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Item 1.01
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Entry into a Material Definitive Agreement.
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Credit Agreement
In connection with the transactions described in the Introductory Note, on September 17, 2019, the Company entered into a Second Amended and Restated Credit Agreement (as it may be amended, modified or supplemented from time to time, the “Second A&R Credit Agreement”) by and among Speedway Funding, LLC, a wholly owned subsidiary of the Company (“Speedway Funding” and, together with the Company, the “Borrowers”), Holdings and certain subsidiaries of Holdings, as guarantors, and the various lenders identified on the signature pages thereto (collectively, the “Initial Lenders”), including Bank of America, N.A., as Administrative Agent, Swingline Lender and Issuing Lender, Wells Fargo Bank, National Association, SunTrust Bank and JPMorgan Chase Bank, N.A., as Co-Syndication Agents, First Tennessee Bank, National Association, PNC Bank, National Association, Comerica Bank and Fifth Third Bank, as Co-Documentation Agents and BofA Securities, Inc., Wells Fargo Securities, LLC, JPMorgan Chase Bank, N.A. and SunTrust Robinson Humphrey, Inc., as Joint Lead Arrangers and Joint Bookrunners. The Second A&R Credit Agreement amended and restated the Amended and Restated Credit Agreement, dated as of December 29, 2014, as amended (the “Prior Credit Facility”), among the Borrowers and certain of the Company’s subsidiaries from time to time party thereto, as guarantors, and the various financial institutions party thereto, as lenders.
The Second A&R Credit Agreement provides for credit facilities comprised of a five-year senior secured term loan in an aggregate principal amount of $250 million (the “Term Loan Facility”), drawn by Speedway Funding in a single advance on September 17, 2019 for the permitted purposes set forth below. The Second A&R Credit Agreement also provides for a five-year senior secured revolving credit facility (the “Revolving Credit Facility” and, together with the “Term Loan Facility”, the “Credit Facilities”) with a sublimit of up to $50,000,000 available for standby letters of credit (the “Letters of Credit”) and a sublimit of up to $10,000,000 available for swingline loans (the “Swingline Loans”). In addition, subject to certain conditions, including the absence of any event of default under the Second A&R Credit Agreement, the Borrowers may establish one or more additional tranches of term loans in an aggregate additional amount of up to $200,000,000 plus amounts voluntarily prepaid on the Term Loan Facility or the Revolving Credit Facility, subject to certain limitations and conditions.
The Borrowers shall be jointly and severally liable for borrowings under the Credit Facilities. Borrowings under the Credit Facilities may be used (i) to pay the consideration payable in respect of the Shares in the Offer and the Merger and in respect of options, restricted stock and restricted stock units in the Merger, (ii) to pay fees and expenses incurred in connection with the transactions contemplated by the Merger Agreement, and (iii) to finance (a) working capital needs of Holdings and its subsidiaries, (b) letter of credit needs, (c) general corporate needs and capital expenditures, (d) certain investments and (e) the acquisition of additional motor speedways and related businesses.
The borrowings under the Credit Facilities will bear interest at a rate equal to either (i) LIBOR (or the applicable successor rate), plus a margin ranging from 1.25% to 2.25% depending on Holdings’ ratio (the “Consolidated Total Leverage Ratio”) of consolidated funded debt to consolidated earnings before interest, taxes, depreciation and amortization (“EBITDA”) or, at the option of the Borrowers, (ii) the “Base Rate,” which is the highest of (a) Bank of America’s prime rate, (b) the Federal Funds Rate (as defined in the Second A&R Credit Agreement) plus 0.5%, and (c) the Eurodollar Rate (as defined in the Second A&R Credit Agreement) plus 1%, plus a margin ranging from 0.25% to 1.25% depending on the Consolidated Total Leverage Ratio.
In addition to paying interest on outstanding borrowings, the Company is required to pay (1) a commitment fee equal to a margin ranging from 0.25% to 0.40% depending on the Consolidated Total Leverage Ratio, multiplied by the actual daily unused amounts available for borrowing under the Credit Facilities (Swingline Loans will not be considered for purposes of this calculation), and (2) certain customary fees associated with syndicated credit facilities generally and the issuance of letters of credit.
Loans under the Revolving Credit Facility may be made on a revolving basis up to the full amount of the Revolving Credit Facility provided, however, that not more than $20,000,000 of revolving credit facility shall be outstanding under the Revolving Credit Facility on the date of the Merger Effective Time, which outstanding amount shall result only from borrowings under the Revolving Credit Facility the proceeds of which are used for consideration or fees related to the transactions contemplated by the Merger Agreement. Letters of Credit may be issued up to the sublimit for Letters of Credit. The Term Loan Facility is subject to quarterly amortization of principal in an amount equal to 1.25% of the outstanding amount thereof for an annual amortization amount of 5% of the initial aggregate principal amount of the Term Loan Facility, and the remaining outstanding principal amount, together with accrued and unpaid interest, due on the maturity date of the Term Loan Facility.
Subject to certain exceptions, all obligations under the Credit Facilities are guaranteed by Holdings, and each existing and future direct and indirect domestic subsidiary with assets constituting more than 5% of consolidated assets of Holdings and its subsidiaries as of the end of the immediately preceding fiscal quarter or that generates more than 5% of consolidated EBITDA of Holdings and its subsidiaries for four consecutive fiscal quarters ending as of the end of the immediately preceding fiscal quarter (each, a “Guarantor”). The Second A&R Credit Agreement and any treasury management, interest protection or other hedging arrangements entered into with a lender (or any affiliate thereof) are guaranteed by each Guarantor (except to the extent that any portion of any such guaranty is or becomes illegal because the applicable Guarantor fails, for any reason, to constitute an “eligible contract participant” as defined in the Commodity Exchange Act (7 U.S.C. § 1 et seq.)).
The Second A&R Credit Agreement contains financial covenants, including covenants requiring the Company to maintain:
(i) a Consolidated Total Leverage Ratio at the end of each fiscal quarter of no more than (a) 5.00 to 1.0 through the fiscal quarter ending December 31, 2020, (b) 4.50 to 1.0 for the fiscal quarter ending March 31, 2021 and continuing through the fiscal quarter ending December 31, 2021, (c) 4.00 to 1.0 for the fiscal quarter ending March 31, 2022 and continuing through the fiscal quarter ending December 31, 2022 and (d) 3.5 to 1.0 for the fiscal quarter ending March 31, 2023 and for each fiscal quarter ending thereafter; and
(ii) a Consolidated Interest Coverage Ratio (as defined in the Second A&R Credit Agreement) of no less than 3.00 to 1.0 at the end of each fiscal quarter.
The Second A&R Credit Agreement contains provisions substantially identical to those set forth in the Prior Credit Facility, including customary representations and warranties, affirmative covenants (including, among other things, delivery of financial statements and other information, maintenance of property, maintenance of insurance, maintenance of books and records and compliance with laws), negative covenants (including, among other things, restrictions on indebtedness, investments, capital expenditures, liens, sales of assets, affiliate transactions, dividends and other distributions), financial maintenance covenants and provisions regarding events of default (including provisions relating to changes of control).
On September 17, 2019, the Company and certain other subsidiaries and affiliates of the Company (the “Pledgors”) also entered into a Second Amended and Restated Pledge Agreement (the “Pledge Agreement”) in favor of Bank of America, N.A., as Administrative Agent under the Second A&R Credit Agreement. Under the Pledge Agreement, each of the Pledgors granted the lenders first priority (subject to certain exceptions) liens and security interests in all shares of capital stock of (or other ownership or profit interests in) each of their subsidiaries (with certain limitations with respect to “controlled foreign corporations” under Section 957 of the Internal Revenue Code) and proceeds thereof. The liens and security interests ratably secure the obligations of the relevant parties with respect to the Second A&R Credit Agreement and any treasury management, interest protection or other hedging arrangements entered into with a lender (or an affiliate thereof).
This summary does not purport to be complete and is qualified in its entirety by reference to the full text of the Second A&R Credit Agreement and the Pledge Agreement, which are filed as Exhibit 10.1 and Exhibit 10.2 to this Current Report on Form 8-K and incorporated herein by reference.
Plan of Conversion
On September 17, 2019, the Company adopted that certain Plan of Conversion (the “Plan of Conversion”) that sets forth the plan under which the Conversion was effected. Under the Plan of Conversion, (1) the certificate of conversion and certificate of formation of the Company was approved for filing with the Secretary of State for the State of Delaware, and (2) the form of limited liability company agreement of the Company (the “Operating Agreement”) was approved. The Plan of Conversion also provided that the officers of the Company immediately prior to the Conversion would continue as the officers of the Converted Company and that all outstanding capital stock of the Company immediately prior to the Conversion would be converted into a 100% membership interest of the Converted Company, and that the sole stockholder of the Company immediately prior to the Conversion would become the sole member of the Converted Company.
This summary does not purport to be complete and is qualified in its entirety by reference to the full text of the Plan of Conversion, which is filed as Exhibit 2.2 to this Current Report on Form 8-K and incorporated herein by reference.
Operating Agreement
On September 18, 2019, immediately upon the effectiveness of the Conversion, the Company and Holdings, its sole member, entered into the Operating Agreement. The Operating Agreement sets forth the terms and conditions on which the Converted Company will be governed. The Operating Agreement vests complete authority and control over the management and business and affairs of the Converted Company in a board of directors (the “Converted Company Board”) whose members are determined by the sole member of the Converted Company. The Operating Agreement also provides that the Converted Company Board may (1) appoint officers to carry out the day-to-day business of the Company and (2) cause the Company to make distributions to the sole member in such amounts and at such times as the Converted Company Board shall determine from time to time. The Operating Agreement provides that the Company is to be treated as a disregarded entity for federal and state income tax purposes and also contains customary provisions regarding indemnification of members and directors and limitations on liability.
This summary does not purport to be complete and is qualified in its entirety by reference to the full text of the Operating Agreement, which is filed as Exhibit 3.3 to this Current Report on Form 8-K and incorporated herein by reference.