants or convertible or exchangeable securities, by dividing (x) the total amount receivable by Holdings in consideration of the sale and issuance of such rights, options, warrants or convertible or exchangeable securities, plus the total consideration payable to Holdings upon exercise, conversion or exchange thereof, by (y) the total number of units of Common Stock covered by such rights, options, warrants or convertible or exchangeable securities) less than the Current Market Price (determined as provided in paragraph (f) of this Section 11), the number of Warrant Shares for which each Warrant may be exercised shall be determined (and the Exercise Price shall be appropriately adjusted) by multiplying the number of Warrant Shares issuable immediately prior to the close of business on the date on which Holdings fixes the offering price of such additional units by a fraction (not less than one) of which the numerator shall be the number of units of Common Stock outstanding immediately after giving effect to such issuance (and assuming, in the case of rights, options, warrants or convertible or exchangeable securities that such rights, options, warrants or convertible or exchangeable securities had been fully exercised or converted, as the case may be) and the denominator of which shall be the number of units of Common Stock outstanding at the close of business on the date on which Holdings fixes the
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offering price of such additional units plus a number of units of Common Stock determined by dividing the aggregate consideration received by or payable to Holdings for the additional units of Common Stock so issued or sold or to be issued, purchased or subscribed for upon exercise of such rights, options or warrants or upon conversion or exchange of such convertible or exchangeable securities by the Current Market Price (determined as provided in paragraph (f) of this Section 11) on the date on which Holdings fixes the offering price of such additional units; provided that, in the event that Holdings issues equity securities as part of a unit with debt securities, the allocation of the purchase price shall be determined in good faith by the Board of Advisors of Holdings. The increase in the number of Warrant Shares provided for in the preceding sentence shall not apply upon (i) the issuance of securities in transactions described in paragraphs (a) or (b) of this Section 11, or pursuant to the exercise, exchange or conversion of any such securities issued under this paragraph (c); (ii) the issuance of Common Stock to unitholders of any Person that immediately or subsequently merges with or into Holdings or any subsidiary thereof in proportion to their stock holdings of such Person immediately prior to such merger; (iii) the issuance of Common Stock in a bona fide underwritten public offering; (iv) exercise of the Management Options (as defined in the Purchase Agreement); (v) the issuance of Common Stock upon the exercise of Management Options (as defined in the Purchase Agreement) outstanding on the Closing Date; (vi) the issuance of Additional Warrants; (vii) issuances of Common Stock to independent third party sellers in connection with the Permitted Acquisitions (as defined in an indenture in respect of the Holdings Notes) has to exceed 10% in the aggregate of the Common Stock of Holdings on a fully diluted basis; or (viii) the issuance of Common Stock upon the exercise of Warrants.
(d) Superseding Adjustment. If, at any time (x) after any adjustment in the number of units issuable upon exercise of the Warrants shall have been made pursuant to Section 11(b) or 11(c) on the basis of the issuance of rights, options or warrants entitling the holders thereof to subscribe for or purchase Common Stock or securities convertible into or exchangeable for Common Stock, or
(y) after new adjustments in the number of units issuable upon exercise of the Warrants shall have been made pursuant to this Section 11(d).
(i) the right of conversion, exercise or exchange in such rights, options or warrants, or convertible or exchangeable securities shall expire, and the right of conversion, exercise or exchange in respect of any or all of such rights, options or warrants, or convertible or exchangeable securities shall not have been exercised, and/or
(ii) the consideration per unit for which units of Common Stock are issuable pursuant to the terms of such rights, options or warrants, or convertible or exchangeable securities shall be increased or decreased by virtue of provisions therein or by virtue of the conversion rate or exchange rate of such security being changed contained for an automatic increase or decrease in such consideration per unit upon the arrival of a specified date or the happening of a specified event or by agreement between Holdings and the holders of such securities,
such previous adjustment shall be rescinded and annulled. Thereupon, a recomputation shall be made of the effect of such rights, options or warrants, or convertible or exchangeable securities on the basis of
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(iii) treating the number of units of Common Stock, if any, theretofore actually issued or issuable pursuant to the previous exercise of such right of conversion, exercise or exchange as having been issued on the date or dates of such exercise and for the consideration actually received and receivable therefor, and treating the rights, options or warrants, or convertible or exchangeable securities which have expired and shall not have been exercised as if such securities had not been issued, and
(iv) with respect to securities as to which the consideration per unit of Common Stock has been changed, treating any such rights, options or warrants or convertible or exchangeable securities which then remain outstanding as having been granted or issued immediately after the time of such increase or decrease for the consideration per unit for which units of Common Stock are issuable under such rights, options or warrants or convertible or exchangeable securities, and
in each such case, a new adjustment in the number of units issuable upon exercise of the Warrants shall be made, which new adjustment shall supersede the previous adjustment so rescinded and annulled. No adjustment in the number of units issuable upon exercise of the Warrants pursuant to this Section 11(d) shall change the number of or otherwise affect any units of Common Stock issued prior to such adjustment upon exercise of the Warrants.
(e) Adjustment for Other Distributions. In case Holdings shall (i) make a dividend or other distribution on the Common Stock (other than a distribution covered by any of paragraphs (a), (b), or (c) of this Section 11 and other than the Final Tax Distributions and the Estimated Tax Distributions made in accordance with Section 6.1 of the Holdings Operating Agreement, to the extent permitted by the Credit Agreement (as defined in the Purchase Agreement) and by the Purchase Agreement), (ii) purchase or otherwise acquire for value any units of Common Stock, then the number of Warrant Shares for which each Warrant may be exercised shall be determined by multiplying the number of Warrant Shares issuable upon exercise of such Warrant immediately prior to the close of business on the date fixed for the determination of unitholders entitled to receive such distribution or the date of such purchase by a fraction (not less than one) of which the numerator shall be the Current Market Price (determined as provided in paragraph (f) of this Section 11) on the date fixed for the determination of unitholders entitled to receive such distribution on the date of such purchase and the denominator of which shall be such Current Market Price minus the result obtained by dividing the aggregate amount of cash and the fair market value of any property distributed or paid to effect such distribution or repurchase, as the case may be, by the number of units of Common Stock outstanding immediately prior to the date fixed for the determination of unitholders entitled to receive such distribution on the date of such purchase; provided that, any particular adjustment of the number of Warrant Shares pursuant to this paragraph (e) shall be of no force and effect if Holdings pays in respect of a distribution or a purchase which gave rise to such adjustment to each Warrant holder, upon exercise of such Warrant holder's Warrant(s), an amount of consideration to which such Warrant holder would have been entitled in connection with such distribution or purchase had such Warrant holder exercised its Warrant(s) immediately prior to the close of business on the date fixed for the determination of unitholders entitled to receive such distribution or the date of such purchase.
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(f) Current Market Price. For the purpose of any computation under this
Section 11, the current market price (the "Current Market Price") per unit of Common Stock of Holdings or any other security) (the "Applicable Share") on any date shall be deemed to be the average of the daily closing prices of such Applicable Share on the principal national securities exchange, on which the Applicable Shares are listed or admitted to trading or, if the Applicable Shares are not so listed, the average daily closing bid prices of such Applicable Shares on the NASDAQ National Market System if the Applicable Shares are quoted thereon, in any such case, for the 20 consecutive trading days ending on the 5th trading day before the date in question. If, on any date on which computation of the Current Market Price is to be made hereunder, the Applicable Shares are not so listed or quoted on a national securities exchange or the NASDAQ National Market System, the Current Market Price (except as otherwise provided herein) shall be determined in accordance with Section 12.
(g) No Amendments. Holdings will not, by amendment of the Holdings Operating Agreement or through any consolidation, merger, reorganization, transfer of assets, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Agreement, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the Warrant holders thereof against dilution or other impairment. Without limiting the generality of the foregoing, Holdings (i) will take all such action as may be necessary of appropriate in order that Holdings may validly and legally issue Common Stock on the exercise of the Warrants from time to time outstanding and (ii) will not take any action which results in any adjustment of the number of Warrant Shares if the total number of units of Common Stock issuable after the action upon the exercise of all of the Warrants would exceed the total number of units of Common Stock then authorized by Holdings' articles of organization and available for the purposes of issue upon such exercise.
(h) Voluntary Increases. Holdings may, but shall not be obligated to, make such increases in the number of Warrant Shares, in addition to those required by paragraphs (a) through (c) of this Section 11, as it considers to be advisable in order that any event treated for United States federal income tax purposes as a dividend of stock or stock rights shall not be taxable to the recipients or if that is not possible, to diminish any income taxes that are otherwise payable because of such event.
(i) When De Minimis Adjustment May Be Deferred. No adjustment in the number of Warrant Shares shall be required unless such adjustment (plus any other adjustments not previously made by reason of this paragraph (i)) would require an increase or decrease of at least 0.5% in the number of Warrant Shares; provided, however, that any adjustments which by reason of this paragraph (i) are not required to be made shall be carried forward and taken into account in any subsequent adjustment.
(j) Consolidation, Merger, Reorganization or Recapitalization of Holdings. In case at any time Holdings shall be a party to any transaction (including, without limitation, a merger, consolidation, sale of all or substantially all of Holdings' assets, liquidation or recapitalization of the Common Stock not subject to adjustment under any of the paragraphs (a) through
(h) of this Section 11) in which the previously outstanding Common Stock shall be converted or changed into or exchanged for different securities of Holdings or Common Stock or other securities of
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another corporation or interests in a non-corporate entity or other property (including cash) or any combination of the foregoing (each such transaction being herein called a "Transaction"), then, as a condition of the consummation of the Transaction, lawful and adequate provision shall be made so that each holder of a Warrant, upon the exercise thereof at any time on or after the consummation of the Transaction, shall be entitled to receive, and such Warrant shall thereafter represent the right to receive, in lieu of the Common Stock issuable upon such conversion prior to such consummation, the securities, cash or other property to which such holder would have been entitled upon consummation of the Transaction if such holder had exercised such Warrant immediately prior thereto (subject to adjustments from and after the consummation date as nearly equivalent as possible to the adjustments provided for in this Section 11). Holdings will not effect any Transaction unless prior to the consummation thereof each corporation or entity (other than Holdings) which may be required to deliver any securities or other property upon the exercise of the Warrants as provided herein shall assume, by written instrument delivered to each holder of the Warrants, the obligation to deliver to such holder such securities or other property as in accordance with the foregoing provisions such holder may be entitled to receive, and such corporation or entity shall have similarly mailed or delivered to each holder of the Warrants an opinion of counsel for such corporation or entity, reasonably satisfactory to the holders of a majority of the Warrants then outstanding, which opinion shall state that all of the outstanding Warrants, including, without limitation, the provisions of this Section 11, shall thereafter continue in full force and effect and shall be enforceable against Holdings and such corporation or entity in accordance with the terms hereof and thereof, together with such other matters as such holders may reasonably request. The foregoing provisions of this
Section 11(j) shall similarly apply to successive mergers, consolidations, sales of assets, liquidations and recapitalizations.
(k) Consideration Received. For purposes of any computation respecting consideration received pursuant to this Section 11, the following shall apply:
(1) in the case of the issuance of units of Common Stock for cash, the consideration shall be the amount of such cash, provided that in no case shall any deduction be made for any commissions, discounts or other expenses incurred by Holdings for any underwriting of the issue or otherwise in connection therewith;
(2) in the case of the issuance of units of Common Stock for a consideration in whole or in part other than cash, the consideration other than cash shall be deemed to be the fair market value thereof as determined in accordance with Section 12; and
(3) in the case of the issuance of securities convertible into or exchangeable for units, the aggregate consideration received therefor shall be deemed to be the consideration received by Holdings for the issuance of such securities plus the additional minimum consideration, if any, to be received by Holdings upon the conversion or exchange thereof (the consideration in each case to be determined in the same manner as provided in clauses (1) and (2) of this paragraph (k)).
(l) When Issuance or Payment May Be Deferred. In any case in which this
Section 11 shall require that an adjustment in the Exercise Rate be made effective as of a record date for
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a specified event, Holdings may elect to defer until the occurrence of such event (i) issuing to the holder of any Warrant exercised after such record date the Warrant Shares and other equity of Holdings, if any, issuable upon such exercise over and above the Warrant Shares and other equity of Holdings, if any, issuable upon such exercise on the basis of the Exercise Rate and (ii) paying to such holder any amount in cash in lieu of a fractional unit pursuant to Section 13; provided, however, that Holdings shall deliver to such holder a due bill or other appropriate instrument evidencing such holder's right to receive such additional Warrant Shares, other equity and cash upon the occurrence of the event requiring such adjustment.
(m) Form of Warrants. Irrespective of any adjustments in the Exercise Price or the Exercise Rate or kind of units or other assets purchasable upon the exercise of the Warrants, Warrants theretofore or thereafter issued may continue to express the same price and number and kind of units or other assets as are stated in the Warrants initially issuable pursuant to this Agreement.
(n) Adjustment in Exercise Price. Upon each adjustment in the number of Warrant Shares for which a Warrant is exercisable pursuant to this Section 11, the Exercise Price for such Warrant shall be adjusted to equal an amount per unit of Common Stock equal to the Exercise Price before such adjustment multiplied by a fraction, of which the numerator is the number of Warrant Shares for which a Warrant is exercisable immediately before giving effect to such adjustment and the denominator of which is the number of Warrant Shares for which a Warrant is exercisable immediately after giving effect to such adjustment; provided, however, that in no event shall the Exercise Price be reduced below the par value (if any) of the Common Stock for which the Warrant is exercisable.
(o) No Dilution or Impairment. If any event shall occur as to which the provisions of Section 11 are not strictly applicable but the failure to make any adjustment would adversely affect the purchase rights represented by the Warrants in a way that is contrary to the manifest and essential intent and principles of Section 11, then, in each such case, Holdings shall appoint an Independent Financial Expert, which shall give its opinion upon the adjustment, if any, on a basis consistent with the essential intent and principles established in Section 11 of this Agreement to preserve, without dilution, such exercise rights. Upon receipt of such opinion, Holdings will promptly mail a copy thereof to the holders and shall make the adjustments described therein. Holdings will at all times in good faith assist in the carrying out of the terms of this Agreement.
SECTION 12. VALUATION BY INDEPENDENT FINANCIAL EXPERT.
For purposes of this Agreement, the Current Market Price of Warrant Shares or other property shall be equal to the Fair Market Value (as defined below) of such Warrant Shares or property, as the case may be, and will be determined as follows. At any time the Current Market Price of Warrant Shares or other property is to be determined under this Agreement, Holdings and the Warrant holders holding Warrants representing a majority of the Warrant Shares will each, within thirty (30) days of receipt by the relevant party of such notice or within thirty (30) days after the date fixed under this Agreement for such determination, (i) appoint a nationally recognized investment bank with experience in transactions of comparable size and magnitude (an "Independent Financial Expert") to determine the Fair Market Value of such Warrant Shares
16
or other property, as the case may be, and (ii) cause the Independent Financial Expert so appointed by it as promptly as possible after such appointment, to prepare and to deliver to the other party or parties hereto a written report (a "Value Report") specifying such Fair Market Value within the time period specified below. Should one party (or the Independent Financial Expert selected by such party) fail to act timely to appoint an Independent Financial Expert or cause such Independent Financial Expert to deliver its Value Report within the time period specified below, then the Independent Financial Expert appointed by the other party shall alone determine the Fair Market Value of the Warrant Shares or other property, as the case may be, which determination shall be conclusive for all purposes hereof. If the two Value Reports so delivered by each Independent Financial Expert provide values such that the higher one is not more than 20% greater than the lower one, the average of the two values will be taken as the Fair Market Value of the Warrant Shares or other property, as the case may be, which average shall be conclusive for all purposes of establishing such Fair Market Value hereunder. If the valuations specified in the two Value Reports differ by more than 20%, Holdings and Warrant holders holding Warrants representing a majority of the Warrant Shares will jointly appoint an additional Independent Financial Expert (the "Independent Expert") to perform a third valuation and prepare a third Value Report. If Holdings and such Warrant holders are unable to agree on the selection of the Independent Expert, a body agreed to by both parties or, on the failure of such agreement, American Arbitration Association will be requested by Holdings and the Warrant holders jointly to appoint another Independent Expert to perform a third valuation. Such Independent Expert shall not have performed significant work for either Holdings or the Warrant holders during the immediately preceding one year. In such circumstance, the Fair Market Value of the Warrant Shares or other property, as the case may be, will be equal to (i) if the Fair Market Value specified in the Value Report prepared by the Independent Expert is in between the valuations specified on the two other Value Reports, an amount equal to the average of the two valuations that are closest in amount, (ii) if the Fair Market Value specified in the Value Report prepared by the Independent Expert is equal to or greater than the highest of the two valuations specified in the two initial Value Reports, an amount equal to the highest of such two initial valuations and
(iii) if the Fair Market Value specified in the Value Report prepared by the Independent Expert is equal to or lower than the lowest of the two valuations specified in the two initial Value Reports, an amount equal to the lower of such two initial valuations. Holdings shall provide all Independent Financial Experts with the same financial and operational information for conducting their valuation. Holdings shall use its best efforts to ensure that the information shall be complete and accurate in all material respects and that any forecasts shall be based on unbiased assessments made in good faith. Holdings shall cooperate fully with such Independent Financial Experts in the conduct of their valuation, including making management reasonably available and offering access to the premises of Holdings to the Independent Financial Experts during regular business hours and on reasonable notice. The Independent Expert shall not be apprised by either party of the two initial valuations prior to delivery of its own Value Report.
"Fair Market Value" of the Warrant Shares or other property, as the case may be, as of the date of determination shall mean the price that a willing buyer would pay to a willing seller for the relevant Warrant Shares or other property, as the case may be, in an arm's length transaction, with neither party being under any immediate obligation or need to consummate the transaction, it being understood that the buyer and seller in arriving at such price in determining the value of Warrant Shares would each consider, among other factors, the past and prospective earnings of Holdings, the initial public offering value of Holdings if Common Units of Holdings
17
were offered to the public in a widely distributed initial public offering and listed on one or more major stock exchanges, and comparable stock market valuations assuming such Common Units are publicly traded and widely distributed with no discount for lack of liquidity; provided that such valuation shall exclude any minority discount.
The Fair Market Value for the Warrant Shares or other property, as the case may be, shall be stated in U.S. dollars. Holdings and the Warrant holders shall each be responsible for all compensation of the Independent Financial Expert appointed by them and the costs of a third Independent Financial Expert, if required, shall be borne by a party whose valuation is not included in computing the final Fair Market Value. The Independent Financial Experts shall submit their valuations simultaneously to Holdings and the Warrant holders at 12:00 noon New York time on the thirtieth day after being jointly instructed by Holdings and the Warrant holders to initiate the valuation calculation or, if such day is not a business day, on the next business day. If a third valuation is required, the Independent Expert shall submit its valuation to the parties within 60 days of its appointment or, if such day is not a business day, on the next business day.
SECTION 13. FRACTIONAL INTERESTS.
Holdings shall not be required to issue fractional Warrant Shares on the exercise of Warrants, although it may do so in its sole discretion. If more than one Warrant shall be presented for exercise in full at the same time by the same holder, the number of full Warrant Shares which shall be issuable upon the exercise thereof shall be computed on the basis of the aggregate number of Warrant Shares purchasable on exercise of the Warrants so presented. If any fraction of a Warrant Share would, except for the provisions of this Section 13, be issuable upon the exercise of any such Warrants (or specified portion thereof), Holdings shall notify the Warrant holder exercising the Warrants in writing of the amount to be paid in lieu of the fraction of a Warrant Share and concurrently shall pay to the Warrant holder an amount in cash equal to the Current Market Value per Warrant Share, as determined on the day immediately preceding the date the Warrant is presented for exercise, multiplied by such fraction, computed to the nearest whole cent.
SECTION 14. NOTICES TO WARRANT HOLDERS; RIGHTS OF WARRANT HOLDERS.
Upon any adjustment of the number of Warrant Shares pursuant to Section 11, Holdings shall promptly thereafter (i) file with the Register Office a certificate of the Senior Financial Officer of Holdings (unless the Purchasers request a certificate of a firm of independent public accountants of recognized standing selected by the Board (who may be the regular auditors of Holdings)) setting forth the number of Warrant Shares (or portion thereof) issuable after such adjustment, upon exercise of a Warrant and (ii) give to each of the registered holders of the Warrant certificates at his or her address appearing on the Warrant register written notice of such adjustments by first-class mail, postage prepaid. Where appropriate, such notice may be given in advance and included as a part of the notice required to be mailed under the other provisions of this Section 14.
In case Holdings shall authorize:
18
(a) the issuance of any dividend or other distribution on the Common Units, whether in cash, equity, or other securities, evidences of indebtedness or other property; or
(b) any action which would require an adjustment of the number of Warrant Shares pursuant to Section 11; or
(c) any conversion of Holdings into a corporation in connection with an IPO or otherwise; or
(d) any tender offer or exchange offer by Holdings for Common Units or Common Units open market repurchase program, in either case, involving more than 3% of the outstanding Common Units; or
(e) of the voluntary or involuntary dissolution, liquidation or winding up of Holdings;
then Holdings shall cause to be filed with the Register Office and shall give to each of the registered holders of the Warrant certificates at the address appearing on the Warrant register, a written notice delivered by any method provided in Section 16, at least 20 business days (or 10 business days in any case specified in clause (b) above) prior to the applicable record date hereinafter specified, or, in the case of events for which there is no record date, at least 20 business days before the effective date of such event or the commencement of such tender offer, exchange offer, or repurchase program; provided that such notice period shall be extended by the number of days that the Warrant Shares cannot be exercised under Section 7. Any written notice provided pursuant to this Section 14 shall state (i) the date as of which the holders of record of Common Units are entitled to receive any such rights, options, warrants or distribution are to be determined, or (ii) the commencement date of any tender offer, exchange offer or repurchase program for Common Units, or (iii) the date on which any such consolidation, merger, conveyance, transfer, reclassification, dissolution, liquidation or winding up is expected to become effective or consummated, and the date as of which it is expected that holders of record of Common Units shall be entitled to exchange such units for securities or other property, if any, deliverable upon such consolidation, merger, conveyance, transfer, reclassification, dissolution, liquidation or winding up. The failure to give the notice required by this Section 14 or any defect therein shall not affect the legality or validity of any issuance, right, option, warrant, distribution, tender offer, exchange offer, repurchase program, consolidation, merger, conveyance, transfer, reclassification, dissolution, liquidation or winding up, or the vote upon any action.
Nothing contained in this Agreement or in any of the Warrant certificates shall be construed as conferring upon the holders thereof the right to vote or to consent or to receive notice of meetings of unitholders or the appointment of managers of Holdings or any other matter, or any other rights of unitholders of Holdings, including any right to receive dividends. In addition, the holders of Warrant certificates shall have no preemptive rights and shall not be entitled to share in the assets of Holdings in the event of the liquidation, dissolution or winding up of Holdings' affairs.
SECTION 15. NOTICES.
Any notice or demand authorized by this Agreement to be given or made by Holdings or by the registered holder of any Warrant certificate to Holdings shall be sufficiently given or
19
made when deposited in the mail, first class or registered, postage prepaid, addressed, or when sent via facsimile, as follows:
American Reprographics Company Holdings, L.L.C. 900 Palm Avenue
South Pasadena, California 91030
Telecopy: (626) 441-6649
Attention: Manager
with copies to:
Code Hennessy & Simmons L.L.C.
10 South Wacker Drive, Suite 3175
Chicago, Illinois 60606
Telecopy: (312) 876-3854
Attention: Thomas J. Formolo
and
Altheimer & Gray
10 South Wacker Drive, Suite 4000
Chicago, Illinois 60606
Telecopy: (312) 715-4800
Attention: Nancy Kasko, Esq.
Any notice pursuant to this Agreement to be given by Holdings to the Purchaser shall be sufficiently given when deposited in the mail, first-class or registered, postage prepaid, addressed (until another address is provided in writing by such Purchaser to Holdings) to the Purchaser, or when sent via facsimile, as follows:
GS Mezzanine Partners, L.P.
85 Broad Street
New York, New York 10004
Telecopy: (212) 902-3000
Attention: Ben Adler, Esq.
with a copy to:
Fried, Frank, Harris, Shriver & Jacobson One New York Plaza
New York, New York 10004
Telecopy: (212) 859-8586
Attention: Arthur S. Kaufman, Esq.
SECTION 16. SUPPLEMENTS AND AMENDMENTS.
Holdings may from time to time supplement or amend this Agreement without the approval of any holders of Warrant certificates in order to cure any ambiguity or to correct or
20
supplement any provision contained herein which may be defective or inconsistent with any other provision herein, or to make any other provisions in regard to matters or questions arising hereunder which Holdings may deem necessary or desirable and which shall not in any way adversely affect the interests of the holders of Warrant certificates. Any amendment or supplement to this Agreement that has an adverse effect on the interests of holders of Warrant certificates shall require the written consent of registered holders of fifty percent of the then outstanding Warrants. The consent of each holder of a Warrant affected shall be required for any amendment pursuant to which the Exercise Price would be increased or the number of Warrant Shares for or into which a Warrant may be exercised or convertible would be decreased (other than in connection with a waiver of any provisions of Section 10). Notwithstanding anything herein to the contrary, if this Agreement is amended pursuant to Section 2.4(e) of the Purchase Agreement, such amendment shall require the written consent of the Company and the Purchasers only.
SECTION 17. SUCCESSORS.
All the covenants and provisions of this Agreement by or for the benefit of Holdings shall bind and inure to the benefit of their respective successors and assigns hereunder. If Holdings is converted into a corporation, the terms of this Agreement shall be modified to provide the same substantive rights but in the form appropriate for a corporation.
SECTION 18. TERMINATION.
This Agreement shall terminate on the date on which all Warrants have been exercised or lapsed.
SECTION 19. GOVERNING LAW.
THIS AGREEMENT AND EACH WARRANT CERTIFICATE ISSUED HEREUNDER SHALL BE DEEMED TO BE A CONTRACT MADE UNDER THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS THAT WOULD REQUIRE THE APPLICATION OF THE LAWS OF A JURISDICTION OTHER THAN SUCH STATE.
SECTION 20. BENEFITS OF THIS AGREEMENT.
Nothing in this Agreement shall be construed to give to any Person other than Holdings and the registered holders of Warrant certificates any legal or equitable right, remedy or claim under this Agreement; but this Agreement shall be for the sole and exclusive benefit of Holdings and the registered holders of the Warrant certificates.
SECTION 21. HEADINGS.
The descriptive headings of the several Sections and paragraphs of this Agreement inserted for convenience only, do not constitute a part of this Agreement and shall not affect in any way the meanings or interpretation of this Agreement.
SECTION 22. SUBMISSION TO JURISDICTION.
21
If any action, proceeding or litigation shall be brought by the Purchasers, any holder of Warrants or Holdings in order to enforce any right or remedy under this Agreement the parties hereto hereby consent and will submit, and will cause each of its subsidiaries to submit, to the jurisdiction of any state or federal court of competent jurisdiction sitting within the area comprising the Southern District of New York on the date of this Agreement. The parties hereto hereby irrevocably waive any objection, including, but not limited to, any objection to the laying of venue or based on the grounds of forum non conveniens, which they may now or hereafter have to the bringing of any such action, proceeding or litigation in such jurisdiction.
SECTION 23. WAIVER OF JURY TRIAL.
THE PARTIES HERETO HEREBY WAIVE ANY RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY ACTION, PROCEEDING OR LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH, THIS AGREEMENT OR ANY OF THE WARRANTS.
SECTION 24. SERVICE OF PROCESS.
Nothing herein shall affect the right of any holder of a Security to serve process in any other manner permitted by law or to commence legal proceedings or otherwise proceed against Holdings in any other jurisdiction.
SECTION 25. COUNTERPARTS.
This Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed, as of the day and year first above written.
AMERICAN REPROGRAPHICS HOLDINGS,
L.L.C.

By: /s/ M. W. LEGG
   ------------------------------------
   Name: MARK LEGG
   Title: CHIEF FINANCIAL OFFICER AND
          SECRETARY	

GS MEZZANINE PARTNERS II, L.P.
By: GS MEZZANINE ADVISORS II, L.L.C.,
 its general partner

By: /s/ J. E. BOWMAN
   ------------------------------------
   Name: JOHN E. BOWMAN
   Title: VICE PRESIDENT	

22
GS MEZZANINE PARTNERS OFFSHORE II, L.P.
By: GS MEZZANINE ADVISORS II, L.L.C.,
 its general partner

By: /s/ J. E. BOWMAN
   ------------------------------------
   Name: JOHN E. BOWMAN
   Title: VICE PRESIDENT	

23
 
EXHIBIT A

                           Form of Warrant Certificate
                                     [Face]

[Date]

No. ___                                                          _____ Warrants

                               Warrant Certificate
                     AMERICAN REPROGRAPHICS HOLDINGS. L.L.C.	

This Warrant Certificate certifies that ______________________________ , or registered assigns, is the registered holder of _____________ Warrants (the "Warrants") to purchase an aggregate of common units (the "Common Units"), of American Reprographics Holdings, L.L.C., a ____________________________ limited liability company (the "Company"). Each Warrant entitles the holder upon exercise to purchase from Holdings at any time after the date hereof
[_____________________________________ of] a fully paid and nonassessable Common Unit (a "Warrant Share") upon surrender of this Warrant Certificate and payment in full for such Warrant Share at the Register Office of Holdings, subject to the conditions set forth herein and in the Warrant Agreement referred to on the reverse hereof. The number of Warrant Shares purchasable upon exercise thereof are subject to adjustment upon the occurrence of certain events set forth in the Warrant Agreement.
Reference is hereby made to the further provisions of this Warrant Certificate set forth on the reverse hereof, which provisions shall for all purposes have the same effect as though fully set forth at this place.
This Warrant Certificate shall not be valid unless authenticated by countersignature of the Warrant Agent, as such term is used in the Warrant Agreement.
THIS WARRANT CERTIFICATE SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS THAT WOULD REQUIRE THE APPLICATION OF THE LAWS OF A JURISDICTION OTHER THAN SUCH STATE.
IN WITNESS WHEREOF, American Reprographics Holdings. L.L.C., has caused this Warrant Certificate to be signed by its duly authorized Manager as of the date first above written.
AMERICAN REPROGRAPHICS HOLDINGS,
L.L.C.
By:____________________________________
Name:
Title:
1
Form of Warrant Certificate
[Reverse]
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY JURISDICTION. SUCH SECURITIES MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED, ASSIGNED, ENCUMBERED, HYPOTHECATED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO (I) A REGISTRATION STATEMENT WITH RESPECT TO SUCH SECURITIES THAT IS EFFECTIVE UNDER SUCH ACT OR APPLICABLE STATE SECURITIES LAW, OR (II) ANY EXEMPTION FROM REGISTRATION UNDER SUCH ACT, OR APPLICABLE STATE SECURITIES LAW, RELATING TO THE DISPOSITION OF SECURITIES, INCLUDING RULE 144.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ALSO ARE SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER AS SET FORTH IN THE HOLDINGS OPERATING AGREEMENT OF AMERICAN REPROGRAPHICS HOLDINGS, L.L.C. ("HOLDINGS"), DATED AS OF APRIL 10, 2000, AND THE INVESTOR UNITHOLDERS AGREEMENT OF HOLDINGS, DATED AS OF APRIL 10, 2000, COPIES OF EACH OF WHICH MAY BE OBTAINED FROM HOLDINGS. NO TRANSFER OF SUCH SECURITIES WILL BE MADE ON THE BOOKS OF HOLDINGS UNLESS ACCOMPANIED BY EVIDENCE OF COMPLIANCE WITH THE TERMS OF SUCH AGREEMENTS.
The Warrants evidenced by this Warrant Certificate are part of a duly authorized issue of Warrants entitling the holder on exercise to receive Common Units of Holdings (the "Common Units"), and are issued or to be issued pursuant to a Warrant Agreement, dated as of April 10, 2000 (the "Warrant Agreement"), between Holdings and the other parties thereto, which Warrant Agreement is hereby incorporated by reference in and made a part of this instrument and is hereby referred to for a description of the rights, limitation of rights, obligations, duties and immunities thereunder of Holdings and the holders (the words "holders" or "holder" meaning the registered holders or registered holder) of the Warrants. All terms not otherwise defined herein shall have the meanings set forth in the Warrant Agreement. A copy of the Warrant Agreement may be obtained by the holder hereof upon written request to Holdings.
Warrants may be exercised at any time after the date hereof. The holder of Warrants evidenced by this Warrant Certificate may exercise such Warrants by surrendering this Warrant Certificate, with the form of election to purchase set forth hereon properly completed and executed, together with payment to Holdings of the Exercise Price for each Warrant then exercised, which payment may be made either in cash or by tendering any Holdings Note then held by such holder or a portion thereof in the face amount equal to the 100% of the portion of the Exercise Price being so paid or by a combination thereof. In lieu of payment of the Exercise Price pursuant to the preceding sentence, the holder of the Warrants may convert the Warrants,
1
in whole or in part and at any time or times, into Common Units by surrendering to Holdings this Warrant Certificate with the form of notice of conversion set forth hereon properly completed and executed. In the event that upon any exercise of Warrants evidenced hereby the number of Warrants exercised shall be less than the total number of Warrants evidenced hereby, there shall be issued to the holder hereof or his assignee a new Warrant Certificate evidencing the number of Warrants not exercised. No adjustment shall be made for any dividends on any Common Units issuable upon exercise of this Warrant.
The Warrant Agreement provides that upon the occurrence of certain events the number of Warrant Shares may, subject to certain conditions, be adjusted. Holdings will not be required to issue fractional Warrant Shares on the exchange of Warrants, although it may do so in its sole discretion. If fractional units are not issued, Holdings will pay the cash value of such fractional units as determined in accordance with the provisions of the Warrant Agreement.
Warrant certificates, when surrendered at the office of Holdings by the registered holder thereof in person or by legal representative or attorney duly authorized in writing, may be exchanged, in the manner and subject to the limitations provided in the Warrant Agreement, but without payment of any service charge, for another Warrant certificate or Warrant certificates of like tenor evidencing in the aggregate a like number of Warrants.
Upon due presentation for registration of transfer of this Warrant certificate at the office of Holdings, a new Warrant certificate or Warrant certificates of like tenor and evidencing in the aggregate a like number of Warrants shall be issued to the transferee(s) in exchange for this Warrant certificate, subject to the limitations provided in the Warrant Agreement, without charge except for any tax or other governmental charge imposed in connection therewith.
Holdings may deem and treat the registered holder(s) thereof as the absolute owner(s) of this Warrant certificate (notwithstanding any notation of ownership or other writing hereon made by anyone), for the purpose of any exercise hereof, of any distribution to the holder(s) hereof, and for all other purposes, and Holdings shall not be affected by any notice to the contrary. Neither the Warrants nor this Warrant certificate entitles any holder hereof to any rights of a unitholder of Holdings.
2
Form of Election to Purchase
(To Be Executed Upon Exercise of Warrant)
The undersigned hereby irrevocably elects to exercise the right, represented by this Warrant certificate, to receive _________________________ Common Units and hereby tenders for payment for such units to the order of American Reprographics Company Holdings. L.L.C.
$_______________________________ of the Accreted Value of Holdings Note (as defined in the Warrant Agreement),
cash in the amount of $ ___________________________
in accordance with the terms hereof.
The undersigned requests that a certificate for such units be registered in the name of _______________________________________, whose address is _____________________________________ and that such units be delivered to _________________________________ whose address is ____________________________.
If said number of Warrant Shares is less than all of the Common Units purchasable hereunder, the undersigned requests that a new Warrant certificate representing the remaining balance of such units be registered in the name of ______________________________________, whose address is _______________________ _______________________________________, and that such Warrant certificate be delivered to ________________________________________________ , whose address is ________________________________________________.

(Signature)
Date:_________________________
1
Form of Notice of Conversion
(To Be Executed Upon Conversion of Warrant)
The undersigned hereby irrevocably elects to exercise the right, represented by this Warrant certificate, to convert Warrants represented hereby into ____________________ Common Units in accordance with the terms hereof.
The undersigned requests that a certificate for such units be registered in the name of __________________________________, whose address is __________ _______________________________ and that such units be delivered to __________ ________________________________ whose address is ____________________________ _______________________________________.
If said number of Warrant Shares is less than all of the Common Units purchasable hereunder, the undersigned requests that a new Warrant certificate representing the remaining balance of such units be registered in the name of _____________________________________, whose address is _______________________ _________________________________, and that such Warrant certificate be delivered to __________________________________, whose address is _____________ _________________________________________.

(Signature)
Date:_________________________
1
EXHIBIT B
Form of Transfer
(To Be Executed Upon Transfer of Warrant)
FOR VALUE RECEIVED, the undersigned registered holder of this Warrant certificate hereby sells, assigns and transfers unto the Assignee(s) named below (including the undersigned with respect to any Warrants constituting a part of the Warrants evidenced by this Warrant certificate not being assigned hereby) all of the rights of the undersigned under this Warrant certificate, with respect to the number of Warrants set forth below:

Name of Assignee(s)   Address   Social Security, EIN or      Number of Warrants
                                other identifying number of
                                assignee(s)	

and does hereby irrevocably constitute and appoint Holdings as the undersigned's attorney to make such transfer on the register maintained by Holdings for that purpose, with full power of substitution in the premises.
Date:

(Signature of Owner)

(Street Address)

(City) (State) (Zip Code)

1
 
SCHEDULE A
Issuance of Original Warrants

    Name and Address of Purchaser             Number of Original Warrants
---------------------------------------      ---------------------------
GS MEZZANINE PARTNERS II, L.P.                           2,743.54
85 Broad Street
New York, New York 10004
Telecopy: (212) 902-3000
Attention: Ben Adler, Esq.

GS MEZZANINE PARTNERS II OFFSHORE, L.P.                    836.70
c/o GS Mezzanine Partners L.P.
85 Broad Street
New York, New York 10004
Telecopy: (212) 902-3000
Attention: Ben Adler, Esq.	

1
TABLE OF CONTENTS*

                                                                                              PAGE
SECTION 1.        DEFINITIONS.............................................................      1

SECTION 2.        WARRANT CERTIFICATES....................................................      4

SECTION 3.        ISSUANCE OF WARRANTS....................................................      4

SECTION 4.        EXECUTION OF WARRANT CERTIFICATES.......................................      4

SECTION 5.        REGISTRATION............................................................      5

SECTION 6.        REGISTRATION OF TRANSFERS AND EXCHANGES.................................      5

SECTION 7.        TERMS OF WARRANTS; EXERCISE OF WARRANTS.................................      7

SECTION 8.        PAYMENT OF TAXES........................................................      8

SECTION 9.        MUTILATED OR MISSING WARRANT CERTIFICATES...............................      9

SECTION 10.       RESERVATIONS OF WARRANT SHARES..........................................      9

SECTION 11.       ADJUSTMENT OF NUMBER OF WARRANT SHARES..................................      9

     (a)      Adjustments for Change in Common Stock......................................     10

     (b)      Adjustment for Rights Issue.................................................     10

     (c)      Adjustments for Issuances...................................................     11

     (d)      Superseding Adjustment......................................................     12

     (e)      Adjustment for Other Distributions..........................................     13

     (f)      Current Market Price........................................................     14

     (g)      No Amendments...............................................................     14

     (h)      Voluntary Increases.........................................................     14

     (i)      When De Minimis Adjustment May Be Deferred..................................     14

     (j)      Consolidation, Merger, Reorganization or Recapitalization of Holdings.......     14

     (k)      Consideration Received......................................................     15

     (l)      When Issuance or Payment May Be Deferred....................................     15

     (m)      Form of Warrants............................................................     16

     (n)      Adjustment in Exercise Price................................................     16

     (o)      No Dilution or Impairment...................................................     16

SECTION 12.       VALUATION BY INDEPENDENT FINANCIAL EXPERT...............................     16	

*This table of Contents does not constitute a part of this Agreement or have any bearing upon the interpretation of any of its terms or provisions.

-i-
TABLE OF CONTENTS
 (continued)

                                                                                              PAGE
SECTION 13.       FRACTIONAL INTERESTS....................................................     18

SECTION 14.       NOTICES TO WARRANT HOLDERS; RIGHTS OF WARRANT HOLDERS...................     18

SECTION 15.       NOTICES.................................................................     19

SECTION 16.       SUPPLEMENTS AND AMENDMENTS..............................................     20

SECTION 17.       SUCCESSORS..............................................................     21

SECTION 18.       TERMINATION.............................................................     21

SECTION 19.       GOVERNING LAW...........................................................     21

SECTION 20.       BENEFITS OF THIS AGREEMENT..............................................     21

SECTION 21.       HEADINGS................................................................     21

SECTION 22.       SUBMISSION TO JURISDICTION..............................................     21

SECTION 23.       WAIVER OF JURY TRIAL....................................................     22

SECTION 24.       SERVICE OF PROCESS......................................................     22

SECTION 25.       COUNTERPARTS............................................................     22

EXHIBIT A.        FORM OF WARRANT CERTIFICATE.............................................    A-1

EXHIBIT B.        FORM OF TRANSFER........................................................    B-1

SCHEDULE A        ISSUANCE OF WARRANTS....................................................    A-1	

-ii-
 
EXHIBIT 10.23
FIRST AMENDMENT (this "Amendment"), dated as of September 8. 2000, to the Warrant Agreement (the "Warrant Agreement") dated as of April 10, 2000, by and between American Reprographics Holdings, L.L.C., a California limited liability company ("Holdings") and GS Mezzanine Partners II, L.P., a limited partnership organized under the laws of Delaware ("GS Mezzanine"), GS Mezzanine Partners II Offshore, L.P., an exempted limited partnership organized under the laws of the Cayman Islands ("GS Offshore," together with GS Mezzanine, the "Purchasers"). Capitalized terms used herein and not defined herein shall have the respective meanings ascribed to such terms in the Warrant Agreement.
RECITALS
WHEREAS, the parties have agreed to amend the Warrant Agreement, but only upon the terms and subject to the conditions set forth below,
NOW, THEREFORE, in consideration of the premises and the mutual agreements herein set forth, the parties hereto agree as follows:
1. Amendment to Section 1 (Definitions). Section 1 of the Warrant Agreement is hereby amended by deleting the definition of "Expiration Date" and inserting the following definition in lieu thereof:
"Expiration Date" shall mean April 10, 2010.
2. Warrant Agreement Remains in Effect. Except as expressly amended herein, the Warrant Agreement shall continue to be, and shall remain, in full force and effect. This Amendment shall not be deemed to be a waiver of, or consent to, or a modification or amendment of, any other term or condition of the Warrant Agreement or the Warrants or to prejudice any other right or rights which the Warrant holders may now have or may have in the future under or in connection with the Warrant Agreement or any of the instruments or agreements referred to therein, as the same may be amended from time to time.
3. Counterparts. This Amendment may be executed by one or more of the parties hereto in any number of separate counterparts (which may include counterparts delivered by facsimile transmission) and all of said counterparts taken together shall be deemed to constitute one and the same instrument.
4. GOVERNING LAW. THIS AMENDMENT SHALL BE DEEMED TO BE A CONTRACT MADE UNDER THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS THAT WOULD REQUIRE THE APPLICATION OF THE LAWS OF A JURISDICTION OTHER THAN SUCH STATE.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed, as of the day and year first above written.
AMERICAN REPROGRAPHICS HOLDINGS, L.L.C.

/s/ M. W. LEGG
------------------------------------------------
Name: MARK LEGG
Title: CFO	

GS MEZZANINE PARTNERS II, L.P.
By: GS MEZZANINE ADVISORS II, L.L.C.,
 its general partner

By: /s/ KATHERINE L. NISSENBAUM
    --------------------------------------------
    Name: KATHERINE L. NISSENBAUM
    Title: VICE PRESIDENT	

GS MEZZANINE PARTNERS II OFFSHORE, L.P.
By: GS MEZZANINE ADVISORS II, . L.L.C.,
 its general partner

By: /s/ KATHERINE L. NISSENBAUM
    --------------------------------------------
    Name:  KATHERINE L. NISSENBAUM
    Title: VICE PRESIDENT	

EXHIBIT 10.24
INVESTOR UNITHOLDERS AGREEMENT
THIS INVESTOR UNITHOLDERS AGREEMENT (this "Agreement") is dated April 10, 2000 by and among American Reprographics Holdings, L.L.C., a California limited liability company ("Holdings"), ARC Acquisition Co., L.L.C., a Delaware limited liability company ("Company"), GS Mezzanine Partners II,L.P., a Delaware limited partnership ("GS"), GS Mezzanine Partners II Offshore, L.P., a Cayman Islands exempted limited partnership ("GS Offshore," and together with GS or any Affiliate (as defined below) of GS to which GS or GS Offshore may assign its rights hereunder, the "GS Party," and collectively, the "GS Parties"). Company and the GS Party are collectively referred to herein as the "Unitholders," and are individually referred to herein as a "Unitholder" Otherwise undefined capitalized terms used herein are defined in Section 8 hereof.
In consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties to this Agreement hereby agree as follows:
1. Methodology for Calculations. For purposes of this Agreement, the sale of a Unit Equivalent shall be treated as the sale of a Common Unit into which such Unit Equivalent can be converted, exchanged or exercised. Except as otherwise provided in this Agreement, for purposes of this Agreement in calculating: (i) the amount of outstanding Common Units as of any date, (ii) the amount of Common Units owned by a Person hereunder, or (iii) related percentages, all Common Units potentially issuable to any Person pursuant to the exercise of Options or the conversion or exchange of other Unit Equivalents shall be treated as having been issued but in each case only to the extent such Option or Unit Equivalent is then vested and exercisable, convertible or exchangeable, as the case may be. All holdings of Common Units by Persons who are Affiliates of each other shall be aggregated for purposes of meeting any threshold tests under this Agreement.
2. Restrictions on Transfer of GS Units.
(a) First Refusal Rights.
(i) Before a GS Party makes any sale, transfer, assignment, pledge or other disposal (a "Transfer") of GS Units (except pursuant to:
(A) the provisions of Sections 2(b) or 2(c), (B) a Public Sale, or (C) an Approved Sale (as defined in Section 3 below) with respect to which
Section 11.3 of the Operating Agreement is applicable) such GS Party (a "Selling GS Party") shall deliver written notice (an "Offer Notice") to Holdings. The Offer Notice shall disclose in reasonable detail the identity of the prospective transferee(s), the number and class of such GS Units to be Transferred, and the terms and conditions of the proposed Transfer. The Selling GS Party shall not consummate any Transfer until sixty (60) days after the Offer Notice has been given to Holdings, unless the parties to the Transfer have been finally determined pursuant to this
Section 2(a) before the expiration of such sixty (60)-day period. The date of the first to occur of such events is referred to herein as the "Authorization Date."
(ii) Holdings may elect to purchase all (but not less than all) of such GS Units as specified in the Offer Notice at the price and on the terms specified therein by delivering written notice of such election to the Selling GS Party as soon as practical but in any event within thirty
(30) days after the delivery of the Offer Notice to Holdings (the "Election Period"). If, pursuant to this Section 2(a), Holdings has elected to purchase all (but not less than all) of the GS Units specified in the Offer Notice from the Selling GS Party, the Transfer will be consummated in accordance with the terms of the Offer Notice as soon as practicable after the delivery of the election notice, but in any event within thirty (30) days after the expiration of the Election Period. If, pursuant to this
Section 2(a), Holdings has not elected to purchase all of the GS Units being offered, the Selling GS Party may, within sixty (60) days after the expiration of the Election Period. Transfer the GS Units not so purchased to the third party(ies) identified in the Offer Notice at a price no less than the price per GS Unit specified in the Offer Notice and on Other terms no more favorable to the transferee(s) than the terms specified in the Offer Notice. Any GS Units not transferred within the sixty (60)-day period after the Election Period shall be reoffered to Holdings pursuant to this Section 2(a) before any subsequent Transfer. The purchase price specified in any Offer Notice shall be payable solely in cash at the closing of the transaction or in installments over time. Notwithstanding any provision herein to the contrary, after the date hereof, no GS Units may be pledged, except with the consent of Holdings, which consent shall not be unreasonably withheld.
(b) Minority Participation Rights in a Transfer of Common Units by Company. At least thirty(30) days before any Transfer by Company of any Common Units (except pursuant to: (i) the provisions of Section 2(c), (ii) a Public Sale, or (iii) an Approved Sale), Company shall deliver a written notice (the "Sale Notice") to each GS Party, specifying in reasonable detail the identity of the prospective transferee(s) the identity number, and class or classes of Common Units to be transferred by Company, and the terms and conditions of the proposed Transfer. In the event that any GS Party holds the class of Common Units which are to be Transferred, or securities convertible or exchangeable for the class of Common Units which are to be Transferred, such GS Party may elect to participate in the contemplated Transfer by delivering written notice to Company within fifteen (15) days after delivery of the Sale Notice. If any such GS Party has elected to participate in such Transfer (each a "Participating GS Party," and, collectively, the "Participating GS Parties"), then Company and each Participating GS Party shall be entitled to transfer in the contemplated Transfer, at the same price (less, in the case of securities convertible or exchangeable for Common Units, the conversion, exercise or exchange price) and on the same terms specified in the Sale Notice, a number of Common Units of such class, or securities convertible or exchangeable for Common Units of such class, equal to the number of Common Units of such class and securities convertible or exchangeable for Common Units of such class to be transferred in the contemplated Transfer multiplied by a fraction, the numerator of which is the number of Common Units of such class and securities convertible or exchangeable for Common Units of such class held by such Person on an as-if converted or exchanged basis, and the denominator of which is the aggregate number of Common Units of such class and securities convertible or exchangeable for Common Units of such class held by Company and all Participating GS Parties on an as-if converted or exchanged basis. Company shall use its best efforts to obtain the agreement of the prospective transferee(s) to the participation of the Participating GS Parties in any contemplated Transfer, and Company shall not Transfer any Common Units to the prospective transferee(s) unless: (A) the prospective transferee(s) agrees to allow the participation of the Participating GS Parties at the same price (less, in the case of securities convertible or exchangeable for Common Units, the conversion, exercise or exchange price) and on the same terms as specified in the Sale Notice, or (B) Company agrees to purchase the number of Common Units that any Participating GS Party would have been entitled to transfer pursuant to this Section 2(b) at the same price and on the same terms as specified in the Sale Notice. If, in response to the Sale Notice, there is no Participating GS Party, then Company shall be entitled to Transfer to the prospective transferee(s) specified in the Sale Notice the number of Common Units specified in the Sale Notice on the terms and conditions specified therein. Notwithstanding anything in this Section 2(b) to the contrary, if Company intends to simultaneously Transfer a combination of more than one class of Common Units and/or other debt or equity securities, and any GS Party holds or has the right to acquire both such classes of Common Units and/or other debt or equity securities, such GS Party may only participate in such Transfer if such GS Party Transfers both such classes of Common Units and/or other debt or equity securities in accordance with the formulae set forth above in this Section 2(b).
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(c) Permitted Transfers. Notwithstanding anything to the contrary in any other provision of this Agreement, the restrictions contained in Sections 2(a) and 2(b) shall not apply to:
(i) any Transfer of GS Units by any GS Party to or among any of its Affiliates: or
(ii) in the case of Company (and its successors). Transfers of up to ten percent (10%) in the aggregate of any class of Common Units held by Company as of the date hereof to any Person, including without limitation, employees of, consultants to, and advisors to Company, Holdings, or any of their Affiliates,
provided that, in each case, the restrictions contained in this Agreement shall continue to be applicable to the Common Units held by Company and the GS Units after any Transfer pursuant to this Section 2(c) and such transferee(s) of such Common Units held by Company or GS Units shall agree in writing to be bound by the provisions of this Agreement. Upon the Transfer of any Common Units held by Company or any GS Units pursuant to this Section 2(c), the transferee shall deliver a written notice to Holdings, which notice shall disclose in reasonable detail the identity of such transferee, and the number and class of Common Units or GS Units (as the case may be) to be Transferred. Notwithstanding the foregoing, no party hereto shall avoid the provisions of this Agreement by making one or more transfers to one or more Affiliates and then disposing of all or any portion of such party's interest in any such Affiliate.
(d) Termination of Restrictions. The restrictions set forth in this Section 2 shall continue with respect to Common Units held by Company and each GS Unit until the earliest of: (i) the date on which such Common Unit or GS Unit has been transferred in a Public Sale, (ii) the consummation of a Qualified Public Offering, or (iii) the consummation of an Approved Sale.
3. Sale of Holdings.
(a) If the Board and the holders of a majority of the Common Units then outstanding approve a Sale of Holdings to a purchaser who is not an Affiliate of any of such holders (an "Approved Sale"), each GS Party shall vote for, consent to and raise no objections against such Approved Sale. In the event of an Approved Sale or an IPO (as defined in the Operating Agreement), upon five
(5) days' written notice to the GS Parties, Holdings may require each GS Party to promptly take the actions described in Section 11.3 of the Operating Agreement, in which case the GS Party shall promptly take such actions as are required by Holdings. For example (but subject to the terms of Section 11.3 of the Operating Agreement), if the Approved Sale is structured as a sale of Common Units, upon the request of Holdings, each GS Party will sell all (or a portion, if so directed by Holdings) of its GS Units to a purchaser in an Approved Sale as part of a plan that involves an acquisition of Common Units in exchange for the Implied Unit Consideration (as defined in the Operating Agreement).
(b) Each GS Party shall bear its pro rata share (based upon the number of Common Units to be sold) of the reasonable out-of-pocket costs of any sale of Common Units and Unit Equivalents pursuant to an Approved Sale to the extent such costs are incurred for the benefit of all such Unitholders and holders of Unit Equivalents and are not otherwise paid by Company or the acquiring party. Costs incurred by a GS Party on its own behalf shall not be considered costs of the Approved Sale. Each GS Party transferring GS Units pursuant to an Approved Sale shall be obligated, severally, not jointly, to join on a pro rata basis (based on the number of GS Units to be sold) in any indemnification or other obligations that are
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part of the terms and conditions of the Approved Sale (other than any such obligations that relate specifically to a particular GS Party, such as indemnification with respect to representations and warranties given by a GS Party regarding such GS Party's title to and ownership of GS Units) (the "Company Indemnity Obligations"). Notwithstanding the foregoing, no GS Party shall be obligated in connection with any Approved Sale to agree to indemnify or hold harmless the transferees with respect to Company Indemnity Obligations in an amount in excess of the net proceeds paid to such Person in connection with the Approved Sale. This Section 3(b) shall also apply to a GS Party in the event of the exercise of its rights under Section 11.3 of the Operating Agreement in connection with an Approved Sale (as defined in the Operating Agreement) or an IPO (as defined in the Operating Agreement). Nothing contained herein shall require the GS Parties to assume or incur liabilities or obligations in connection with an Approved Sale which are broader in scope than the other selling or transferring Parties in the Approved Sale.
4. Limited Preemptive Rights.
(a) If Holdings at any time after the date hereof authorizes the issuance or sale of any Common Units or Unit Equivalents to Company or any GS Party, or any of their respective Affiliates (other than: (i) as a dividend or distribution on the outstanding Common Units, (ii) to the current or future employees, directors or officers of, or consultants and advisors to, Holdings or any of its Subsidiaries, (iii) pursuant to a Public Offering, (iv) in consideration for the acquisition of another Person's business by Holdings or any of its Subsidiaries (whether by acquisition of stock or assets, or by merger, consolidation or other similar transaction), the acquisition of any stock or assets of any Person or the formation of a joint venture, or (v) to Holdings' or its Subsidiaries' lenders in connection with the incurrence, renewal or maintenance of indebtedness (including funded indebtedness) or pursuant to the exercise of any warrant, option or other right to acquire Common Units), Holdings shall first offer to sell to Company and each GS Party (other than the Person to which Holdings has authorized such sale or issuance) a portion of such Common Units or other securities equal to the product of such Common Units or securities multiplied by the quotient determined by dividing (1) the number of Common Units held by Company or such GS Party (as the case may be) by (2) the total number of Common Units issued and outstanding immediately prior to such issuance. Each party hereto who elects to purchase securities hereunder shall also purchase the same percentage of any other class of securities (whether debt or equity) being sold with the Common Units or Unit Equivalents. Each party hereto who elects to purchase securities hereunder shall be entitled to purchase all or any portion of such Common Units or Unit Equivalents at the most favorable price and on the most favorable terms as such Common Units or Unit Equivalents are to be offered to Company or such GS Party.
(b) In order to exercise its purchase rights hereunder, Company or each participating GS Party (as the case may be) shall (within fifteen (15) days after receipt of written notice from Holdings describing in reasonable detail the Common Units or other securities being offered, the purchase price thereof, the payment terms and such holder's percentage allotment) deliver a written notice to Holdings describing its election hereunder.
(c) Upon the expiration of the offering period described above, Holdings shall be entitled to sell such Common Units or other securities which Company or the GS Party has not elected to purchase during the ninety (90) days following such expiration on terms and conditions no more favorable to the purchasers thereof than those offered to such holders. Any Common Units or other securities offered or sold by Holdings after such ninety (90)-day period must be reoffered to Company and the GS Party pursuant to the terms of this Section 4.
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(d) The provisions contained in this Section 4 will terminate on the first to occur of: (i) the consummation of a Qualified Public Offering, and
(ii) the consummation of an Approved Sale. At the time and to the extent a GS Party has the right to exercise preemptive rights under Section 4.2(c) of the Operating Agreement with respect to Common Units held by it, it shall not be permitted to exercise its rights under Section 4(a) as a holder of such Common Units.
5. Financial Statements and Other Information.
(a) Financial Statements and Other Information. Until the consummation of a Qualified Public Offering and so long as a GS Party owns GS Units:
(i) Holdings shall, as soon as practicable after the end of each fiscal year, and in any event within one hundred twenty (120) days thereafter, provide to each GS Party an audited consolidated balance sheet (and an unaudited consolidating balance sheet if otherwise prepared by Holdings) of Holdings and its Subsidiaries (if any), as of the end of such fiscal year, and audited consolidated statements of income and cash flows (and unaudited consolidating statements of income and cash flows if otherwise prepared by Holdings) of Holdings and its Subsidiaries (if any), for such fiscal year, prepared in accordance with generally accepted accounting principles of the United States ("GAAP"): provided that Holdings shall not be required to provide such financial statements to a GS Party so long as such GS Party or any Affiliate of such GS Party is an employee of Holdings or its Subsidiaries.
(ii) Holdings shall, as soon as practicable after the end of each fiscal quarter, and in any event within sixty (60) days thereafter, provide to each GS Party a consolidated balance sheet (and a consolidating balance sheet if otherwise prepared by Holdings) of Holdings and its Subsidiaries (if any), as of the end of such fiscal quarter, and a consolidated statement of income (and a consolidating statement of income if otherwise prepared by Holdings) of Holdings and its Subsidiaries (if any), for such fiscal quarter and for the current fiscal year to date, prepared in accordance with GAAP; provided that Holdings shall not be required to provide such financial statements to a GS Party so long as such GS Party or any Affiliate of such GS Party is an employee of Holdings or the Subsidiaries.
To the extent that a GS Party receives any of the foregoing information pursuant to any credit facility arrangement, no such information will be required to be delivered pursuant to this Section 5(a).
(b) Inspection of Property. For so long as any GS Party owns any GS Units and except to the extent any of the following rights are exercised pursuant to any credit facility arrangement between the Company and any GS Party, Holdings shall permit any representatives designated by such GS Party, as applicable, upon reasonable notice and during normal business hours and at such other times as any such holder may reasonably request, to: (i) visit and inspect any of the properties of Holdings, (ii) examine the corporate and financial records of Holdings and make copies thereof or extracts therefrom, (iii) meet and discuss (at meetings arranged by Holdings) the affairs, finances and accounts of Holdings, and to make proposals and suggestions and render advice with respect thereto, with the directors, officers, key employees and of Holdings and (iv) consult with and advise management of the Company on significant business issues, including managements proposed annual operating plans, and management shall meet with such representatives at the Company's facilities at mutually agreeable times for such consultation and advice, and the Company agrees to give due consideration to the advice given and any proposals made by such
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representatives; provided, however, that none of the board of directors, officers, key employees or independent accountants of the Company shall be under any obligation pursuant to this Section 5(b) to take any action with respect to any proposals made or advice furnished by GS in its capacity as a holder of GS Units, other than to take such proposals or advice seriously and give due consideration thereto.
6. Representations and Warranties.
(a) Each party hereto represents and warrants to the other parties hereto as follows:
(i) It has requisite corporate, limited liability company, or limited partnership power and authority (as the case may be) to execute, deliver and perform its obligations under this Agreement.
(ii) This Agreement has been duly and validly authorized, executed and delivered by it, and constitutes a valid and binding obligation of it, enforceable against it in accordance with its terms except to the extent that enforceability may be limited by bankruptcy, insolvency or other similar laws affecting creditors' rights generally.
(iii) The execution, delivery and performance of this Agreement by it does not (x) violate, conflict with, or constitute a breach of or default under its organizational documents, if any, or any material agreement to which it is a party or by which it is bound, or (y) violate any law, regulation, order, writ, judgment, injunction or decree applicable to it.
(iv) No consent or approval of. or filing with, any governmental or regulatory body is required to be obtained or made by it in connection with the transactions contemplated hereby.
(v) It is not a party to any agreement which is inconsistent with the rights of any party hereunder or otherwise conflicts with the provisions hereof.
(vi) Other than being party to this Agreement and such other agreements contemplated by, or entered into in conjunction with, the Recapitalization, it is not a party to any contract or agreement, written or oral, with respect to the securities of Company (including, without limitation, any voting agreement, voting trust, registration rights agreement, etc.).
(b) Each GS Party hereby represents that: (i) at such time at which it acquired the GS Units held by it on the date hereof, it acquired such GS Units for its own account with the intention of holding such securities for purposes of investment, (ii) at such time at which it acquired the GS Units held by it as the date hereof, it had no intention, and as of the date hereof it has no intention, of selling such securities in a public distribution in violation of the federal securities laws or any applicable state securities laws, and
(iii) in connection with such acquisition, it had an opportunity to ask questions and receive answers concerning the terms and conditions of the offering of such GS Units and had access to such other information concerning Company as it requested.
7. Further Assurances. At any time or from time to time after the date hereof, the parties agree to cooperate with each other, and at the request of any other party, to execute and deliver any further instruments or documents and to take all such further action as the other party may reasonably request in
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order to evidence or effectuate the consummation of the transactions contemplated hereby and to otherwise carry out the intent of the parties hereunder.
8. Definitions.
"Affiliate" means, as to any specified Person, (i) any shareholder, equity owner, officer, or director of such Person and their family members or
(ii) any other Person which, directly or indirectly or indirectly, controls, is controlled by, employed by or is under common control with, any of the foregoing. For the purposes of this definition, "control" means the possession of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise.
"Board" means the Board of Advisors of Company.
"Common Unit" means: (i) a Unit having the rights and obligations specified with respect to Common Units in the Operating Agreement, and (ii) common stock or other securities issued in exchange for Units or Common Units pursuant to a recapitalization or reorganization undertaken in connection with an IPO (as defined in the Operating Agreement), including without limitation, securities issued in connection with the contribution of assets or securities of Holdings or its subsidiaries to a newly formed corporation.
"GS Units" means: (i) any Common Units purchased or otherwise acquired by any GS Party (including, without limitation, as a result of or in connection with the Recapitalization), (ii) any warrants, Options, or other rights to subscribe for or to acquire, directly or indirectly. Common Units which are owned by a GS Party, whether or not then exercisable or convertible (including, without limitation, the warrants issued to the GS Party in connection with the Mezzanine Debt Purchase Agreement (as defined in the Operating Agreement)), (iii) any stock, notes, or other securities which are convertible into or exchangeable for, directly or indirectly, Common Units, whether or not then convertible or exchangeable, and (iv) any Common Units issued or issuable upon the exercise, conversion, or exchange of any of the securities referred to in clauses (i) through (iii) above, and (v) any securities issued or issuable directly or indirectly with respect to the securities referred to in clauses (i) through (iv) above by way of stock dividend or stock split or in connection with a combination of units, recapitalization, merger, consolidation, or other reorganization. As to any particular units constituting GS Units, such units will cease to be GS Units when they have been (x) effectively registered under the Securities Act and disposed of in accordance with the registration statement covering them or (y) sold to the public through a broker, dealer or market maker pursuant to Rule 144 (or any similar provision then in force) under the Securities Act.
"Independent Third Party" means any Person who immediately prior to the contemplated transaction, is not a Member or other Economic Owner (as defined in the Operating Agreement), is not an Affiliate of any Member or other Economic Owner and does not have any member of his/her Family Group (as defined in the Operating Agreement) who is a Member or other Economic Owner.
"Operating Agreement" means the Amended and Restated Operating Agreement of American Reprographics Holdings, L.L.C.
"Options" means, with respect to any Person, the option to acquire by such Person of Units.
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"Person" means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust (including any beneficiary thereof), a joint venture, an unincorporated organization and a governmental entity or any department, agency or political subdivision thereof.
"Public Offering" means a sale of equity securities of Holdings in an underwritten (firm commitment) public offering registered under the Securities Act and resulting in the listing of Holdings' Common Units on a nationally recognized stock exchange, including without limitation, The Nasdaq Stock Market National Market System.
"Public Sale" means any sale pursuant to a registered public offering under the Securities Act or any sale to the public pursuant to Rule 144 or Rule 144A promulgated under the Securities Act effected through a broker, dealer or market maker.
"Qualified Public Offering" means a sale of equity securities of Holdings in an underwritten (firm commitment) public offering registered under the Securities Act. with gross proceeds of not less than Twenty-five Million Dollars ($25.000,000.00), and resulting in the listing of Holdings' Common Units on a nationally recognized stock exchange, including without limitation. The Nasdaq Stock Market National Market System.
"Recapitalization" means the recapitalization on the date hereof of Company.
"Sale of Holdings" means the sale of Holdings pursuant to which any Independent Third Party or affiliated group of Independent Third Parties acquires (whether by merger, consolidation or sale or transfer of Holding's or its Subsidiaries' equity or assets): (a) all or substantially all of the equity of Holdings or of all or substantially all of Holding's direct and indirect Subsidiaries or (b) all or substantially all of Holding's and its Subsidiaries' assets determined on a consolidated basis.
"Securities Act" means the Securities Act of 1933, as amended from time to time.
"Unit" means a unit of interest in Company held by a Member or other Economic Owner (as defined in the Operating Agreement) in certain allocations of Net Profits and Net Losses of the Company (as defined in the Operating Agreement) and in certain distributions with respect thereto.
"Unit Equivalent" means any warrants, options, or other rights to subscribe for, purchase or otherwise acquire any Units or any securities convertible into or exchangeable for Common Units.
9. Transfers: Transfers in Violation of Agreement. Prior to transferring any GS Units to any Person, the transferring GS Party shall cause the prospective transferee to execute and deliver to Company and the other Unitholders a counterpart of this Agreement. Any transfer or attempted transfer of any GS Units in violation of any provision of this Agreement shall be void, and Company shall not record such transfer on its books or treat any purported transferee of such GS Units as the owner of such GS Units for any purpose.
10. Additional Unitholders. In connection with the issuance of any additional Common Units or equity securities of Company, Company may permit such Person to become a party to this Agreement and succeed to all of the rights and obligations of a "Unitholder" under this Agreement by obtaining an executed
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counterpart signature page to this Agreement, and, upon such execution, such Person shall for all purposes be a "Unitholder" party to this Agreement.
11. Miscellaneous.
(a) Amendment and Waiver. Except as otherwise provided herein, no modification, amendment or waiver of any provision of this Agreement will be effective against Company or the holders of Common Units or Unit Equivalents, unless such modification, amendment, or waiver is approved in writing by Company and the holders of at least a majority of the class or classes of Common Units or Unit Equivalents whose rights or obligation under this Agreement would be materially affected by such modification, amendment, or waiver, provided, however, that in the event that such amendment or waiver would materially and adversely affect a holder or group of holders of Common Units and Unit Equivalents in a manner substantially different than any other holders of Common Units and Unit Equivalents, then such amendment or waiver will require the consent of such holder of Common Units and Unit Equivalents or a majority of the Common Units and Unit Equivalents held by such group of holders materially and adversely affected. Notwithstanding the foregoing, if an amendment or modification of this Agreement serves merely to add a party hereto, then such amendment or modification will be effective against Company and the holders of Common Units and Unit Equivalents if such amendment or modification is approved in writing by Company, at least a majority of the holders of Common Units and Unit Equivalents, and such new party hereto. The failure of any party to enforce any of the provisions of this Agreement will in no way be construed as a waiver of such provisions and will not affect the right of such party thereafter to enforce each and every provision of this Agreement in accordance with its terms.
(b) Severability. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be invalid, illegal, or unenforceable in any respect under any applicable law or rule in any jurisdiction. such invalidity, illegality, or unenforceability will not affect any other provision or any other jurisdiction, but this Agreement will be reformed, construed, and enforced in such jurisdiction as if such invalid, illegal, or unenforceable provision had never been contained herein.
(c) Entire Agreement. Except as otherwise expressly set forth herein, this Agreement, those documents expressly referred to herein, and the other documents of even date herewith embody the complete agreement and understanding among the parties and supersede and preempt any prior understandings, agreements, or representations by or among the parties, written or oral, which may have related to the subject matter hereof in any way:
(d) Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors and assigns. In addition, and whether or not any express assignment shall have been made, the provisions of this Agreement which are for the benefit of the holders of Common Units or Unit Equivalents (or any portion thereof) as such shall be for the benefit of, and enforceable by, any subsequent holder of any Common Units or Unit Equivalents (or of such portion thereof).
(e) Counterparts. This Agreement may be executed in separate counterparts each of which will be an original and all of which taken together shall constitute one and the same agreement.
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(f) Remedies. Any Person having rights under any provision of this Agreement shall be entitled to enforce their rights under this Agreement specifically to recover damages by reason of any breach of any provision of this Agreement and to exercise all other rights existing in their favor. The parties hereto agree and acknowledge that money damages may not be an adequate remedy for any breach of the provisions of this Agreement and that any Unitholder may in its sole discretion apply to any court of competent jurisdiction for specific performance and/or injunctive relief (without posting a bond or other security) in order to enforce or prevent any violation of the provisions of this Agreement.
(g) Notices. Any notice provided for in this Agreement must be in writing and must be either personally delivered, sent by first class mail (postage prepaid and return receipt requested), or sent by reputable overnight courier service (charges prepaid) to Holdings at the address set forth below and to the other parties at their respective addresses indicated in Holdings' records, or at such address or to the attention of such other Person as the recipient party has specified by prior written notice to the sending party. Notices will be deemed to have been given hereunder when delivered personally, three (3) days after deposit in the U.S. mail, and one (1) day after deposit with a reputable overnight courier service. The address of Holdings is:
American Reprographics Holdings. L.L.C. 900 Palm Avenue
South Pasadena, CA 91030 Attention: Sathy Chandramohan Suri Suriyakumar Facsimile: (626) 441-6649
with a copy to:
Altheimer & Gray
l0 S. Wacker Drive
Suite 4000
Chicago, Illinois 60606
Attention: S. Michael Peck James R. Cruger
and
Hanson. Bridgett, Marcus, Vlahos. Rudy LLP 333 Market Street
23rd Floor
San Francisco, CA 94105
Attention: Fred B. Weil
If to Company to:
ARC Acquisition Co., L.L.C.
c/o Code, Hennessy & Simmons
10 South Wacker Drive, Suite 3175
Chicago, IL 60606
Attention: Thomas J. Formolo
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with a copy to:
Altheimer & Gray
10 S. Wacker Drive
Suite 4000
Chicago, Illinois 60606 Attention: S. Michael Peck James R. Cruger
If to a GS Party:
At such addresses and to the attention of such persons as set forth on the signature pages attached hereto
with a copy to:
Fried, Frank, Harris, Shriver &. Jacobson One New York Plaza
New York, New York 10004 Attention: Arthur S. Kaufman
(h) Governing Law. This Agreement and the exhibits and schedules hereto shall be governed by, and construed in accordance with, the laws of the State of Illinois, without giving effect to any choice of law or conflict of law rules or provisions (whether of the State of Illinois or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Illinois.
(i) No Strict Construction. The language used in this Agreement shall be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction shall be applied against any party.
(j) Business Days. If any time period for giving notice or taking action hereunder expires on a day which is a Saturday, Sunday or legal holiday in the state in which Company's chief executive office is located, the time period shall automatically be extended to the business day immediately following such Saturday, Sunday or legal holiday.
(l) Survival of Representations and Warranties. All representations and warranties contained in this Agreement or made in writing by any party in connection herewith shall survive the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby regardless of any investigation made by, or on behalf of any Unitholder.
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IN WITNESS WHEREOF, the parties hereto have executed this Unitholders Agreement on the day and year first above written.
AMERICAN REPROGRAPHICS HOLDINGS, L.L.C.

By: /s/ Mark Legg
    -----------------------------------
    Name: Mark Legg
    Title: Chief Financial Officer
           and Secretary	

(Continuation of Investor Unitholders Agreement Signature Page)
GS MEZZANINE PARTNERS II, L.P.
By: GS Mezzanine Advisors II, LLC
Its: General Partner

By: /s/ KATHERINE L. NISSENBAUM
    -------------------------------

Its:  KATHERINE L. NISSENBAUM
          VICE PRESIDENT	

Notice Address:
85 BROAD STREET 10TH FLOOR
NEW YORK, NY 10004
(Continuation of Investor Unitholders Agreement Signature Page)
GS MEZZANINE PARTNERS II OFFSHORE, L.P.
By: GS Mezzanine Advisors II, LLC
Its: General Partner

By: /s/ KATHERINE L. NISSENBAUM
    -------------------------------

Its:  KATHERINE L. NISSENBAUM
          VICE PRESIDENT	

Notice Address:
85 BROAD STREET 10TH FLOOR
NEW YORK, NY 10004
(Continuation of Investor Unitholders Agreement Signature Page)
ARC ACQUISITION CO., L.L.C.

By: /s/ MARCUS GEORGE
    -----------------------------------
    Name:
    Title:	

(Continuation of Investor Unitholders Agreement Signature Page)
 
EXHIBIT 10.26
INDEMNIFICATION AGREEMENT
This Indemnification Agreement (the "Agreement") is made as of __________, 200[_], by and between American Reprographics Company, a Delaware corporation (the "Company"), and <<Indemnitee Name>> (the "Indemnitee").
RECITALS
The Company and Indemnitee recognize the increasing difficulty in obtaining liability insurance for directors, officers and key employees, the significant increases in the cost of such insurance and the general reductions in the coverage of such insurance. The Company and Indemnitee further recognize the substantial increase in corporate litigation in general, subjecting directors, officers and key employees to expensive litigation risks at the same time as the availability and coverage of liability insurance has been severely limited. Indemnitee does not regard the current protection available as adequate under the present circumstances, and Indemnitee and agents of the Company may not be willing to continue to serve as agents of the Company without additional protection. The Company desires to attract and retain the services of highly qualified individuals, such as Indemnitee, and to indemnify its directors, officers and key employees so as to provide them with the maximum protection permitted by law.
AGREEMENT
In consideration of the mutual promises made in this Agreement, and for other good and valuable consideration, receipt of which is hereby acknowledged, the Company and Indemnitee hereby agree as follows:
1. INDEMNIFICATION.
(a) THIRD PARTY PROCEEDINGS. The Company shall indemnify Indemnitee if Indemnitee is or was a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Company) by reason of the fact that Indemnitee is or was a director, officer, employee or agent of the Company, or any subsidiary of the Company, by reason of any action or inaction on the part of Indemnitee while an officer or director or by reason of the fact that Indemnitee is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement (if such settlement is approved in advance by the Company, which approval shall not be unreasonably withheld) actually and reasonably incurred by Indemnitee in connection with such action, suit or proceeding if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe Indemnitee's conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that Indemnitee did not act in good faith and in a manner which Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, or, with respect
to any criminal action or proceeding, that Indemnitee had reasonable cause to believe that Indemnitee's conduct was unlawful.
(b) PROCEEDINGS BY OR IN THE RIGHT OF THE COMPANY. The Company shall indemnify Indemnitee if Indemnitee was or is a party or is threatened to be made a party to any threatened, pending or completed action or proceeding by or in the right of the Company or any subsidiary of the Company to procure a judgment in its favor by reason of the fact that Indemnitee is or was a director, officer, employee or agent of the Company, or any subsidiary of the Company, by reason of any action or inaction on the part of Indemnitee while an officer or director or by reason of the fact that Indemnitee is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees) and, to the fullest extent permitted by law, amounts paid in settlement (if such settlement is approved in advance by the Company, which approval shall not be unreasonably withheld), in each case to the extent actually and reasonably incurred by Indemnitee in connection with the defense or settlement of such action or suit if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company and its stockholders, except that no indemnification shall be made in respect of any claim, issue or matter as to which Indemnitee shall have been finally adjudicated by court order or judgment to be liable to the Company in the performance of Indemnitee's duty to the Company and its stockholders unless and only to the extent that the court in which such action or proceeding is or was pending shall determine upon application that, in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnity for such expenses which such court shall deem proper.
(c) MANDATORY PAYMENT OF EXPENSES. To the extent that Indemnitee has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Section 1(a) or Section 1(b) or the defense of any claim, issue or matter therein, Indemnitee shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by Indemnitee in connection therewith.
2. NO EMPLOYMENT RIGHTS. Nothing contained in this Agreement is intended to create in Indemnitee any right to continued employment.
3. EXPENSES; INDEMNIFICATION PROCEDURE.
(a) ADVANCEMENT OF EXPENSES. The Company shall advance all expenses incurred by Indemnitee in connection with the investigation, defense, settlement or appeal of any civil or criminal action, suit or proceeding referred to in Section l(a) or Section 1(b) hereof (including amounts actually paid in settlement of any such action, suit or proceeding). Indemnitee hereby undertakes to repay such amounts advanced only if, and to the extent that, it shall ultimately be determined that Indemnitee is not entitled to be indemnified by the Company as authorized hereby.
(b) NOTICE/COOPERATION BY INDEMNITEE. Indemnitee shall, as a condition precedent to his or her right to be indemnified under this Agreement, give the Company notice in writing as soon as practicable of any claim made against Indemnitee for which indemnification will or could be sought under this Agreement. Notice to the Company shall be directed to the
2
Chief Executive Officer of the Company and shall be given in accordance with the provisions of Section 12(d) below. In addition, Indemnitee shall give the Company such information and cooperation as it may reasonably require and as shall be within Indemnitee's power.
(c) PROCEDURE. Any indemnification and advances provided for in Section 1 and this Section 3 shall be made no later than twenty (20) days after receipt of the written request of Indemnitee. If a claim under this Agreement, under any statute, or under any provision of the Company's Certificate of Incorporation or Bylaws providing for indemnification, is not paid in full by the Company within twenty (20) days after a written request for payment thereof has first been received by the Company, Indemnitee may, but need not, at any time thereafter bring an action against the Company to recover the unpaid amount of the claim and, subject to Section 11 of this Agreement, Indemnitee shall also be entitled to be paid for the expenses (including attorneys' fees) of bringing such action. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in connection with any action, suit or proceeding in advance of its final disposition) that Indemnitee has not met the standards of conduct which make it permissible under applicable law for the Company to indemnify Indemnitee for the amount claimed, but the burden of proving such defense shall be on the Company and Indemnitee shall be entitled to receive interim payments of expenses pursuant to Section 3(a) unless and until such defense may be finally adjudicated by court order or judgment from which no further right of appeal exists. It is the parties' intention that if the Company contests Indemnitee's right to indemnification, the question of Indemnitee's right to indemnification shall be for the court to decide, and neither the failure of the Company (including its Board of Directors, any committee or subgroup of the Board of Directors, independent legal counsel, or its stockholders) to have made a determination that indemnification of Indemnitee is proper in the circumstances because Indemnitee has met the applicable standard of conduct required by applicable law, nor an actual determination by the Company (including its Board of Directors, any committee or subgroup of the Board of Directors, independent legal counsel, or its stockholders) that Indemnitee has not met such applicable standard of conduct, shall create a presumption that Indemnitee has or has not met the applicable standard of conduct.
(d) NOTICE TO INSURERS. If, at the time of the receipt of a notice of a claim pursuant to Section 3(b) hereof, the Company has director and officer liability insurance in effect, the Company shall give prompt notice of the commencement of such proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such policies.
(e) SELECTION OF COUNSEL. In the event the Company shall be obligated under Section 3(a) hereof to pay the expenses of any proceeding against Indemnitee, the Company, if appropriate, shall be entitled to assume the defense of such proceeding, with counsel approved by Indemnitee, upon the delivery to Indemnitee of written notice of its election so to do. After delivery of such notice, approval of such counsel by Indemnitee and the retention of such counsel by the Company, the Company will not be liable to Indemnitee under this Agreement for any fees of counsel subsequently incurred by Indemnitee with respect to the same proceeding, provided that (i) Indemnitee shall have the right to employ counsel in any such proceeding at Indemnitee's expense; and (ii) if (A) the employment of counsel by Indemnitee has been
3
previously authorized by the Company, (B) Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of any such defense or (C) the Company shall not, in fact, have employed counsel to assume the defense of such proceeding, then the fees and expenses of Indemnitee's counsel shall be at the expense of the Company.
4. ADDITIONAL INDEMNIFICATION RIGHTS; NONEXCLUSIVITY.
(a) SCOPE. Notwithstanding any other provision of this Agreement, the Company hereby agrees to indemnify the Indemnitee to the fullest extent permitted by law, notwithstanding that such indemnification is not specifically authorized by the other provisions of this Agreement, the Company's Certificate of Incorporation, the Company's Bylaws or by statute. In the event of any change, after the date of this Agreement, in any applicable law, statute, or rule which expands the right of a Delaware corporation to indemnify a member of its board of directors or an officer, such changes shall be deemed to be within the purview of Indemnitee's rights and the Company's obligations under this Agreement. In the event of any change in any applicable law, statute or rule which narrows the right of a Delaware corporation to indemnify a member of its board of directors or an officer, such changes, to the extent not otherwise required by such law, statute or rule to be applied to this Agreement shall have no effect on this Agreement or the parties' rights and obligations hereunder.
(b) NONEXCLUSIVITY. The indemnification provided by this Agreement shall not be deemed exclusive of any rights to which Indemnitee may be entitled under the Company's Certificate of Incorporation, its Bylaws, any agreement, any vote of stockholders or disinterested members of the Company's Board of Directors, the General Corporation Law of the State of Delaware, or otherwise, both as to action in Indemnitee's official capacity and as to action in another capacity while holding such office. The indemnification provided under this Agreement shall continue as to Indemnitee for any action taken or not taken while serving in an indemnified capacity even though he or she may have ceased to serve in any such capacity at the time of any action, suit or other covered proceeding.
5. PARTIAL INDEMNIFICATION. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of the expenses, judgments, fines or penalties actually or reasonably incurred in the investigation, defense, appeal or settlement of any civil or criminal action, suit or proceeding, but not, however, for the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion of such expenses, judgments, fines or penalties to which Indemnitee is entitled.
6. MUTUAL ACKNOWLEDGMENT. Both the Company and Indemnitee acknowledge that in certain instances, Federal law or public policy may override applicable state law and prohibit the Company from indemnifying its directors and officers under this Agreement or otherwise. For example, the Company and Indemnitee acknowledge that the Securities and Exchange Commission (the "SEC") has taken the position that indemnification is not permissible for liabilities arising under certain federal securities laws, and federal legislation prohibits indemnification for certain ERISA violations. Indemnitee understands and acknowledges that the Company has undertaken or may be required in the future to undertake with the SEC to submit
4
the question of indemnification to a court in certain circumstances for a determination of the Company's right under public policy to indemnify Indemnitee.
7. OFFICER AND DIRECTOR LIABILITY INSURANCE. The Company shall, from time to time, make the good faith determination whether or not it is practicable for the Company to obtain and maintain a policy or policies of insurance with reputable insurance companies providing the officers and directors of the Company with coverage for losses from wrongful acts, or to ensure the Company's performance of its indemnification obligations under this Agreement. Among other considerations, the Company will weigh the costs of obtaining such insurance coverage against the protection afforded by such coverage. In all policies of director and officer liability insurance, Indemnitee shall be named as an insured in such a manner as to provide Indemnitee the same rights and benefits as are accorded to the most favorably insured of the Company's directors, if Indemnitee is a director; or of the Company's officers, if Indemnitee is not a director of the Company but is an officer; or of the Company's key employees, if Indemnitee is not an officer or director but is a key employee. Notwithstanding the foregoing, the Company shall have no obligation to obtain or maintain such insurance if the Company determines in good faith that such insurance is not reasonably available, if the premium costs for such insurance are disproportionate to the amount of coverage provided, if the coverage provided by such insurance is limited by exclusions so as to provide an insufficient benefit, or if Indemnitee is covered by similar insurance maintained by a parent or subsidiary of the Company.
8. SEVERABILITY. Nothing in this Agreement is intended to require or shall be construed as requiring the Company to do or fail to do any act in violation of applicable law. The Company's inability, pursuant to court order, to perform its obligations under this Agreement shall not constitute a breach of this Agreement. The provisions of this Agreement shall be severable as provided in this Section 8. If this Agreement or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Company shall nevertheless indemnify Indemnitee to the full extent permitted by any applicable portion of this Agreement that shall not have been invalidated, and the balance of this Agreement not so invalidated shall be enforceable in accordance with its terms.
9. EXCEPTIONS. Any other provision herein to the contrary notwithstanding, the Company shall not be obligated pursuant to the terms of this Agreement:
(a) CLAIMS INITIATED BY INDEMNITEE. To indemnify or advance expenses to Indemnitee with respect to proceedings or claims initiated or brought voluntarily by Indemnitee and not by way of defense, except with respect to proceedings brought to establish or enforce a right to indemnification under this Agreement or any other statute or law or otherwise as required under
Section 145 of the Delaware General Corporation Law, but such indemnification or advancement of expenses may be provided by the Company in specific cases if the Board of Directors finds it to be appropriate;
(b) LACK OF GOOD FAITH. To indemnify Indemnitee for any expenses incurred by Indemnitee with respect to any proceeding instituted by Indemnitee to enforce or interpret this Agreement, if a court of competent jurisdiction determines that each of the material assertions made by Indemnitee in such proceeding was not made in good faith or was frivolous;
5
(c) INSURED CLAIMS. To indemnify Indemnitee for expenses or liabilities of any type whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes or penalties, and amounts paid in settlement) to the extent such expenses or liabilities have been paid directly to Indemnitee by an insurance carrier under a policy of officers' and directors' liability insurance maintained by the Company; or
(d) CLAIMS UNDER SECTION 16(b). To indemnify Indemnitee for expenses or the payment of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 16(b) of the Securities Exchange Act of 1934, as amended, or any similar successor statute.
10. CONSTRUCTION OF CERTAIN PHRASES.
(a) For purposes of this Agreement, references to the "Company" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that if Indemnitee is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, Indemnitee shall stand in the same position under the provisions of this Agreement with respect to the resulting or surviving corporation as Indemnitee would have with respect to such constituent corporation if its separate existence had continued.
(b) For purposes of this Agreement, references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on Indemnitee with respect to an employee benefit plan; and references to "serving at the request of the Company" shall include any service as a director, officer, employee or agent of the Company which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants, or beneficiaries; and if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan, Indemnitee shall be deemed to have acted in a manner "not opposed to the best interests of the Company" as referred to in this Agreement.
11. ATTORNEYS' FEES. In the event that any action is instituted by Indemnitee under this Agreement to enforce or interpret any of the terms hereof, Indemnitee shall be entitled to be paid all court costs and expenses, including reasonable attorneys' fees, incurred by Indemnitee with respect to such action, unless as a part of such action, the court of competent jurisdiction determines that each of the material assertions made by Indemnitee as a basis for such action were not made in good faith or were frivolous. In the event of an action instituted by or in the name of the Company under this Agreement or to enforce or interpret any of the terms of this Agreement, Indemnitee shall be entitled to be paid all court costs and expenses, including attorneys' fees, incurred by Indemnitee in defense of such action (including with respect to Indemnitee's counterclaims and cross-claims made in such action), unless as a part of such action the court determines that each of Indemnitee's material defenses to such action were made in bad faith or were frivolous.
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12. MISCELLANEOUS.
(a) GOVERNING LAW. This Agreement and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and interpreted in accordance with the laws of the State of Delaware, without giving effect to principles of conflict of law.
(b) ENTIRE AGREEMENT; ENFORCEMENT OF RIGHTS. This Agreement sets forth the entire agreement and understanding of the parties relating to the subject matter herein and merges all prior discussions between them. No modification of or amendment to this Agreement, nor any waiver of any rights under this Agreement, shall be effective unless in writing signed by the parties to this Agreement. The failure by either party to enforce any rights under this Agreement shall not be construed as a waiver of any rights of such party.
(c) CONSTRUCTION. This Agreement is the result of negotiations between and has been reviewed by each of the parties hereto and their respective counsel, if any; accordingly, this Agreement shall be deemed to be the product of all of the parties hereto, and no ambiguity shall be construed in favor of or against any one of the parties hereto.
(d) NOTICES. Any notice, demand or request required or permitted to be given under this Agreement shall be in writing and shall be deemed sufficient when delivered personally or sent by telegram or fax, or forty-eight (48) hours after being deposited in the U.S. mail, as certified or registered mail, with postage prepaid, and addressed to the party to be notified at such party's address as set forth below or as subsequently modified by written notice.
(e) COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument.
(f) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the Company and its successors and assigns, and inure to the benefit of Indemnitee and Indemnitee's heirs, legal representatives and assigns.
(g) SUBROGATION. In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable the Company to effectively bring suit to enforce such rights.
[Signature Page Follows]
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The parties hereto have executed this Agreement as of the day and year set forth on the first page of this Agreement.
AMERICAN REPROGRAPHICS COMPANY
 a Delaware corporation
By: _____________________________________
Name:
Title:
Address:
AGREED TO AND ACCEPTED:
<<IndemniteeName>>

(Signature)
Address:
8

Exhibit 16.1
October 15, 2004
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Gentlemen:
We have read the section entitled Change in Independent Registered Public Accounting Firm included in Form S-1 dated October 15, 2004 of American Reprographics Company and are in agreement with the statements contained in the second paragraph of that section. We have no basis to agree or disagree with other statements of the registrant contained therein.

		
 	/s/ Ernst & Young LLP	
Woodland Hills, California
 
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.
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EXHIBIT 21.1
LIST OF SUBSIDIARIES

                 SUBSIDIARY                       JURISDICTION            CURRENT NAMES UNDER WHICH DO BUSINESS
                 ----------                       ------------            -------------------------------------
A & E Architectural & Engineering Supply Company  Virginia                A & E Supply

American Reprographics Holdings, L.L.C.           California

American Reprographics Company, L.L.C.            California              Ford Graphics
                                                                          Graphic Reproductions
                                                                          Dietrich Post
                                                                          Brownie's Blueprint
                                                                          Color Expressions
                                                                          Blair Graphics
                                                                          San Jose Blue
                                                                          LDO
                                                                          Mercury
                                                                          Minnesota Blueprint
                                                                          Stockton Blueprint
                                                                          E-Pavillion
                                                                          Crest Graphics
                                                                          Veenstra
                                                                          Entire Reproductions
                                                                          Mossner
                                                                          Academy Blue
                                                                          Copy Spot
                                                                          Best Digital
                                                                          Walker Repro
                                                                          Skokie Valley Repro
                                                                          Consolidated Repro
American Reprographics Midco, L.L.C.              California

ARC Acquisition Corporation                       California              Planwell

Argo-ICC Reprographics Ltd.                       Ontario, Canada         ICC Repro
                                                                          Argo Graph

Blue Print Service Company, Inc.                  California              BPS
                                                                          NorthBay Copy
                                                                          Sharprint

BPI Repro, LLC                                    California              B & B Blueprint
                                                                          BP Repro
                                                                          Action Reprographics
                                                                          Barry Blueprint
                                                                          Circle Blueprint	

                                                                          Independent Printing
                                                                          Reprographics Plus

Commercial Graphics Corporation                   California              Commercial Graphics
                                                                          Glendale Blue

Dunn Blue Print Company                           Michigan                Dunn Blueprint

E.Pavilion, L.L.C. [owns a 60% interest]          California

Engineering Repro Systems, Inc.                   Minnesota               Engineering Repro
                                                                          GMB Engineering

Ford S.F., L.L.C.                                 California

Franklin Graphics Corporation                     Michigan                Repro Technologies
                                                                          Reprographics Technologies
                                                                          RTI
                                                                          Michigan Franklin Graphics
                                                                          Corporation

Inprint Corporation                               California              InPrint Corporation

Leet-Melbrook, Inc.                               Maryland                Leet-Melbrook

Licensing Services International, LLC             California

Mirror Plus Technologies, Inc.                    California              Mirror Plus

OCB, LLC                                          California              OCB
                                                                          California Graphics
                                                                          Tiger Reprographics
                                                                          Fullerton Blueprint
                                                                          H & L Hendry
                                                                          Universal South

Olympic Blueprint Co., Inc.                       Washington              Olympic Reprographics
                                                                          MSI

Peninsula Blueprint, Inc.                         California              Peninsula Blueprint

Planwell, LLC                                     California

Quality Reprographic Services, Inc.               Georgia                 QRS

Reprographics Northwest, LLC                      California              Kestral
                                                                          Repro Northwest
                                                                          Tacoma Reprographics
                                                                          Superior
                                                                          ARC Reprographics
                                                                          Northwest, LLC

Rhode Island Blueprint Co.                        Rhode Island            Rhode Island Blue

Ridgway's GP, LLC                                 Delaware

Ridgway's LP, LLC                                 Delaware	

2

Ridgway's, Ltd.                                   Texas                   Ridgway's - Nevada
                                                                          Ridgway's
                                                                          Campbell (Airways)
                                                                          Orlando Repro
                                                                          Irving Blueprint
                                                                          Ridgway's dba City Digital
                                                                          Ridgway's dba Strato Graphix
                                                                          Ridgway's, Ltd. L.P.
                                                                          Pennsylvania Ridgway's, Ltd.
                                                                          Ridgway's, Inc.
                                                                          Philadelphia Ridgway's, Inc.
                                                                          Orlando Reprographics

The PEiR Group, LLC                               California

The PEiR Group International, LLC                 California

Tampa Reprographics & Supply Company              Florida                 Tampa Reprographics

West Side Reprographics, Inc.                     Michigan                Westside Reprographics

Wilco Reprographics, Inc.                         Delaware	

3

Exhibit 23.1 
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the use in this Registration Statement on Form S-1 of our report dated February 25, 2004, relating to the consolidated financial statements and financial statement schedule of American Reprographics Holdings, LLC, which appear in such Registration Statement. We also consent to the reference to us under the heading “Experts” in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
Los Angeles, California
October 15, 2004

Exhibit 23.2 
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the reference to our firm under the caption “Experts” and to the use of our report dated February 28, 2003, with respect to the consolidated financial statements and schedule of American Reprographics Holdings, L.L.C. included in the Registration Statement (Form S-1 No. 333-xxxxx) and related Prospectus of American Reprographics Company dated October 15, 2004.

		
 	/s/ Ernst & Young, LLP	
Woodland Hills, California
October 15, 2004