| ARAMARK CORP/DE Item 1A Risk Factors General Unfavorable economic conditions and increased operating costs adversely affect our results of operations and financial condition |
| Each of our business segments has been adversely affected by weaker economic conditions in the United States during the past several years, including with respect to manufacturing, technology and service industry clients |
| Layoffs and business downturns among our business clients have negatively affected our sales and operating results |
| A national or international economic downturn reduces demand for our services in each of our operating segments, which has resulted, and may in the future result, in the loss of business or increased 13 ______________________________________________________________________ [14]Table of Contents pressure to contract for business on less favorable terms than our generally preferred terms |
| In addition, insolvency experienced by clients, especially larger clients, particularly in the non-profit healthcare and airline industries, could make it difficult for us to collect amounts we are owed and could result in the voiding of existing contracts |
| Similarly, financial distress or insolvency, if experienced by our key vendors and service providers such as insurance carriers, could significantly increase our costs |
| Any future terrorist attacks, and the national and global military, diplomatic and financial response to such attacks or other threats also may adversely affect our sales and operating results |
| Natural disasters also may affect our sales and operating results |
| For example, Hurricanes Katrina and Rita, which badly damaged the Gulf Coast of the United States in August and September of 2005, impacted many of ARAMARK’s food service, facilities and uniform clients in Louisiana, Mississippi, Alabama and Texas |
| ARAMARK experienced lost and closed client locations, business disruptions and delays, the loss of inventory and other assets, and the effect of the temporary conversion of a number of ARAMARK client locations to provide food and shelter to those left homeless by the storms |
| Our profitability can be adversely affected to the extent we are faced with cost increases for food, wages, other labor related expenses (including workers’ compensation, state unemployment insurance and healthcare costs), insurance, fuel, utilities, piece goods, clothing and equipment, especially to the extent we were unable to recover such increased costs through increases in the prices for our products and services, due to general economic conditions, competitive conditions, or both |
| For example, oil and natural gas prices have fluctuated significantly in the last several years |
| Substantial increases in the cost of fuel and utilities have historically resulted in substantial cost increases in our uniform services business, and to a lesser extent in our food and support services segment |
| In addition, approximately 74prca of our food and support services sales are from profit and loss contracts under which we have limited ability to pass on cost increases to our clients |
| Our business may suffer if we are unable to hire and retain sufficient qualified personnel or if labor costs increase |
| In the past, the United States has periodically experienced reduced levels of unemployment, which has created a shortage of qualified workers at all levels |
| Given that our workforce requires large numbers of entry level and skilled workers and managers, low levels of unemployment can compromise our ability in certain of our businesses to continue to provide quality service or compete for new business |
| From time to time, we have had difficulty in hiring and maintaining qualified management personnel, particularly at the entry management level |
| We will continue to have significant requirements to hire such personnel |
| Our success also depends to a substantial extent on the ability, experience and performance of our management, particularly our Chairman and Chief Executive Officer, Joseph Neubauer |
| We also regularly hire a large number of part-time workers, particularly in our food and support services segments |
| Any difficulty we may encounter in hiring such workers could result in significant increases in labor costs which could have a material adverse effect on our business, financial condition and results of operations |
| Competition for labor has resulted in wage increases in the past and future competition could substantially increase our labor costs |
| Due to the labor intensive nature of our businesses and the fact that 74prca of our Food and Support Services segment’s sales are from profit and loss contracts under which we have limited ability to pass along cost increases, a shortage of labor or increases in wage levels in excess of normal levels could have a material adverse effect on our results of operations |
| Our expansion strategy involves risks |
| We may seek to acquire companies or interests in companies or enter into joint ventures that complement our business, and our inability to complete acquisitions, integrate acquired companies successfully or enter into joint ventures may render us less competitive |
| We may be evaluating acquisitions or engaging in acquisition negotiations at any given time |
| We cannot be sure that we will be able to continue to identify acquisition candidates or joint venture partners on commercially reasonable terms or at all |
| If we make additional acquisitions, we also cannot be sure that any benefits anticipated from the acquisitions will actually be realized |
| Likewise, we cannot be sure that we will be able to obtain necessary financing for acquisitions |
| Such financing could be restricted by the terms of our debt agreements or it could be more expensive than our current debt |
| The amount of such debt financing for acquisitions could be significant and the terms of such debt instruments could be more restrictive than our current covenants |
| In addition, our ability to control the planning and operations of our joint ventures and other less than majority owned affiliates may be subject to numerous restrictions imposed by the joint venture agreements and majority shareholders |
| Our joint venture partners may also have interests which differ from ours |
| 14 ______________________________________________________________________ [15]Table of Contents The process of integrating acquired operations into our existing operations may result in operating, contract and supply chain difficulties, such as the failure to retain clients or management personnel and problems coordinating technology and supply chain arrangements |
| Also, in connection with any acquisition, we could fail to discover liabilities of the acquired company for which we may be responsible as a successor owner or operator in spite of any investigation we make prior to the acquisition |
| In addition, labor laws in certain countries may require us to retain more employees than would otherwise be optimal from entities we acquire |
| Such difficulties may divert significant financial, operational and managerial resources from our existing operations, and make it more difficult to achieve our operating and strategic objectives |
| The diversion of management attention, particularly in a difficult operating environment, may affect our sales |
| Similarly, our business depends on effective information technology systems and implementation delays or poor execution of the integration of different information technology systems could disrupt our operations and increase costs |
| Possible future acquisitions could result in the incurrence of additional debt and related interest expense, contingent liabilities and amortization expenses related to intangible assets, which could have a material adverse effect on our financial condition, operating results and/or cash flow, or in the issuance of additional shares of our common stock |
| In addition, goodwill resulting from business combinations represents a significant portion of the Company’s assets |
| If we fail to comply with requirements imposed by applicable law or other governmental regulations, we could become subject to lawsuits and other liabilities and restrictions on our operations that could significantly and adversely affect our business |
| We are subject to governmental regulation at the federal, state, national, provincial and local levels in many areas of our business, such as food safety and sanitation, the sale of alcoholic beverages, minimum wage, overtime, wage payment, wage and hour and employment discrimination, human health and safety, federal motor carrier safety, environmental protection, the import and export of goods and customs regulations and the services we provide in connection with governmentally funded entitlement programs |
| From time to time, both federal and state governmental agencies have conducted audits of our billing practices as part of investigations of providers of services under governmental contracts, or otherwise |
| We also receive requests for information from governmental agencies in connection with these audits |
| While we attempt to comply with all applicable laws and regulations, we cannot assure you that we are in full compliance with all applicable laws and regulations or interpretations of these laws and regulations at all times or that we will be able to comply with any future laws, regulations or interpretations of these laws and regulations |
| For example, the United States Attorney for the District of Columbia is conducting a criminal investigation of Galls, a provider of uniforms and equipment to public safety professionals and a division of ARAMARK Uniform & Career Apparel Group, Inc, one of our primary subsidiaries |
| On July 21, 2004, agents of the United States Department of Commerce, among others, executed a search warrant at the Lexington, Kentucky facilities of Galls to gather records in connection with certain export sales |
| Two grand jury subpoenas were subsequently issued from the United States District Court in the District of Columbia seeking certain records at Galls’ California facilities and United Kingdom facilities, among others |
| We believe the investigation surrounds the possible failure under export regulations and Office of Foreign Asset Control, or OFAC, regulations to obtain proper export licenses and authorizations in connection with the export of Galls products to various countries, including an embargoed country |
| We are continuing to review these matters and are cooperating with the government’s investigation |
| If we fail to comply with applicable laws and regulations, including with respect to the export matters related to the Galls division described above, we may be subject to criminal sanctions or civil remedies, including fines, injunctions, prohibitions on exporting, seizures or debarments from government contracts |
| The cost of compliance or the consequences of non-compliance, including debarments, could have a material adverse effect on our business and results of operations |
| In addition, governmental units may make changes in the regulatory frameworks within which we operate that may require either the corporation as a whole or individual businesses to incur substantial increases in costs in order to comply with such laws and regulations |
| 15 ______________________________________________________________________ [16]Table of Contents Changes in or new interpretations of the governmental regulatory framework may affect our contract terms and may reduce our sales or profits |
| A portion of our sales, estimated to be approximately 15prca in fiscal 2006, is derived from business with United States federal, state and local governments and agencies |
| Changes or new interpretations in, or changes in the enforcement of, the statutory or regulatory framework applicable to services provided under governmental contracts or bidding procedures, particularly by our food and support services businesses, could result in fewer new contracts or contract renewals, modifications to the methods we apply to price government contracts, or in contract terms of shorter duration than we have historically experienced, any of which could result in lower sales or profits than we have historically achieved, which could have an adverse effect on our results of operations |
| Our failure to retain our current clients and renew our existing client contracts could adversely affect our business |
| Our success depends on our ability to retain our current clients and renew our existing client contracts |
| Our ability to do so generally depends on a variety of factors, including the quality, price and responsiveness of our services, as well as our ability to market these services effectively and differentiate ourselves from our competitors |
| We cannot assure you that we will be able to renew existing client contracts at the same or higher rates or that our current clients will not turn to competitors, cease operations, elect to self-operate or terminate contracts with us |
| The failure to renew a significant number of our existing contracts would have a material adverse effect on our business and results of operations |
| We may be adversely affected if customers reduce their outsourcing or use of preferred vendors |
| Our business and growth strategies depend in large part on the continuation of a current trend toward outsourcing services |
| Customers will outsource if they perceive that outsourcing may provide higher quality services at a lower overall cost and permit them to focus on their core business activities |
| We cannot be certain that this trend will continue or not be reversed or that customers that have outsourced functions will not decide to perform these functions themselves |
| In addition, labor unions representing employees of some of our current and prospective customers have occasionally opposed the outsourcing trend to the extent that they believed that current union jobs for their memberships might be lost |
| In these cases, unions typically seek to ensure that jobs that are outsourced continue to be unionized and thus, the unions seek to direct to union employees the performance of the types of services we offer |
| We have also identified a trend among some of our customers toward the retention of a limited number of preferred vendors to provide all or a large part of their required services |
| We cannot be certain that this trend will continue or not be reversed or, if it does continue, that we will be selected and retained as a preferred vendor to provide these services |
| Unfavorable developments with respect to either of these trends could have a material adverse effect on our business and results of operations |
| Our international business results are influenced by currency fluctuations and other risks that could have an effect on our results of operations and financial condition |
| A significant portion of our sales is derived from international markets |
| During fiscal 2006, approximately 22prca of our sales were generated outside the United States |
| The operating results of our international subsidiaries are translated into US dollars and such results are affected by movements in foreign currencies relative to the US dollar |
| Our international operations are also subject to other risks, including the requirement to comply with changing and conflicting national and local regulatory requirements; potential difficulties in staffing and labor disputes; differing local labor laws; managing and obtaining support and distribution for local operations; credit risk or financial condition of local customers; potential imposition of restrictions on investments; potentially adverse tax consequences, including imposition or increase of withholding, VAT and other taxes on remittances and other payments by subsidiaries; foreign exchange controls; and local political and social conditions |
| There can be no assurance that the foregoing factors will not have a material adverse effect on our international operations or on our consolidated financial condition and results of operations |
| We intend to continue to develop our business in emerging markets over the long term |
| Emerging market operations present several additional risks, including greater fluctuation in currencies relative to the US dollar; economic and governmental instability; civil disturbances; volatility in gross domestic production; Foreign Corrupt Practice Act compliance issues; and nationalization and expropriation of private assets |
| 16 ______________________________________________________________________ [17]Table of Contents Our operations are seasonal and quarter to quarter comparisons may not be a good indicator of our performance |
| In the first and second fiscal quarters, within the Food and Support Services—United States segment, there historically has been a lower level of sales at the historically higher margin sports, entertainment and recreational food service operations, which is partly offset by increased activity in the educational sector |
| In the third and fourth fiscal quarters, there historically has been a significant increase in sales at sports, entertainment and recreational accounts, which is partially offset by the effect of summer recess in the educational sector |
| The sales of WearGuard, one of our direct marketing companies, generally increase during the first quarter of the fiscal year because of the onset of colder weather in the northern tier of the United States, as well as the gift-giving holidays |
| As of October 27, 2006 we had approximately dlra1dtta9 billion of outstanding indebtedness |
| The size of our indebtedness may restrict the pursuit of certain new business opportunities |
| We will also have to use a portion of our cash flow to service our debt, which may prevent us from pursuing certain new business opportunities and certain acquisitions |
| If we were to incur significant amounts of additional indebtedness in the future, the agreements relating to such indebtedness may include covenants more restrictive than our current debt agreements |
| Failure to satisfy financial and other covenants or make required debt payments could cause us to violate the terms of our credit facility agreements and thereby result in the exercise of remedies by our lenders, including acceleration of our indebtedness, impair our liquidity and limit our ability to raise additional capital |
| Further unionization of our workforce may increase our costs |
| Approximately 37cmam000 employees in our United States operations are represented by unions and covered by collective bargaining agreements |
| Certain unions representing employees in our United States Food and Support Services and Uniform and Career Apparel segments have begun a union campaign targeting us and the other major companies in our industry for increased representation of our workforce |
| We have always respected our employees’ right to unionize or not to unionize |
| However, the unionization of a significantly greater portion of our workforce could increase our overall costs at the affected locations and affect adversely our flexibility to run our business in the most efficient manner to remain competitive or acquire new business |
| In addition, any significant increase in the number of work stoppages at our various operations could affect adversely our business, financial condition or results of operations |
| Environmental regulations may subject us to significant liability and limit our ability to grow |
| We are subject to various federal, state and local laws and regulations, including the federal Clean Water Act, Clean Air Act, Resource Conservation and Recovery Act, Comprehensive Environmental Response, Compensation, and Liability Act and similar state statutes and regulations |
| For example, industrial laundries in our uniform rental segment use and must discharge wastewater containing detergents and other residues from the laundering of garments and other merchandise through publicly operated treatment works or sewer systems and are subject to volume and chemical discharge limits and penalties and fines for non-compliance |
| In the course of our business, we settle, or contribute to the settlement of, actions or claims brought against us relating to the disposal of hazardous materials |
| We may, in the future, be required to expend material amounts to rectify the consequences of any such disposal |
| Under federal and state environmental laws, as an owner or operator of real estate we may be liable for the costs of removal or remediation of certain hazardous or toxic substances located on or in or emanating from our owned or leased property, as well as related costs of investigation and property damage |
| Liability may be imposed upon us without regard to whether we knew of or were responsible for the presence of such hazardous or toxic substances |
| There can be no assurances that locations that we own, lease or otherwise operate or that we may acquire in the future have been operated in compliance with environmental laws and regulations or that future uses or conditions will not result in the imposition of liability upon us under such laws or expose us to third party actions such as tort suits |
| In addition, such regulations may limit our ability to identify suitable sites for new or expanded plants |
| In connection with our operations and the operations of our predecessors or companies that we have acquired, hazardous or toxic substances may migrate from properties on which we operate or which were operated by our predecessors or companies we acquired to other properties |
| We may be subject to significant liabilities to the extent that human health is damaged or the value of such properties is diminished by such migration |
| 17 ______________________________________________________________________ [18]Table of Contents Food and Support Services Competition in our industry could adversely affect our results of operations |
| There is significant competition in the food and support services business from local, regional, national and international companies, of varying sizes, many of which have substantial financial resources |
| Our ability to successfully compete depends on our ability to provide quality services at a reasonable price and to provide value to our customers |
| Certain of our competitors have been and may in the future be willing to underbid us or accept a lower profit margin or expend more capital in order to obtain or retain business |
| This has been observed particularly in our business and industry sector in recent years |
| Also, certain regional and local service providers may be better established than we are within a specific geographic region |
| In addition, existing or potential clients may elect to self operate their food service, eliminating the opportunity for us to serve them or compete for the account |
| While we have a significant international presence, should business sector clients require multi-national bidding, we may be placed at a competitive disadvantage because we may not be able to offer services in as many countries as some of our competitors |
| Sales of sports, entertainment and recreational services would be adversely affected by a decline in attendance at client facilities or by a reduction or cessation of events |
| The portion of our food and support services business which provides services in public facilities such as stadiums, arenas, amphitheaters, convention centers and tourist and recreational attractions is sensitive to an economic downturn, as expenditures to attend sporting events or concerts, take vacations, or hold or attend conventions are funded to a partial or total extent by discretionary income |
| A decrease in such discretionary income on the part of potential attendees at events in our clients’ facilities could result in a reduction in our sales |
| Further, because our exposure to the ultimate consumer of what we provide is limited by our dependence on our clients to attract customers to their facilities and events, our ability to respond to such a reduction in attendance, and therefore our sales, is limited |
| There are many factors that could reduce the numbers of events in a facility or attendance at an event, including labor disruptions involving sports leagues, poor performance by the teams playing in a facility and inclement weather, which would adversely affect sales and profits |
| For example, on September 17, 2004, the owners of the National Hockey League (“NHL”) teams locked out the NHL players and the 2004-2005 season was subsequently cancelled |
| The cancelled 2004-2005 season resulted in a loss of sales and reduced profits at the National Hockey League venues we service |
| In July 2005, the NHL and the NHL Players’ Association announced they had reached an agreement that became effective for the 2005-2006 season |
| The pricing and cancellation terms of our food and support services contracts may constrain our ability to recover costs and to make a profit on our contracts |
| The amount of risk that we bear and our profit potential vary depending on the type of contract under which we provide food and support services |
| We may be unable to fully recover costs on contracts that limit our ability to increase prices |
| In addition, we provide many of our services under contracts of indefinite term, which are subject to termination on short notice by either party without cause |
| Some of our profit and loss contracts contain minimum guaranteed remittances to our client regardless of our sales or profit at the facility involved |
| If sales do not exceed costs under a contract which contains minimum guaranteed commissions, we will bear any losses which are incurred, as well as the guaranteed commission |
| Generally, our contracts limit our ability to raise prices on the food, beverages and merchandise we sell within a particular facility without the client’s consent |
| In addition, some of our contracts exclude certain events or products from the scope of the contract, or give the client the right to modify the terms under which we may operate at certain events |
| The refusal by individual clients to permit the sale of some products at their venues, the imposition by clients of limits on prices which are not economically feasible for us, or decisions by clients to curtail their use of the services we provide could adversely affect our sales and results of operations |
| Our business is contract intensive and may lead to client disputes |
| Our business is contract intensive and we are parties to many contracts with clients all over the world |
| Our client interest contracts (which are described in the Business section of this annual report on Form 10-K), provide that client billings, and for some contracts the sharing of profits and losses, are based on our determinations of costs of service |
| Contract terms under which we base these determinations may be subject to differing interpretations which could result in disputes with our clients from time to time |
| Clients generally have the right to 18 ______________________________________________________________________ [19]Table of Contents audit our contracts, and we periodically review our compliance with contract terms and provisions |
| If clients were to dispute our contract determinations, the resolution of such disputes in a manner adverse to our interests could negatively affect sales and operating results |
| While we do not believe any reviews, audits or other such matters would result in material adjustments, if a large number of our client arrangements were modified in response to any such matter, the effect could be materially adverse to our business or results of operations |
| Claims of illness or injury associated with the service of food and beverage to the public could adversely affect us |
| Claims of illness or injury relating to food quality or food handling are common in the food service industry, and a number of these claims may exist at any given time |
| As a result, we could be adversely affected by negative publicity resulting from food quality or handling claims at one or more of the facilities that we serve |
| In addition to decreasing our sales and profitability at our facilities, adverse publicity could negatively impact our service reputation, hindering our ability to renew contracts on favorable terms or to obtain new business |
| In addition, future food product recalls and health concerns may from time to time disrupt our business |
| In fiscal 2006, one distributor provided approximately 53prca of our food and non-food products in the United States and Canada, and if our relationship or their business were to be disrupted, we could experience disruptions to our operations and cost structure in such countries |
| If our relationship with, or the business of, SYSCO, our main United States distributor of our food and non-food products were to be disrupted, we would have to arrange alternative distributors and our operations and cost structure could be adversely affected in the short term |
| Similarly, a sudden termination of the relationship with a significant provider in other geographic areas could in the short term adversely affect our ability to provide services and disrupt our customer relationships in such areas |
| Governmental regulations relating to food and beverages may subject us to significant liability |
| The regulations relating to each of our food and support service sectors are numerous and complex |
| A variety of regulations at various governmental levels relating to the handling, preparation and serving of food (including in some cases requirements relating to the temperature of food), and the cleanliness of food production facilities and the hygiene of food-handling personnel are enforced primarily at the local public health department level |
| We cannot assure you that we are in full compliance with all applicable laws and regulations at all times or that we will be able to comply with any future laws and regulations |
| Furthermore, additional or amended regulations in this area may significantly increase the cost of compliance |
| We serve alcoholic beverages at many facilities, and must comply with applicable licensing laws, as well as state and local service laws, commonly called dram shop statutes |
| Dram shop statutes generally prohibit serving alcoholic beverages to certain persons such as an individual who is intoxicated or a minor |
| If we violate dram shop laws, we may be liable to the patron and/or third parties for the acts of the patron |
| Although we sponsor regular training programs designed to minimize the likelihood of such a situation, we cannot guarantee that intoxicated or minor patrons will not be served or that liability for their acts will not be imposed on us |
| There can be no assurance that additional regulation in this area would not limit our activities in the future or significantly increase the cost of regulatory compliance |
| We must also obtain and comply with the terms of licenses in order to sell alcoholic beverages in the states in which we serve alcoholic beverages |
| Some of our contracts require us to pay liquidated damages during any period in which our liquor license for the facility is suspended, and most contracts are subject to termination if we lose our liquor license for the facility |
| Uniform and Career Apparel Competition in the uniform rental industry could adversely affect our results of operations |
| We have a number of major national competitors in the uniform rental industry with significant financial resources |
| In addition, there are regional and local uniform suppliers whom we believe may have strong customer loyalty |
| While most customers focus primarily on quality of service, uniform rental also is a price-sensitive service and if existing or future competitors seek to gain customers or accounts by reducing prices, we may be required to lower prices, which would reduce our sales and profits |
| The uniform rental business requires investment capital for growth |
| Failure to maintain capital investment in this segment would put us at a competitive disadvantage |
| In addition, due to competition in our Direct Marketing segment, it has become increasingly important for us to 19 ______________________________________________________________________ [20]Table of Contents source garments and other products overseas, particularly in Asia |
| To the extent we are not able to effectively source such products in Asia and gain the related cost savings, we may be at a further disadvantage in relation to some of our competitors |
| Economic and business conditions affecting our customer base and our operating costs could negatively impact our sales and operating results |
| We supply uniform services to the airline, hospitality, retail and manufacturing industries, among others, all of which have been subject to one or more of shifting employment levels, changes in worker productivity, uncertainty regarding the impacts of rehiring and a shift to offshore manufacturing |
| Economic hardship among our client base could cause some of our clients to restrict expenditures or even cease to conduct business, both of which could negatively affect our sales and operating results |
| Our operations are exposed to fluctuations in garment and fuel prices |
| The cost of gasoline and natural gas has fluctuated significantly in the United States in the last several years |
| To the extent we are not able to mitigate or pass on our increased costs to customers—for fuel expenses or any other of our costs that may increase—our operating results may be negatively affected |
| Risks Associated with the Merger If the Merger is not completed, there may be a negative impact on our ongoing business |
| If the Merger Agreement is not adopted by ARAMARK’s stockholders or if the Merger is not completed for any other reason, ARAMARK will remain an independent public company and the ARAMARK Class B common stock will continue to be listed and traded on the New York Stock Exchange |
| While we expect that management will operate the business in a manner similar to that in which it is being operated today, if the merger is not completed, ARAMARK may suffer negative financial ramifications, including as a result of paying the dlra120 million termination fee if such termination fee is required to be paid and the expenses incurred as a result of the proposed merger |
| In addition, a failed merger may result in negative publicity and/or a negative impression of the Company in the investment community |
| As a result, the business, prospects, results of operations or stock price of ARAMARK could be adversely impacted |
| If we complete the merger and the related transactions, we will be a highly leveraged company and our substantial leverage could adversely affect our operations |
| If we complete the merger, we will be a highly leveraged company |
| We estimate that the total amount of funds necessary to consummate the merger and related transactions will be approximately dlra8dtta3 billion, approximately dlra6dtta4 billion of which are expected to be provided through new borrowings |
| Upon closing, we also expect to have in place a new dlra600 million revolving credit for additional borrowings |
| Our high degree of leverage could have important consequences, including: • increasing our vulnerability to general economic and industry conditions; • requiring a substantial portion of cash flow from operations to be dedicated to the payment of principal and interest on our indebtedness, therefore reducing our ability to use our cash flow to fund our operations, capital expenditures and future business opportunities; • exposing us to the risk of increased interest rates as certain of our borrowings, including borrowings under our senior secured credit facilities will be at variable rates of interest; • restricting us from making strategic acquisitions or causing us to make non-strategic divestitures; • limiting our ability to obtain additional financing for working capital, capital expenditures, debt service requirements, acquisitions and general corporate or other purposes; and • limiting our ability to adjust to changing market conditions and placing us at a competitive disadvantage compared to our competitors who are less highly leveraged |
| We and our subsidiaries may have the ability to incur substantial additional indebtedness in the future, subject to any restrictions contained in the agreements governing our indebtedness |
| If new indebtedness is added to our expected post-closing debt levels, the related risks could intensify |
| 20 ______________________________________________________________________ [21]Table of Contents Our debt agreements after the Merger will contain restrictions that will limit our flexibility in operating our business |
| We expect that the agreements governing our indebtedness will contain various covenants that will limit our ability to engage in specified types of transactions |
| These covenants will limit our and our subsidiaries’ ability to, among other things: • incur additional indebtedness or issue certain preferred shares; • pay dividends on, repurchase or make distributions in respect of our capital stock or make other restricted payments; • make certain investments; • sell certain assets; • create liens; • consolidate, merge, sell or otherwise dispose of all or substantially all of our assets; and • enter into certain transactions with our affiliates |
| In addition, we expect that the revolving credit facility will require us to satisfy and maintain specified financial ratios and other financial condition tests |
| Our ability to meet those financial ratios and tests can be affected by events beyond our control, and we cannot assure you that we will meet those ratios and tests |
| A breach of any of these covenants could result in a default with respect to the revolving credit facility |
| Upon our failure to maintain compliance with these covenants, the lenders could elect to declare all amounts outstanding under the revolving credit facility to be immediately due and payable and terminate all commitments to extend further credit under such facility |
| If we were unable to repay those amounts, the lenders under the revolving credit facility could proceed against the collateral granted to them to secure that indebtedness |