CREDIT AGREEMENT
THIS AGREEMENT is entered into as of August 14, 1997, by and between GUITAR
CENTER, INC., a Delaware corporation ("Borrower"), and XXXXX FARGO BANK,
NATIONAL ASSOCIATION ("Bank").
RECITALS
WHEREAS, Borrower, as successor to Guitar Center Management, Inc., and Bank
are parties to that certain Credit Agreement dated as of June 6, 1996, as
amended from time to time (the "1996 Agreement"), pursuant to which Bank has
provided certain credit accommodations to Borrower; and
WHEREAS, Borrower has requested from Bank a restructuring of Borrower's
revolving line of credit granted pursuant to the 1996 Agreement and a new term
credit accommodation, and Bank has agreed to provide said restructuring and
additional credit on the terms and conditions contained herein.
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Bank and Borrower hereby agree as follows:
ARTICLE I
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 8.11(b) hereof.
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"Applicable LIBOR Margin" shall mean the following during each fiscal
quarter based on Borrower's ratio of Net Funded Debt to EBITDA for the
immediately preceding fiscal quarter:
Ratio of Net Funded Applicable
Debt To EBITDA LIBOR Margin
------------------- ------------
3.5 to 1.0 or greater 2.25%
3.0 to 1.0 or greater
but less than 3.5 to 1.0 1.625%
Less than 3.0 to 1.0 1.50%
"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 Borrower, as defined more fully in
Section 2.2(b) hereof.
"Dispute" shall have the meaning set forth in Section 8.11(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 Borrower's stock compensation plan, non-recurring non-cash charges
and amortization expense, and excluding solely for Borrower's 1997 fiscal year,
any costs that are incurred by Borrower as a direct result of Borrower's Initial
Public Offering and are paid from the proceeds of said Initial Pubic Offering.
"EBITDA Coverage Ratio" shall mean, on a pro forma basis, (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; provided that for purposes of this definition, Permitted
Acquisitions which occurred during any period for which the EBITDA Coverage
Ratio is determined shall be assumed to have occurred on the first day of such
period.
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"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 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 Borrower, 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.
"Initial Public Offering" shall mean Borrower's offering of 7,762,500
shares of Borrower's common stock pursuant to the Offering Memorandum.
"Xxxxxxx Letter of Credit" shall mean standby letter of credit no.
SAS224663 issued by Bank for the account of Borrower 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 Borrower 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 included as part
of EXHIBIT B.
"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
-------------------------------
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. Borrower understands and
agrees
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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 and Continuing Standby Letter
of Credit Agreement, substantially in the form of EXHIBIT B attached hereto.
The references in the Riders to said Agreements to a Credit Agreement dated June
5, 1996 are hereby deemed references to this Agreement.
"Letters of Credit" shall mean Commercial Letters of Credit and Standby
Letters of Credit made available under the Line of 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
Borrower in the maximum principal amount of $40,000,000, as defined more fully
in Section 2.2 hereof.
"Line of Credit Note" shall mean a promissory note executed by Borrower 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.
"Net Funded Debt" shall mean for any fiscal quarter (a) the aggregate of
the average daily outstanding principal balance under the Line of Credit,
subordinated debt, capitalized leases recorded as such on Borrower's books and
records, and all other indebtedness of Borrower evidenced by a note or similar
debt instrument, less (b) the aggregate of the average daily cash balances and
marketable securities maintained by Borrower.
"Offering Memorandum" shall mean the Prospectus for the Initial Public
Offering issued by Borrower and dated Xxxxx 00,
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0000, xxx Xxxxxxxx'x X-0 Registration Statement dated February 15, 1997, as
amended by Amendments No. 1 and 2 thereto.
"Permitted Acquisition" shall mean an acquisition by Borrower 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
Borrower;
(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 Borrower upon completion of the acquisition;
(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,
Borrower shall have delivered to Bank a proforma compliance certificate in form
and substance satisfactory to Bank, which shows to Bank's reasonable
satisfaction that Borrower 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 Borrower under its
11% Senior Notes due 2006 in the aggregate principal amount of $100,000,000,
issued pursuant to an Indenture between Borrower 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 Borrower (other than the
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Xxxxxxx Letter of Credit), as defined more fully in Section 2.2(b) hereof.
"Tangible Net Worth" shall mean (a) the aggregate of total stockholders'
equity plus subordinated debt, less (b) any intangible assets.
ARTICLE II
THE CREDIT
SECTION 2.1. 1996 AGREEMENT. The 1996 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 Borrower 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 Forty Million Dollars
($40,000,000), or such lesser amount as may from time to time be available
thereunder, the proceeds of which shall be used to finance (i) Borrower's
general working capital requirements, and (ii) Permitted Acquisitions; provided
however, that outstanding borrowings for Permitted Acquisitions shall not at any
time exceed an aggregate of Thirty Million Dollars ($30,000,000). Borrower's
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 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 Borrower in support of Borrower'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, 1998, 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 Borrower, and no Letter
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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 Borrower 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 Borrower 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
Borrower, at the rate of interest applicable to advances under the Line of
Credit. In such event Borrower agrees that Bank, in its sole discretion, may
debit any demand deposit account maintained by Borrower with Bank for the amount
of any such draft.
(c) BORROWING AND REPAYMENT. Borrower may from time to time during the
term of the Line of Credit borrow, partially or wholly repay its 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 Ten Million Dollars
($10,000,000) on each of July 1, 2000, July 1, 2001 and July 1, 2002; 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. Borrower 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. Borrower 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 Borrower, 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, Borrower 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.
Borrower acknowledges 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. Borrower, therefore, agrees to pay the above-described prepayment
fee and agrees that said amount represents a reasonable estimate of the
prepayment costs, expenses and/or liabilities of Bank. If Borrower fails 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 Borrower shall designate, shall bear
interest in accordance with one of the following options, as selected by
Borrower pursuant to the terms of Section 2.4 hereof:
(i) at a fluctuating rate per annum equal to the Prime Rate in effect
from time to time; or
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(ii) at a fixed rate determined by Bank to be equal to LIBOR in effect
on the first day of a Fixed Rate Term plus the Applicable LIBOR
Margin.
(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) FACILITY FEE. Borrower shall pay to Bank the $150,000 remaining
unpaid portion of the facility fee required by the 1996 Agreement in
installments of $50,000 at the end of each fiscal year of Borrower, commencing
with Borrower's 1997 fiscal year end; provided however, that upon early
termination or cancellation of this Agreement or the Line of Credit, Borrower
shall pay in full the remaining outstanding balance of said facility fee.
Borrower acknowledges that Bank's agreement to permit Borrower to continue to
pay said facility fee in installments, rather than requiring payment of the full
amount owing thereunder upon the early termination of the 1996 Agreement, shall
not be deemed a commitment by Bank to make any similar agreement with respect to
any future unpaid portion of said facility fee.
(d) UNUSED COMMITMENT FEE. Borrower 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, commencing September 30, 1997, and shall be due and payable by
Borrower in arrears upon billing by Bank. Notwithstanding the foregoing, if the
average daily advances under the Line of Credit exceed $15,000,000 during any of
the following 12-month periods:
October 1, 1997 through September 30, 1998;
October 1, 1998 through September 30, 1999;
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 Borrower all unused commitment fee
amounts paid by Borrower for such 12-month period.
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(e) LETTER OF CREDIT FEES. Borrower 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 1 is a list of Bank's standard fees and charges in effect as of the
date hereof.
(f) COLLECTION OF PAYMENTS. Borrower authorizes Bank to collect all
interest and fees due under each Credit by charging Borrower's demand deposit
account number 4629-103789 with Bank, or any other demand deposit account
maintained by 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
Borrower.
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 Borrower 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
Borrower. At any time any portion of the Line of Credit bears interest
determined in relation to the Prime Rate, Borrower may convert all or a portion
thereof so that it bears interest determined in relation to LIBOR for a Fixed
Rate Term designated by Borrower. At the time an advance is requested under the
Line of Credit, or at such other time as Borrower wishes to select a LIBOR
option for all or a portion thereof, and at the end of each Fixed Rate Term,
Borrower shall give Bank notice specifying:
(a) the interest rate option selected by Borrower;
(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 Borrower
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
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time, on the first day of the Fixed Rate Term. For each LIBOR option requested
hereunder, Bank will quote the applicable fixed rate to Borrower at
approximately 10:00 a.m., California time, on the first day of the Fixed Rate
Term. If Borrower does not immediately accept the rate quoted by Bank, any
subsequent acceptance by Borrower shall be subject to a redetermination by Bank
of the applicable fixed rate; provided however, that if Borrower 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, Borrower 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 Borrower. If such notice
is given and until such notice has been withdrawn by Bank, than (i) no new LIBOR
option may be selected by Borrower, 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, Borrower 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 Borrower hereunder, and any reasonable allocation made by Bank
among its operations shall be conclusive and binding upon Borrower.
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(c) CHANGE IN LAW: INCREASED COSTS. If any Change in Law or compliance
by Bank with any request or directive (whether or 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, Borrower 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 Borrower pursuant hereto, any reasonable allocation made by
Bank among its operations shall be conclusive and binding upon Borrower.
SECTION 2.6. COLLATERAL. As security for all indebtedness of Borrower to
Bank subject hereto, Borrower grants to Bank security interests of first
priority in all Borrower's accounts receivable, other rights to payment, general
intangibles, trademarks and inventory, junior solely to any security interests
to which Bank gives its prior written consent as required by Section 6.8 hereof.
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. Borrower
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.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
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Borrower makes 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 Borrower to Bank subject to
this Agreement.
SECTION 3.1. LEGAL STATUS. Borrower 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 Borrower.
SECTION 3.2. AUTHORIZATION AND VALIDITY. Each of the Loan Documents 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 Borrower or the party which executes the same, enforceable in
accordance with its respective terms.
SECTION 3.3. NO VIOLATION. The execution, delivery and performance by
Borrower 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 Borrower, or result in any breach of or default under any
contract, obligation, indenture or other instrument to which Borrower is a party
or by which Borrower may be bound.
SECTION 3.4. LITIGATION. There are no pending, or to the best of
Borrower's knowledge threatened, actions, claims, investigations, suits or
proceedings by or before any governmental authority, arbitrator, court or
administrative agency which could have a material adverse effect on the
financial condition or operations of Borrower other than those disclosed by
Borrower to Bank in writing prior to the date hereof.
SECTION 3.5. CORRECTNESS OF FINANCIAL STATEMENT. The financial statement
of Borrower dated March 31, 1997, a true copy of which has been delivered by
Borrower to Bank prior to the date hereof, (a) is complete and correct and
presents fairly in all material respects the financial condition of Borrower,
(b) discloses all liabilities of Borrower that are required to be reflected or
reserved against under generally accepted accounting principles, whether
liquidated or unliquidated, fixed or contingent, and (c) has been prepared in
accordance with generally accepted accounting principles consistently applied,
except as otherwise disclosed by Borrower therein. Since the date of such
financial statement there has been no material
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adverse change in the financial condition of Borrower, nor has Borrower
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. Borrower has no knowledge of any
pending assessments or adjustments of its income tax payable with respect to any
year, except any such assessment or adjustment which Borrower is being
contesting in good faith and for which Borrower has made provision, to Bank's
satisfaction, for eventual payment thereof in the event Borrower is obligated to
make such payment.
SECTION 3.7. NO SUBORDINATION. There is no agreement, indenture,
contract or instrument to which Borrower is a party or by which Borrower may be
bound that requires the subordination in right of payment of any of Borrower's
obligations subject to this Agreement to any other obligation of Borrower.
SECTION 3.8. PERMITS, FRANCHISES. Borrower 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
Borrower.
SECTION 3.9. ERISA. Borrower is in compliance in all material respects
with all applicable provisions of ERISA; Borrower has not violated any provision
of any defined employee pension benefit plan maintained or contributed to by
Borrower; no Reportable Event as defined in ERISA has occurred and is continuing
with respect to any Plan initiated by Borrower; Borrower 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 with
the Plan documents and under generally accepted accounting principles.
SECTION 3.10. OTHER OBLIGATIONS. Borrower is not 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 Borrower to
Bank in writing prior to the date hereof, Borrower 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 Borrower's operations and/or properties,
including without limitation, the
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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 Borrower 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. Borrower has no material contingent liability
in connection with any release of any toxic or hazardous waste or substance into
the environment.
SECTION 3.12. INITIAL PUBLIC OFFERING. (a) Borrower obtained all
governmental and other approvals necessary to complete the Initial Public
Offering in accordance with applicable law; (b) the Initial Public Offering has
been completed on terms substantially as set forth in the Offering Memorandum,
and Borrower has no remaining obligations, direct or contingent, thereunder,
except for its continuing obligation to the underwriters set forth in the U.S.
and International Underwriting Agreements each dated as of March 13, 1997; (c)
Borrower received at least Eighty Million Dollars ($80,000,000) in net proceeds
from the Initial Public Offering; and (d) in accordance with the terms of the
Offering Memorandum, from said net proceeds Borrower has (i) redeemed (or
repurchased through open market purchases or otherwise), and paid all accrued
and unpaid interest with respect to, a minimum of Thirty-Three Million Dollars
($33,000,000) of the principal amount of the Senior Notes, and (ii) redeemed all
outstanding shares of, and paid all accrued and unpaid dividends with respect
to, Borrower's 14% Senior Preferred Stock, as defined in the Offering
Memorandum.
SECTION 3.13. SENIOR NOTES. Except to the extent redeemed with the
proceeds of the Initial Public Offering, (a) the Senior Notes remain in full
force and effect in accordance with their terms, and (b) 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:
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(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:
(i) This Agreement and the Line of Credit Note.
(ii) Corporate Borrowing Resolution.
(iii) Certificate of Incumbency.
(iv) Xxxxxxx Letter of Credit Agreement.
(v) Letter of Credit Agreement.
(vi) All security agreements, UCC Financing Statements, trademark
assignments and other documents required by Bank for the creation
and perfection of the security interests granted pursuant to
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
Borrower, 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 Borrower.
(d) INSURANCE. Borrower shall have delivered to Bank evidence of
insurance coverage on all Borrower's property, in form, substance, amounts,
covering risks and issued by companies satisfactory to Bank, and where required
by Bank, with loss payable endorsements in favor of Bank.
(e) PAYMENTS TO BANK. Borrower shall have repaid all outstanding
indebtedness of Borrower to Bank under the 1996 Agreement (other than the
Xxxxxxx Letter of Credit).
SECTION 4.2. CONDITIONS OF EACH EXTENSION OF CREDIT. The obligation of
Bank to make each extension of credit requested by Borrower 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.
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(b) DOCUMENTATION. Bank shall have received all additional documents
which may be required in connection with such extension of credit.
(c) LANDLORD'S WAIVERS. Borrower shall use its reasonable best efforts to
obtain a Landlord's Waiver substantially in the form of EXHIBIT D attached
hereto from the lessor under each new lease entered into by Borrower subsequent
to the date of this Agreement.
ARTICLE V
AFFIRMATIVE COVENANTS
Borrower covenants that so long as Bank remains committed to extend credit
to Borrower pursuant hereto, or any liabilities (whether direct or contingent,
liquidated or unliquidated) of Borrower to Bank under any of the Loan Documents
remain outstanding, and until payment in full of all obligations of Borrower
subject hereto, Borrower shall, 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 generally accepted accounting principles, 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 Borrower.
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 Borrower, 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 Borrower, prepared by
Borrower, to include a balance sheet, income statement and statement of cash
flows, together with a comparison of same store sales, and a list of all
Borrower's new
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store locations, or other new locations at which Borrower stores any of its
inventory, opened or acquired during such fiscal quarter;
(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
Borrower's operations 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 its business; and comply with the provisions of all documents
pursuant to which Borrower is organized and/or which govern Borrower's continued
existence and with the requirements of all laws, rules, regulations and orders
of any governmental authority applicable to Borrower and/or its business.
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
Borrower, 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
Borrower'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 Borrower's 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 Borrower may in good faith
contest or as to which a bona fide dispute may arise, and (b) for which Borrower
has made provision, to Bank's satisfaction, for eventual payment thereof in the
event Borrower is obligated to make such payment.
SECTION 5.8. LITIGATION. Promptly give notice in writing to Bank of any
litigation pending or threatened against Borrower with a claim in excess of
$2,500,000.
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SECTION 5.9. FINANCIAL CONDITION. Maintain Borrower's financial
condition as follows using generally accepted accounting principles consistently
applied and used consistently with prior practices (except to the extent
modified by the definitions herein):
(a) Net Funded Debt divided by EBITDA not to exceed 4.25 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
Borrower's December 31, 1998 fiscal year end, not less than $1,000,000 greater
than Borrower's Tangible Net Worth at the end of the immediately preceding
fiscal year.
(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) Income before tax and extraordinary items plus amortization of
goodwill not less than $1 during any two successive fiscal quarters or at any
fiscal year end.
(e) The aggregate of 80% of Borrower's accounts receivable and 70% of
Borrower's inventory, as reflected on Borrower's balance sheet, not less than
the outstanding principal balance of the Line of Credit at each fiscal quarter
end.
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 Borrower; (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 Borrower 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 Borrower's property in
excess of an aggregate of $2,500,000.
SECTION 5.11. PRIMARY DEPOSITORY RELATIONSHIP. Maintain Borrower's
primary depository accounts and relationship with Bank.
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ARTICLE VI
NEGATIVE COVENANTS
Borrower further covenants that so long as Bank remains committed to extend
credit to Borrower pursuant hereto, or any liabilities (whether direct or
contingent, liquidated or unliquidated) of Borrower to Bank under any of the
Loan Documents remain outstanding, and until payment in full of all obligations
of Borrower subject hereto, Borrower will not without Bank's prior written
consent:
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 borrowings, loans or
advances, whether secured or unsecured, matured or unmatured, liquidated or
unliquidated, joint or several, except: (a) the liabilities of Borrower to Bank;
(b) new liabilities incurred in connection with leasehold financing; (c) new
liabilities incurred 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 Borrower under the Senior Notes; (e)
liabilities for assumed loans or borrowings incurred in connection with, and as
permitted by the definition of, Permitted Acquisitions; (f) new liabilities in
amounts not to exceed an aggregate of $5,000,000 at any time outstanding; and
(g) other liabilities of Borrower 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 Borrower'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 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 Borrower's assets except in the ordinary course of its business.
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 Borrower as security for,
any liabilities or obligations of any other person or entity, except: (a) any of
the foregoing in favor of Bank; and (b) other
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contingent liabilities in amounts not to exceed an aggregate of $5,000,000
outstanding at any time.
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 to Borrower's Rhythm
City subsidiary in amounts not to exceed an aggregate of $500,000 outstanding at
any time; and (c) additional loans or advances to entities other than Borrower's
Rhythm City subsidiary 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 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);
and (c) other investments 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
Borrower's stock now or hereafter outstanding; nor redeem, retire, repurchase or
otherwise acquire any shares of any class of Borrower's stock now or hereafter
outstanding, except (i) redemptions of preferred stock contemplated by the
Offering Memorandum, and (ii) other 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,
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all or any portion of Borrower's accounts receivable, general intangibles or
inventory, except (a) any of the foregoing in favor of Bank, and (b) statutory
liens on assets to secure the payment of rent in favor of a landlord of real
property from which Borrower, having used its reasonable best efforts, has not
been able to obtain a Landlord's Waiver.
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) Borrower 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 Borrower.
(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 Borrower, or any representation or warranty made by
Borrower or any 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 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
Borrower.
(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 Borrower 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
Borrower; (ii) the recording of any abstract of judgment against Borrower in any
county in which Borrower 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 Borrower; or (iv) the entry of a judgment against
Borrower.
(f) Borrower 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 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 Borrower, or Borrower shall
file an answer admitting the jurisdiction of the court and the material
allegations of any involuntary petition; or Borrower shall be adjudicated a
bankrupt, or an order for relief shall be entered against Borrower 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 Borrower; or Borrower, or any of its
directors or stockholders, shall take action seeking to effect the dissolution
or liquidation of Borrower.
SECTION 7.2. REMEDIES. Upon the occurrence of any Event of Default, at
Bank's option and upon notice to Borrower: (a) all indebtedness of Borrower
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 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
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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:
BORROWER: 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. Borrower 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 administration hereof and thereof, and the preparation
of any amendments and waivers hereto and thereto, (b) the enforcement of
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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
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
Borrower may not assign or transfer its interest hereunder without Bank's prior
written consent. Bank reserves the right to 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. In connection therewith, Bank
may disclose all documents and information which Bank now has or may hereafter
acquire relating to any extension of credit hereunder, Borrower or its business,
or any collateral required hereunder; provided however, that Bank first obtains,
and provides to Borrower a copy of, a confidentiality agreement from the
prospective assignee which identifies Borrower as an intended third party
beneficiary.
SECTION 8.5. ENTIRE AGREEMENT; AMENDMENT. This Agreement and the other
Loan Documents constitute the entire agreement between Borrower 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 1996 Agreement. This
Agreement may be amended or modified only in writing signed by each party
hereto.
SECTION 8.6. 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 8.7. TIME. Time is of the essence of each and every provision of
this Agreement and each other of the Loan Documents.
SECTION 8.8. 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
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remainder of such provision or any remaining provisions of this Agreement.
SECTION 8.9. 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 8.10. 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.
SECTION 8.11. 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
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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 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
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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.
(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:
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Title: Title:
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