EXHIBIT 10.32
CREDIT AGREEMENT
THIS AGREEMENT is entered into as of June 30, 1999, by and among GUITAR
CENTER, INC., a Delaware corporation ("GCI"), and MUSICIAN'S FRIEND, INC., a
Delaware corporation ("MFI") (each individually, a "Borrower" and collectively,
"Borrowers"), and XXXXX FARGO BANK, NATIONAL ASSOCIATION ("Bank").
RECITALS
WHEREAS, GCI and Bank are parties to that certain Credit Agreement
dated as of August 14, 1997, as amended from time to time (the "1997
Agreement"), pursuant to which Bank has provided certain credit accommodations
to GCI; and
WHEREAS, GCI has requested from Bank an increase in and restructuring
of GCI's revolving line of credit granted pursuant to the 1997 Agreement, with
said restructuring to include the addition of MFI as an obligor thereunder, to
assist in financing the costs of GCI's acquisition of MFI and the operation of
MFI as a wholly-owned subsidiary of GCI; and
WHEREAS, Bank has agreed to provide said revolving line of credit
increase and restructuring on the terms and conditions contained herein.
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Bank and Borrowers hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. DEFINITIONS. As used herein, the terms defined in the
preceding paragraphs shall have the meanings set forth therein, and the
following terms shall have the meanings set forth after each, with all such
meanings equally applicable to the singular and plural of the terms defined:
"AAA" shall have the meaning set forth in Section 8.13(b) hereof.
"Bankruptcy Code" shall mean the Bankruptcy Reform Act, Title 11 of the
United States Code, as amended or recodified from time to time.
"Business Day" shall mean any day except a Saturday, Sunday or any
other day on which commercial banks in California are authorized or required by
law to close.
"Change of Law" shall mean any law, treaty, rule, regulation or
determination of a court or governmental authority or any change therein or in
the interpretation or application thereof.
"Commercial Letters of Credit" shall mean sight commercial letters of
credit issued by Bank for the account of either Borrower, as defined more fully
in Section 2.2(b) hereof.
"Dispute" shall have the meaning set forth in Section 8.13(a) hereof.
"EBITDA" shall mean net profit before tax plus interest expense (net of
capitalized interest expense), depreciation expense, recurring non-cash charges
arising from GCI's stock compensation plan, non-recurring non-cash charges, MF
Transaction Costs up to a maximum of $3,500,000 and amortization expense.
"EBITDA Coverage Ratio" shall mean (a) EBITDA, divided by (b) the
aggregate of total interest expense plus the prior period current maturity of
long-term debt and the prior period current maturity of subordinated debt.
"ERISA" shall mean the Employment Retirement Income Security Act of
1974, as amended or recodified from time to time.
"Event of Default" shall have the meaning set forth in Section 7.1
hereof.
"Fixed Charge Coverage Ratio" shall mean (a) the aggregate of EBITDA
plus store operating lease expense, divided by (b) the aggregate of total
interest expense plus store operating lease expense, the prior period current
maturity of long-term debt and the prior period current maturity of subordinated
debt.
"Fixed Rate Term" shall mean a period commencing on a Business Day and
continuing for one (1), two (2), three (3), six (6), nine (9) or twelve (12)
months, as designated by GCI, during which all or a portion of the outstanding
principal balance of the Line of Credit bears interest determined in relation to
LIBOR; provided however, that no Fixed Rate Term may be selected for a principal
amount less than Two Hundred Fifty Thousand Dollars ($250,000); and provided
further, that no Fixed Rate Term shall extend beyond the scheduled maturity date
of the Line of Credit. If any Fixed Rate Term would end on a day which is not a
Business Day, then such Fixed Rate Term shall be extended to the next succeeding
Business Day.
"GAAP" shall mean generally accepted accounting principles as in effect
in the United States from time to time, consistently applied and used
consistently with prior practices (except for changes required by GAAP).
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"Xxxxxxx Letter of Credit" shall mean standby letter of credit no.
SAS224663 issued by Bank for the account of GCI and for the benefit of
Xxxxxxx-77, Ltd., as defined more fully in Section 2.2(b) hereof.
"Xxxxxxx Letter of Credit Agreement" shall mean collectively, the
Application for Standby Letter of Credit executed by GCI in connection with the
Xxxxxxx Letter of Credit, a copy of which is attached hereto as EXHIBIT A,
together with the Continuing Standby Letter of Credit Agreement from GCI in the
form of EXHIBIT B-2.
"LIBOR" shall mean the rate per annum (rounded upward, if necessary, to
the nearest whole 1/8 of 1%) and determined pursuant to the following formula:
LIBOR = BASE LIBOR
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100% - LIBOR Reserve Percentage
(a) "Base LIBOR" means the rate per annum for United States
dollar deposits quoted by Bank as the Inter-Bank Market Offered Rate,
with the understanding that such rate is quoted by Bank for the purpose
of calculating effective rates of interest for loans making reference
thereto, on the first day of a Fixed Rate Term for delivery of funds on
said date for a period of time approximately equal to the number of
days in such Fixed Rate Term and in an amount approximately equal to
the principal amount to which such Fixed Rate Term applies. Borrowers
understand and agree that Bank may base its quotation of the Inter-Bank
Market Offered Rate upon such offers or other market indicators of the
Inter-Bank Market as Bank in its discretion deems appropriate
including, but not limited to, the rate offered for U.S.
dollar deposits on the London Inter-Bank Market.
(b) "LIBOR Reserve Percentage" means the reserve percentage
prescribed by the Board of Governors of the Federal Reserve System (or
any successor) for "Eurocurrency Liabilities" (as defined in Regulation
D of the Federal Reserve Board, as amended), adjusted by Bank for
expected changes in such reserve percentage during the applicable Fixed
Rate Term.
"Letter of Credit Agreement" shall mean collectively, Bank's standard
Continuing Commercial Letter of Credit Agreement, substantially in the form of
EXHIBIT B-1 attached hereto, and Continuing Standby Letter of Credit Agreement,
substantially in the form of EXHIBIT B-2 attached hereto.
"Letters of Credit" shall mean Commercial Letters of Credit and Standby
Letters of Credit made available under the Line of
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Credit subfeature described in Section 2.2(b) hereof, and shall include the
Xxxxxxx Letter of Credit.
"Line of Credit" shall mean a revolving credit accommodation available
to Borrowers in the initial maximum principal amount of $60,000,000, as defined
more fully in Section 2.2 hereof.
"Line of Credit Note" shall mean a promissory note executed by
Borrowers, jointly and severally, to evidence advances under the Line of Credit,
substantially in the form of EXHIBIT C attached hereto.
"Line Maturity Date" shall mean July 1, 2004.
"Loan Documents" shall mean this Agreement, the Xxxxxxx Letter of
Credit Agreement, the Letter of Credit Agreement, the Line of Credit Note, and
each other document, contract and instrument required hereby or at any time
hereafter delivered to Bank in connection herewith.
"MF Transaction Costs" shall mean the transaction costs directly
related to GCI's acquisition of MFI (including without limitation, financial
advisory, business consulting, employee severance, legal, accounting and similar
professional fees and expenses) incurred or accrued in the fiscal quarter ending
June 30, 1999.
"Net Funded Debt" shall mean, as of the last day of each fiscal
quarter, (a) the aggregate of the outstanding principal balance under the Line
of Credit, subordinated debt, capitalized leases recorded as such on any
Borrower's or Subsidiary's books and records, and all other indebtedness of any
Borrower or Subsidiary evidenced by a note or similar debt instrument, less (b)
the aggregate of the cash balances and marketable securities maintained by any
Borrower or Subsidiary.
"Permitted Acquisition" shall mean an acquisition by GCI of all or
substantially all of the stock or assets of any person or entity, whether by
direct acquisition, merger or otherwise, that satisfies the following
conditions:
(a) at the time of any acquisition, the company whose stock
or assets are to be acquired shall be engaged in the same or a similar
line of business as GCI;
(b) if the acquisition is of all or substantially all of the
stock of a company, such company shall have no direct and/or contingent
obligations for indebtedness for borrowed money, or all such
obligations for indebtedness for borrowed money shall be assumed by GCI
upon completion of the acquisition;
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(c) at the time of any acquisition, and assumption if
applicable, after giving effect thereto, there shall exist no Event of
Default nor any condition which with the giving of notice or the
passage of time or both would constitute an Event of Default; and
(d) at least seven (7) days prior to closing any such
acquisition, GCI shall have delivered to Bank a proforma compliance
certificate in form and substance satisfactory to Bank, which shows to
Bank's reasonable satisfaction that GCI will be in compliance with all
terms and conditions of this Agreement after giving effect thereto.
"Plan" shall mean a defined employee benefit pension plan, as defined
in ERISA.
"Prime Rate" shall mean at any time the rate of interest most recently
announced within Bank at its principal office as its Prime Rate, with the
understanding that the Prime Rate is one of Bank's base rates and serves as the
basis upon which effective rates of interest are calculated for those loans
making reference thereto, and is evidenced by the recording thereof in such
internal publication or publications as Bank may designate.
"Senior Notes" shall mean the unsecured obligations of GCI under its
11% Senior Notes due 2006 in the original aggregate principal amount of
$100,000,000, issued pursuant to an Indenture between GCI and U.S. Trust Company
of California, as trustee, dated as of July 2, 1996, as amended and supplemented
prior to the date of this Agreement.
"Standby Letters of Credit" shall mean standby letters of credit issued
by Bank for the account of either Borrower (other than the Xxxxxxx Letter of
Credit), as defined more fully in Section 2.2(b) hereof.
"Subsidiary" shall mean each of MFI and any other entity of which GCI
owns directly or indirectly more than fifty percent (50%) of the voting
securities thereof or in which GCI otherwise owns a controlling interest.
"Tangible Net Worth" shall mean (a) the aggregate of total
stockholders' equity plus subordinated debt, less (b) any intangible assets.
"Year 2000 Compliant" shall mean, in regard to any entity, that all
software, hardware, firmware, equipment, goods or systems utilized by or
material to the business operations or financial condition of such entity, will
properly perform date sensitive functions before, during and after the year
2000.
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SECTION 1.2. ACCOUNTING PRINCIPLES. Unless the context otherwise
clearly requires, all accounting terms not expressly defined herein shall be
construed in accordance with GAAP and all financial computations required under
this Agreement shall be made on a consolidated basis in accordance with GAAP.
References herein to "fiscal year" and "fiscal quarter" refer to such fiscal
periods of Borrowers.
ARTICLE II
THE CREDIT
SECTION 2.1. 1997 AGREEMENT. The 1997 Agreement shall be canceled
and superseded by this Agreement as of the date first written above.
SECTION 2.2. LINE OF CREDIT.
(a) LINE OF CREDIT. Subject to the terms and conditions of this
Agreement, Bank hereby agrees to make advances to Borrowers under the Line of
Credit from time to time up to and including the Line Maturity Date, not to
exceed at any time the aggregate principal amount of Sixty Million Dollars
($60,000,000), or such lesser amount as may from time to time be available
thereunder, the proceeds of which shall be used first, to refinance the
outstanding principal balance of GCI's revolving credit accommodation granted
pursuant to the 1997 Agreement, and second, to finance (i) general working
capital requirements for Borrowers, and (ii) Permitted Acquisitions by GCI.
Borrowers' obligation to repay advances under the Line of Credit shall be
evidenced by the Line of Credit Note, all terms of which are incorporated herein
by this reference.
(b) LETTER OF CREDIT SUBFEATURE. As a subfeature under the Line of
Credit, Bank agrees from time to time during the term thereof to issue Letters
of Credit for the account of either Borrower to finance inventory purchases and
for other purposes acceptable to Bank; provided however, that the form and
substance of each Letter of Credit shall be subject to approval by Bank, in its
reasonable discretion; and provided further, that the aggregate undrawn amount
of all outstanding Letters of Credit shall not at any time exceed Ten Million
Dollars ($10,000,000). In addition, Bank has issued the Xxxxxxx Letter of Credit
for the account of GCI in support of GCI's real estate lease obligations to
Xxxxxxx-77, Ltd. in the face amount of $226,169.83, with an initial expiration
date of February 13, 1997, which expiration date is subject to extension as
provided therein and has been extended to February 13, 2000, and which Bank
hereby acknowledges remains in full force and effect as a Letter of Credit under
this subfeature. Other than the Xxxxxxx Letter of Credit, each Letter of Credit
shall be issued for a term not to exceed three hundred sixty-five (365) days, as
designated by the Borrower thereunder,
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and no Letter of Credit shall have an expiration date more than one hundred
eighty (180) days beyond the Line Maturity Date. The undrawn amount of all
Letters of Credit shall be reserved under the Line of Credit and shall not be
available for borrowings thereunder. Other than the Xxxxxxx Letter of Credit,
each Letter of Credit shall be subject to the additional terms and conditions
of the Letter of Credit Agreement and related documents, if any, required by
Bank in connection with the issuance thereof. The Xxxxxxx Letter of Credit
shall remain subject to the additional terms and conditions of the Xxxxxxx
Letter of Credit Agreement. Each draft paid by Bank under a Letter of Credit
shall be deemed an advance under the Line of Credit and shall be repaid by
Borrowers in accordance with the terms and conditions of this Agreement
applicable to such advances; provided however, that if advances under the
Line of Credit are not available, for any reason, at the time any draft is
paid by Bank, then Borrowers shall immediately pay to Bank the full amount of
such draft, together with interest thereon from the date such amount is paid
by Bank to the date such amount is fully repaid by Borrowers, at the rate of
interest applicable to advances under the Line of Credit. In such event
Borrowers agree that Bank, in its sole discretion, may debit any demand
deposit account maintained by either Borrower with Bank for the amount of any
such draft.
(c) BORROWING AND REPAYMENT. Borrowers may from time to time
during the term of the Line of Credit borrow, partially or wholly repay their
outstanding borrowings, and reborrow, subject to all of the limitations,
terms and conditions contained herein or in the Line of Credit Note; provided
however, that the maximum principal amount available under the Line of Credit
shall be reduced automatically without further notice from Bank by Five
Million Dollars ($5,000,000) on each of July 1, 2002 and July 1, 2003; and
provided further, that the total outstanding borrowings under the Line of
Credit shall not at any time exceed the maximum principal amount then
available thereunder in accordance with the terms of this Agreement. The
outstanding principal balance of the Line of Credit, together with all
accrued and unpaid interest thereon, shall be due and payable in full on the
Line Maturity Date.
(d) PREPAYMENT OF ADVANCES.
(i) PRIME RATE. Borrowers may prepay principal on any portion
of the Line of Credit which bears interest determined in relation to the Prime
Rate at any time, in any amount and without penalty.
(ii) LIBOR. Borrowers may prepay principal on any portion of
the Line of Credit which bears interest determined in relation to LIBOR at
any time and in the minimum amount of Two Hundred Fifty Thousand Dollars
($250,000); provided however, that if the outstanding principal balance of
such portion of the Line
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of Credit is less than said amount, the minimum prepayment amount shall be
the entire outstanding principal balance thereof. In consideration of Bank
providing this prepayment option to Borrowers, or if any such portion of the
Line of Credit shall become due and payable at any time prior to the last day
of the Fixed Rate Term applicable thereto by acceleration or otherwise,
Borrowers shall pay to Bank immediately upon demand a fee which is the sum of
the discounted monthly differences for each month from the month of
prepayment through the month in which such Fixed Rate Term matures,
calculated as follows for each such month:
(A) DETERMINE the amount of interest which would have
accrued each month on the amount prepaid at the
interest rate applicable to such amount had it
remained outstanding until the last day of the Fixed
Rate Term applicable thereto.
(B) SUBTRACT from the amount determined in (A) above the
amount of interest which would have accrued for the
same month on the amount prepaid for the remaining
term of such Fixed Rate Term at LIBOR in effect on
the date of prepayment for new loans made for such
term and in a principal amount equal to the amount
prepaid.
(C) If the result obtained in (B) for any month is
greater than zero, discount that difference by LIBOR
used in (ii) above.
Borrowers acknowledge that prepayment of LIBOR borrowings may result in Bank
incurring additional costs, expenses and/or liabilities, and that it is
difficult to ascertain the full extent of such costs, expenses and/or
liabilities. Borrowers, therefore, agree to pay the above-described prepayment
fee and agree that said amount represents a reasonable estimate of the
prepayment costs, expenses and/or liabilities of Bank. If Borrowers fail to pay
any prepayment fee when due, the amount of such prepayment fee shall thereafter
bear interest until paid at a rate per annum two percent (2%) above the Prime
Rate in effect from time to time (computed on the basis of a 360-day year,
actual days elapsed).
SECTION 2.3. INTEREST/FEES.
(a) LINE OF CREDIT. The outstanding principal balance of the Line of
Credit, or such portions thereof as GCI shall designate, shall bear interest in
accordance with one of the following options, as selected by GCI pursuant to the
terms of Section 2.4 hereof:
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(i) at a fluctuating rate per annum equal to the Prime Rate in
effect from time to time; or
(ii) at a fixed rate determined by Bank to be one and one-half
percent (1.5%) above LIBOR in effect on the first day of a
Fixed Rate Term.
(b) COMPUTATION AND PAYMENT. Interest shall be computed on the
basis of a 360-day year, actual days elapsed, and shall be payable at the
times and place set forth in the Line of Credit Note and the Xxxxxxx Letter
of Credit Agreement. When interest is determined in relation to the Prime
Rate, each change in the rate of interest shall become effective on the date
each Prime Rate change is announced within Bank.
(c) GCI FACILITY FEE. GCI shall pay to Bank the $50,000 remaining
unpaid portion of the facility fee required by the 1997 Agreement at the end
of GCI's 1999 fiscal year; provided however, that upon early termination or
cancellation of this Agreement or the Line of Credit, GCI shall pay in full
the remaining outstanding balance of said facility fee.
(d) COMMITMENT FEE. Borrowers shall pay to Bank a non-refundable
commitment fee for the increase in the Line of Credit equal to $50,000, which
fee shall be due and payable in full immediately upon the signing of this
Agreement.
(e) UNUSED COMMITMENT FEE. Borrowers shall pay to Bank a fee equal
to one-quarter percent (.25%) per annum (computed on the basis of a 360-day
year, actual days elapsed) on the average daily unused amount of the Line of
Credit during each calendar quarter, or portion thereof, that the Line of
Credit remains available. Said fee shall be calculated by Bank as of the end
of each calendar quarter and shall be due and payable by Borrowers in arrears
upon billing by Bank. Notwithstanding the foregoing, if the average daily
advances under the Line of Credit exceed (i) during the 12-month period
commencing October 1, 1998, the sum of $15,000,000 from October 1, 1998
through the date hereof and $22,500,000 from the date hereof through
September 30, 1999, or (ii) $22,500,000 during any of the following 12-month
periods:
October 1, 1999 through September 30, 2000;
October 1, 2000 through September 30, 2001;
October 1, 2001 through September 30, 2002;
October 1, 2002 through September 30, 2003;
as determined by Bank at the end of each such 12-month period, then on January 1
of the next year, Bank shall refund to Borrowers all unused commitment fee
amounts paid by Borrowers for such 12-month period.
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(f) LETTER OF CREDIT FEES. Borrowers shall pay to Bank (i) fees
upon the issuance, and where applicable each annual anniversary date, of each
Standby Letter of Credit and the Xxxxxxx Letter of Credit equal to two
percent (2%) per annum (computed on the basis of a 360-day year, actual days
elapsed) of the face amount thereof, and (ii) fees upon the issuance of each
Commercial Letter of Credit, fees upon the payment or negotiation by Bank of
each draft under any Letter of Credit and fees upon the occurrence of any
other activity with respect to any Letter of Credit (including without
limitation, the transfer, amendment or cancellation of any Letter of Credit)
determined in accordance with Bank's standard fees and charges then in effect
for such activity. Attached hereto as SCHEDULE 2.3 is a list of Bank's
standard fees and charges in effect as of the date hereof.
(g) COLLECTION OF PAYMENTS. Borrowers authorize Bank to collect
all interest and fees due under each Credit by charging GCI's demand deposit
account number 4629-103789 with Bank, or any other demand deposit account
maintained by either Borrower with Bank, for the full amount thereof. Should
there be insufficient funds in any such demand deposit account to pay all
such sums when due, the full amount of such deficiency shall be immediately
due and payable by Borrowers.
SECTION 2.4. SELECTION OF LINE OF CREDIT INTEREST OPTIONS. At any
time any portion of the Line of Credit bears interest determined in relation
to LIBOR, it may be continued by GCI at the end of the applicable Fixed Rate
Term so that all or a portion thereof bears interest determined in relation
to the Prime Rate or in relation to LIBOR for a new Fixed Rate Term
designated by GCI. At any time any portion of the Line of Credit bears
interest determined in relation to the Prime Rate, GCI may convert all or a
portion thereof so that it bears interest determined in relation to LIBOR for
a Fixed Rate Term designated by GCI. At the time an advance is requested
under the Line of Credit, or at such other time as GCI wishes to select a
LIBOR option for all or a portion thereof, and at the end of each Fixed Rate
Term, GCI shall give Bank notice specifying:
(a) the interest rate option selected by GCI;
(b) the principal amount subject thereto; and
(c) if a LIBOR option is selected, the length of the applicable
Fixed Rate Term.
Any such notice may be given by telephone so long as, (i) with respect to
each selection of a LIBOR option, Bank receives written confirmation from GCI
not later than three (3) Business Days after such telephone notice is given,
and (ii) such notice is given to Bank prior to 10:00 a.m., California time,
on the first day of the Fixed Rate Term. For each LIBOR option
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requested hereunder, Bank will quote the applicable fixed rate to Borrowers
at approximately 10:00 a.m., California time, on the first day of the Fixed
Rate Term. If GCI does not immediately accept the rate quoted by Bank, any
subsequent acceptance by GCI shall be subject to a redetermination by Bank of
the applicable fixed rate; provided however, that if GCI fails to accept any
such rate by 11:00 a.m., California time, on the Business Day such quotation
is given, then the quoted rate shall expire and Bank shall have no obligation
to permit a LIBOR option to be selected on such day. If no specific
designation of interest is made at the time an advance is requested under the
Line of Credit, or at the end of any Fixed Rate Term, GCI shall be deemed to
have made a Prime Rate interest selection for such advance or the principal
amount to which such Fixed Rate Term applied.
SECTION 2.5. ADDITIONAL LIBOR PROVISIONS.
(a) INABILITY TO DETERMINE LIBOR. If Bank at any time shall
determine that for any reason adequate and reasonable means do not exist for
ascertaining LIBOR, then Bank shall promptly give notice thereof to
Borrowers. If such notice is given and until such notice has been withdrawn
by Bank, than (i) no new LIBOR option may be selected by GCI, and (ii) any
portion of the outstanding principal balance of the Line of Credit which
bears interest determined in relation to LIBOR, subsequent to the end of the
Fixed Rate Term applicable thereto, shall bear interest determined in
relation to the Prime Rate.
(b) CHANGE IN LAW: ILLEGALITY. If any Change in Law shall make it
unlawful for Bank (i) to make LIBOR options available hereunder, or (ii) to
maintain interest rates based on LIBOR, then in the former event, any
obligation of Bank to make available such unlawful LIBOR options shall
immediately be canceled, and in the latter event, any such unlawful
LIBOR-based interest rates then outstanding shall be converted, at Bank's
option, so that interest on the portion of the Line of Credit subject thereto
is determined in relation to the Prime Rate; provided however, that if any
such Change in Law shall permit any LIBOR-based interest rates to remain in
effect until the expiration of the Fixed Rate Term applicable thereto, then
such permitted LIBOR-based interest rates shall continue in effect until the
expiration of such Fixed Rate Term. Upon the occurrence of any of the
foregoing events, Borrowers shall pay to Bank immediately upon demand such
amounts as may be necessary to compensate Bank for any fines, fees, charges,
penalties or other costs incurred or payable by Bank as a result thereof and
which are attributable to any LIBOR options made available to Borrowers
hereunder, and any reasonable allocation made by Bank among its operations
shall be conclusive and binding upon Borrowers.
(c) CHANGE IN LAW: INCREASED COSTS. If any Change in Law or
compliance by Bank with any request or directive (whether or
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not having the force of law) from any central bank or other governmental
authority shall:
(i) subject Bank to any tax, duty or other charge with
respect to any LIBOR options, or change the basis of
taxation of payments to Bank of principal, interest,
fees or any other amount payable hereunder (except
for changes in the rate of tax on the overall net
income of Bank); or
(ii) impose, modify or hold applicable any reserve,
special deposit, compulsory loan or similar
requirement against assets held by, deposits or other
liabilities in or for the account of, advances or
loans by, or any other acquisition of funds by any
office of Bank; or
(iii) impose on Bank any other condition;
and the result of any of the foregoing is to increase the cost to Bank of
making, renewing or maintaining any LIBOR options pursuant hereto and/or to
reduce any amount receivable by Bank in connection therewith, then in any
such case, Borrowers shall pay to Bank immediately upon demand such amounts
as may be necessary to compensate Bank for any additional costs reasonably
incurred by Bank and/or reductions in amounts received by Bank which are
attributable to such LIBOR options. In determining which costs incurred by
Bank and/or reductions in amounts received by Bank are attributable to any
LIBOR options made available to Borrowers pursuant hereto, any reasonable
allocation made by Bank among its operations shall be conclusive and binding
upon Borrowers.
SECTION 2.6. COLLATERAL. As security for all indebtedness of
Borrowers to Bank subject hereto, Borrowers each grant to Bank security
interests of first priority in all their accounts receivable, other rights to
payment, general intangibles, trademarks and inventory, junior solely to (a)
any security interests to which Bank gives its prior written consent as
required by Section 6.8 hereof, and (b) any other security interests listed
on SCHEDULE 6.8 hereto. All of the foregoing shall be evidenced by and
subject to the terms of such security agreements, financing statements and
other documents as Bank shall reasonably require, all in form and substance
satisfactory to Bank. Borrowers shall reimburse Bank immediately upon demand
for all costs and expenses reasonably incurred by Bank in connection with any
of the foregoing security, including without limitation, filing and recording
fees and, if necessary, costs of appraisals and audits.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES
Borrowers make the following representations and warranties to Bank,
which representations and warranties shall survive the execution of this
Agreement and shall continue in full force and effect until the full and
final payment, and satisfaction and discharge, of all obligations of each
Borrower to Bank subject to this Agreement.
SECTION 3.1. LEGAL STATUS. Each Borrower and Subsidiary is a
corporation, duly organized and existing and in good standing under the laws
of the state of Delaware, and is qualified or licensed to do business (and is
in good standing as a foreign corporation, if applicable) in all
jurisdictions in which such qualification or licensing is required or in
which the failure to so qualify or to be so licensed could have a material
adverse effect on Borrowers and the Subsidiaries taken as a whole.
SECTION 3.2. AUTHORIZATION AND VALIDITY. Each of the Loan
Documents has been duly authorized, and upon its execution and delivery in
accordance with the provisions hereof will constitute legal, valid and
binding agreements and obligations of the Borrower, Subsidiary or other party
which executes the same, enforceable in accordance with its respective terms.
SECTION 3.3. NO VIOLATION. The execution, delivery and performance
by any Borrower or Subsidiary of each of the Loan Documents do not violate
any provision of any law or regulation, or contravene any provision of the
Certificate of Incorporation or By-Laws of such Borrower or Subsidiary, or
result in any breach of or default under any contract, obligation, indenture
or other instrument to which such Borrower or Subsidiary is a party or by
which such Borrower or Subsidiary may be bound.
SECTION 3.4. LITIGATION. There are no pending, or to the best of
Borrowers' knowledge threatened, actions, claims, investigations, suits or
proceedings by or before any governmental authority, arbitrator, court or
administrative agency which could reasonably be expected to have a material
adverse effect on the financial condition or operations of Borrowers and the
Subsidiaries taken as a whole other than those disclosed by Borrowers to Bank
in writing prior to the date hereof.
SECTION 3.5. CORRECTNESS OF FINANCIAL STATEMENT. The financial
statement of GCI dated dated March 31, 1999, a true copy of which has been
delivered by GCI to Bank prior to the date hereof, (a) is complete and
correct and
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presents fairly in all material respects the financial condition of GCI
prior to its acquisition of MFI, (b) discloses all liabilities of GCI that
are required to be reflected or reserved against under GAAP, whether
liquidated or unliquidated, fixed or contingent, and (c) has been prepared in
accordance with GAAP, except as otherwise disclosed by GCI therein. Since the
date of such financial statement there has been no material adverse change in
the financial condition of GCI, nor has GCI mortgaged, pledged, granted a
security interest in or otherwise encumbered any of its assets or properties
except in favor of Bank or as otherwise permitted by Bank in writing.
SECTION 3.6. INCOME TAX RETURNS. Borrowers have no knowledge of
any pending assessments or adjustments of any Borrower's or Subsidiary's
income tax payable with respect to any year, except any such assessment or
adjustment which any Borrower or Subsidiary is contesting in good faith and
for which such Borrower or Subsidiary has made provision in its financial
statements, to Bank's satisfaction, for eventual payment thereof in the event
such Borrower or Subsidiary is obligated to make such payment.
SECTION 3.7. NO SUBORDINATION. There is no agreement, indenture,
contract or instrument to which any Borrower or Subsidiary is a party or by
which Borrower or any Subsidiary may be bound that requires the subordination
in right of payment of any of such Borrower's or Subsidiary's obligations
subject to this Agreement or the other Loan Documents to any other obligation
of such Borrower or Subsidiary.
SECTION 3.8. PERMITS, FRANCHISES. Each Borrower and Subsidiary
possesses, and will hereafter possess, all permits, consents, approvals,
franchises and licenses required and rights to all trademarks, trade names,
patents, and fictitious names, if any, necessary to enable it to conduct the
business in which it is now engaged in compliance with applicable law, except
for any non-compliance which would not have a material adverse effect on the
financial condition or operations of Borrowers and the Subsidiaries taken as
a whole.
SECTION 3.9. ERISA. Each Borrower and Subsidiary is in compliance
in all material respects with all applicable provisions of ERISA; no Borrower
or Subsidiary has violated any provision of any defined employee pension
benefit plan maintained or contributed to by such Borrower or Subsidiary; no
Reportable Event as defined in ERISA has occurred and is continuing with
respect to any Plan initiated by any Borrower or Subsidiary; each Borrower
and Subsidiary has met its minimum funding requirements under ERISA with
respect to each Plan; and each Plan will be able to fulfill its benefit
obligations as they come due in accordance
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with the Plan documents and under generally accepted accounting principles.
SECTION 3.10. OTHER OBLIGATIONS. No Borrower or Subsidiary is in
default on any material obligation for borrowed money, any purchase money
obligation or any other material lease, commitment, contract, instrument or
obligation.
SECTION 3.11. ENVIRONMENTAL MATTERS. Except as disclosed by
Borrowers to Bank in writing prior to the date hereof, each Borrower and
Subsidiary is in compliance in all material respects with all applicable
federal or state environmental, hazardous waste, health and safety statutes,
and any rules or regulations adopted pursuant thereto, which govern or affect
any of such Borrower's or Subsidiary's operations and/or properties,
including without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, the Superfund Amendments and
Reauthorization Act of 1986, the Federal Resource Conservation and Recovery
Act of 1976, and the Federal Toxic Substances Control Act, as any of the same
may be amended, modified or supplemented from time to time. None of the
operations of any Borrower or Subsidiary is the subject of any federal or
state investigation evaluating whether any remedial action involving a
material expenditure is needed to respond to a release of any toxic or
hazardous waste or substance into the environment. No Borrower or Subsidiary
has any material contingent liability in connection with any release of any
toxic or hazardous waste or substance into the environment.
SECTION 3.12. SENIOR NOTES. The Senior Notes remain in full force
and effect in accordance with their terms, and there exists no default, or
condition, act or event which with the giving of notice or the passage of
time or both would constitute a default, under any of the Senior Notes.
ARTICLE IV
CONDITIONS
SECTION 4.1. CONDITIONS OF INITIAL EXTENSION OF CREDIT. The
obligation of Bank to grant any credit hereunder is subject to the
fulfillment to Bank's satisfaction of all of the following conditions:
(a) APPROVAL OF BANK COUNSEL. All legal matters incidental to the
granting of any credit hereunder shall be satisfactory to Bank's counsel.
(b) DOCUMENTATION. Bank shall have received, in form and substance
satisfactory to Bank, each of the following, duly executed:
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(i) This Agreement and the Line of Credit Note from
Borrowers.
(ii) Corporate Borrowing Resolution from each Borrower.
(iii) Certificate of Incumbency from each Borrower.
(iv) Xxxxxxx Letter of Credit Agreement from GCI.
(v) Letter of Credit Agreements from each Borrower.
(vi) All security agreements, UCC Financing Statements,
trademark assignments, landlord's waivers and other
documents from each Borrower as required by Bank for the
creation and perfection of the security interests
specified in Section 2.6 hereof.
(vii) Such other documents as Bank may require under any other
Section of this Agreement.
(c) FINANCIAL CONDITION. There shall have been no material
adverse change, as determined by Bank, in the financial condition or business
of Borrowers taken as a whole, nor any material decline, as determined by
Bank, in the market value of any collateral required hereunder or a
substantial or material portion of the assets of Borrowers taken as a whole.
(d) INSURANCE. Borrowers shall have delivered to Bank evidence of
insurance coverage on all Borrowers' property, in form, substance, amounts,
covering risks and issued by companies reasonably satisfactory to Bank, and
where required by Bank, with loss payable endorsements in favor of Bank.
SECTION 4.2. CONDITIONS OF EACH EXTENSION OF CREDIT. The
obligation of Bank to make each extension of credit requested by Borrowers
hereunder shall be subject to the fulfillment to Bank's satisfaction of each
of the following conditions:
(a) COMPLIANCE. The representations and warranties contained
herein and in each of the other Loan Documents shall be true on and as of the
date of the signing of this Agreement and on the date of each extension of
credit by Bank pursuant hereto, with the same effect as though such
representations and warranties had been made on and as of each such date, and
on each such date, no Event of Default as defined herein, and no condition,
event or act which with the giving of notice or the passage of time or both
would constitute such an Event of Default, shall have occurred and be
continuing or shall exist.
(b) DOCUMENTATION. Bank shall have received all additional
documents which may be required in connection with such extension of credit.
(c) LANDLORD'S WAIVERS. Borrowers shall use their reasonable
best efforts to obtain a Landlord's Waiver substantially in the form of
EXHIBIT D attached
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hereto from the lessor under each new lease entered into by either Borrower
subsequent to the date of this Agreement.
ARTICLE V
AFFIRMATIVE COVENANTS
Borrowers covenant that so long as Bank remains committed to extend
credit to either Borrower pursuant hereto, or any liabilities (whether direct
or contingent, liquidated or unliquidated) of either Borrower to Bank under
any of the Loan Documents remain outstanding, and until payment in full of
all obligations of each Borrower subject hereto, Borrowers shall, and shall
cause each Subsidiary to, unless Bank otherwise consents in writing:
SECTION 5.1. PUNCTUAL PAYMENTS. Punctually pay: (a) all principal,
interest, fees or other liabilities due under any of the Loan Documents at
the times and place and in the manner specified therein, and (b) immediately
upon demand by Bank, the principal amount by which outstanding borrowings
under the Line of Credit at any time exceed any reduced principal amount then
available thereunder.
SECTION 5.2. ACCOUNTING RECORDS. Maintain adequate books and
records in accordance with GAAP, and permit any representative of Bank, at
any reasonable time, to inspect, audit and examine such books and records, to
make copies of the same, and to inspect the properties of each Borrower and
Subsidiary.
SECTION 5.3. FINANCIAL STATEMENTS. Provide to Bank all of the
following, in form and detail satisfactory to Bank:
(a) not later than ninety (90) days after and as of the end of
each fiscal year, an unqualified financial statement of Borrowers and the
Subsidiaries on a consolidated basis, audited by KPMG Peat Marwick LLP or
another independent certified public accountant of recognized national
standing acceptable to Bank, to include balance sheet, income statement, and
statement of cash flows;
(b) not later than forty-five (45) days after and as of the end of
each fiscal quarter, a condensed financial statement of Borrowers and the
Subsidiaries on a consolidated basis, prepared by GCI, to include balance
sheet, income statement and statement of cash flows, together with a
comparison of same store sales, and a list of all new store locations for
each Borrower and Subsidiary, or other new locations at which any Borrower or
Subsidiary stores any of its inventory, opened or acquired during such fiscal
quarter;
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(c) not later than thirty (30) days after the beginning of each
fiscal year, annual budget information presented on a month by month basis
for the operations of Borrowers and the Subsidiaries on a consolidated basis
during such fiscal year;
(d) from time to time such other information as Bank may
reasonably request.
SECTION 5.4. COMPLIANCE. Preserve and maintain all licenses,
permits, governmental approvals, rights, privileges and franchises necessary
for the conduct of any Borrower's and Subsidiary's business; and comply with
the provisions of all documents pursuant to which any Borrower or Subsidiary
is organized and/or which govern any Borrower's or Subsidiary's continued
existence and with the requirements of all laws, rules, regulations and
orders of any governmental authority applicable to any Borrower or Subsidiary
and/or their respective businesses.
SECTION 5.5. INSURANCE. Maintain and keep in force insurance of
the types and in amounts customarily carried in lines of business similar to
that of each Borrower or Subsidiary, including but not limited to fire,
extended coverage, public liability, flood, property damage and workers'
compensation, with all such insurance carried with companies and in amounts
reasonably satisfactory to Bank, and deliver to Bank from time to time at
Bank's request schedules setting forth all insurance then in effect.
SECTION 5.6. FACILITIES. Keep all properties useful or necessary
to each Borrower's or Subsidiary's business in good repair and condition,
normal wear and tear excepted, and from time to time make necessary repairs,
renewals and replacements thereto so that such properties shall be fully and
efficiently preserved and maintained as reasonably necessary to conduct its
respective business.
SECTION 5.7. TAXES AND OTHER LIABILITIES. Pay and discharge when
due any and all indebtedness, obligations, assessments and taxes, both real
or personal, including without limitation federal and state income taxes and
state and local property taxes and assessments, except such (a) as any
Borrower or Subsidiary may in good faith contest or as to which a bona fide
dispute may arise, and (b) for which such Borrower or Subsidiary has made
provision, to Bank's satisfaction, for eventual payment thereof in the event
such Borrower or Subsidiary is obligated to make such payment.
SECTION 5.8. LITIGATION. Promptly give notice in writing to Bank
of any litigation pending or threatened against any Borrower and/or
Subsidiary with a claim in excess of $2,500,000.
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SECTION 5.9. FINANCIAL CONDITION. Maintain the financial condition
of Borrowers and the Subsidiaries on a consolidated basis as follows using
GAAP, except as modified by the definitions herein; provided however, that
solely for purposes of determining compliance with subsections (a), (c) and
(d) of this Section 5.9 for the fiscal quarters ended June 30, 1999,
September 30, 1999, and December 31, 1999, all calculations which include
financial results for any of Borrowers' fiscal quarters ending up to and
including March 31, 1999, shall be based on GCI's financial statements for
the applicable fiscal quarters delivered to Bank prior to the date hereof,
without giving effect to GCI's acquisition of MFI:
(a) Net Funded Debt divided by EBITDA determined as of each fiscal
quarter end of a rolling 4-quarter basis for said fiscal quarter and the
immediately preceding 3 fiscal quarters, not to exceed 2.5 to 1.0 at each
fiscal quarter end prior to September 30, 2000, and 2.0 to 1.0 at each fiscal
quarter end commencing September 30, 2000.
(b) Tangible Net Worth at each fiscal year end, commencing as of
Borrowers' December 31, 1999 fiscal year end, not less than Borrowers'
Tangible Net Worth at the end of the immediately preceding fiscal year plus
75% of Borrowers' net after tax profit for Borrowers' fiscal year for which
its Tangible Net Worth is being determined.
(c) EBITDA Coverage Ratio determined as of each fiscal quarter end
on a rolling 4-quarter basis for said fiscal quarter and the immediately
preceding 3 fiscal quarters, not less than 2.0 to 1.0 at each fiscal quarter
end prior to September 30, 2000, and 3.5 to 1.0 at each fiscal quarter end
commencing September 30, 2000.
(d) Fixed Charge Coverage Ratio determined as of each fiscal
quarter end on a rolling 4-quarter basis for said fiscal quarter and the
immediately preceding 3 fiscal quarters, not less than 1.5 to 1.0 at each
fiscal quarter end prior to September 30, 2000, and 2.0 to 1.0 at each fiscal
quarter end commencing September 30, 2000.
(e) Income before tax and extraordinary items plus amortization of
goodwill and MF Transaction Costs to a maximum of $3,500,000 not less than $1
during any two successive fiscal quarters or at any fiscal year end.
(f) The aggregate of 80% of Borrowers' accounts receivable and 70%
of Borrowers' inventory, as reflected on Borrowers' consolidated balance
sheet, not less than the outstanding principal balance of the Line of Credit
at each fiscal quarter end.
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SECTION 5.10. NOTICE TO BANK. Promptly (but in no event more than
five (5) days after the occurrence of each such event or matter) give written
notice to Bank in reasonable detail of: (a) the occurrence of any Event of
Default, or any condition, event or act which with the giving of notice or
the passage of time or both would constitute an Event of Default; (b) any
change in the name or the organizational structure of any Borrower or
Subsidiary; (c) the occurrence and nature of any Reportable Event or
Prohibited Transaction, each as defined in ERISA, or any funding deficiency
with respect to any Plan; or (d) any termination or cancellation of any
insurance policy which any Borrower or Subsidiary is required to maintain, or
any uninsured or partially uninsured loss through liability or property
damage, or through fire, theft or any other cause affecting any Borrower's
and/or Subsidiary's property in excess of an aggregate of $2,500,000.
SECTION 5.11. PRIMARY DEPOSITORY RELATIONSHIP. Maintain each
Borrower's and Subsidiary's primary depository accounts and relationship with
Bank.
SECTION 5.12. YEAR 2000 COMPLIANCE. Perform all acts reasonably
necessary to ensure that (a) each Borrower and Subsidiary, and any business
in which any Borrower or Subsidiary holds a substantial interest, and (b) to
the extent reasonably necessary to avoid a material adverse effect on
Borrowers and the Subsidiaries taken as a whole, all customers, suppliers and
vendors that are material to Borrowers' and the Subsidiaries' businesses,
taken as a whole, become Year 2000 Compliant in a timely manner. Such acts
shall include, without limitation, performing a comprehensive review and
assessment of all systems of each Borrower and Subsidiary and adopting a
detailed plan, with itemized budget, for the remediation, monitoring and
testing of such systems. Borrowers shall, immediately upon request, provide,
and cause each Subsidiary to provide, to Bank such certifications or other
evidence of compliance by each Borrower and/or Subsidiary with the terms
hereof as Bank may from time to time request.
ARTICLE VI
NEGATIVE COVENANTS
Borrowers further covenant that so long as Bank remains committed to
extend credit to either Borrower pursuant hereto, or any liabilities (whether
direct or contingent, liquidated or unliquidated) of either Borrower to Bank
under any of the Loan Documents remain outstanding, and until payment in full of
all obligations of each Borrower subject hereto, Borrowers will not, and will
not permit or cause any Subsidiary to, without Bank's prior written consent:
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SECTION 6.1. USE OF FUNDS. Use any of the proceeds of the Line of
Credit except for the purposes stated in Article II hereof.
SECTION 6.2. OTHER INDEBTEDNESS. Create, incur, assume or permit
to exist any indebtedness or liabilities resulting from indebtedness for
borrowed money, whether secured or unsecured, matured or unmatured,
liquidated or unliquidated, joint or several, except: (a) the liabilities of
any Borrower or Subsidiary to Bank; (b) new liabilities incurred by GCI in
connection with leasehold financing; (c) new liabilities incurred by GCI for
the purchase or refinancing of fixed assets or real property which are
secured by the fixed assets or real property purchased or refinanced; (d) the
liabilities of GCI under the Senior Notes; (e) the liabilities of MFI to GCI
and/or of GCI to MFI for repayment of loans or advances permitted by Section
6.5 hereof; (f) the liabilities of MFI under capital leases of equipment
incurred prior to the date hereof in amounts not to exceed an aggregate of
$1,100,000; (g) new liabilities of GCI for assumed loans or borrowings
incurred in connection with, and as permitted by the definition of, Permitted
Acquisitions; (h) new liabilities incurred by GCI in amounts not to exceed an
aggregate of $5,000,000 at any time outstanding; and (i) any other
liabilities of any Borrower or Subsidiary existing as of, and disclosed to
Bank prior to, the date hereof.
SECTION 6.3. MERGER, CONSOLIDATION, TRANSFER OF ASSETS. (a) Merge
into or consolidate with any other entity; (b) make any substantial change in
the nature of any Borrower's or Subsidiary's business as conducted as of the
date hereof; (c) acquire all or substantially all of the assets of any other
entity, except Permitted Acquisitions by GCI in amounts not to exceed an
aggregate of $30,000,000 during the term of the Line of Credit; provided
however, that no single Permitted Acquisition with a purchase price in excess
of $15,000,000 may be made without Bank's prior review and approval, in
Bank's reasonable discretion; nor (d) sell, lease, transfer or otherwise
dispose of all or a substantial or material portion of any Borrower's or
Subsidiary's assets except in the ordinary course of its business, other than
transactions between GCI and MFI.
SECTION 6.4. GUARANTIES. Guarantee or become liable in any way as
surety, endorser (other than as endorser of negotiable instruments for
deposit or collection in the ordinary course of business), accommodation
endorser or otherwise for, nor pledge or hypothecate any assets of any
Borrower or Subsidiary as security for, any liabilities or obligations of any
other person or entity, except: (a) any of the foregoing in favor of Bank;
(b) any guaranty by GCI of any liability of MFI; and (c) other contingent
liabilities incurred by GCI in amounts not to exceed an aggregate of
$5,000,000 outstanding at any time.
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SECTION 6.5. LOANS, ADVANCES. Make any loans or advances to any
person or entity, except: (a) any of the foregoing existing as of, and
disclosed to Bank prior to, the date hereof; (b) new loans or advances by GCI
to MFI and/or by MFI to GCI; and (c) additional loans or advances by either
Borrower to other entities in amounts not to exceed an aggregate of
$2,500,000 outstanding at any time.
SECTION 6.6. INVESTMENTS. Make any investments in any person or
entity except: (a) investments by GCI in Permitted Acquisitions; (b) U.S.
dollar investments maturing within one (1) year in (i) marketable direct
obligations of the U.S. government or of any agency thereof and backed by the
full faith and credit of the United States, (ii) marketable direct
obligations of any state of the United States, or any political subdivision
or public instrumentality thereof, which, at the time of acquisition, has the
highest credit rating obtainable from Standard & Poor's Ratings Service
("S&P") or Xxxxx'x Investors Service, Inc. ("Moody's"), (iii) commercial
paper or corporate promissory notes which, at the time of acquisition, have
the highest credit rating from S&P or Moody's, and are issued by U.S.,
Australian, Canadian, European or Japanese bank holding companies or
industrial or financial companies, (iv) certificates of deposit issued by,
bankers acceptances of and interest bearing deposits with any U.S.,
Australian, Canadian, European or Japanese commercial bank having capital and
surplus of at least $500,000,000 and which issues (or the parent of which
issues) commercial paper or other short term securities which have the
highest credit rating obtainable from S&P or Moody's, and (v) money market
funds organized under the laws of the United States or any state thereof that
invest solely in the investments described in (i) through (iv) of this
Section 6.6(b); (c) investments by any Borrower or Subsidiary in loans
permitted pursuant to Section 6.5 hereof; and (d) other investments by GCI in
amounts not to exceed an aggregate of $2,500,000 outstanding at any time.
SECTION 6.7. DIVIDENDS, DISTRIBUTIONS. Declare or pay any dividend
or distribution either in cash or any other property (other than common
stock) on GCI's stock now or hereafter outstanding; nor redeem, retire,
repurchase or otherwise acquire any shares of any class of GCI's stock now or
hereafter outstanding, except redemptions, retirements, repurchases or other
acquisitions in amounts not to exceed an aggregate of $5,000,000 after the
date of this Agreement.
SECTION 6.8. PLEDGE OF ACCOUNTS AND INVENTORY. Pledge, grant or
permit to exist a security interest in, or lien upon, all or any portion of
any Borrower's or Subsidiary's accounts receivable, general intangibles or
inventory, except: (a) any of the foregoing in favor of Bank; (b) statutory
liens on assets to secure the payment of rent in favor of a landlord of real
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property from which any Borrower or Subsidiary, having used its reasonable
best efforts, has not been able to obtain a Landlord's Waiver; and (c)
security interests or liens granted by MFI and listed on SCHEDULE 6.8
attached hereto.
ARTICLE VII
EVENTS OF DEFAULT
SECTION 7.1. The occurrence of any of the following shall
constitute an "Event of Default" under this Agreement:
(a) Borrowers shall fail to pay when due (i) any principal or
interest at any time owing under the Line of Credit, or (ii) any fees or
other amounts payable under any of the Loan Documents (other than the amounts
referred to in (i) above) and such failure is not cured within five (5)
Business Days after notice thereof from Bank to Borrowers.
(b) Any financial statement or certificate furnished to Bank in
connection with this Agreement shall prove to be inaccurate when furnished in
a manner which, once corrected, reflects a material adverse change in the
financial condition or operation of Borrowers and the Subsidiaries taken as a
whole, or any representation or warranty made by any Borrower, Subsidiary or
other party under this Agreement or any other Loan Document shall prove to be
incorrect, false or misleading in any material respect when made.
(c) Any default in the performance of or compliance with any
obligation, agreement or other provision contained herein or in any other
Loan Document (other than those referred to in subsections (a) and (b)
above), and with respect to any such default which by its nature can be
cured, such default shall continue for a period of thirty (30) days from the
first to occur of (i) the date either Borrower first had knowledge, or using
normal due diligence reasonably should have known, of such default, or (ii)
notice thereof is given by Bank to Borrowers.
(d) Any default in the payment or performance of any obligation, or
any defined event of default, under the terms of any contract or instrument
(other than any of the Loan Documents) pursuant to which any Borrower and/or
Subsidiary has incurred any debt or other liability to Bank in any amount, or
to any other person or entity involving amounts of $2,500,000 or more,
individually or in the aggregate, and with respect to any such default which
by its nature can be cured, such default shall continue past the end of the
cure period, if any, applicable thereto.
(e) The occurrence of any of the following involving amounts of
$2,500,000 or more, individually or in the aggregate,
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and which is not satisfied, discharged or stayed within forty-five (45) days
from the date thereof: (i) the filing of a notice of judgment lien against
any Borrower and/or Subsidiary; (ii) the recording of any abstract of
judgment against any Borrower and/or Subsidiary in any county in which such
Borrower or Subsidiary has an interest in real property; (iii) the service of
a notice of levy and/or of a writ of attachment or execution, or other like
process, against the assets of any Borrower and/or Subsidiary; or (iv) the
entry of a judgment against any Borrower and/or Subsidiary.
(f) GCI or MFI shall become insolvent, or shall suffer or consent
to or apply for the appointment of a receiver, trustee, custodian or
liquidator of itself or any of its property, or shall generally fail to pay
its debts as they become due, or shall make a general assignment for the
benefit of creditors; Borrower or MFI shall file a voluntary petition in
bankruptcy, or seeking reorganization, in order to effect a plan or other
arrangement with creditors or any other relief under the Bankruptcy Code, or
under any state or federal law granting relief to debtors, whether now or
hereafter in effect; or any involuntary petition or proceeding pursuant to
the Bankruptcy Code or any other applicable state or federal law relating to
bankruptcy, reorganization or other relief for debtors is filed or commenced
against GCI or MFI; or GCI or MFI shall file an answer admitting the
jurisdiction of the court and the material allegations of any involuntary
petition; or GCI or MFI shall be adjudicated a bankrupt, or an order for
relief shall be entered against GCI or MFI by any court of competent
jurisdiction under the Bankruptcy Code or any other applicable state or
federal law relating to bankruptcy, reorganization or other relief for
debtors.
(g) The dissolution or liquidation of GCI or MFI; or GCI or MFI, or
any of its respective directors or stockholders, shall take action seeking to
effect the dissolution or liquidation of GCI or MFI, except the liquidation
of any MFI into Borrower.
SECTION 7.2. REMEDIES. Upon the occurrence of any Event of
Default, at Bank's option and upon notice to Borrowers: (a) all indebtedness
of Borrowers under each of the Loan Documents, any term thereof to the
contrary notwithstanding, shall become immediately due and payable without
presentment, demand, protest or notice of dishonor, all of which are hereby
expressly waived by each Borrower; (b) the obligation, if any, of Bank to
extend any further credit under any of the Loan Documents shall immediately
cease and terminate; and (c) Bank shall have all rights, powers and remedies
available under each of the Loan Documents, or accorded by law, including
without limitation the right to resort to any or all security for any
extension of credit hereunder and to exercise any or all of the rights of a
beneficiary or secured party pursuant to applicable law. All
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rights, powers and remedies of Bank may be exercised at any time by Bank and
from time to time after the occurrence of an Event of Default, are cumulative
and not exclusive, and shall be in addition to any other rights, powers or
remedies provided by law or equity.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.1. NO WAIVER. No delay, failure or discontinuance of
Bank in exercising any right, power or remedy under any of the Loan Documents
shall affect or operate as a waiver of such right, power or remedy; nor shall
any single or partial exercise of any such right, power or remedy preclude,
waive or otherwise affect any other or further exercise thereof or the
exercise of any other right, power or remedy. Any waiver, permit, consent or
approval of any kind by Bank of any breach of or default under any of the
Loan Documents must be in writing and shall be effective only to the extent
set forth in such writing.
SECTION 8.2. NOTICES. All notices, requests and demands which any
party is required or may desire to give to any other party under any
provision of this Agreement must be in writing delivered to each party at the
following address:
BORROWERS: c/o GUITAR CENTER, INC.
0000 Xxxxxxxx Xxxxx
Xxxxxx Xxxxx, XX 00000
Attn: Chief Financial Officer
BANK: XXXXX FARGO BANK, NATIONAL ASSOCIATION
Warner Ranch Regional Commercial Banking Xxxxxx
0000 Xxxxxxx Xxxxxx Xxxx., Xxxxx 000
Xxxxxxxx Xxxxx, XX 00000
or to such other address as any party may designate by written notice to all
other parties. Each such notice, request and demand shall be deemed given or
made as follows: (a) if sent by hand delivery, upon delivery; (b) if sent by
mail, upon the earlier of the date of receipt or three (3) days after deposit in
the U.S. mail, first class and postage prepaid; and (c) if sent by telecopy,
upon receipt.
SECTION 8.3. COSTS, EXPENSES AND ATTORNEYS' FEES. Borrowers shall
pay to Bank immediately upon demand the full amount of all payments,
advances, charges, costs and expenses, including reasonable attorneys' fees
(to include outside counsel fees and all allocated costs of Bank's in-house
counsel), reasonably expended or incurred by Bank in connection with (a) the
negotiation and preparation of this Agreement and the other Loan Documents to
a maximum of $25,000, Bank's continued
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administration hereof and thereof, and the preparation of any amendments and
waivers hereto and thereto, (b) the enforcement of Bank's rights and/or the
collection of any amounts which become due to Bank under any of the Loan
Documents, and (c) the prosecution or defense of any action in any way
related to any of the Loan Documents, including without limitation, any
action for declaratory relief, whether incurred at the trial or appellate
level, in an arbitration proceeding or otherwise, and including any of the
foregoing incurred in connection with any bankruptcy proceeding (including
without limitation, any adversary proceeding, contested matter or motion
brought by Bank or any other person) relating to any Borrower or any other
person or entity.
SECTION 8.4. SUCCESSORS, ASSIGNMENT. This Agreement shall be
binding upon and inure to the benefit of the heirs, executors,
administrators, legal representatives, successors and assigns of the parties;
provided however, that Borrowers may not assign or transfer their interests
hereunder without Bank's prior written consent.
SECTION 8.5. PARTICIPATION; SYNDICATION. Bank, without notice to
Borrowers and without any further consent from Borrowers, reserves the right
to:
(a) sell, assign, transfer, negotiate or grant participations in
all or any part of, or any interest in, Bank's rights and benefits under each
of the Loan Documents; and/or
(b) assign all or any part of the Line of Credit, and Bank's
rights, benefits and obligations under each of the Loan Documents with
respect thereto, to one or more lenders in a syndicate for which Bank is the
agent. To facilitate any such actual or potential assignment by Bank,
Borrowers hereby agree that (i) Bank, at any time after the date hereof and
in its sole discretion, may elect to redocument this Agreement and the other
Loan Documents in order to conform the Loan Documents to the standards
generally accepted in the commercial loan syndication market at such time;
(ii) Borrowers shall, and shall cause each Subsidiary to, cooperate fully
with Bank to complete and close any such redocumentation and, if requested by
Bank, to assist in Bank's syndication efforts; and (iii) Borrowers shall pay
to Bank immediately upon demand the full amount of all costs and expenses,
including reasonable attorneys' fees (to include outside counsel fees and all
allocated costs of Bank's in-house counsel), expended or incurred by Bank in
connection with any such redocumentation and/or syndication efforts, and
Borrowers acknowledge that the cap on fees set forth in Section 8.3(a) hereof
does not pertain to Borrowers' obligations under this Section 8.5.
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In connection with any of the foregoing, Bank may disclose all documents and
information which Bank now has or may hereafter acquire relating to any
extension of credit hereunder, any Borrower or Subsidiary or its respective
business, or any collateral required hereunder; provided however, that Bank
first obtains, and provides to Borrowers a copy of, a confidentiality agreement
from the prospective assignee which identifies Borrowers as intended third party
beneficiaries.
SECTION 8.6. ENTIRE AGREEMENT; AMENDMENT. This Agreement and the
other Loan Documents constitute the entire agreement among Borrowers and Bank
with respect to the extension of credit described herein and supersede all
prior negotiations, communications, discussions and correspondence concerning
the subject matter hereof, including without limitation, the 1997 Agreement.
This Agreement may be amended or modified only in writing signed by each
party hereto.
SECTION 8.7. NO THIRD PARTY BENEFICIARIES. This Agreement is made and
entered into for the sole protection and benefit of the parties hereto and their
respective permitted successors and assigns, and no other person or entity shall
be a third party beneficiary of, or have any direct or indirect cause of action
or claim in connection with, this Agreement or any other of the Loan Documents
to which it is not a party.
SECTION 8.8. TIME. Time is of the essence of each and every
provision of this Agreement and each other of the Loan Documents.
SECTION 8.9. SEVERABILITY OF PROVISIONS. If any provision of this
Agreement shall be prohibited by or invalid under applicable law, such
provision shall be ineffective only to the extent of such prohibition or
invalidity without invalidating the remainder of such provision or any
remaining provisions of this Agreement.
SECTION 8.10. COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which when executed and delivered shall be
deemed to be an original, and all of which when taken together shall
constitute one and the same Agreement.
SECTION 8.11. OBLIGATIONS JOINT AND SEVERAL. All obligations of
Borrowers under this Agreement and the other Loan Documents shall be joint
and several.
SECTION 8.12. GOVERNING LAW. This Agreement shall be governed by
and construed in accordance with the laws of the State of California, without
regard to the conflicts of laws provisions thereof.
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SECTION 8.13. ARBITRATION.
(a) ARBITRATION. Upon the demand of any party, any Dispute shall
be resolved by binding arbitration (except as set forth in (e) below) in
accordance with the terms of this Agreement. A "Dispute" shall mean any
action, dispute, claim or controversy of any kind, whether in contract or
tort, statutory or common law, legal or equitable, now existing or hereafter
arising under or in connection with, or in any way pertaining to, any of the
Loan Documents, or any past, present or future extensions of credit and other
activities, transactions or obligations of any kind related directly or
indirectly to any of the Loan Documents, including without limitation, any of
the foregoing arising in connection with the exercise of any self-help,
ancillary or other remedies pursuant to any of the Loan Documents. Any party
may by summary proceedings bring an action in court to compel arbitration of
a Dispute. Any party who fails or refuses to submit to arbitration following
a lawful demand by any other party shall bear all costs and expenses incurred
by such other party in compelling arbitration of any Dispute.
(b) GOVERNING RULES. Arbitration proceedings shall be administered
by the American Arbitration Association ("AAA") or such other administrator
as the parties shall mutually agree upon in accordance with the AAA
Commercial Arbitration Rules. All Disputes submitted to arbitration shall be
resolved in accordance with the Federal Arbitration Act (Title 9 of the
United States Code), notwithstanding any conflicting choice of law provision
in any of the Loan Documents. The arbitration shall be conducted at a
location in Los Angeles County, California selected by the AAA or other
administrator. If there is any inconsistency between the terms hereof and any
such rules, the terms and procedures set forth herein shall control. All
statutes of limitation applicable to any Dispute shall apply to any
arbitration proceeding. All discovery activities shall be expressly limited
to matters directly relevant to the Dispute being arbitrated. Judgment upon
any award rendered in an arbitration may be entered in any court having
jurisdiction; provided however, that nothing contained herein shall be deemed
to be a waiver by any party that is a bank of the protections afforded to it
under 12 U.S.C. Section 91 or any similar applicable state law.
(c) NO WAIVER; PROVISIONAL REMEDIES, SELF-HELP AND FORECLOSURE. No
provision hereof shall limit the right of any party to exercise self-help
remedies such as setoff, foreclosure against or sale of any real or personal
property collateral or security, or to obtain provisional or ancillary remedies,
including without limitation injunctive relief, sequestration, attachment,
garnishment or the appointment of a receiver, from a court of competent
jurisdiction before, after or during the pendency of any arbitration or other
proceeding. The exercise of
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any such remedy shall not waive the right of any party to compel arbitration
or reference hereunder.
(d) ARBITRATOR QUALIFICATIONS AND POWERS; AWARDS. Arbitrators must
be active members of the California State Bar or retired judges of the state
or federal judiciary of California, with expertise in the substantive laws
applicable to the subject matter of the Dispute. Arbitrators are empowered to
resolve Disputes by summary rulings in response to motions filed prior to the
final arbitration hearing. Arbitrators (i) shall resolve all Disputes in
accordance with the substantive law of the state of California, (ii) may
grant any remedy or relief that a court of the state of California could
order or grant within the scope hereof and such ancillary relief as is
necessary to make effective any award, and (iii) shall have the power to
award recovery of all costs and fees, to impose sanctions and to take such
other actions as they deem necessary to the same extent a judge could
pursuant to the Federal Rules of Civil Procedure, the California Rules of
Civil Procedure or other applicable law. Any Dispute in which the amount in
controversy is $5,000,000 or less shall be decided by a single arbitrator who
shall not render an award of greater than $5,000,000 (including damages,
costs, fees and expenses). By submission to a single arbitrator, each party
expressly waives any right or claim to recover more than $5,000,000. Any
Dispute in which the amount in controversy exceeds $5,000,000 shall be
decided by majority vote of a panel of three arbitrators; provided however,
that all three arbitrators must actively participate in all hearings and
deliberations.
(e) JUDICIAL REVIEW. Notwithstanding anything herein to the
contrary, in any arbitration in which the amount in controversy exceeds
$25,000,000, the arbitrators shall be required to make specific, written
findings of fact and conclusions of law. In such arbitrations (i) the
arbitrators shall not have the power to make any award which is not supported
by substantial evidence or which is based on legal error, (ii) an award shall
not be binding upon the parties unless the findings of fact are supported by
substantial evidence and the conclusions of law are not erroneous under the
substantive law of the state of California, and (iii) the parties shall have
in addition to the grounds referred to in the Federal Arbitration Act for
vacating, modifying or correcting an award the right to judicial review of
(A) whether the findings of fact rendered by the arbitrators are supported by
substantial evidence, and (B) whether the conclusions of law are erroneous
under the substantive law of the state of California. Judgment confirming an
award in such a proceeding may be entered only if a court determines the
award is supported by substantial evidence and not based on legal error under
the substantive law of the state of California.
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(f) REAL PROPERTY COLLATERAL; JUDICIAL REFERENCE. Notwithstanding
anything herein to the contrary, no Dispute shall be submitted to arbitration
if the Dispute concerns indebtedness secured directly or indirectly, in whole
or in part, by any real property unless (i) the holder of the mortgage, lien
or security interest specifically elects in writing to proceed with the
arbitration, or (ii) all parties to the arbitration waive any rights or
benefits that might accrue to them by virtue of the single action rule
statute of California, thereby agreeing that all indebtedness and obligations
of the parties, and all mortgages, liens and security interests securing such
indebtedness and obligations, shall remain fully valid and enforceable. If
any such Dispute is not submitted to arbitration, the Dispute shall be
referred to a referee in accordance with California Code of Civil Procedure
Section 638 et seq., and this general reference agreement is intended to be
specifically enforceable in accordance with said Section 638. A referee with
the qualifications required herein for arbitrators shall be selected pursuant
to the AAA's selection procedures. Judgment upon the decision rendered by a
referee shall be entered in the court in which such proceeding was commenced
in accordance with California Code of Civil Procedure Sections 644 and 645.
(g) MISCELLANEOUS. To the maximum extent practicable, the AAA, the
arbitrators and the parties shall take all action required to conclude any
arbitration proceeding within 180 days of the filing of the Dispute with the
AAA. No arbitrator or other party to an arbitration proceeding may disclose
the existence, content or results thereof, except for disclosures of
information by a party required in the ordinary course of its business, by
applicable law or regulation, or to the extent necessary to exercise any
judicial review rights set forth herein. If more than one agreement for
arbitration by or between the parties potentially applies to a Dispute, the
arbitration provision most directly related to the Loan Documents or the
subject matter of the Dispute shall control. This arbitration provision shall
survive termination, amendment or expiration of any of the Loan Documents or
any relationship between the parties.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the day and year first written above.
XXXXX FARGO BANK,
GUITAR CENTER, INC. NATIONAL ASSOCIATION
By: ___________________ By: ___________________
Title: ________________ Title: ________________
MUSICIAN'S FRIEND, INC.
By: ___________________
Title: ________________
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