<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES ACT OF 1934
For the year ended
January 1, 2000
Commission file number
0-22515
WEST MARINE, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 77-0355502
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
500 Westridge Drive
Watsonville, CA 95076-4100
(Address of Principal Executive Offices) (Zip Code)
Telephone Number: (831) 728-2700
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- -------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock
------------
(Title of Class)
Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X]. No [ ].
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K ((S) 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.
Yes [X]. No [ ].
At February 29, 2000, the aggregate market value of the registrant's Common
Stock held by non-affiliates of the registrant was approximately $80,990,932.
At February 29, 2000, the number of shares outstanding of registrant's Common
Stock was 17,196,851.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement for the Company's 2000 Annual Meeting
of Stockholders are incorporated by reference in Part III of this Form 10-K.
<PAGE>
PART I
ITEM 1 - BUSINESS
General
West Marine, Inc. ("West Marine" or the "Company") is the largest specialty
retailer of recreational and commercial boating supplies and apparel in the
United States. The Company has three divisions (Stores, Wholesale ("Port
Supply"), and Catalog), which all sell after-market recreational boating
supplies directly to customers. At year-end 1999, the Company offered its
products through 227 stores in 38 states under the names West Marine and E&B
Marine and through catalogs which it distributes several times each year. The
Company's business strategy is to offer an extensive selection of high quality
marine supplies and apparel to the recreational aftermarket for both sailboats
and powerboats at competitive prices in a convenient, one-stop shopping
environment emphasizing customer service and technical assistance. The Company
is also engaged, through its Port Supply business line and its stores, in the
wholesale distribution of products to commercial customers and other retailers.
West Marine was incorporated in Delaware in September 1993 as the holding
company for West Marine Products, Inc., which was incorporated in California in
1976. Unless the context otherwise requires, "West Marine" and "the Company"
refer to West Marine, Inc. and its subsidiaries. The Company's principal
executive offices are located at 500 Westridge Drive, Watsonville, California
95076-4100 and its telephone number is (831) 728-2700.
Recent developments
The Company expanded its operations during 1999, opening 17 new stores and
entering into new geographic markets in Alaska, Delaware, Nevada, Tennessee, and
Utah. The Company opened a new prototype store in Point Richmond, California,
which presents both merchandise and information visually for the consumer while
enabling the stores' staff to efficiently serve a large volume of customers.
Merchandise is arranged to enable customers to select everything needed to
complete a project. The Company plans to incorporate many of the features of
this prototype store in the 24 stores planned for remodeling in 2000.
The Company has transformed the marine supply industry to become the largest
specialty retailer of recreational and commercial boating supplies and apparel.
The Company continues to strengthen its offerings to powerboaters by more fully
addressing on-water activities. Early in 2000 the Company plans to aggressively
expand their water sports selection throughout the chain, and introduce a
leading brand of outboard motors.
During 1999, West Marine formed a dedicated Internet team which rolled out a new
international website in July. Since going "live" with this site, domestic and
international sales through year-end have dramatically increased over the same
period a year ago. In 2000, it is expected that all stores will have internet
access to the website which offers more than 40,000 merchandise products focused
on all boating segments. In addition, the Company believes the site drives
business to both the retail stores through the store locator and through the
catalog. The site is dynamically updated on a daily basis with any product,
pricing and inventory changes.
Expansion strategy
Since opening its first store in 1975, the Company has grown through internal
expansion and acquisitions, and operated 227 stores in 38 states at year-end
1999. As shown in the table below, the Company has achieved increasing
geographic diversification within the United States in recent years. The
following table sets forth, by geographic region, the number of stores open at
the end of each of the following years:
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
West 43 39 35 27 24
Great Lakes 33 29 24 18 6
Gulf Coast 22 20 11 7 4
Northeast 50 45 44 44 16
Mid-Atlantic 33 33 24 11 4
Southeast 46 46 46 44 18
---- ---- ---- ---- ----
Total 227 212 184 151 72
==== ==== ==== ==== ====
</TABLE>
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The Company intends to pursue a growth strategy through geographic
diversification and by pursuing acquisition opportunities that complement or
expand its existing business. The Company's planned expansion is subject to a
number of factors, including the adequacy of the Company's capital resources, as
well as the Company's ability to locate suitable store sites and negotiate
acceptable lease terms, its ability to hire, train and integrate associates, and
to adapt its distribution and other operational systems. Acquisitions involve a
number of risks, including potential adverse short-term effects on the Company's
operating results, costs associated with the amortization of acquired intangible
assets, and the risk that the attention of management will be diverted to the
assimilation of the operations and personnel of the acquired business.
While the expansion plans of the Company are focused primarily on store
operations, growth is also expected in the Port Supply and Catalog business
lines. Port Supply has increased its customer base to include governmental and
industrial businesses. Port Supply also added new delivery routes on the East
Coast and in Northern California and hired additional sales personnel and
telemarketing associates to boost sales. Catalog continues to focus marketing
efforts in geographic areas not served by the Company's stores, including Canada
and certain other international locations.
Merchandising
Merchandise sold by the Company can be divided into four general merchandise
categories:
Marine Supplies and Sail Hardware. These products range from maintenance
products to galley supplies and include brand name offerings, as well as "West
Marine" private label merchandise. The Company will focus on basic marine
hardware where it dominates in projects and applications. These are the largest
combined categories in volume and gross profit dollars.
Electronics and Marine Technology. The Company carries a broad selection of the
most current electronics equipment. The selection includes global positioning
navigational systems, as well as other electronic equipment such as ship-to-
shore radios, marine stereos, autopilots, fish finders and radars. The Company
also offers private label VHF radios and other electronic equipment. The Company
will also focus on expanding the Software and Navigation areas, which show high
growth potential.
Soft goods. West Marine features a broad selection of high quality boating
apparel and footwear including well-known brands. The Company also offers a
selection of foul weather gear, shirts, shorts, jackets, hats, boots, and other
apparel bearing the Company's private label.
Water Sports and Power Boating. West Marine continues to expand its selection
of water sports, fishing, and power boating categories. It is believed that
this segment of the market represents a growth opportunity for the Company. The
Company plans to substantially increase the number of products in the water
sports market it offers in 2000, and is currently providing such merchandise to
160 stores to expand the water sports category.
The Company strives to maintain consistent in-stock availability of merchandise.
An individual store's merchandise mix is tailored to respond to local market
conditions and buying preferences. Any items stocked by the Company but not
available in a particular store can be shipped to the customer from the
distribution centers. In addition, the Company's special orders department can
acquire products that the Company does not normally stock. The Company has
implemented extensive planning systems to provide forecasts to each of its key
vendors.
The Company's policy is to offer its products at prices that are competitive
with the prices charged by other national and regional marine supply specialty
retailers and prices that are generally lower than prices charged by local
independent operators. Replaceable price signage is clearly posted on shelving
instead of directly on each item, enabling rapid price changes on items in the
stores. The Company's commitment to offering competitive prices is supported by
its price matching program where the Company will, for a period of 30 days,
either match a competitor's price or refund the difference between the Company's
price and the competitor's price. The Company's merchandising group makes most
pricing decisions centrally. Store managers, however, are responsible for
monitoring local competition and adjusting prices to remain competitive. The
Company believes that its competitive pricing policy, together with its price
matching program, are important factors in establishing and maintaining a
favorable reputation among customers.
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Sourcing and purchasing
The Company purchased merchandise from more than 950 vendors during 1999 and
achieved significant efficiencies through quantity purchases and direct orders.
West Marine offers many of the brands best known to its target customers. In
1999, no vendor accounted for more than 8% of the Company's merchandise
purchases and the Company's 20 largest vendors accounted for approximately 40%
of the Company's merchandise purchases. The Company deals with its suppliers on
an order-by-order basis and has minimal long-term purchase contracts or other
contractual assurances of continued supply or pricing.
The Company strives to maintain strong relationships with its vendors. The
Company's buyers meet regularly with major vendors to stay abreast of new
products, new technology and new pricing. In addition, West Marine conducts a
yearly program at which key vendors are encouraged to discuss their business and
their relationship with the Company's key executives and buyers. The Company
works closely with its vendors, frequently sharing information regarding market
research and the Company's performance and goals. The Company also receives
cooperative advertising allowances from certain vendors.
The Company's private label merchandise is manufactured to the Company's
specifications on a contract basis domestically, and to a lesser extent, in
Europe and the Pacific Rim, and typically has higher gross margins than
comparable brand name merchandise. The Company has no long-term contracts with
its manufacturing sources and competes with other companies for production
facilities and import quota capacity.
The Company's Executive Vice President of Merchandising oversees the purchasing
of the Company's merchandise. This person supervises a Senior Vice President of
Replenishment, Senior Vice President of Marketing, Vice President of Technical
Product information and development, and a Vice President Merchandise Manager
who supervise a group of buyers. Each buyer is responsible for specified product
categories. The Company's buyers are also responsible for specifying private
label merchandise and for contracting the manufacture of these goods and
assuring their quality and delivery. The Company's Senior Vice President of
Merchandise Planning and Allocation oversees a staff responsible for managing
inventory levels in the distribution facilities and the stores, and for
minimizing in-store out-of-stocks. Inventory managers are assisted by a
sophisticated management information system that provides them with current
inventory, price and volume information by SKU and recommended purchase
quantities, allowing them to react quickly to market changes.
Customer service
The Company is committed to achieving "better than expected" customer
satisfaction to encourage repeat business. To develop responsive, well-trained
sales associates, the Company has devoted significant resources to developing
and implementing extensive employee training programs aimed at increasing
product knowledge and responsiveness to customer needs. In addition, the
Company provides a price-matching program, special order capabilities and a "no
hassle" satisfaction guarantee that permits customers who are not completely
satisfied to return any items for an exchange, credit or refund. To educate
customers on the latest developments in boating and product offerings, the
Company conducts classes and seminars. Store managers, most of whom are drawn
from the Company's sales associates, complete an intensive training program.
The Company's master catalog also provides technical information relating to
various marine subjects. The Company places great emphasis on new hire
training, associate training, on-the-job training, additional self-paced
training and field tests to help ensure that sales associates are thoroughly
familiar with the technical elements of the Company's product offerings. To
provide customers easy access to factory authorized repair service, the Company
maintains an in-house service center at its facility in Hollister, California.
Based on information received from its customers, the Company believes it has
established a reputation for excellent customer service.
Site selection and store design
This year, in conjuction with a leading retail architecture and design group,
the Company developed a new concept store in Point Richmond, California that
further advances the art and science of marine retailing. This new store
presents both merchandise and information in a visually exciting way that's
designed to make the shopping experience fun while enabling a minimal store
staff to efficiently serve a large volume of customers. Key areas of the store
feature signage, displays and detailed step-by-step instructions to lead
customers through a logical selection process with or without a sales
associate's assistance. The Company plans to incorporate many of the features
of this prototype store in the 24 stores slated for remodeling in 2000.
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In selecting which markets to enter, the Company evaluates a number of criteria,
including proximity to existing operations and the performance of catalog sales
in that market, as well as the size and strength of potential competitors. In
choosing specific sites within a market, the Company applies standardized site
selection criteria which takes into account numerous factors including the
number of boat slips and boats within a certain radius, local demographics and
overall retail activity.
The Company's stores are conveniently located either near boat marinas or at
central locations accessible to boaters. Most stores have large, readily
identifiable signage, easy access from major roads and adequate customer
parking. The stores currently range in size from approximately 3,000 to 15,000
square feet. Stores are generally open seven days a week, including most
holidays.
The format of West Marine stores depends on the size of the store and the buying
patterns of the local markets. Merchandise is displayed in functional product
groupings clearly identified by signs hanging in each aisle. The layout of the
store is designed to expose each customer to a large proportion of the store's
product offerings and to stimulate customer purchases. For example, frequently
purchased items such as rope, varnish and other maintenance supplies are
generally displayed at the rear of the store, whereas items that are higher
margin and have a strong impulse purchasing orientation are displayed in the
front of the store. Eye-catching end-cap displays feature new product offerings
or promotional items or focus on a particular product category, such as safety
equipment. The Company's brightly lit, well-organized stores are designed to
provide a convenient shopping environment.
Store operations
The Company's stores are organized into geographic regions with a regional
manager responsible for each region. Regional managers report to the President
of the Stores Division. Each region is organized into districts, each with a
district manager responsible for the store operations within his or her
district. The Company's district managers frequently visit the stores within
their respective geographic areas to monitor financial performance and ensure
adherence to the Company's operating standards. The typical staff for a West
Marine store consists of one store manager, an assistant store manager and
between four and twenty additional hourly sales associates, many of whom work
part-time. Store managers make all hiring decisions, monitor and respond to
local competitive forces.
Store and district managers participate in an incentive plan that ties
compensation awards to the achievement of specified store profits, group
performance goals and overall Company profits. The Company advocates broad-
based participation in its stock option plans and all associates and managers
are eligible to receive option grants.
Other business lines
The Company believes that its Catalog business line has served as an effective
marketing and advertising tool for the Company's store operations. The Company
mails several versions of a master merchandise catalog throughout the world.
These versions are based on boat size and type and range from 604 to 892 pages.
In addition, smaller seasonal full-color catalogs and flyers are mailed monthly.
The catalogs also provide technical information regarding product offerings.
The Company also rents mailing lists from boating magazines and other industry
sources to better target its customers with its Catalog versions.
The Company designs and produces its catalogs at its executive offices in
Watsonville, California, utilizing a desktop publishing system. This enables
the Company to make both pricing and product changes until shortly before the
catalogs are printed.
The Company receives all catalog orders by mail, fax, Internet or telephone at
its Watsonville, California call center. Merchandise is then distributed to
customers from one of the Company's distribution facilities. The Hollister,
California distribution facility services primarily the West Coast while the
Rock Hill, South Carolina distribution facility services customers east of the
Rockies.
Port Supply was created to address a broader customer base and to take advantage
of the Company's purchasing and distribution efficiencies. The Company
distributed marine supplies to approximately 20,000 wholesale customers in 1999,
including customers involved in boat sales, boat building, boat repair, yacht
chartering and marine supply retailers who resell the items. In addition, Port
Supply sells to industrial and government customers who use marine related
products.
The Company has addressed the growing significance of e-commerce in the
marketplace, and has redesigned its website
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<PAGE>
to target all segments of boating enthusiasts. The site was made available in
July 1999 and is updated on a daily basis with any product, pricing and
inventory changes. Orders are filled in the same manner as catalog orders. In
mid-2000, Port Supply expects to launch its business-to-business e-commerce
website, and projected for completion in 2000, all stores will have Internet
access to the website. The website includes online advisors, technical
information areas, news, feature stories and other information of interest to
boaters.
The Company's Boat Insurance program experienced significant revenue growth in
1999. Additional services-oriented programs were developed in late 1999 to
better serve customers as well as to support the growth of the Insurance
program. In early 2000, the Company anticipates introducing an on-water boat
towing program as well as a boat financing program. These services provide a
complete one-stop source for customers, and will contribute to significant
revenue growth in 2000.
Distribution
The Company has two distribution centers located on the West and East Coasts.
The West Coast distribution center is approximately 162,000 square feet and is
located in Hollister, California. The East Coast distribution center is
approximately 457,000 square feet and is located in Rock Hill, South Carolina.
The Distribution Centers support all of West Marine's business units; Retail
Stores, Catalog and Port Supply.
Vendors ship products to one of the distribution centers where the merchandise
is inspected, verified against the original purchase order, ticketed and
repackaged for shipment to stores and customers. Both distribution centers use
radio frequency devices for managing a majority of the distribution centers
procedures. Various methods of transportation are used to ship products,
including truck and air freight, as well as the Company's owned trucks and vans.
The inventory purchasing system maintains stock levels for each SKU in each
distribution center. Normally, merchandise is sent to stores once a week,
however, during certain seasonal periods, many stores may receive more than one
shipment per week.
Information systems
West Marine has deployed state-of-the-art business systems that provide Company
management with advanced tools and daily information on sales, gross margins and
inventory levels. The Company utilizes an integrated software system that runs
on multiple IBM AS/400 computers. This system has been designed to support all
aspects of the business including Retail, Catalog and Port Supply sales with
emphasis on improved productivity and reduced cost. Specific programs have
focused on features to insure accuracy and safeguard both data and material. All
purchasing functions including planning are processed through a secondary
software application that is fully integrated with the core system.
Each of the Company's stores is linked to the Company's headquarters through a
proven, dedicated network that provides access to up-to-the-minute information
and secure bi-directional communication for voice, inventory, pricing, credit
card approval, sales and customer service functions. The point-of-sale system
keeps a record, updated daily, of each merchandise item from receipt to sale.
The system is designed to support the convergence of technologies supporting all
areas of the Company's operations, including Internet.
The Company believes that the systems it has deployed will provide a competitive
advantage and enable it to continue to improve customer service, operational
efficiency and management's ability to monitor critical performance factors.
Marketing
The Company's overall marketing objective is to communicate the attributes of
its brand while creating a compelling "value equation" for its customers. The
West Marine brand stands for superior selection, friendly and knowledgeable
service, competitive prices and shopping convenience.
The Company markets its products and services through direct mail catalogs and
flyers, space advertisements in boating specialty publications, cable
television, newspapers and the internet.
The Company also sponsors a number of boating-related events, ranging from
sailing regattas and fishing derbies, to waterway clean-up campaigns. These
events are designed to encourage participation in boating and to increase the
number of people enjoying the boating lifestyle.
The Company rolled out a new customer affinity points program in March of 2000
after successful pilot testing was
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completed in 1999. The West Advantage program enables customers to earn
incentives in the form of Company gift certificates based on their purchase
activity. The Company also plans to offer a private label credit card to its
customers in 2000. This program will reward loyal customers and attract new
customers by offering the option of deferred billing on major purchases.
Competition
The retail market for marine supplies is highly competitive and the Company
expects the level of competition to increase. The Company's stores compete with
other national specialty marine supply stores such as Boat/U.S. and Boater's
World. Many of these competitors have stores in the markets in which the
Company now operates and in which it plans to expand. The Company also competes
with a wide variety of local and regional specialty stores and, to a lesser
extent, sporting good stores and mass merchants. The Company also has a number
of competitors in the Catalog and wholesale distribution of marine products.
Certain of the Company's competitors have greater financial, marketing and other
resources than the Company.
The principal factors of competition in the Company's marketplace are quality,
availability, price, customer service, convenience, and access to a variety of
merchandise. The Company believes that it competes successfully on the basis of
all such factors.
Trademarks and service marks
The Company is the owner in the United States of the trademarks and service
marks "West Marine" and "E&B Marine", among others. These marks are registered
with the United States Patent and Trademark Office. Each federal registration is
renewable indefinitely if the mark is still in use at the time of renewal.
As of January 1, 2000, the Company had 3,576 associates, of whom approximately
2,066 were full-time and approximately 1,510 were part-time and temporary. In
addition, a significant number of seasonal associates were hired during the
Company's peak selling seasons.
Executive officers
The following table sets forth information regarding the executive officers of
the Company:
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Randolph K. Repass 56 Chairman of the Board
John Edmondson 55 President, Chief Executive Officer
Richard E Everett 46 President of Stores Division, Chief Operating Officer
Mike Edwards 39 Executive Vice President of Merchandising
Russell Solt 52 Senior Vice President, Finance, Chief Financial Officer and Secretary
Patrick Murphy 51 Senior Vice President, Distribution and Logistics
</TABLE>
Randolph K. Repass has been Chairman of the Board of the Company since founding
the Company in 1968 and was the Company's Chief Executive Officer from 1968
until April 1995 and August 1998 to November 1998. He served as President from
1968 to 1990 and from August 1993 to March 1994. Mr. Repass began his career in
engineering and marketing with Fairchild Semiconductor in 1966. He is President
of Sail America, a sailing industry association. Mr. Repass is also Chairman of
New England Ropes. He received a B.S. degree in electrical engineering from
Duke University.
John Edmondson joined West Marine as President and Chief Executive Officer and a
director effective November 13, 1998. Since 1992, Mr. Edmondson held the roles
of Corporate Chief Operating Officer as well as President and Chief Executive
Officer of Duty Free International Inc. Mr. Edmondson began his career with
Allied Store's Maas Bros./Jordan Marsh division and has held various senior
management positions with several retailers. Prior to joining Duty Free
International, Inc., Mr. Edmondson was General Manager of Marriott's Host
Airport Merchandise and their Sports and Entertainment divisions.
Richard E Everett joined West Marine in 1980 and became President of Stores
Division in August 1998. Mr. Everett has been Chief Operating Officer and has
served as a director since 1994. Prior to his current position in West Marine,
Mr. Everett was Executive Vice President of Store Operations. He currently
oversees the Company's store operations,
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visual merchandising, real estate, store planning, and construction. During his
career with West Marine, Mr. Everett has held various positions since joining
the Company in 1983. He founded and operated a sailboat rigging company prior to
joining West Marine. Mr. Everett received a B.S. degree from the University of
California, Berkeley.
Mike Edwards joined the Company in July 1999 as Executive Vice President of
Merchandising. Prior to that, Mr. Edwards was Vice President of General
Merchandise Manager of Golf Smith, a specialty retailer, from Sept. 1998 to May
1999. Also, Mr. Edwards was Senior Vice President and General Merchandise
Manager for CompUSA, a specialty retailer, from 1990 to 1998. He holds a B.S.
degree in Business and Marketing from Drexel University.
Russell Solt joined the Company in January 2000 as Senior Vice President, Chief
Financial Officer and Secretary. Prior to that, Mr. Solt was President of
Venture Stores, a discount retailer, from 1998 to 1999 and Executive Vice
President of Finance and Administration from 1995 to 1998. Also, Mr. Solt was
Chief Financial Officer for Williams Sonoma, a specialty retailer, from 1994 to
1995. He holds a B.S. in Business Administration from California State
University, Northridge and is a CPA.
Patrick Murphy joined the Company in March 1999 as Senior Vice President,
Distribution and Logistics. Prior to that, Mr. Murphy was Vice President of
Logistics for Borders Group, Inc., a specialty retailer, from 1993 to 1999. Mr.
Murphy holds a B.S. degree in Marketing and Economics from the University of
Missouri-Kansas City.
ITEM 2 - PROPERTIES
The Company's corporate offices are located in a 90,000 square foot facility in
Watsonville, California, which the Company occupies under a lease expiring in
2006. The Company operates a 162,000 square foot distribution center located in
Hollister, California with a lease that expires in 2011. The Company operates a
457,000 square foot distribution center located in Rock Hill, South Carolina
with a lease that expires in 2007.
At January 1, 2000, the Company's 227 stores included an aggregate of
approximately 1.6 million square feet of space. The Company's stores are all
leased, typically for a ten-year term, with options to renew for additional
terms. In most cases, the Company pays a fixed rent. Substantially all of the
leases require the Company to pay insurance, utilities, real estate taxes and
repair and maintenance expenses.
ITEM 3 - LEGAL PROCEEDINGS
The Company is not a party to any material litigation.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
West Marine, Inc. common stock trades on the Nasdaq National Market tier of the
Nasdaq Stock Market under the symbol WMAR. The following table sets forth for
the period indicated, the high and low closing sales prices for the Company's
common stock, as reported by the Nasdaq Stock Market.
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C>
1999
Stock trade price:
High $13 1/16 $14 15/16 $13 7/8 $9
Low $ 8 1/2 $ 8 5/16 $ 8 $7 9/16
</TABLE>
8
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
1998
Stock trade price:
High $30 1/8 $28 5/16 $18 7/8 $12
Low $21 1/16 $16 $ 7 3/8 $ 6 7/16
</TABLE>
As of February 29, 2000, there were approximately 1,491 holders of record of the
Company's common stock.
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ITEM 6-SELECTED FINANCIAL DATA
(in thousands, except per share and operating data)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Consolidated Income Statement Data:
Net sales $486,491 $449,296 $415,208 $323,300 $224,204
Income from operations 20,395 8,665 29,116 21,156 16,198
Income before income taxes 14,765 2,594(1) 25,487 19,490(2) 14,819
Net income 8,711 1,098(1) 15,173 11,566(2) 8,975
Net income per common and
common equivalent share:
Basic $ 0.51 $ 0.06(1) $ 0.91 $ 0.73(2) $ 0.64
Diluted $ 0.50 $ 0.06(1) $ 0.86 $ 0.68(2) $ 0.61
Consolidated Balance Sheet Data:
Working capital $130,539 $143,974 $149,242 $ 92,948 $ 58,619
Total assets 286,860 279,545 275,888 211,514 95,845
Long-term debt 71,843 94,367 92,960 37,997 8,284
Operating Data:
Stores open at year-end 227 212 184 151 72
Comparable stores net sales increase 1.8% 1.2% 5.0% 5.4% 9.0%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes a $3.3 million pre-tax charge for expenses related to the
distribution center move in 1998. The impact of this charge represents
$0.08 per basic and diluted share.
(2) Includes a $3.0 million pre-tax charge for expenses related to the
integration of E&B Marine, Inc. in 1996. The impact of this charge
represents $0.11 and $0.10 per basic and diluted share, respectively.
ITEM 7-MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Company Overview
West Marine distributes its merchandise through three divisions, Stores (retail
and wholesale), under the names of West Marine and E&B Marine, and Catalog
(retail and Internet) as well as Port Supply (wholesale). West Marine operated
227 stores in 38 states as of January 1, 2000, compared to 212 stores in 34
states as of January 2, 1999. All references to 1999, 1998, and 1997 refer to
the Company's fiscal years ended on January 1, 2000, January 2, 1999, and
January 3, 1998, respectively. 1999 and 1998 were 52-week years. 1997 was a
53-week year.
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Results of Operations
The following table sets forth certain income statement components expressed as
a percent of sales:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of goods sold including buying and occupancy 73.2% 74.8% 70.4%
----- ----- -----
Gross profit 26.8% 25.2% 29.6%
Selling, general and administrative expenses 22.6% 22.6% 22.6%
Expenses related to distribution center move - 0.7% -
----- ----- -----
Income from operations 4.2% 1.9% 7.0%
Interest expense 1.2% 1.4% 0.8%
----- ----- -----
Income before income taxes 3.0% 0.5% 6.2%
Provision for income taxes 1.2% 0.3% 2.5%
----- ----- -----
Net income 1.8% 0.2% 3.7%
===== ===== =====
</TABLE>
1999 Compared to 1998
West Marine's fiscal 1999 results reflect continuing progress in the
implementation of the Company's strategic plan to improve operating fundamentals
and execute initiatives to stimulate growth. In 1999, West Marine achieved
record net sales of $486.5 million, an increase of $37.2 million, or 8.3%, over
net sales of $449.3 million in 1998. Net income of $8.7 million, or $0.50 per
diluted share, in 1999 compares to net income of $1.1 million, or $0.06 per
diluted share, in 1998. Results of operations for 1998 included $3.3 million of
expenses incurred by the Company for the relocation and consolidation of West
Marine's two East Coast distribution facilities into a single facility located
in Rock Hill, South Carolina.
Net sales attributable to the Company's Stores division increased $25.7 million,
or 7.0%, to $395.5 million in 1999, primarily due to the addition of 17 new
stores, which contributed $18.8 million to net sales growth. Comparable store
net sales increased $6.9 million, or 1.8%, in 1999. Port Supply net sales
increased $8.6 million, or 23.1%, in 1999 primarily as a result of the Company's
continued territory expansion, new sales marketing programs, and significant
improvements in the Company's distribution center fill rates and merchandise
shipment rates. Catalog net sales increased $2.7 million, or 6.5%, to $44.4
million. Catalog net sales included Internet sales of $2.3 million and $0.6
million, respectively, in 1999 and 1998.
Gross profit increased 14.9% in 1999 compared to 1998. Gross profit as a
percentage of net sales increased to 26.8% in 1999 from 25.2% in 1998, primarily
reflecting reduced distribution and shipping costs, as well as a shift to a more
profitable product mix.
Selling, general and administrative expenses increased $8.5 million, or 8.4%, in
1999, primarily due to increases in direct expenses related to the growth in
Stores, consulting costs related to process improvements, and higher marketing
costs. Selling, general and administrative expenses as a percentage of net
sales were unchanged from 1998.
Income from operations increased $11.7 million, or 135.4%, from 1998 to 1999.
As a percentage of net sales, income from operations increased to 4.2% in 1999,
from 1.9% in 1998.
Interest expense declined $441,000, or 7.3%, in 1999 compared to 1998, primarily
as a result of a lower average borrowings partially offset by a rise in interest
rates.
1998 Compared to 1997
Net sales for 1998 increased 8.2% to $449.3 million, compared to $415.2 million
in 1997. This increase was primarily attributable to the increase in net sales
from the Company's Stores. Stores net sales increased 10.5% to $369.8 million.
The increase in Stores net sales was primarily due to 28 additional West Marine
Stores opened in 1998. Net sales from comparable West Marine Stores increased
1.2% and contributed $3.8 million, or 10.9% of the increase. The E&B Marine
locations entered the Company's comparable Stores net sales base in August 1997.
Catalog net sales decreased 7.8% to $41.7 million. The Company believes that
the decrease in Catalog net sales was attributable to new Store
11
<PAGE>
openings by the Company and its competitors, in addition to service problems
related to the distribution center. Port Supply net sales increased 5.6% to
$37.3 million, resulting primarily from the Company's continued territory
expansion and additional van delivery routes.
Gross profit decreased 7.7% in 1998 compared to 1997. Gross profit as a
percentage of net sales decreased to 25.2% in 1998 from 29.6% in 1997, primarily
reflecting increased payroll, equipment rental and supply expenses at the Rock
Hill distribution center as well as increased inventory shrink.
Selling, general and administrative expenses increased $7.7 million, or 8.2%, in
1998, primarily due to increases in direct expenses related to the growth in
Stores. Stores direct expense represented approximately 72.1% of the $7.2
million increase. As a percentage of net sales, selling, general and
administrative expenses remained relatively flat due to the Company's
advertising and promotional cost reduction efforts.
In the first quarter of 1998, the Company incurred $3.3 million of expenses for
the relocation and consolidation of West Marine's two East Coast distribution
facilities into a single facility located in Rock Hill, South Carolina.
Income from operations decreased $20.5 million, or 70.2%, from 1997 to 1998. As
a percentage of net sales, income from operations decreased to 1.9% in 1998 from
7.0% in 1997.
Interest expense increased $2.4 million or 67.3%, in 1998 compared to 1997,
primarily as a result of higher average borrowings under the Company's line of
credit during 1998.
Liquidity and Capital Resources
During 1999, the Company's primary sources of capital have been income from
operations and bank borrowings. Net cash provided by operations during 1999 was
$35.3, consisting primarily of earnings after tax of $22.8 million excluding
depreciation and amortization, a $12.4 million increase in accounts payable and
accrued expenses, a $3.1 million increase in provision for deferred income taxes
and a $2.5 decrease in prepaid expenses and other current assets offset by a
$5.8 million increase in inventory. The inventory increase was attributable to
a contingency plan for possible Y2K issues. Net cash used in financing activity
was $14.5 million, consisting of $15.6 repayment of the Company's line of credit
and long-term debt offset by $1.2 million received from the exercise of stock
options and the net sales of common stock pursuant to the associate stock
purchase plan.
West Marine's primary cash requirements are related to capital expenditures for
new Stores, including leasehold improvement costs and fixtures, and merchandise
inventory for Stores. The Company expects to spend between $13.0 to $15.0
million on capital expenditures during 2000. The Company intends to pay for its
expansion through cash generated from operations and bank borrowings. The
Company believes that cash from operations together with the current credit line
will be sufficient to fund the Company throughout 2000.
At the end of 1999, the Company had outstanding a $40.0 million senior guarantee
note which matures on December 23, 2004, with the first annual principal payment
due on December 23, 2000. During 1999, the note was amended to bear interest at
7.6%. The note is unsecured, and contains certain restrictive covenants
including fixed charge coverage and debt to capitalization ratios, and minimum
net worth.
The Company has an $80.0 million credit line. In January 2000, the line was
replaced with a credit line that extends the due date to January 2, 2003.
Depending on the Company's election at the time of borrowing, the line bears
interest at either the bank's reference rate or LIBOR plus a factor of up to
1.0% to 2.25%. At the end of 1999, borrowings from the credit line were $39.5
million bearing interest at rates ranging from 7.78% to 9.0%. At the end of
1998, borrowings from the credit line were $53.0 million bearing interest at
rates ranging from 6.1% to 7.4%.
In addition, The Company has available a $2.0 million revolving line of credit
with a bank, expiring January 2, 2003. The line bears interest at the bank's
reference rate (8.50% at the end of 1999) and has a ten-day paydown requirement.
At the end of 1999 and 1998, no amounts were outstanding under the revolving
line of credit.
Both of the aforementioned credit lines are unsecured and contain various
covenants which require maintaining certain financial ratios, including debt to
earnings and current ratios. The covenants include minimum levels of net worth
and limitations on levels of certain investments. These covenants also restrict
the repurchase or redemption of the Company's common stock and payment of
dividends, investments in subsidiaries and annual capital expenditures.
At the end of 1999, the Company had $364,000 of outstanding stand-by letters of
credit, compared to $100,000 at year-
12
<PAGE>
end 1998. At the end of 1999 and 1998, the Company had $520,000 and $613,000,
respectively, of outstanding commercial letters of credit.
During 1999 and 1998, the weighted average interest rates in effect were 6.9%
and 6.4% respectively.
Year 2000 and Other System Enhancements
During 1999, the Company implemented a plan to ensure its computer systems and
applications were compliant for the year 2000 ("Y2K"). Systems programming and
testing of the modifications were completed during the first six months of 1999,
and final integration testing and conversions to new systems were completed and
implemented in the third quarter of 1999. The Company did not experience any
significant adverse effects of Year 2000 system modifications.
Due to the Company's focus on Y2K issues during 1999, certain other planned
systems enhancement and improvement projects were deferred until 2000. The
deferral of these projects is not expected to have a material adverse effect on
the Company's results of operations, financial condition, or liquidity.
As of January 1, 2000, the Company had incurred a total of $280,000 to convert
systems to Y2K compliance. In the opinion of management, no additional expenses
will be incurred related to the Y2K systems conversion.
Also during 1999, the Company successfully upgraded certain systems to improve
operational efficiencies, improve services to customers, and provide better
information to management. System upgrades in 1999 included the point of sale
(POS) system, the wholesale sales system, the warehouse management, and the
basic operating systems on the AS400 system.
Seasonality
Historically, the Company's business has been highly seasonal. The Company's
expansion into new markets has made it even more susceptible to seasonality, as
an increasing percentage of Stores sales occur in the second and third quarters
of each year. In 1999, 62.8% of the Company's net sales and all of its net
income occurred during the second and third quarters, principally during the
period from April through July, which represents the peak boating months in most
of the Company's markets. Management expects net sales to become more
susceptible to seasonality and weather as the Company continues to expand its
operations.
Business Trends
West Marine's growth in net sales has been principally fueled by geographic
expansion through the opening of new stores and, to a lesser extent, by
comparable stores net sales increases. Although the Company believes that the
Catalog and Port Supply divisions will continue to grow, future Company net
sales and profit growth, if any, will be increasingly dependent on the opening
and profitability of new stores. The Company's Catalog division continues to
face market share erosion in markets where stores have been opened by either the
company or competitors. Management expects that this trend may continue. To
address the growing significance of e-commerce in the marketplace, the Company
redesigned its website to target all segments of boating enthusiasts. Since
launching the site, sales have dramatically increased over 1998 sales. The
Company has allocated resources to further develop the website to generate
increases in international and domestic sales.
In most of the Company's product categories, prices have remained stable or have
declined over the last three years, a trend which management expects is likely
to continue. As a result, net sales increases during such periods have not been
attributable to increases in prices. In recent years, competition has increased
which has adversely affected the Company's gross profits. These competitive and
pricing pressures are likely to continue.
ITEM 7A- Quantitative and Qualitative Disclosures about Market Risk
The Company does not undertake any specific actions to cover its exposure to
interest rate risk and is not a party to any interest rate risk management
transactions. The Company does not purchase or hold any derivative financial
instruments.
A 69 basis point change in interest rate (10% of the Company's weighted average
interest rate) affecting the Company's floating financial instruments would have
an effect of approximately $280,000 on the Company's pretax income and
13
<PAGE>
cash flows over the next year, and would have an immaterial effect on the fair
value of the Company's fixed rate financial instruments (see "Notes to
Consolidated Financial Statements - Line of Credit and Long-Term Debt").
"Safe Harbor" Statement Under the Private Securities Litigation Reform Act of
1995
The statements in this filing that relate to future plans, events, expectations,
objectives, or performance (or assumptions underlying such matters) are forward-
looking statements that involve a number of risks and uncertainties. Set forth
below are certain important factors that could cause the Company's actual
results to differ materially from those expressed in any forward-looking
statements.
The Company's Catalog division has faced market share erosion in areas where
Stores have been open by either the Company or its competitors. Management
expects this trend to continue. The Company's growth has been fueled
principally by the Company's Stores operations. The Company's continued growth
depends to a significant degree on its ability to continue to expand its
operations through the opening of new Stores and to operate these Stores
profitably, as well as increasing net sales at its existing Stores. The
Company's planned expansion is subject to a number of factors, including the
adequacy of the Company's capital resources and the Company's ability to locate
suitable store sites and negotiate acceptable lease terms, to hire, train and
integrate employees and to adapt its distribution and other operations systems.
In addition, acquisitions involve a number of risks, including the diversion of
management's attention to the assimilation of the operations and personnel of
the acquired business, potential adverse short-term effects on the Company's
operating results, and amortization of acquired intangible assets.
The markets for recreational watersports and boating supplies are highly
competitive. Competitive pressures resulting from competitors' pricing policies
have adversely affected the Company's gross profit and such pressures are
expected to continue. In addition, the Company's operations could be adversely
affected if unseasonably cold weather, prolonged winter conditions or
extraordinary amounts of rainfall were to occur during the peak boating season
in the second and third quarters.
Additional factors which may affect the Company's financial results include
inventory management issues, the impact of e-commerce, fluctuations in consumer
spending on recreational boating supplies, environmental regulations, demand for
and acceptance of the Company's products and other risk factors disclosed from
time to time in the Company's SEC filings.
14
<PAGE>
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
[Deloitte & Touche Letterhead]
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
West Marine, Inc.,
We have audited the accompanying consolidated balance sheets of West Marine,
Inc. and subsidiaries (the "Company") as of January 1, 2000 and January 2,
1999 and the related consolidated statements of income, stockholders'
equity and cash flows for each of the three fiscal years in the period
ended January 1, 2000. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well and evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company at January 1, 2000
and January 2, 1999 and the results of it operations and its cash flows for
each of the three fiscal years in the period ended January 1, 2000 in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
San Francisco, California
February 17, 2000
15
<PAGE>
WEST MARINE, INC.
CONSOLIDATED BALANCE SHEETS
JANUARY 1, 2000 AND JANUARY 2, 1999
(in thousands, except share data)
<TABLE>
<CAPTION>
Year-End Year-End
1999 1998
--------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 3,231 $ 1,024
Accounts receivable, net 5,101 4,660
Merchandise inventories, net 165,838 160,069
Prepaid expenses and other current assets 9,029 11,574
--------- ---------
Total current assets 183,199 177,327
Property and equipment, net 66,036 60,219
Intangibles and other assets, net 37,625 41,999
--------- ---------
TOTAL ASSETS $286,860 $279,545
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 30,810 $ 23,759
Accrued expenses 9,828 4,548
Deferred current liabilities 3,333 3,263
Current portion of long-term debt 8,689 1,783
--------- ---------
Total current liabilities 52,660 33,353
Long-term debt 71,843 94,367
Deferred items and other non-current obligations 2,460 2,055
--------- ---------
Total liabilities 129,963 129,775
Stockholders' equity:
Preferred stock, $.001 par value: 1,000,000 shares
authorized; no shares outstanding - -
Common stock, $.001 par value: 50,000,000 shares
authorized; issued and outstanding: 17,190,274 at
January 1, 2000 and 16,984,528 at January 2, 1999 17 17
Additional paid-in capital 107,015 105,599
Retained earnings 52,865 44,154
--------- ---------
Total stockholders' equity 159,897 149,770
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $286,860 $279,545
========= =========
See notes to consolidated financial statements.
</TABLE>
16
<PAGE>
WEST MARINE, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share and store data)
<TABLE>
<CAPTION>
1999 1998 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Net sales $486,491 $449,296 $415,208
Cost of goods sold, including buying
and occupancy 356,215 335,956 292,395
--------- --------- ---------
Gross profit 130,276 113,340 122,813
Selling, general and administrative expense 109,881 101,391 93,697
Expenses related to distribution center move - 3,284 -
--------- --------- ---------
Income from operations 20,395 8,665 29,116
Interest expense 5,630 6,071 3,629
--------- --------- ---------
Income before taxes 14,765 2,594 25,487
Provision for income taxes 6,054 1,496 10,314
--------- --------- ---------
Net income $ 8,711 $ 1,098 $ 15,173
========= ========= =========
Net income per common and common
equivalent share:
Basic $0.51 $0.06 $0.91
========= ========= =========
Diluted $0.50 $0.06 $0.86
========= ========= =========
Weighted average common and common
equivalent shares outstanding:
Basic 17,086 16,893 16,648
========= ========= =========
Diluted 17,557 17,520 17,583
========= ========= =========
Stores open at end of period 227 212 184
========= ========= =========
See notes to consolidated financial statements.
</TABLE>
17
<PAGE>
WEST MARINE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, except share data)
<TABLE>
<CAPTION>
Common stock Additional Total
--------------------------- Paid-in Retained Stockholders'
Shares Amount Capital Earnings Equity
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at year-end, 1996 $16,494,205 $16 $ 98,632 $27,883 $126,531
Net income 15,173 15,173
Exercise of stock options 245,838 1 1,789 1,790
Tax benefit from exercise of non-qualified
stock options 1,916 1,916
Sale of common stock pursuant to
associate stock purchase plan 46,025 908 908
--------------------------------------------------------------------------
Balance at year-end, 1997 16,786,068 17 103,245 43,056 146,318
Net income 1,098 1,098
Exercise of stock options 122,821 933 933
Tax benefit from exercise of non-qualified
stock options 677 677
Sale of common stock pursuant to
associate stock purchase plan 75,639 744 744
--------------------------------------------------------------------------
Balance at year-end, 1998 16,984,528 17 105,599 44,154 149,770
Net income 8,711 8,711
Exercise of stock options 67,599 276 276
Restricted stock award 138 138
Tax benefit from exercise of non-qualified
stock options 113 113
Sale of common stock pursuant to
associate stock purchase plan 138,147 889 889
--------------------------------------------------------------------------
Balance at year-end, 1999 $17,190,274 $17 $107,015 $52,865 $159,897
==========================================================================
</TABLE>
See notes to consolidated financial statements.
18
<PAGE>
WEST MARINE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
---------------- ---------------- ---------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 8,711 $ 1,098 $ 15,173
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 14,075 11,926 8,604
Provision for deferred income taxes 3,092 298 4,704
Provision for doubtful accounts 533 586 315
Non-cash compensation expense 138 - -
Changes in assets and liabilities:
Accounts receivable (974) (243) (1,576)
Merchandise inventories (5,769) 6,221 (43,559)
Prepaid expenses and other current assets 2,545 86 (3,808)
Other assets 141 (10) 195
Accounts payable 7,051 (2,870) (6,998)
Accrued expenses 5,393 (231) (3,529)
Deferred items 405 166 125
--------- --------- ---------
Net cash provided by (used in) operating activities 35,341 17,027 (30,354)
--------- --------- ---------
INVESTING ACTIVITIES:
Purchases of property and equipment (18,681) (17,487) (24,470)
--------- --------- ---------
Net cash used in investing activities (18,681) (17,487) (24,470)
--------- --------- ---------
FINANCING ACTIVITIES:
Net borrowings (repayments) on line of credit (13,500) 950 15,050
Borrowings (repayments) on long-term debt (2,118) (2,153) 37,192
Sale of common stock pursuant to associate stock purchase plan 889 744 908
Exercise of stock options 276 933 1,790
--------- --------- ---------
Net cash provided by (used in) financing activities (14,453) 474 54,940
--------- --------- ---------
NET INCREASE IN CASH 2,207 14 116
CASH AT BEGINNING OF PERIOD 1,024 1,010 894
--------- --------- ---------
CASH AT END OF PERIOD $ 3,231 $ 1,024 $ 1,010
========= ========= =========
Other cash flow information:
Cash paid for interest $ 6,190 $ 6,480 $ 4,096
Cash paid for income taxes 4,302 4,918 8,338
Equipment acquired through non-cash capital lease transactions - 2,545 2,996
Tax benefit from exercise of non-qualified stock options 113 677 1,916
See notes to consolidated financial statements.
</TABLE>
19
<PAGE>
WEST MARINE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS - West Marine, Inc. (the "Company"), a Delaware corporation, is a
specialty retailer and wholesaler of boating supplies and apparel, which it
markets through 227 retail stores in the United States and mail order catalogs.
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the
accounts of West Marine, Inc. and its subsidiaries. Intercompany balances and
transactions are eliminated in consolidation.
FISCAL YEAR - The Company's fiscal year-ends on the Saturday closest to December
31 based on a 52- or 53-week year. The years 1999, 1998, and 1997 ended on
January 1, 2000, January 2, 1999, and January 3, 1998, respectively. 1999 and
1998 were 52-week years. 1997 was a 53-week year.
ACCOUNTING ESTIMATES - The preparation of consolidated financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from these
estimates.
MERCHANDISE INVENTORIES are stated at the lower of cost (first-in, first-out
method) or market. Cost includes acquisition and distribution costs that have
been capitalized in merchandise inventories in order to better match net sales
with these related costs.
DEFERRED CATALOG AND ADVERTISING COSTS - The Company capitalizes the direct cost
of producing and distributing its catalogs. Capitalized catalog costs are
amortized, once the catalog is mailed, over the expected net sales period, which
is generally six months. Deferred catalog costs amounted to $110,000 and
$1,893,000 at year-end 1999 and 1998, respectively. Advertising costs, which
are expensed as incurred, amounted to $14.0 million, $12.6 million, and $13.8
million in 1999, 1998 and 1997, respectively.
PROPERTY AND EQUIPMENT is stated at cost. Furniture and equipment is
depreciated using the straight-line method over the estimated useful lives of
the various assets, which range from three to five years. Leasehold
improvements are amortized over the lesser of the lease term or the estimated
useful lives of the improvements. Whenever events or changes in circumstances
have indicated that the carrying amount of its assets might not be recoverable,
the Company, using its best estimates based on reasonable and supportable
assumptions and projections, has reviewed for impairment the carrying value of
long-lived assets.
PRE-OPENING COSTS are expensed as incurred.
INTANGIBLES AND OTHER ASSETS - The excess of cost over tangible net assets
acquired is amortized over periods ranging from 5 to 40 years. Debt issuance
costs are amortized over the terms of the related credit agreements. The
Company periodically assesses the recoverability of the carrying value of its
goodwill based on a review of projected undiscounted cash flows of the related
operations. Accumulated amortization at the end of 1999 and 1998 was $5.0
million and $3.7 million, respectively.
DEFERRED RENT - Certain of the Company's operating leases contain predetermined
fixed increases of the minimum rental rate during the lease term. For these
leases, the Company recognizes the related rental expense on a straight-line
basis over the life of the lease and records the difference between the amount
charged to rent expense and the rent paid as deferred rent.
INCOME TAXES - The Company's income taxes are accounted for under the provisions
of Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes", which requires the asset and liability method of accounting.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying value of cash, accounts
receivable, accounts payable and long-term debt approximates the estimated fair
values.
20
<PAGE>
STOCK-BASED COMPENSATION - The Company accounts for stock-based awards to
employees using the intrinsic value method in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees".
Accordingly, no compensation cost has been recognized for its fixed cost stock
option plans or its associate stock purchase plan. In 1999, the Company
recognized $138,000 of compensation expense related to a restricted stock award.
RECLASSIFICATIONS - Certain 1998 and 1997 amounts have been reclassified to
conform with the 1999 presentation.
COMPREHENSIVE INCOME - Comprehensive income consists of net income or loss for
the current period and other comprehensive income (incomes, expenses, gains and
losses that currently bypass the income statement and are reported directly as a
separate component of equity). The Company's comprehensive net income equals
net income for all periods presented.
CAPITALIZED INTEREST - The Company's policy is to capitalize interest on debt
incurred that is directly related to major construction projects. During 1999,
1998, and 1997, the Company incurred approximately $6.1 million, $6.7 million,
and $4.2 million, respectively, of interest, of which approximately $423,000,
$576,000, and $587,000, respectively, was capitalized.
NET INCOME PER SHARE - Basic net income per share excludes dilution and is
computed by dividing net income available to common stockholders by the weighted
average number of common shares outstanding for the period. Diluted net income
per share reflects the potential dilution that could occur if options to issue
common stock were exercised into common stock.
The following is a reconciliation of the Company's basic and diluted net income
per share computations (shares in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
--------------------------- ------------------------- -------------------------
Per Share Per Share Per Share
Shares Amount Shares Amount Shares Amount
--------------------------- ------------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C>
Basic 17,086 $ 0.51 16,893 $0.06 16,648 $ 0.91
Effect of dilutive stock options 471 (0.01) 627 0.00 935 (0.05)
--------------------------- ------------------------- -------------------------
Diluted 17,557 $ 0.50 17,520 $0.06 17,583 $ 0.86
=========================== ========================= =========================
</TABLE>
The following options were not included in the computation of diluted EPS
because such options' exercise price was greater than the average market price
of the common shares (shares in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
Options to purchase
<S> <C> <C> <C>
shares of common stock 2,703 1,895 563
Exercise prices $8.31 - $34.50 $11.13 - $34.50 $24.74 - $34.50
Expiration dates March 2003 - March 2003 - February 2004 -
August 2009 August 2008 May 2007
</TABLE>
NEW ACCOUNTING PRONOUNCEMENTS - In June 1999, the Financial Accounting Standards
Board ("FASB") issued SFAS No. 137, "Accounting for Derivative Instruments."
SFAS 137 extends the effective date of SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which established accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. The statement requires
that an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. As
amended by SFAS 137, SFAS 133 is effective for fiscal years beginning after June
15, 2000 and is not to be applied retroactively. In the opinion of management,
SFAS No. 133 will not have a material effect on the Company's financial position
or results of operations.
21
<PAGE>
NOTE 2: PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at year-end 1999 and 1998 (in
thousands):
<TABLE>
<CAPTION>
At Year-End
-------------------------------------
1999 1998
<S> <C> <C>
Furniture and equipment $ 37,540 $ 32,245
Computer equipment 44,388 34,233
Leasehold improvements 29,857 27,141
Land and building 806 728
--------------- ---------------
Total, at cost 112,591 94,347
Accumulated depreciation and amortization (46,555) (34,128)
--------------- ---------------
Total property and equipment, net $ 66,036 $ 60,219
=============== ===============
</TABLE>
NOTE 3: LINES OF CREDIT AND LONG-TERM DEBT
At the end of 1999, the Company had outstanding a $40.0 million senior guarantee
note which matures on December 23, 2004, with the first annual principal payment
due on December 23, 2000. During 1999, the note was amended and bears interest
at 7.6%. The note is unsecured, and contains certain restrictive covenants
including fixed charge coverage and debt to capitalization ratios, and minimum
net worth.
The Company has an $80.0 million credit line. In January 2000, the line was
amended to extend the due date to January 2, 2003. Depending on the Company's
election at the time of borrowing, the line bears interest at either the bank's
reference rate or LIBOR plus a factor of up to 1.0% to 2.25%. At the end of
1999, borrowings from the credit line were $39.5 million bearing interest at
rates ranging from 7.78% to 9.0%. At the end of 1998, borrowings from the
credit line were $53.0 million bearing interest at rates ranging from 6.1% to
7.4%.
In addition, the Company has available a $2.0 million revolving line of credit
with a bank, expiring January 2, 2003. The line bears interest at the bank's
reference rate (8.50% at the end of 1999) and has a ten-day paydown requirement.
At the end of 1999 and 1998, no amounts were outstanding under the revolving
line of credit.
Both of the aforementioned credit lines are unsecured and contain various
covenants which require maintaining certain financial ratios, including debt to
earnings and current ratios. The covenants include minimum levels of net worth
and limitations on levels of certain investments. These covenants also restrict
the repurchase or redemption of the Company's common stock and payment of
dividends, investments in subsidiaries and annual capital expenditures.
At the end of 1999, the Company had $364,000 of outstanding stand-by letters of
credit, compared to $100,000 at year-end 1998. At the end of 1999 and 1998, the
Company had $520,000 and $613,000, respectively, of outstanding commercial
letters of credit.
During 1999 and 1998, the weighted average interest rates in effect were 6.9%
and 6.4% respectively.
22
<PAGE>
At year-end 1999 and 1998, long-term debt consisted of the following (in
thousands):
<TABLE>
<CAPTION>
At Year-End
-------------------------------
1999 1998
<S> <C> <C>
Lines of credit $ 39,500 $53,000
Note payable 40,000 40,000
Capital lease obligations (interest at 3.6% to 8.7%) 1,032 3,150
------------- -------------
80,532 96,150
Less current portion of long-term debt (8,689) (1,783)
------------- -------------
$ 71,843 $94,367
============= =============
</TABLE>
At year-end 1999, future minimum principal payments on long-term debt were as
follows (in thousands):.
<TABLE>
<C> <S> <C>
2000 $ 8,689
2001 8,311
2002 8,032
2003 47,500
2004 8,000
------------
$80,532
============
</TABLE>
NOTE 4: RELATED PARTY TRANSACTIONS
The Company purchases merchandise from a supplier in which the Company's
Principal Stockholder owns stock and is a member of the board of directors.
Additionally, the Principal Stockholder's brother is the president and his
father is a member of the board of directors and a major stockholder of the
supplier. The Company's cost of net sales during 1999, 1998, and 1997 included
$7.2 million, $6.4 million, and $5.2 million, respectively, related to purchases
from such related party. Accounts payable to the supplier at year-end 1999 and
1998 were $215,000 and $384,000, respectively.
The Company leases its corporate headquarters and two retail stores from three
partnerships in which the Company's Principal Stockholder is the general partner
(see Note 5). In addition, one retail Store is leased directly from the
Principal Stockholder.
NOTE 5: LEASES
The Company leases certain equipment, retail stores, its distribution centers
and its corporate headquarters. The Company also sublets space at various
locations with both month-to-month and noncancelable sublease agreements. The
operating leases of certain Stores provide for rent adjustments based on the
consumer price index and planned rent increases.
23
<PAGE>
The aggregate minimum annual rental payments and sublease income under
noncancelable leases in effect at year-end 1999 were as follows (in thousands):
<TABLE>
<CAPTION>
Capital Operating Sublease Net Lease
Leases Leases Income Commitments
<S> <C> <C> <C> <C>
2000 $ 702 $15,665 $ 53 $16,314
2001 314 17,968 20 18,262
2002 32 16,015 16 16,031
2003 14,957 16 14,941
2004 12,846 5 12,841
Thereafter 20,299 - 20,299
----------------------------------------------------------
Total minimum lease commitment 1,048 $97,750 $110 $98,688
==============================================
Less amount representing interest (16)
------------
Present value of obligations
under capital leases 1,032
Less current portion (689)
------------
Long-term obligations
under capital leases $ 343
============
</TABLE>
The cost and related accumulated amortization of assets under capital leases
aggregated $5.5 million and $2.1 million, respectively, at year-end 1999 and
$5.5 million and $1.1 million, respectively, at year-end 1998.
A summary of rent expense by component for 1999, 1998, and 1997 follows (in
thousands):
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Minimum rent $20,027 $19,219 $15,942
Percent rent 176 178 182
Sublease income 161 159 202
Rents paid to related parties 1,253 1,161 1,065
</TABLE>
NOTE 6: STOCK OPTION PLANS
Fixed Stock Option Plans
The Company's 1990 Stock Option Plan ("the 1990 Plan") provides for options to
be granted to employees and directors for the purchase of an aggregate of 2.1
million shares of common stock at prices not less than 100% of the fair market
value at the date of grant. Options under this plan are generally exercisable
equally over five years from the date of the grant, unless otherwise provided.
The Company's 1993 Omnibus Equity Incentive Plan as amended (the "1993 Plan")
provides for options to be granted for the purchase of an aggregate of 5.2
million shares of common stock at prices not less than 85% of fair market value
at the date of the grant. Options under this plan are generally exercisable
equally over five years from the date of the grant, unless otherwise provided.
The Company's Non-employee Director Stock Option Plan ("the Director Plan") has
reserved 200,000 shares of common stock for issuance to non-employee directors
of the Company. Options are granted at 100% of fair market value at the date of
the grant, and are generally exercisable six months after the grant date.
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123") requires the disclosure of pro forma net income and
earnings per share had the Company adopted the fair value method of accounting
for stock-based compensation as of the beginning of 1995. Under SFAS 123, the
fair value of stock-based awards is calculated through the use of option pricing
models, even though such models were developed to estimate the fair value of
freely tradable, fully transferable options without vesting restrictions, which
significantly differ from the Company's stock option awards. These models also
require subjective assumptions, including future stock price volatility and
expected time to exercise, which greatly affect the calculated values. The
Company's
24
<PAGE>
calculations were made using the Black-Scholes option pricing model with the
following weighted average assumptions: four to eight year expected life from
date of grant; stock volatility of 56%, 63%, and 62%, respectively, in 1999,
1998, and 1997; risk-free interest rates of 4.96% to 5.59% in 1999, 5.03% to
5.27% in 1998, and 5.65% to 6.44% in 1997; and no dividends during the expected
term. The Company's calculations are based on a single option valuation approach
and forfeitures are recognized as they occur. If the computed fair values of the
1999, 1998, and 1997 awards had been amortized to expense over the vesting
period of the awards, pro forma net income would have been $7.2 million in 1999
($0.42 per basic share and $0.41 per diluted share), $0.1 million in 1998 ($0.01
per basic and diluted share), and $14.4 million in 1997 ($0.86 per basic share
and $0.82 per diluted share). The impact of outstanding non-vested stock options
granted prior to 1995 has been excluded from the pro forma calculation.
Accordingly, the 1999, 1998, and 1997 pro forma adjustments are not indicative
of future period pro forma adjustments, when the calculation will apply to all
future applicable stock options.
A summary of stock option transactions under the fixed stock option plans for
the years 1999, 1998, and 1997 follows:
<TABLE>
<CAPTION>
Weighted
Average
Number of Exercise
Shares Price
--------------- ------------
<S> <C> <C>
Outstanding at year-end 1996 (1,084,741 exercisable at
a weighted average price of $7.37) 2,697,379 $11.09
Granted (weighted average fair value at grant date: $18.29) 543,929 $25.31
Exercised (245,838) $ 7.33
Canceled (242,089) $16.87
- ---------------------------------------------------------------------------------------------
Outstanding at year-end 1997 (1,384,874 exercisable at
a weighted average price of $9.89) 2,753,381 $13.72
Granted (weighted average fair value at grant date: $ 9.16) 1,452,906 $13.71
Exercised (122,821) $ 7.49
Canceled (563,357) $18.68
- ---------------------------------------------------------------------------------------------
Outstanding at year-end 1998 (1,563,633 exercisable at
a weighted average price of $10.90) 3,520,109 $13.14
Granted (weighted average fair value at grant date: $ 6.03) 739,236 $ 8.87
Exercised (67,599) $ 4.14
Canceled (113,344) $16.93
- ---------------------------------------------------------------------------------------------
Outstanding at year-end 1999 (2,184,843 exercisable at
a weighted average price of $11.74) 4,078,402 $12.24
=============================================================================================
</TABLE>
Additional information regarding options outstanding at year-end 1999 is as
follows:
<TABLE>
<CAPTION>
Outstanding Options Exercisable Options
- ----------------------------------------------------------------------------- -----------------------------
Weighted Avg
Remaining Weighted Avg Weighted Avg
Range of Shares Contractual Exercise Exercise
Exercise Prices Outstanding Life (Years) Price Shares Price
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 0.43 - $ 7.81 1,375,034 6.55 $ 5.90 638,174 $ 3.76
$ 8.25 - $ 12.50 1,532,500 6.71 $10.55 964,126 $11.09
$ 14.75 - $ 34.50 1,170,868 6.78 $21.90 582,543 $21.53
- ----------------------------------------------------------------------------------------------------------------
$ 0.43 - $ 34.50 4,078,402 6.67 $12.24 2,184,843 $11.74
================================================================================================================
</TABLE>
At year-end 1999, 1,372,468 shares were available for future grants under the
1993 Plan, and 61,208 shares were available under the Director Plan. The
Company does not intend to grant any additional options under the 1990 Plan.
Associate Stock Purchase Plan
The Company has a stock-buying plan, covering all eligible associates.
Participants in the plan may purchase West
25
<PAGE>
Marine stock through regular payroll deductions. The stock is purchased on the
last business day of April and October at 85% of the fair market value. In 1999,
1998, and 1997, respectively, 138,121, 75,639 and 46,025 shares were issued
under the plan at weighted average prices of $6.53, $9.85, and $17.74,
respectively. The weighted average fair value of the 1999, 1998, and 1997 awards
was $9.22, $13.12 and $22.95, respectively. At the end of 1999, 62,039 shares
were reserved for future issuances under the stock-buying plan.
NOTE 7: INCOME TAXES
The components of the provision for income taxes for 1999, 1998, and 1997 are as
follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Currently payable:
Federal $2,646 $ 998 $ 4,827
State 316 200 783
----------- ----------- -----------
Total current 2,962 1,198 5,610
----------- ----------- -----------
Deferred:
Federal 2,791 633 3,944
State 301 (335) 760
----------- ----------- -----------
Total deferred 3,092 298 4,704
----------- ----------- -----------
Total current and deferred $6,054 $1,496 $10,314
=========== =========== ===========
</TABLE>
The provision of income taxes consisted of the following:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Statutory federal tax rate 35.0% 35.0% 35.0%
Non-deductible permanent items 3.1% 18.1% 1.8%
State income taxes, net
of federal tax benefit 4.6% 4.6% 4.6%
Settlement of prior year's taxes 7.1%
Other (1.7%) (7.1%) (0.9%)
--------- ----------- -----------
Effective tax rate 41.0% 57.7% 40.5%
========= =========== ===========
</TABLE>
26
<PAGE>
Deferred income taxes reflect the impact of "temporary differences" between
amounts of assets and liabilities for financial reporting purposes and such
amounts measured by tax laws. Temporary differences that give rise to deferred
tax assets (liabilities) are as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
---------- ------------
<S> <C> <C>
Current:
Reserves $ 604 $ 449
Net operating loss carryforwards 139 923
Paid time off 649 362
State tax benefit (137) (272)
Change of tax accounting method - 21
Deferred catalog costs (823) (1,194)
Capitalized inventory costs (3,020) (2,938)
Cash discounts (921) (818)
Other 176 204
---------- ------------
Total current (3,333) (3,263)
Noncurrent:
Deferred rent 671 488
Fixed assets (2,155) 14
Reserves 195 195
Net operating loss carryforward 1,402 2,466
Other 72 44
---------- ------------
Total noncurrent 185 3,207
---------- ------------
Total current and noncurrent $(3,148) $ (56)
========== ============
</TABLE>
At year-end 1999, the Company had unused federal tax net operating loss
carryforwards, attributable to E&B Marine, of approximately $6.2 million, which
expire in the years 2002 through 2003. The utilization of the tax loss
carryforwards may be limited in subsequent years as a result of prior ownership
changes as required under sections 381 and 382 of the Internal Revenue Code.
NOTE 8: EMPLOYEE BENEFIT PLANS
The Company has a defined contribution savings plan covering all eligible
associates. The Company matches 33% of an employee's contribution up to 5% of
the employee's annual compensation. The Company's contributions to the plan for
1999, 1998, and 1997 were $391,000, $366,000, and $330,000, respectively.
In 1998, the Company adopted SFAS 132, "Employer's Disclosures about Pensions
and Other Post-Retirement Benefits." SFAS 132 standardizes the disclosure
requirements for pensions and other post-retirement benefits to the extent
practicable.
The Company has a suspended defined benefit plan ("the Defined Benefit Plan"),
under which the minimum benefit contribution is calculated by the plan
actuaries. The Defined Benefit Plan provides an existing participant with the
excess, if any, of amounts required under the Company's pension formula over the
value of the retiree's account balance as of the date the Defined Benefit Plan
was suspended (January 28, 1994). A discount rate of 6.75% and 5.25% and a rate
of return on assets of 8% were used by the actuary in determining the Defined
Benefit Plan status at year-end 1999 and 1998, respectively. The Defined
Benefit Plan invests primarily in publicly traded stocks and bonds.
27
<PAGE>
The actuarial present value of the benefit obligations for 1999 and 1998 was (in
thousands):
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Changes in Benefit Obligation
Benefit obligation at beginning of year $ 3,892 $3,409
Interest cost 211 198
Actuarial loss (gain) (824) 326
Benefits paid (56) (41)
---------- -----------
Benefit obligation at end of year $ 3,223 $3,892
========== ===========
Change in Plan Assets
Fair value of plan assets at beginning of year $ 3,138 $2,710
Actual return on plan assets 715 469
Employer contribution - -
Benefits paid (56) (41)
---------- -----------
Fair value of plan assets at end of year $ 3,797 $3,138
========== ===========
Funded status $ 574 $ (754)
Unrecognized net actuarial gain (1,352) (61)
---------- -----------
Accrued pension liability $ (778) $ (815)
========== ===========
Components of Net Periodic Pension Cost
Interest cost $ 211 $ 198
Expected return on plan assets (248) (214)
---------- -----------
Net periodic benefit cost (income) $ (37) $ (16)
========== ===========
</TABLE>
28
<PAGE>
NOTE 9: SEGMENT INFORMATION
The Company has three divisions (Stores, Catalog, and Wholesale ("Port Supply"))
which all sell after-market recreational boating supplies directly to customers.
The customer base overlaps between its Stores and Port Supply divisions, and
between Stores and Catalog divisions. All processes for the three divisions
within the supply chain are commingled, including purchases from merchandise
vendors, distribution center activity, and customer delivery.
The Stores division qualifies as a reportable segment under SFAS 131 as it is
the only division that represents 10% or more of the combined revenue of all
operating segments when viewed on an annual basis. Segment assets are not
presented, as the Company's assets are commingled and are not available by
segment. Contribution is defined as net sales, less product costs and direct
expenses. Following is financial information related to the Company's business
segments (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
-------------- ------------------ ------------------
<S> <C> <C> <C>
Net sales:
Stores $ 395,519 $369,781 $334,623
Other 90,972 79,515 80,585
-------------- ------------------ ------------------
Consolidated net sales $ 486,491 $449,296 $415,208
-------------- ------------------ ------------------
Contribution:
Stores $ 50,184 $ 45,754 $ 49,557
Other 13,951 9,943 10,337
-------------- ------------------ ------------------
Consolidated contribution $ 64,135 $ 55,697 $ 59,894
-------------- ------------------ ------------------
Reconciliation of consolidated contribution to net income:
Consolidated contribution $ 64,135 $ 55,697 $ 59,894
Less:
Cost of goods sold not included in consolidated contribution (26,609) (28,431) (18,014)
General and administrative expenses (17,131) (15,317) (12,764)
Expenses related to distribution center move - (3,284) -
Interest expense (5,630) (6,071) (3,629)
Income tax expense (6,054) (1,496) (10,314)
-------------- ------------------- ------------------
Net income $ 8,711 $ 1,098 $ 15,173
============== =================== ==================
</TABLE>
29
<PAGE>
QUARTERLY FINANCIAL DATA
(Unaudited, in thousands, except per share data)
<TABLE>
<CAPTION>
Fiscal 1999
--------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C>
Net sales $ 93,572 $176,867 $128,888 $87,164
Gross profit 22,128 53,041 35,511 19,596
Income (loss) from operations (2,997) 19,354 6,347 (2,309)
Net income (loss) (2,778) 10,505 3,085 (2,101)
Net income (loss) per common and
common equivalent share:
Basic $ (0.16) $ 0.61 $ 0.18 $ (0.12)
Diluted $ (0.16) $ 0.60 $ 0.18 $ (0.12)
Stock trade price:
High $ 13 1/4 $ 15 1/4 $ 14 1/8 $9 1/2
Low $ 7 7/8 $ 8 $ 7 1/2 $7 9/16
</TABLE>
<TABLE>
<CAPTION>
Fiscal 1998
-------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C>
Net sales $ 84,198 $159,462 $121,673 $ 83,963
Gross profit 21,871 47,124 32,016 12,329
Income (loss) from operations (1) (4,318) 16,825 6,354 (10,196)
Net income (loss)(1) $ (3,567) $ 9,133 $ 2,929 $ (7,397)
Net income (loss) per common and
common equivalent share:
Basic $ (0.21) $ 0.54 $ 0.17 $ (0.44)
Diluted $ (0.21) $ 0.52 $ 0.17 $ (0.42)
Stock trade price:
High $ 30 1/8 $28 5/16 $ 18 7/8 $ 12
Low $21 1/16 $ 16 $ 7 3/8 $ 6 7/16
</TABLE>
1. Loss from operations and net loss for the first quarter of 1998 is net of a
$3.3 million pre-tax charge for expenses related to the distribution center
move in 1998.
West Marine, Inc. common stock trades on the NASDAQ National Market System under
the symbol WMAR.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
30
<PAGE>
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is incorporated by reference
from the Company's Definitive Proxy Statement for the 2000 Annual Meeting of
Stockholders under the captions "Election of Directors" and "Section 16(a)
Information." see also Item I above, for information about executive
officers.
ITEM 11 - EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference from the
Company's Definitive Proxy Statement for the 2000 Annual Meeting of Stockholders
under the captions "Further Information Concerning the Board of Directors" and
"Executive Compensation".
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated by reference from the
Company's Definitive Proxy Statement for the 2000 Annual Meeting of Stockholders
under the captions "Election of Directors" and "Ownership of Management and
Principal Stockholders."
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated by reference from the
Company's Definitive Proxy Statement for the 2000 Annual Meeting of Stockholders
under the caption "Executive Compensation".
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1 & 2. Independent Auditor's Report
Consolidated Balance Sheets as of year end 1999 and 1998
Consolidated Statements of Income for years 1999, 1998 and 1997
Consolidated Statements of Stockholders' Equity for years 1997,
1998, and 1999
Consolidated Statements of Cash Flows for years 1999, 1998 and
1997
Notes to Consolidated Financial Statements
Quarterly Financial Data
3. Exhibits:
See attached Exhibit Index on pages 34-36 of this Form 10-K.
(b) Reports on Form 8-K
None.
31
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Date: March 31, 2000 WEST MARINE, INC.
By: /s/ John Edmondson
------------------
John Edmondson
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 31, 2000.
Signature
Capacity
/s/ Randolph K. Repass
-------------------------------
(Randolph K. Repass)
Chairman of the Board
/s/ John Edmondson
-------------------------------
(John Edmondson)
President and Chief Executive Officer
/s/ Richard E Everett
-------------------------------
(Richard E Everett)
President of Stores Division and Chief Operating Officer
/s/ Russell Solt
-------------------------------
(Russell Solt)
Senior Vice President, Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)
/s/ James P. Curley
-------------------------------
(James P. Curley)
Director
/s/ Geoff Eisenberg
-------------------------------
(Geoff Eisenberg)
Director
/s/ Jeanne Jackson
-------------------------------
(Jeanne Jackson)
Director (resigned February, 2000)
/s/ David McComas
-------------------------------
(David McComas)
32
<PAGE>
Director
/s/ Walter Scott
-------------------------------
(Walter Scott)
Director
/s/ Henry Wendt
-------------------------------
(Henry Wendt)
Director
33
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Exhibit
Number -------
- -------
<S> <C>
2.1 Agreement and plan of merger dated as of April 2, 1996 among then
Registrant, WM Merger Sub, Inc. and E&B Marine Inc. ("E&B Marine")
(incorporated by reference to Exhibit 2.1 to Registrant's Current
Report on Form 8-K dated April 2, 1996).
2.2 Stockholders Agreement, dated as of April 2, 1996 by and between
the Registrant and certain stockholders of E&B Marine
(incorporated by reference to Exhibit 2.2 to Registrant's Current
Report of Form 8-K dated April 2, 1996).
2.3 Letter Amendment of Stockholders Agreement, dated May 10, 1996,
between the Registrant and certain stockholders of E&B Marine
(incorporated by reference to Exhibit 2.3 to the Company's
Registration Statement on Form S-4 (Registration No. 333-02903)).
3.1 Certificate of Incorporation (incorporated by reference to exhibit
3.1 to the Company's registration statement on Form S-1
(Registration No. 33-69604)).
3.2 Registrant's Bylaws (incorporated by reference to exhibit 3.2 to
the Company's registration statement on Form S-1 (Registration No.
33-69604)).
4.1 Specimen Common Stock Certificate (incorporated by reference to
exhibit 4.1 to the Company's registration statement on Form S-1
(Registration No. 33-69604)).
10.1 Credit Agreement dated as of November 2, 1995 among WMP, Bank of
America National Trust and Savings Association, Nations Bank of
Texas, National Association and the other financial institutions
party thereto (incorporated by reference to exhibit 10.1 to the
Company's Annual Report on Form 10K for the fiscal year ended
December 30, 1995).
10.1.1 Amendment to credit agreement dated February 20, 1997 among WMP,
Bank of America National Trust and Savings Association and other
financial institutions party thereto. (incorporated by reference
to exhibit 10.1.1 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 28, 1996.)
10.1.2 Second amendment to credit agreement dated March 28, 1997 among
WMP, Bank of America National Trust and Savings Association, and
other financial institutions party thereto. (incorporated by
reference to exhibit 10.1.2 in the Company's Quarterly Report on
Form 10-Q for the quarter ended March 29, 1997.)
10.1.3 Third amendment to credit agreement dated June 27, 1997 among WMP,
Bank of America National Trust and Savings Association, and other
financial institutions party thereto. (incorporated by reference
to exhibit 10.1.3 in the Company's Quarterly Report on Form 10-Q
for the quarter ended June 28, 1997.)
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
- ------- -------
<S> <C>
10.1.4 Fourth amendment to credit agreement dated September 24, 1997
among WMP, Bank of America National Trust and Savings Association,
and other financial institutions party thereto. (incorporated by
reference to exhibit 10.14 in the Company's Quarterly Report on
Form 10-Q for the quarter ended September 27, 1997.)
10.2 Guaranty entered into as of November 2, 1995 by Registrant in
favor of Bank of America National Trust and Savings Association
(incorporated by reference to exhibit 10.2 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 30, 1995).
10.3* 1990 Stock Option Plan and form of incentive stock option
agreement (incorporated by reference to exhibits 4.2 and 4.4,
respectively, to the Company's registration statement on Form S-8
(Registration No. 33-72956) ).
10.4 Form of Indemnification Agreement between the Registrant and its
directors and officers (incorporated by reference to exhibit 10.4
to the Company's registration statement on Form S-1 (Registration
No. 33-69604 )).
10.5* 1993 Omnibus Equity Incentive Plan including form of Stock Option
Agreement (incorporated by reference to exhibits 4.1 and 4.3,
respectively, to the Company's registration statement on Form S-8
(Registration No. 33-72956)).
10.6* 401(k) Plan (incorporated by reference to exhibit 10.6 to the
Company's registration statement on Form S-1 (Registration No. 33-
69604)).
10.7 Sublease Agreement dated August 31, 1992 between Holtzman's Little
Folk Shop, Inc. and WMP for the Charlotte, North Carolina
distribution facilities (incorporated by reference to exhibit 10.8
to the Company's registration statement on Form S-1 (Registration
No. 33-69604)).
10.8 Lease dated June 15, 1995 between John E. Van Valkenburgh and Carl
D. Panattoni and WMP for the Hollister, California distribution
facility (incorporated by reference to Exhibit 10.9 to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 30, 1995).
10.9 Lease dated December 20, 1985 between Randolph K. Repass and West
Marine Products, Inc. for the Palo Alto, Ca store (incorporated by
reference to exhibit 10.11 to the Company's registration statement
on Form S-1 (Registration No. 33-69604)).
10.10 Lease dated December 30, 1992 between Braintree Freeholders and
WMP for the Braintree, MA store (incorporated by reference to
exhibit 10.12 to the Company's registration statement on Form S-1
(Registration No. 33-69604)).
10.11 Lease dated July 28, 1982 between Santa Cruz Freeholders and WMP
for the Santa Cruz, CA store (incorporated by reference to exhibit
10.13 to the Company's registration statement on Form S-1
(Registration No. 33-69604)).
10.12* Nonemployee Director Stock Option Plan and form of option
agreement thereunder (incorporated by reference to exhibit 10.18
in the Company's Quarterly Report on Form 10-Q for the quarter
ended April 2, 1994).
10.14 Lease dated March 11, 1997 between W/H No. 31 L.L.C. and West
Marine Inc. for Rock Hill, South Carolina Distribution facility
and other agreements thereto (incorporated by reference to exhibit
10.14 in the Company's Quarterly Report on Form 10-Q for the
quarter ended March 29, 1997.)
</TABLE>
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<TABLE>
<CAPTION>
Exhibit
Number Exhibit
- ------- -------
<S> <C>
10.15 Lease dated June 26, 1997 between Watsonville Freeholders and West
Marine Products Inc. for the Watsonville, California offices and
other agreements thereto (incorporated by reference to exhibit
10.14 in the Company's Quarterly Report on Form 10-Q for the
quarter ended June 28, 1997.)
10.16 Note purchase agreement, dated December 23, 1997 by and between
the Registrant's wholly owned subsidiary, West Marine Finance
Company, Inc.and five insurance investors for Forty Million
Dollars ($40,000,000) of an unsecured 6.85% Senior Guaranteed Note
due December 23, 2004 (incorporated by reference to Exhibit A to
Registrant's Current Report on Form 8-K dated December 23, 1997.)
10.16.1 First Amendment to the Guaranty Agreement dated December 29, 1998
among West Marine, Inc. and other financial institutions thereto.
10.16.2 First Amendment to the Note Purchase Agreements and Second
Amendment to the Guaranty Agreement, both dated February 15, 1999
among West Marine Finance Company, Inc., West Marine, Inc., and
other financial institutions party thereto.
10.17 Credit Agreement dated as of November 24, 1997 among West Marine
Finance Company, Inc., Bank of America National Trust and Savings
Association, Nations Bank of Texas, National Association and Fleet
National Bank.
10.17.1 First Amendment to credit agreement dated April 10, 1998 among
West Marine Finance Company, Inc., Bank of America National Trust
and Savings Association, and other financial institutions party
thereto.
10.17.2 Second Amendment to credit agreement dated September 30, 1998
among West Marine Finance Company, Inc., Bank of America National
Trust and Savings Association, and other financial institutions
party thereto.
10.17.3 Third Amendment to credit agreement dated February 23, 1999 among
West Marine Finance Company, Inc., Bank of America National Trust
and Savings Association, and other financial institutions party
thereto.
10.18 Credit Agreement Dated January 13, 2000 among West Marine Finance
Company, Inc., Bank of America, N.A., Fleet National Bank and
Union Bank of California,
N.A..
21.1 List of Subsidiaries.
23.1 Consent of Deloitte & Touche LLP.
27.1 Financial Data Schedule for 1999.
__________________________
* Indicates, as required by Item 14(a)(3), a management contract
or compensatory plan required to be filed as an exhibit to this
Form 10-K.
</TABLE>
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Exhibit 10.18
TABLE OF CONTENTS
<TABLE>
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Section Page
<S> <C>
ARTICLE I............................................................................... 1
DEFINITIONS............................................................................. 1
1.01 Certain Defined Terms.............................................................. 1
1.02 Other Interpretive Provisions...................................................... 20
1.03 Accounting Principles.............................................................. 21
ARTICLE II.............................................................................. 21
THE CREDITS............................................................................. 21
2.01 Amounts and Terms of Commitments................................................... 21
2.02 Loan Accounts...................................................................... 22
2.03 Procedure for Borrowing............................................................ 22
2.04 Conversion and Continuation Elections.............................................. 23
2.05 Voluntary Termination or Reduction of Commitments.................................. 24
2.06 Optional Prepayments............................................................... 25
2.07 Cash Collateralization of L/Cs; Mandatory Prepayments of Loans..................... 25
2.08 Repayment.......................................................................... 25
2.09 Interest........................................................................... 25
2.10 Fees............................................................................... 26
(a) Arrangement Fee................................................................... 26
(b) Agency Fees....................................................................... 27
(c) Commitment Fees................................................................... 27
2.11 Computation of Fees and Interest................................................... 28
2.12 Payments by the Company............................................................ 28
2.13 Payments by the Banks to the Agent................................................. 29
2.14 Sharing of Payments, Etc........................................................... 29
2.15 Existing Offshore Rate Loans; Risk Participations.................................. 30
ARTICLE III............................................................................. 31
THE LETTERS OF CREDIT................................................................... 31
3.01 The Letter of Credit Subfacility................................................... 31
3.02 Issuance, Amendment and Renewal of Letters of Credit............................... 33
3.03 Existing Letters of Credit; Risk Participations, Drawings and Reimbursements ...... 35
3.04 Repayment of Participations........................................................ 38
3.05 Role of the Issuing Bank........................................................... 38
3.06 Obligations Absolute............................................................... 39
3.07 Cash Collateral Pledge............................................................. 40
3.08 Letter of Credit Fees.............................................................. 40
3.09 Uniform Customs and Practice....................................................... 42
3.10 Reports to Agent................................................................... 42
ARTICLE IV.............................................................................. 42
TAXES, YIELD PROTECTION AND ILLEGALITY.................................................. 42
4.01 Taxes.............................................................................. 42
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4.02 Illegality......................................................................... 43
4.03 Increased Costs and Reduction of Return ........................................... 44
4.04 Funding Losses..................................................................... 44
4.05 Inability to Determine Rates ...................................................... 45
4.06 Certificates of Banks ............................................................. 45
4.07 Substitution of Banks ............................................................. 46
4.08 Survival........................................................................... 46
ARTICLE V............................................................................... 46
CONDITIONS PRECEDENT.................................................................... 46
5.01 Conditions of Initial Credit Extensions ........................................... 46
(a) Credit Agreement.................................................................. 46
(b) Resolutions; Incumbency........................................................... 46
(c) Guaranty ......................................................................... 46
(d) Payment of Fees................................................................... 46
(e) Payment of Existing Indebtedness ................................................. 47
(f) Other Documents................................................................... 47
5.02 Conditions to All Credit Extensions ............................................... 47
(a) Notice, Application............................................................... 47
(b) Continuation of Representations and Warranties ................................... 47
(c) No Existing Default............................................................... 47
5.03 Condition Subsequent .............................................................. 48
ARTICLE VI.............................................................................. 48
REPRESENTATIONS AND WARRANTIES.......................................................... 48
6.01 Corporate Existence and Power ..................................................... 48
6.02 Corporate Authorization; No Contravention ......................................... 48
6.03 Governmental Authorization ........................................................ 49
6.04 Binding Effect..................................................................... 49
6.05 Litigation......................................................................... 49
6.06 No Default......................................................................... 49
6.07 ERISA Compliance................................................................... 49
6.08 Use of Proceeds; Margin Regulations ............................................... 50
6.09 Title to Properties................................................................ 50
6.10 Taxes.............................................................................. 50
6.11 Environmental Matters ............................................................. 51
6.12 Regulated Entities ................................................................ 51
6.13 No Burdensome Restrictions ........................................................ 51
6.14 Copyrights, Patents, Trademarks and Licenses, etc.................................. 51
6.15 Subsidiaries....................................................................... 51
6.16 Insurance.......................................................................... 51
6.17 Swap Obligations................................................................... 52
6.18 Full Disclosure.................................................................... 52
ARTICLE VII............................................................................. 52
AFFIRMATIVE COVENANTS................................................................... 52
7.01 Financial Statements .............................................................. 52
7.02 Certificates; Other Information ................................................... 53
7.03 Notices............................................................................ 54
7.04 Preservation of Corporate Existence, Etc. ......................................... 55
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7.05 Maintenance of Property ........................................................... 55
7.06 Insurance.......................................................................... 55
7.07 Payment of Obligations ............................................................ 55
7.08 Compliance with Laws .............................................................. 56
7.09 Compliance with ERISA ............................................................. 56
7.10 Inspection of Property and Books and Records ...................................... 56
7.11 Environmental Laws ................................................................ 57
7.12 Use of Proceeds.................................................................... 57
7.13 Financial Covenants................................................................ 57
7.14 New Guarantors..................................................................... 58
ARTICLE VIII............................................................................ 59
NEGATIVE COVENANTS...................................................................... 59
8.01 Limitation on Liens ............................................................... 59
8.02 Disposition of Assets ............................................................. 61
8.03 Consolidations and Mergers ........................................................ 62
8.04 Loans, Investments and Acquisitions ............................................... 62
8.05 Limitation on Indebtedness ........................................................ 63
8.06 Transactions with Non-Guarantor Subsidiaries ...................................... 64
8.07 Use of Proceeds.................................................................... 64
8.08 Contingent Obligations ............................................................ 65
8.09 Joint Ventures..................................................................... 65
8.10 Non-Hypothecation Covenant ........................................................ 65
8.11 Restricted Payments................................................................ 65
8.12 ERISA.............................................................................. 66
8.13 Change in Business ................................................................ 66
8.14 Accounting Changes ................................................................ 66
8.15 Capital Expenditures .............................................................. 66
ARTICLE IX.............................................................................. 66
EVENTS OF DEFAULT....................................................................... 66
9.01 Event of Default................................................................... 66
(a) Non-Payment....................................................................... 66
(b) Representation or Warranty........................................................ 67
(c) Specific Defaults................................................................. 67
(d) Other Defaults.................................................................... 67
(e) Cross-Default..................................................................... 67
(f) Insolvency; Voluntary Proceedings................................................. 68
(g) Involuntary Proceedings........................................................... 68
(h) ERISA ............................................................................ 68
(i) Monetary Judgments................................................................ 68
(j) Non-Monetary Judgments............................................................ 68
(k) Adverse Change.................................................................... 69
(l) Change of Control................................................................. 69
(m) Guarantor Defaults................................................................ 69
9.02 Remedies........................................................................... 69
9.03 Rights Not Exclusive .............................................................. 70
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ARTICLE X............................................................................... 70
THE AGENT............................................................................... 70
10.01 Appointment and Authorization; "Agent" ........................................... 70
10.02 Delegation of Duties ............................................................. 70
10.03 Liability of Agent ............................................................... 71
10.04 Reliance by Agent................................................................. 71
10.05 Notice of Default................................................................. 72
10.06 Credit Decision................................................................... 72
10.07 Indemnification of Agent ......................................................... 72
10.08 Agent in Individual Capacity ..................................................... 73
10.09 Successor Agent .................................................................. 73
10.10 Withholding Tax................................................................... 74
ARTICLE XI.............................................................................. 75
MISCELLANEOUS .......................................................................... 75
11.01 Amendments and Waivers ........................................................... 75
11.02 Notices........................................................................... 77
11.03 No Waiver; Cumulative Remedies ................................................... 78
11.04 Costs and Expenses................................................................ 78
11.05 Company Indemnification .......................................................... 78
11.06 Payments Set Aside ............................................................... 79
11.07 Successors and Assigns ........................................................... 79
11.08 Assignments, Participations, etc. ................................................ 79
11.09 Reallocation of Commitments in Event of Merger, Etc............................... 81
11.10 Confidentiality................................................................... 82
11.11 Set-off........................................................................... 82
11.12 Automatic Debits of Fees ......................................................... 83
11.13 Notification of Addresses, Lending Offices, Etc. ................................. 83
11.14 Counterparts...................................................................... 83
11.15 Severability...................................................................... 83
11.16 No Third Parties Benefited ....................................................... 83
11.17 Governing Law and Jurisdiction ................................................... 84
11.18 Waiver of Jury Trial ............................................................. 84
11.19 Entire Agreement.................................................................. 84
11.20 Termination of Existing Credit Agreement ......................................... 84
</TABLE>
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<PAGE>
SCHEDULES
Schedule 2.01 Commitments and Pro Rata Shares
Schedule 3.03 Existing Letters of Credit
Schedule 6.15 Subsidiaries of West Marine, Inc.
Schedule 8.01 Permitted Liens
Schedule 8.05 Permitted Indebtedness as of the Closing Date
Schedule 8.08 Contingent Liabilities as of the Closing Date
Schedule 11.02 Addresses for Notices
EXHIBITS
Exhibit A Form of Notice of Borrowing
Exhibit B Form of Notice of Conversion/Continuation
Exhibit C Form of Compliance Certificate
Exhibit D Form of Assignment and Acceptance
Exhibit E Form of Guaranty
<PAGE>
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CREDIT AGREEMENT
This CREDIT AGREEMENT is entered into as of January 13, 2000, among WEST
MARINE FINANCE COMPANY, INC., a California corporation (the "Company"), the
several financial institutions from time to time party to this Agreement
(collectively, the "Banks"; individually, a "Bank"), and BANK OF AMERICA, N.A.,
as a letter of credit issuing bank (in such capacity, an "Issuing Bank"), and as
agent for the Banks (in such capacity, the "Agent").
RECITALS
WHEREAS, The Banks have agreed to make available to the Company a revolving
credit facility with letter of credit subfacility upon the terms and conditions
set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual agreements, provisions and
covenants contained herein, the parties agree as follows:
ARTICLE I
DEFINITIONS
1.01 Certain Defined Terms. The following terms have the following
meanings:
"Acquisition" means any transaction or series of related transactions for
the purpose of or resulting, directly or indirectly, in (a) the acquisition of
all or substantially all of the assets of a Person, or of any business or
division of a Person, (b) the acquisition of in excess of 50% of the capital
stock, partnership interests, membership interests or equity of any Person, or
otherwise causing any Person to become a Subsidiary, or (c) a merger or
consolidation or any other combination with another Person (other than a Person
that is a Subsidiary) provided that the Parent or the Subsidiary is the
surviving entity.
"Affiliate" means, as to any Person, any other Person which, directly or
indirectly, is in control of, is controlled by, or is under common control with,
such Person. A Person shall be deemed to control another Person if the
controlling Person possesses, directly or indirectly, the power to direct or
cause the direction of the management and policies of the other Person, whether
through the ownership of voting securities, membership interests, by contract,
or otherwise.
"Agent" means BofA in its capacity as agent for the Banks hereunder, and
any successor agent arising under Section 10.09.
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"Agent-Related Persons" means BofA and any successor agent arising under
Section 10.09, together with their respective Affiliates, and the officers,
directors, employees, agents and attorneys-in-fact of such Persons and
Affiliates.
"Agent's Payment Office" means the address for payments set forth on
Schedule 11.02 or such other address as the Agent may from time to time specify.
"Agreement" means this Credit Agreement.
"Applicable Margin" means
(i) with respect to Base Rate Loans, zero
(ii) with respect to Offshore Rate Loans, the Applicable
Offshore Rate Margin.
"Applicable Offshore Rate Margin" means
(i) between the date of this Agreement and the earlier of (A)
the date of receipt by Banks and Agent of the financial statements required
under Section 7.01(b) for the second fiscal quarter of 2000, or (B) August 15,
2000, 1.50%; and
(ii) at all times that clause (i) is not applicable, the
percentage determined as set forth below:
(A) on and after the fifteenth day following receipt by
Banks and Agent of the financial statements required under Section 7.01(a) and
(b), which financial statements reflect a Funded Debt to EBITDA ratio which is
higher than 2.25:1 for the most recently concluded fiscal quarter, 2.25%;
(B) on and after the fifteenth day following receipt by
Banks and Agent of the financial statements required under Section 7.01(a) and
(b), which financial statements reflect a Funded Debt to EBITDA Ratio which is
higher than 2.00:1, but not higher than 2.25:1, for the most recently concluded
fiscal quarter, 2.00%;
(C) on and after the fifteenth day following receipt by
Banks and Agent of the financial statements required under Section 7.01(a) and
(b), which financial statements reflect a Funded Debt to EBITDA Ratio which is
higher than 1.75:1, but not higher than 2.00:1, for the most recently concluded
fiscal quarter, 1.75%;
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(D) on and after the fifteenth day following receipt by
Banks and Agent of the financial statements required under Section 7.01(a) and
(b), which financial statements reflect a Funded Debt to EBITDA Ratio which is
higher than 1.50:1, but not higher than 1.75:1, for the most recently concluded
fiscal quarter, 1.50%;
(E) on and after the fifteenth day following receipt by
Banks and Agent of the financial statements required under Section 7.01(a) and
(b), which financial statements reflect a Funded Debt to EBITDA Ratio which is
higher than 1.25:1, but not higher than 1.50:1, for the most recently concluded
fiscal quarter, 1.25%;
(F) on and after the fifteenth day following receipt by
Banks and Agent of the financial statements required under Section 7.01(a) and
(b), which financial statements reflect a Funded Debt to EBITDA Ratio which is
1.25:1 or lower for the most recently concluded fiscal quarter, 1.00%;
(G) on and after the fifteenth day following the Company's
failure to deliver to Banks and Agent the financial statements required under
Section 7.01(a) and (b) within the time periods set forth therein, and until the
fifteenth day following receipt by Bank and Agent of such financial statements
(at which time subpart (A) (B), (C), (D), (E) or (F) above shall become
applicable), 2.25%.
"Assignee" has the meaning specified in Section 11.08(a).
"Attorney Costs" means and includes all fees and disbursements of any law
firm or other external counsel, the allocated cost of internal legal services
and all disbursements of internal counsel.
"Bank" has the meaning specified in the introductory clause hereto.
References to the "Bank" shall include BofA in its capacity as Issuing Bank; for
purposes of clarification only, to the extent that BofA may have any rights or
obligations in addition to those of the Banks due to its status as Issuing Bank,
its status as such will be specifically referenced.
"Bankruptcy Code" means the Federal Bankruptcy Reform Act of 1978 (11
U.S.C. (S)101, et seq.).
"Base Rate" means, for any day, the higher of: (a) 0.50% per annum above
the latest Federal Funds Rate; and (b) the rate
<PAGE>
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of interest in effect for such day as publicly announced from time to time by
BofA as its "prime rate." (The "prime rate" is a rate set by BofA based upon
various factors including BofA's costs and desired return, general economic
conditions and other factors, and is used as a reference point for pricing some
loans, which may be priced at, above, or below such announced rate. Any change
in the prime rate announced by BofA shall take effect at the opening of business
on the day specified in the public announcement of such change.)
"Base Rate Loan" means a Revolving Loan, or an L/C Advance, that bears
interest based on the Base Rate.
"BofA" means Bank of America, N.A., a national banking association.
"Borrowing" means a borrowing hereunder consisting of Revolving Loans of
the same Type made to the Company on the same day by the Banks under Article II,
and, other than in the case of Base Rate Loans, having the same Interest Period.
"Borrowing Date" means any date on which a Borrowing occurs under Section
2.03.
"Business Day" means any day other than a Saturday, Sunday or other day on
which commercial banks in New York City or San Francisco are authorized or
required by law to close and, if the applicable Business Day relates to any
Offshore Rate Loan, means such a day on which dealings are carried on in the
applicable offshore dollar interbank market.
"Capital Adequacy Regulation" means any guideline, request or directive of
any central bank or other Governmental Authority, or any other law, rule or
regulation, whether or not having the force of law, in each case, regarding
capital adequacy of any bank or of any corporation controlling a bank.
"Cash Collateralize" means to pledge and deposit with or deliver to the
Agent, for the benefit of the Agent, the Issuing Bank and the Banks, as
collateral for the L/C Obligations, cash or deposit account balances pursuant to
documentation in form and substance satisfactory to the Agent and the Issuing
Bank (which documents are hereby consented to by the Banks). Derivatives of such
term shall have corresponding meaning. The Company hereby grants the Agent, for
the benefit of the Agent, the Issuing Bank and the Banks, a security interest in
all such cash and deposit account balances. Cash collateral shall be maintained
in blocked, interest bearing deposit accounts at BofA.
"Closing Date" means the date on which all conditions precedent set forth
in Section 5.01 are satisfied or waived by all Banks (or, in the case of Section
5.01(f), waived by the
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Person entitled to receive such payment).
"Code" means the Internal Revenue Code of 1986, and regulations promulgated
thereunder.
"Commercial Letter of Credit Fee" means .25%.
"Commitment", as to each Bank, has the meaning specified in Section 2.01.
"Compliance Certificate" means a certificate substantially in the form of
Exhibit C.
"Contingent Obligation" means, without duplication as to any Person, any
direct or indirect liability of that Person, with or without recourse, (a) with
respect to any Indebtedness, lease, dividend, letter of credit or other
obligation (the "primary obligations") of another Person (the "primary
obligor"), including any obligation of that Person (i) to purchase, repurchase
or otherwise acquire such primary obligations or any security therefor, (ii) to
advance or provide funds for the payment or discharge of any such primary
obligation, or to maintain working capital or equity capital of the primary
obligor or otherwise to maintain the net worth or solvency or any balance sheet
item, level of income or financial condition of the primary obligor, (iii) to
purchase property, securities or services primarily for the purpose of assuring
the owner of any such primary obligation of the ability of the primary obligor
to make payment of such primary obligation, or (iv) otherwise to assure or hold
harmless the holder of any such primary obligation against loss in respect
thereof (each, a "Guaranty Obligation");
(b) with respect to any Surety Instrument issued for the account of
that Person or as to which that Person is otherwise liable for reimbursement of
drawings or payments; (c) to purchase any materials, supplies or other property
from, or to obtain the services of, another Person if the relevant contract or
other related document or obligation requires that payment for such materials,
supplies or other property, or for such services, shall be made regardless of
whether delivery of such materials, supplies or other property is ever made or
tendered, or such services are ever performed or tendered, or (d) in respect of
any Swap Contract. The amount of any Contingent Obligation shall, in the case of
Guaranty Obligations, be deemed equal to the stated or determinable amount of
the primary obligation in respect of which such Guaranty Obligation is made or,
if not stated or if indeterminable, the reasonably anticipated liability in
respect thereof, and in the case of other Contingent Obligations other than in
respect of Swap Contracts, shall be equal to the reasonably anticipated
liability in respect thereof and, in the case of Contingent Obligations in
respect of Swap Contracts, shall be equal to the Swap Termination Value.
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"Contractual Obligation" means, as to any Person, any provision of any
security issued by such Person or of any agreement, undertaking, contract,
indenture, mortgage, deed of trust or other instrument, document or agreement to
which such Person is a party or by which it or any of its property is bound.
"Conversion/Continuation Date" means any date on which, under Section 2.04,
the Company (a) converts Loans of one Type to another Type, or (b) continues as
Loans of the same Type, but with a new Interest Period, Loans having Interest
Periods expiring on such date.
"Credit Extension" means and includes (a) the making of any Revolving Loans
hereunder (including the Existing Offshore Rate Loans), and (b) the Issuance of
any Letters of Credit hereunder (including the Existing Letters of Credit).
"Default" means any event or circumstance which, with the giving of notice,
the lapse of time, or both, would (if not cured or otherwise remedied during
such time) constitute an Event of Default.
"Dollars", "dollars" and "$" each mean lawful money of the United States.
"EBITDA" has the meaning specified in Section 7.13(a).
"Effective Amount" means (i) with respect to any Revolving Loans on any
date, the aggregate outstanding principal amount thereof after giving effect to
any Borrowings and prepayments or repayments of Revolving Loans occurring on
such date; and (ii) with respect to any outstanding L/C Obligations on any date,
the amount of such L/C Obligations on such date after giving effect to any
Issuances of Letters of Credit occurring on such date and any other changes in
the aggregate amount of the L/C Obligations as of such date, including as a
result of any reimbursements of outstanding unpaid drawings under any Letters of
Credit or any reductions in the maximum amount available for drawing under
Letters of Credit taking effect on such date.
"Eligible Assignee" means (a) a commercial bank organized under the laws of
the United States, or any state thereof, and having a combined capital and
surplus of at least $100,000,000; (b) a commercial bank organized under the laws
of any other country which is a member of the Organization for Economic
Cooperation and Development (the "OECD"), or a political subdivision of any such
country, and having a combined capital and surplus of at least $100,000,000,
provided that such bank is acting through a branch or agency located in the
United States; and (c) a Person that is primarily engaged in the business of
commercial banking and that is (i) a Subsidiary of a Bank, (ii) a Subsidiary of
a Person of which a Bank is a Subsidiary, or (iii)
<PAGE>
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a Person of which a Bank is a Subsidiary. "Environmental Claims" means all
claims, however asserted, by any Governmental Authority or other Person alleging
potential liability or responsibility for violation of any Environmental Law, or
for release or injury to the environment.
"Environmental Laws" means all federal, state or local laws, statutes,
common law duties, rules, regulations, ordinances and codes, together with all
administrative orders, directed duties, requests, licenses, authorizations and
permits of, and agreements with, any Governmental Authorities, in each case
relating to environmental, health, safety and land use matters.
"ERISA" means the Employee Retirement Income Security Act of 1974, and
regulations promulgated thereunder.
"ERISA Affiliate" means any trade or business (whether or not incorporated)
under common control with the Company within the meaning of Section 414(b) or
(c) of the Code (and Sections 414(m) and (o) of the Code for purposes of
provisions relating to Section 412 of the Code).
"ERISA Event" means (a) a Reportable Event with respect to a Pension Plan;
(b) a withdrawal by the Company or any ERISA Affiliate from a Pension Plan
subject to Section 4063 of ERISA during a plan year in which it was a
substantial employer (as defined in Section 4001(a)(2) of ERISA) or a cessation
of operations which is treated as such a withdrawal under Section 4062(e) of
ERISA; (c) a complete or partial withdrawal by the Company or any ERISA
Affiliate from a Multiemployer Plan or notification that a Multiemployer Plan is
in reorganization; (d) the filing of a notice of intent to terminate, the
treatment of a Plan amendment as a termination under Section 4041 or 4041A of
ERISA, or the commencement of proceedings by the PBGC to terminate a Pension
Plan or Multiemployer Plan; (e) an event or condition which might reasonably be
expected to constitute grounds under Section 4042 of ERISA for the termination
of, or the appointment of a trustee to administer, any Pension Plan or
Multiemployer Plan; or (f) the imposition of any liability under Title IV of
ERISA, other than PBGC premiums due but not delinquent under Section 4007 of
ERISA, upon the Company or any ERISA Affiliate.
"Eurodollar Reserve Percentage" has the meaning specified in the definition
of "Offshore Rate".
"Event of Default" means any of the events or circumstances specified in
Section 9.01.
"Exchange Act" means the Securities Exchange Act of 1934, and regulations
promulgated thereunder.
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"Existing Credit Agreement" means that certain Credit Agreement dated
November 24, 1997, as amended to date, among the Company, BofA, as a bank and
issuing bank thereunder, Fleet, as a bank and issuing bank thereunder, and BofA,
as agent for such banks.
"Existing Letters of Credit" means the letters of credit issued pursuant to
the Existing Credit Agreement and more particularly described in Schedule 3.03.
"Existing Offshore Rate Loans" means the Offshore Rate Loans outstanding
under (and as defined in) the Existing Credit Agreement.
"FDIC" means the Federal Deposit Insurance Corporation, and any
Governmental Authority succeeding to any of its principal functions.
"Federal Funds Rate" means, for any day, the rate set forth in the weekly
statistical release designated as H.15(519), or any successor publication,
published by the Federal Reserve Bank of New York (including any such successor,
"H.15(519)") on the preceding Business Day opposite the caption "Federal Funds
(Effective)"; or, if for any relevant day such rate is not so published on any
such preceding Business Day, the rate for such day will be the arithmetic mean
as determined by the Agent of the rates for the last transaction in overnight
Federal funds arranged prior to 9:00 a.m. (San Francisco time) on that day by
each of three leading brokers of Federal funds transactions in New York City
selected by the Agent.
"Fee Letter" has the meaning specified in Section 2.10(a).
"Fixed Charge Coverage Ratio" has the meaning specified in Section 7.13(b).
"Fleet" means Fleet National Bank, a national banking association.
"FRB" means the Board of Governors of the Federal Reserve System, and any
Governmental Authority succeeding to any of its principal functions.
"Funded Debt" has the meaning specified in Section 7.13(a).
"Funded Debt to EBITDA Ratio" means the ratio of Funded Debt to EBITDA
calculated as set forth in Section 7.13(a).
"Further Taxes" means any and all present or future taxes, levies,
assessments, imposts, duties, deductions, fees, withholdings or similar charges
(including, without limitation,
<PAGE>
-9-
net income taxes and franchise taxes), and all liabilities with respect thereto,
imposed by any jurisdiction on account of amounts payable or paid pursuant to
Section 4.01.
"GAAP" means generally accepted accounting principles set forth from time
to time in the opinions and pronouncements of the Accounting Principles Board
and the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board (or agencies with
similar functions of comparable stature and authority within the U.S. accounting
profession), which are applicable to the circumstances as of the date of
determination.
"Governmental Authority" means any nation or government, any state or other
political subdivision thereof, any central bank (or similar monetary or
regulatory authority) thereof, any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government,
and any corporation or other entity owned or controlled, through stock or
capital ownership or otherwise, by any of the foregoing.
"Guarantors" means the Parent, West Marine Products, Inc., a California
corporation, E&B Marine Inc., a Delaware corporation, E&B Marine Supply, Inc., a
Maryland corporation, E&B Marine Supply, Inc., a New Jersey corporation, E&B
Marine Supply (Florida), Inc., a Delaware corporation, Goldbergs' Marine
Distributors, Inc., a Delaware corporation, James Bliss & Co., Inc., a
Massachusetts corporation, Sea Ranger Marine Inc., a Delaware corporation,
Krista Corporation, a Delaware corporation, Central Marine Supply, Inc., a New
Jersey corporation, West Marine LBC, Inc., a California corporation, West Marine
IHC I, Inc., a California corporation, West Marine IHC II, Inc., a California
corporation, E&B Marine LBC, Inc., a California corporation, E&B Marine IHC I,
Inc., a California corporation, E&B Marine IHC II, Inc., a California
corporation, W Marine Management Company, Inc., a California corporation, West
Marine Puerto Rico, Inc., a California corporation, and any other Person who
becomes a Guarantor from time to time in accordance with Section 7.14
(individually, a "Guarantors").
"Guaranty" means a guaranty in the form of Exhibit F executed by Guarantors
in support of the Obligations.
"Guaranty Obligation" has the meaning specified in the definition of
"Contingent Obligation."
"Honor Date" has the meaning specified in Section 3.03(c).
"Indebtedness" of any Person means, without duplication, (a) all
indebtedness for borrowed money; (b) all obligations issued, undertaken or
assumed as the deferred purchase price of property or services (other than trade
payables and accrued
<PAGE>
-10-
expenses entered into in the ordinary course of business on ordinary terms); (c)
all non-contingent reimbursement or payment obligations with respect to Surety
Instruments; (d) all obligations evidenced by notes, bonds, debentures or
similar instruments, including obligations so evidenced incurred in connection
with the acquisition of property, assets or businesses; (e) all indebtedness
created or arising under any conditional sale or other title retention
agreement, or incurred as financing, in either case with respect to property
acquired by the Person (even though the rights and remedies of the seller or
bank under such agreement in the event of default are limited to repossession or
sale of such property); (f) all obligations with respect to capital leases; (g)
all indebtedness referred to in clauses (a) through (f) above secured by (or for
which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any Lien upon or in property (including accounts
and contracts rights) owned by such Person, even though such Person has not
assumed or become liable for the payment of such Indebtedness; and (h) all
Guaranty Obligations in respect of indebtedness or obligations of others of the
kinds referred to in clauses (a) through (g) above. For all purposes of this
Agreement, the Indebtedness of any Person shall include all recourse
Indebtedness of any partnership or joint venture or limited liability company in
which such Person is a general partner or a joint venturer or a member, provided
such Person is liable for such recourse Indebtedness.
"Indemnified Liabilities" has the meaning specified in Section 11.05.
"Indemnified Person" has the meaning specified in Section 11.05.
"Independent Auditor" has the meaning specified in Section 7.01(a).
"Insolvency Proceeding" means, with respect to any Person, (a) any case,
action or proceeding with respect to such Person before any court or other
Governmental Authority relating to bankruptcy, reorganization, insolvency,
liquidation, receivership, dissolution, winding-up or relief of debtors, or (b)
any general assignment for the benefit of creditors, composition, marshalling of
assets for creditors, or other, similar arrangement in respect of its creditors
generally or any substantial portion of, its creditors; undertaken under U.S.
Federal, state or foreign law, including the Bankruptcy Code. "Interest Payment
Date" means, as to any Loan other than a Base Rate Loan, the last day of each
Interest Period applicable to such Loan and, as to any Base Rate Loan, the last
Business Day of each calendar quarter, provided, however, that if any Interest
Period for an Offshore Rate Loan exceeds three months, the date
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that falls three months after the beginning of such Interest Period and after
each Interest Payment Date thereafter is also an Interest Payment Date.
"Interest Period" means, as to any Offshore Rate Loan, the period
commencing on the Borrowing Date of such Loan or on the Conversion/Continuation
Date on which the Loan is converted into or continued as an Offshore Rate Loan,
and ending on the date 7, 14 or 21 days or one, two, three or six months
thereafter (and any other period that is 12 months or less and is consented to
by all Banks in the given instance) as selected by the Company in its Notice of
Borrowing or Notice of Conversion/Continuation; provided that:
(i) if any Interest Period would otherwise end on a day that is
not a Business Day, that Interest Period shall be extended to the following
Business Day unless, in the case of an Offshore Rate Loan, the result of such
extension would be to carry such Interest Period into another calendar month, in
which event such Interest Period shall end on the preceding Business Day;
(ii) any Interest Period pertaining to an Offshore Rate Loan
that begins on the last Business Day of a calendar month (or on a day for which
there is no numerically corresponding day in the calendar month at the end of
such Interest Period) shall end on the last Business Day of the calendar month
at the end of such Interest Period; and
(iii) no Interest Period for any Loan shall extend beyond the
Revolving Termination Date.
"IRS" means the Internal Revenue Service, and any Governmental Authority
succeeding to any of its principal functions under the Code.
"Issuance Date" has the meaning specified in Section 3.01(a).
"Issue" means, with respect to any Letter of Credit, to incorporate the
Existing Letters of Credit into this Agreement, or to issue or to extend the
expiry of, or to renew or increase the amount of, such Letter of Credit; and the
terms "Issued," if
"Issuing" and "Issuance" have corresponding meanings.
"Issuing Bank" means BofA in its capacity as issuer of one or more Letters
of Credit hereunder, together with any replacement letter of credit issuer
arising under Section 10.01(b) or Section 10.09.
"Joint Venture" means a partnership, limited liability
<PAGE>
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company, joint venture or other similar legal arrangement (whether created by
contract or conducted through a separate legal entity) now or hereafter formed
by the Company, the Parent or any Subsidiary with another Person in order to
conduct a common venture or enterprise with such Person.
"L/C Advance" means each Bank's participation in any L/C Borrowing in
accordance with its Pro Rata Share.
"L/C Amendment Application" means an application form for amendment of
outstanding standby or commercial documentary letters of credit as shall at any
time be in use at the Issuing Bank, as the Issuing Bank shall request.
"L/C Application" means an application form for issuances of standby or
commercial documentary letters of credit as shall at any time be in use at the
Issuing Bank, as the Issuing Bank shall request.
"L/C Borrowing" means an extension of credit resulting from a drawing under
any Letter of Credit which shall not have been reimbursed on the date when made
nor converted into a Borrowing of Revolving Loans under Section 3.03(c).
"L/C Commitment" means the commitment of the Issuing Bank to Issue, and the
commitment of the Banks severally to participate in, Letters of Credit
(including the Existing Letters of Credit) from time to time Issued or
outstanding under Article III, in an aggregate amount not to exceed on any date
the amount of $20,000,000 (of which up to $15,000,000 shall be available for the
issuance of commercial documentary Letters of Credit and up to $5,000,000 shall
be available for the issuance of standby Letters of Credit), as the same shall
be reduced as a result of a reduction in the L/C Commitment pursuant to Section
2.05; provided that the L/C Commitment is a part of the combined Commitments,
rather than a separate, independent commitment. "L/C Obligations" means at any
time the sum of (a) the aggregate undrawn amount of all Letters of Credit then
outstanding, plus (b) the amount of all unreimbursed drawings under all Letters
of Credit, including all outstanding L/C Borrowings.
"L/C-Related Documents" means the Letters of Credit, the L/C Applications,
the L/C Amendment Applications and any other document relating to any Letter of
Credit, including any of the Issuing Bank's standard form documents for letter
of credit issuances.
"Lending Office" means, as to any Bank, the office or offices of such Bank
specified as its "Lending Office" or
"Domestic Lending Office" or "Offshore Lending Office", as the
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case may be, on Schedule 11.02, or such other office or offices as such Bank may
from time to time notify the Company and the Agent.
"Letters of Credit" means the Existing Letters of Credit and any letters of
credit (whether standby letters of credit or commercial documentary letters of
credit) Issued by the Issuing Bank pursuant to Article III.
"Lien" means any security interest, mortgage, deed of trust, pledge,
hypothecation, assignment, charge or deposit arrangement, encumbrance, lien
(statutory or other) or preferential arrangement of any kind or nature
whatsoever in respect of any property (including those created by, arising under
or evidenced by any conditional sale or other title retention agreement, the
interest of a lessor under a capital lease, any financing lease having
substantially the same economic effect as any of the foregoing, or the filing of
any financing statement naming the owner of the asset to which such lien relates
as debtor, under the Uniform Commercial Code or any comparable law), but not
including the interest of a lessor under an operating lease.
"Loan" means an extension of credit by a Bank to the Company under Article
II or Article III in the form of a Revolving Loan or L/C Advance.
"Loan Documents" means this Agreement, the Fee Letter, the L/C-Related
Documents, and all other documents delivered to the Agent or any Bank in
connection herewith.
"Majority Banks" means (a) as of any date of determination if the
Commitments are then in effect, at least two Banks having in the aggregate 66-
2/3% or more of the combined Commitments then in effect and (b) as of any date
of determination if the Commitments have then been terminated and there are
Loans or Letters of Credit outstanding, Banks holding Loans and L/C Obligations
aggregating 66-2/3% or more of the aggregate outstanding amount of such Loans
and L/C Obligations.
"Margin Stock" means "margin stock" as such term is defined in Regulation
G, T, U or X of the FRB.
"Material Adverse Effect" means (a) a material adverse change in, or a
material adverse effect upon, the operations, business, properties, condition
(financial or otherwise) or prospects of the Company or the Parent or the Parent
and its Subsidiaries taken as a whole; (b) a material impairment of the ability
of the Company or any Guarantor to perform under any Loan Document and to avoid
any Event of Default; or (c) a material adverse effect upon the legality,
validity, binding effect or enforceability against the Company or any Guarantor
of any Loan
<PAGE>
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Document.
"Multiemployer Plan" means a "multiemployer plan", within the meaning of
Section 4001(a)(3) of ERISA, to which the Company or any ERISA Affiliate makes,
is making, or is obligated to make contributions or, during the preceding three
calendar years, has made, or been obligated to make, contributions.
"Net Interest Expense" has the meaning specified in Section 7.13(b).
"Notice of Borrowing" means a notice in substantially the form of Exhibit
A.
"Notice of Conversion/Continuation" means a notice in substantially the
form of Exhibit B.
"Obligations" means all advances, debts, liabilities, obligations,
covenants and duties arising under any Loan Document owing by the Company to any
Bank, the Issuing Bank, the Agent, or any Indemnified Person, whether direct or
indirect (including those acquired by assignment), absolute or contingent, due
or to become due, now existing or hereafter arising.
"Offshore Business Day" means a day on which dealings in deposits
denominated in Dollars are carried out by BofA's Grand Cayman banking center (or
such other office as may be designated for such purpose by BofA or the Agent),
and which is also a Business Day.
"Offshore Rate" means, for any Interest Period, with respect to Offshore
Rate Loans comprising part of the same Borrowing, the rate of interest per annum
determined by the Agent as follows:
Offshore Rate = LIBOR
1.00 - Eurodollar Reserve Percentage
Where,
"Eurodollar Reserve Percentage" means for any day for any Interest Period
the maximum reserve percentage (expressed as a decimal) in effect on such day
under regulations issued from time to time by the FRB for determining the
maximum reserve requirement (including any emergency, supplemental or other
marginal reserve requirement) with respect to Eurocurrency funding (currently
referred to as "Eurocurrency liabilities"); and
"LIBOR" means (i) the rate of interest per annum that appears on page 3750
of the Dow Jones Telerate Screen (or any successor page) for U.S. dollar
deposits with a
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maturity comparable to the Interest Period of the applicable Offshore Rate Loan,
determined as of 11:00 a.m. (London time) on the date which is two Business Days
prior to the commencement of such Interest Period; or (ii) if such rate does not
appear on page 3750 of the Dow Jones Telerate Screen (or any successor page),
the rate of interest per annum determined by the Agent in good faith as the rate
at which U.S. dollar deposits in the approximate amount of the Offshore Rate
Loan, and having a maturity comparable to such Interest Period, would be offered
by BofA to major banks in the London eurocurrency market at approximately 11:00
a.m. (London time) two Business Days prior to the commencement of such Interest
Period. The Offshore Rate shall be adjusted automatically as to all Offshore
Rate Loans then outstanding as of the effective date of any change in the
Eurodollar Reserve Percentage.
"Offshore Rate Loan" means a Loan that bears interest based on the Offshore
Rate.
"Organization Documents" means, for any corporation, the certificate or
articles of incorporation, the bylaws, any certificate of determination or
instrument relating to the rights of preferred shareholders of such corporation,
any shareholder rights agreement, and all applicable resolutions of the board of
directors (or any committee thereof) of such corporation.
"Other Taxes" means any present or future stamp, court or documentary taxes
or any other excise or property taxes, charges or similar levies which arise
from any payment made hereunder or from the execution, delivery, performance,
enforcement or registration of, or otherwise with respect to, this Agreement or
any other Loan Documents.
"Parent" means West Marine, Inc., a Delaware corporation.
"Participant" has the meaning specified in Section 11.08(d).
"PBGC" means the Pension Benefit Guaranty Corporation, or any Governmental
Authority succeeding to any of its principal functions under ERISA.
"Pension Plan" means a pension plan (as defined in Section 3(2) of ERISA)
subject to Title IV of ERISA which the Company or the Parent or any Subsidiary
sponsors, maintains, or to which it makes, is making, or is obligated to make
contributions, or in the case of a multiple employer plan (as described in
Section 4064(a) of ERISA) has made contributions at any time during the
immediately preceding five (5) plan years.
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"Permitted Liens" has the meaning specified in Section 8.01.
"Permitted Swap Obligations" means all obligations (contingent or
otherwise) of the Company, the Parent or any Subsidiary existing or arising
under Swap Contracts, provided that each of the following criteria is satisfied:
(a) such obligations are (or were) entered into by such Person in the ordinary
course of business for the purpose of directly mitigating risks associated with
liabilities, commitments or assets held by such Person, or changes in the value
of securities issued by such Person in conjunction with a securities repurchase
program not otherwise prohibited hereunder, and not for purposes of speculation
or taking a "market view;" and (b) such Swap Contracts do not contain any
provision ("walk-away" provision) exonerating the non-defaulting party from its
obligation to make payments on outstanding transactions to the defaulting party.
"Person" means an individual, partnership, corporation, limited liability
company, business trust, joint stock company, trust, unincorporated association,
joint venture or Governmental Authority.
"Plan" means an employee benefit plan (as defined in Section 3(3) of ERISA)
which the Company or the Parent or any Subsidiary sponsors or maintains or to
which the Company or the Parent or any Subsidiary makes, is making, or is
obligated to make contributions and includes any Pension Plan.
"Pro Rata Share" means, as to any Bank at any time, the percentage
equivalent (expressed as a decimal, rounded to the ninth decimal place) at such
time of such Bank's Commitment divided by the combined Commitments of all Banks.
"Reportable Event" means, any of the events set forth in Section 4043(c) of
ERISA or the regulations thereunder, other than any such event for which the 30-
day notice requirement under ERISA has been waived in regulations issued by the
PBGC.
"Rents" has the meaning specified in Section 7.13(b).
"Requisite Notice" means, unless otherwise provided herein, (a) irrevocable
written notice to the intended recipient or (b) except with respect to an action
relating to a Letter of Credit hereunder (which must be in writing), irrevocable
telephonic notice to the intended recipient, promptly followed by a written
notice to such recipient. Such notices shall be (i) delivered to such recipient
at the address or telephone number specified on Schedule 11.02 or as otherwise
designated by such recipient by Requisite Notice to the Agent, and (ii) if made
by the Company or any Guarantor, given or made by a Responsible Officer of such
Person. Any written notice delivered in connection with any Loan
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Document shall be in the form, if any, prescribed herein or therein. Any notice
sent by other than hardcopy shall be promptly confirmed by a telephone call to
the recipient and, if requested by the Agent, by a manually-signed hardcopy
thereof.
"Requirement of Law" means, as to any Person, any law (statutory or
common), treaty, rule or regulation or determination of an arbitrator or of a
Governmental Authority, in each case applicable to or binding upon the Person or
any of its property or to which the Person or any of its property is subject.
"Responsible Officer" means the chief executive officer or the president of
the Company, the Parent, or any Subsidiary, or any other officer having
substantially the same authority and responsibility; or, with respect to
compliance with financial covenants, the chief financial officer or the
treasurer of the Company, the Parent, or any Subsidiary, or any other officer
having substantially the same authority and responsibility.
"Revolving Loan" has the meaning specified in Section 2.01, and may be a
Base Rate Loan or an Offshore Rate Loan (each, a "Type" of Revolving Loan).
"Revolving Termination Date" means the earlier to occur of:
(a) January 2, 2003; and
(b) the date on which the Commitments terminate in accordance with the
provisions of this Agreement.
"SEC" means the Securities and Exchange Commission, or any Governmental
Authority succeeding to any of its principal functions.
"Spot Rate" for a currency means the rate quoted by BofA as the spot rate
for the purchase by BofA of such currency with another currency through its FX
Trading Office at approximately 9:00 a.m. (San Francisco time) on the date two
Offshore Business Days prior to the date as of which the foreign exchange
computation is made.
"Standby Letter of Credit Fee" means
(i) between the date of this Agreement and the earlier of (A)
the date of receipt by Banks and Agent of the financial statements required
under Section 7.01(b) for the second fiscal quarter of 2000, or (B) August 15,
2000, 1.50%; and
(ii) at all times that clause (i) is not applicable, the
percentage determined as set forth below:
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(A) on and after the fifteenth day following receipt by Banks and Agent of
the financial statements required under Section 7.01(a) and (b), which financial
statements reflect a Funded Debt to EBITDA ratio which is higher than 2.25:1 for
the most recently concluded fiscal quarter, 2.25%;
(B) on and after the fifteenth day following receipt by Banks and Agent of
the financial statements required under Section 7.01(a) and (b), which financial
statements reflect a Funded Debt to EBITDA Ratio which is higher than 2.00:1,
but not higher than 2.25:1, for the most recently concluded fiscal quarter,
2.00%;
(C) on and after the fifteenth day following receipt by Banks and Agent of
the financial statements required under Section 7.01(a) and (b), which financial
statements reflect a Funded Debt to EBITDA Ratio which is higher than 1.75:1,
but not higher than 2.00:1, for the most recently concluded fiscal quarter,
1.75%;
(D) on and after the fifteenth day following receipt by Banks and Agent of
the financial statements required under Section 7.01(a) and (b), which financial
statements reflect a Funded Debt to EBITDA Ratio which is higher than 1.50:1,
but not higher than 1.75:1, for the most recently concluded fiscal quarter,
1.50%;
(E) on and after the fifteenth day following receipt by Banks and Agent of
the financial statements required under Section 7.01(a) and (b), which financial
statements reflect a Funded Debt to EBITDA Ratio which is higher than 1.25:1,
but not higher than 1.50:1, for the most recently concluded fiscal quarter,
1.25%;
(F) on and after the fifteenth day following receipt by Banks and Agent of
the financial statements required under Section 7.01(a) and (b), which financial
statements reflect a Funded Debt to EBITDA Ratio which is 1.25:1 or lower for
the most recently concluded fiscal quarter, 1.00%;
(G) on and after the fifteenth day following the Company's failure to
deliver to Banks and Agent the financial statements required under Section
7.01(a) and (b) within the time periods set forth therein, and until the
fifteenth day following receipt
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by Bank and Agent of such financial statements (at which time subpart (A) (B),
(C), (D), (E) or (F) above shall become applicable), 2.25%.
"Subsidiary" of a Person means any corporation, association, partnership,
limited liability company, joint venture or other business entity of which more
than 50% of the voting stock, membership interests or other equity interests (in
the case of Persons other than corporations), is owned or controlled directly or
indirectly by the Person, or one or more of the Subsidiaries of the Person, or a
combination thereof. Unless the context otherwise clearly requires, references
herein to a "Subsidiary" refer to a Subsidiary of the Parent (including the
Company).
"Surety Instruments" means all letters of credit (including standby and
commercial), banker's acceptances, bank guaranties, shipside bonds, surety bonds
and similar instruments.
"Swap Contract" means any agreement, whether or not in writing, relating to
any transaction that is a rate swap, basis swap, forward rate transaction,
commodity swap, commodity option, equity or equity index swap or option, bond,
note or bill option, interest rate option, forward foreign exchange transaction,
cap, collar or floor transaction, currency swap, cross-currency rate swap,
swaption, currency option or any other, similar transaction (including any
option to enter into any of the foregoing) or any combination of the foregoing,
and, unless the context otherwise clearly requires, any master agreement
relating to or governing any or all of the foregoing.
"Swap Termination Value" means, in respect of any one or more Swap
Contracts, after taking into account the effect of any legally enforceable
netting agreement relating to such Swap Contracts, (a) for any date on or after
the date such Swap Contracts have been closed out and termination value(s)
determined in accordance therewith, such termination value(s), and (b) for any
date prior to the date referenced in clause (a) the amount(s) determined as the
mark-to-market value(s) for such Swap Contracts, as determined based upon one or
more mid-market or other readily available quotations provided by any recognized
dealer in such Swap Contracts (which may include any Bank).
"Tangible Net Worth" has the meaning specified in Section 7.13(d).
"Taxes" means any and all present or future taxes, levies, assessments,
imposts, duties, deductions, fees, withholdings or similar charges, and all
liabilities with respect thereto, excluding, in the case of each Bank and the
Agent, respectively, taxes imposed on or measured by its net income by the
jurisdiction (or any political subdivision thereof) under the
<PAGE>
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laws of which such Bank or the Agent, as the case may be, is organized or
maintains a lending office.
"Type" has the meaning specified in the definition of
"Revolving Loan."
"Unfunded Pension Liability" means the excess of a Plan's benefit
liabilities under Section 4001(a)(16) of ERISA, over the current value of that
Plan's assets, determined in accordance with the assumptions used for funding
the Pension Plan pursuant to Section 412 of the Code for the applicable plan
year.
"Union" means Union Bank of California, N.A., a national banking
association.
"United States" and "U.S." each means the United States of America.
"Wholly-Owned Subsidiary" means any corporation in which (other than
directors' qualifying shares required by law) 100% of the capital stock of each
class having ordinary voting power, and 100% of the capital stock of every other
class, in each case, at the time as of which any determination is being made, is
owned, beneficially and of record, by the Parent, or by one or more of the other
Wholly-Owned Subsidiaries of the Parent, or both. 1.02 Other Interpretive
Provisions.
(a) The meanings of defined terms are equally applicable to the singular
and plural forms of the defined terms.
(b) The words "hereof", "herein", "hereunder" and similar words refer to
this Agreement as a whole and not to any particular provision of this Agreement;
and Section, Section, Schedule and Exhibit references are to this Agreement
unless otherwise specified.
(c)(i) The term "documents" includes any and all instruments, documents,
agreements, certificates, indentures, notices and other writings,
however evidenced.
(ii) The term "including" is not limiting and means "including without
limitation."
(iii) In the computation of periods of time from a specified date to a
later specified date, the word "from" means "from and including"; the words "to"
and "until" each mean "to but excluding", and the word "through" means "to and
including."
(d) Unless otherwise expressly provided herein, (i) references to
agreements (including this Agreement) and other contractual instruments shall be
deemed to include all subsequent amendments and other modifications thereto, but
only to the extent
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such amendments and other modifications are not prohibited by the terms of any
Loan Document, and (ii) references to any statute or regulation are to be
construed as including all statutory and regulatory provisions consolidating,
amending, replacing, supplementing or interpreting the statute or regulation.
(e) The captions and headings of this Agreement are for convenience of
reference only and shall not affect the interpretation of this Agreement.
(f) This Agreement and other Loan Documents may use several different
limitations, tests or measurements to regulate the same or similar matters. All
such limitations, tests and measurements are cumulative and shall each be
performed in accordance with their terms. Unless otherwise expressly provided,
any reference to any action of the Agent or the Banks by way of consent,
approval or waiver shall be deemed modified by the phrase "in its/their sole
discretion."
(g) This Agreement and the other Loan Documents are the result of
negotiations among and have been reviewed by counsel to the Agent, the Company
and the other parties, and are the products of all parties. Accordingly, they
shall not be construed against the Banks or the Agent merely because of the
Agent's or Banks' involvement in their preparation.
1.03 Accounting Principles.
(a) Unless the context otherwise clearly requires, all accounting terms
not expressly defined herein shall be construed, and all financial computations
required under this Agreement shall be made, in accordance with GAAP,
consistently applied.
(b) References herein to "fiscal year" and "fiscal quarter" refer to such
fiscal periods of the Company or the Parent, as applicable.
ARTICLE II
THE CREDITS
2.01 Amounts and Terms of Commitments. Each Bank severally agrees, on
the terms and conditions set forth herein, to make loans to the Company (each
such loan, a "Revolving Loan") from time to time on any Business Day during the
period from the Closing Date to the Revolving Termination Date, in an aggregate
amount not to exceed at any time outstanding the amount set forth on Schedule
2.01 (such amount as the same may be reduced under Section 2.05 or as a result
of one or more assignments under Section 11.08, the Bank's "Commitment");
provided, however, that, after giving effect to any Borrowing of Revolving
Loans, the Effective Amount of all outstanding Revolving Loans and the Effective
Amount of all L/C Obligations, shall not at
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any time exceed the combined Commitments; and provided further, that the
Effective Amount of the Revolving Loans of any Bank plus the participation of
such Bank in the Effective Amount of all L/C Obligations shall not at any time
exceed such Bank's Commitment. Within the limits of each Bank's Commitment, and
subject to the other terms and conditions hereof, the Company may borrow under
this section 2.01, prepay under Section 2.06 and reborrow under this section
2.01. 2.02 Loan Accounts. The Loans made by each Bank and the Letters of Credit
Issued by the Issuing Bank shall be evidenced by one or more accounts or records
maintained by such Bank or Issuing Bank, as the case may be, in the ordinary
course of business. The accounts or records maintained by the Agent, the Issuing
Bank and each Bank shall be rebuttably presumptive evidence of the amount of the
Loans made by the Banks to the Company and the Letters of Credit Issued for the
account of the Company, and the interest and payments thereon. Any failure so to
record or any error in doing so shall not, however, limit or otherwise affect
the obligation of the Company hereunder to pay any amount owing with respect to
the Loans or any Letter of Credit.
2.03 Procedure for Borrowing.
(a) Each Borrowing of Revolving Loans shall be made upon the Company's
irrevocable written notice delivered to the Agent in the manner provided in
Section 11.02 and in the form of a Notice of Borrowing (which notice must be
received by the Agent prior to 10:00 a.m. (San Francisco time) (i) at least
three Business Days prior to the requested Borrowing Date, in the case of
Offshore Rate Loans; and (ii) on or before the requested Borrowing Date, in the
case of Base Rate Loans, specifying:
(A) the amount of the Borrowing, which shall be in an aggregate
minimum amount of (1) $1,000,000, in the case of Base Rate Loans, or (2)
$1,000,000 or any multiple of $100,000 in excess thereof, in the case of
Offshore Rate Loans;
(B) the requested Borrowing Date, which shall be a Business Day;
(C) the Type of Loans comprising the Borrowing; and
(D) the duration of the Interest Period applicable to such Loans
included in such notice. If the Notice of Borrowing fails to specify the
duration of the Interest Period for any Borrowing comprised of Offshore Rate
Loans, such Interest Period shall be one month.
(b) The Agent will promptly notify each Bank of its receipt of any
Notice of Borrowing and of the amount of such Bank's
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Pro Rata Share of that Borrowing.
(c) Each Bank will make the amount of its Pro Rata Share of each
Borrowing available to the Agent for the account of the Company at the Agent's
Payment Office by 12:00 noon (San Francisco time) on the Borrowing Date
requested by the Company in funds immediately available to the Agent. The
proceeds of all such Loans will then be made available to the Company by the
Agent at such office by crediting the account of the Company on the books of
BofA with the aggregate of the amounts made available to the Agent by the Banks
and in like funds as received by the Agent.
(d) After giving effect to any Borrowing, unless the Agent shall
otherwise consent, there may not be more than twelve different Interest Periods
in effect.
2.04 Conversion and Continuation Elections.
(a) The Company may, upon irrevocable written notice to the Agent in
accordance with Section 2.04(b):
(i) elect, as of any Business Day, in the case of Base Rate
Loans, or as of the last day of the applicable Interest Period, in the case of
any other Type of Revolving Loans, to convert any such Loans (or any part
thereof in an amount not less than (1) $1,000,000, in the case of Base Rate
Loans, or (2) $1,000,000 or any multiple of $100,000 in excess thereof, in the
case of Offshore Rate Loans into Loans of any other Type; or
(ii) elect as of the last day of the applicable Interest Period,
to continue any Revolving Loans having Interest Periods expiring on such day (or
any part thereof in an amount not less than $1,000,000, or that is in an
integral multiple of $100,000 in excess thereof); provided, that if at any time
the aggregate amount of Offshore Rate Loans in respect of any Borrowing is
reduced, by payment, prepayment, or conversion of part thereof to be less than
$1,000,000, such Offshore Rate Loans shall automatically convert into Base Rate
Loans, and on and after such date the right of the Company to continue such
Loans as, and convert such Loans into, Offshore Rate Loans shall terminate. The
Company may aggregate Base Rate Loans to be converted into Offshore Rate Loans.
(b) The Company shall deliver a Notice of Conversion/Continuation to
be received by the Agent not later than 10:00 a.m. (San Francisco time) (i) at
least three Business Days in advance of the Conversion/Continuation Date, if the
Loans are to be converted into or continued as Offshore Rate Loans; and (ii) on
or before the Conversion/Continuation Date, if the Loans are to be converted
into Base Rate Loans, specifying:
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(A) the proposed Conversion/Continuation Date;
(B) the aggregate amount of Loans to be converted or continued;
(C) the Type of Loans resulting from the proposed conversion or
continuation; and
(D) other than in the case of conversions into Base Rate Loans,
the duration of the requested Interest Period.
(c) If upon the expiration of any Interest Period applicable to
Offshore Rate Loans, the Company has failed to select timely a new Interest
Period to be applicable to such Offshore Rate Loans, or if any Default or Event
of Default then exists, the Company shall be deemed to have elected to convert
such Offshore Rate Loans into Base Rate Loans effective as of the expiration
date of such Interest Period.
(d) The Agent will promptly notify each Bank of its receipt of a
Notice of Conversion/Continuation, or, if no timely notice is provided by the
Company, the Agent will promptly notify each Bank of the details of any
automatic conversion. All conversions and continuations shall be made ratably
according to the respective outstanding principal amounts of the Loans with
respect to which the notice was given held by each Bank.
(e) Unless the Majority Banks otherwise consent, during the existence
of a Default or Event of Default, the Company may not elect to have a Loan
converted into or continued as an Offshore Rate Loan.
(f) After giving effect to any conversion or continuation of Loans,
unless the Agent shall otherwise consent, there may not be more than twelve
different Interest Periods in effect.
2.05 Voluntary Termination or Reduction of Commitments. The Company may,
upon not less than five Business Days' prior notice to the Agent, terminate the
Commitments, or permanently reduce the Commitments by an aggregate minimum
amount of $1,000,000 or any multiple of $1,000,000 in excess thereof; unless,
after giving effect thereto and to any prepayments of Loans made on the
effective date thereof, (a) the Effective Amount of all Revolving Loans, and L/C
Obligations together would exceed the amount of the combined Commitments then in
effect, or (b) the Effective Amount of all L/C Obligations then outstanding
would exceed the L/C Commitment. A voluntary reduction in the Commitments shall
not reduce the L/C Commitment to the extent the remaining Commitments, as so
reduced, equal or exceed the L/C Commitment. Once reduced in accordance with
this Section, the Commitments may not be increased. Any reduction of the
Commitments shall be applied to each Bank according to its Pro
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Rata Share. If and to the extent specified by the Company in the notice to the
Agent, some or all of the reduction in the combined Commitments shall be applied
to reduce the L/C Commitment. All accrued commitment and letter of credit fees
to, but not including, the effective date of any reduction or termination of
Commitments, shall be paid on the effective date of such reduction or
termination.
2.06 Optional Prepayments. Subject to Section 4.04, the Company may, at any
time or from time to time, ratably prepay Loans in minimum amounts of $100,000
or multiples thereof upon the Company's irrevocable written notice to the Agent
(which notice must be received by the Agent prior to 10.00 a.m. (San Francisco
time) (i) at least four Business Days prior to the date prepayment, in the case
of Offshore Rate Loans, and (ii) on the date of prepayment, in the case of Base
Rate Loans). The Agent will promptly notify each Bank of its receipt of any such
notice, and of such Bank's Pro Rata Share of such prepayment. If such notice is
given by the Company, the Company shall make such prepayment and the payment
amount specified in such notice shall be due and payable on the date specified
therein, together with accrued interest to each such date on the amount of each
Offshore Rate Loan prepaid and any amounts required pursuant to Section 4.04.
2.07 Cash Collateralization of L/Cs; Mandatory Prepayments of Loans. If on
any date the Effective Amount of L/C Obligations exceeds the L/C Commitment,
upon notice from the Agent the Company shall Cash Collateralize on such date the
outstanding Letters of Credit in an amount equal to the excess of the maximum
amount then available to be drawn under the Letters of Credit over the L/C
Commitment. Subject to Section 4.04, if on any date after giving effect to any
Cash Collateralization made on such date pursuant to the preceding sentence, the
Effective Amount of all Revolving Loans then outstanding plus the Effective
Amount of all L/C Obligations exceeds the combined Commitments, the Company
shall immediately, and without notice or demand, prepay the outstanding
principal amount of the Revolving Loans and L/C Advances by an amount equal to
the applicable excess. At such time as the L/C Obligations no longer exceeds the
L/C Commitment, any excess Cash Collateral required to be provided under this
Section 2.07 shall be released to the Company.
2.08 Repayment. The Company shall repay to the Banks on the Revolving
Termination Date the aggregate principal amount of Loans outstanding on such
date.
2.09 Interest.
(a) Each Revolving Loan shall bear interest on the outstanding
principal amount thereof from the Borrowing Date or Conversion/Continuation
Date, as applicable, at a rate per annum equal to the Offshore Rate or the Base
Rate, as the case may be (and subject to the Company's right to convert to other
Types of Loans under Section 2.04), plus the Applicable Margin in effect from
time to time.
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(b) Interest on each Revolving Loan shall be paid in arrears on each
Interest Payment Date. Interest shall also be paid on the date of any prepayment
of Loans under Section 2.06 or 2.07 for the portion of the Loans so prepaid and
upon payment (including prepayment) in full thereof and, during the existence of
any Event of Default, interest shall be paid on demand of the Agent at the
request or with the consent of the Majority Banks.
(c) Notwithstanding Section (a) of this Section, while any Event of
Default exists or after acceleration, the Company shall pay interest (after as
well as before entry of judgment thereon to the extent permitted by law) on the
principal amount of all outstanding Loans, at a rate per annum which is
determined by adding 2% per annum to the Applicable Margin then in effect for
such Loans; provided, however, that, on and after the expiration of any Interest
Period applicable to any Offshore Rate Loan outstanding on the date of
occurrence of such Event of Default or acceleration, the principal amount of
such Loan shall, during the continuation of such Event of Default or after
acceleration, bear interest at a rate per annum equal to the Base Rate plus 2%.
(d) Notwithstanding Section (a) of this Section, if any amount of
principal of or interest on any Loan, or any other amount payable hereunder or
under any other Loan Document is not paid in full when due (whether at stated
maturity, by acceleration, demand or otherwise), and after giving effect to any
grace period applicable thereto, the Company agrees to pay interest on such
unpaid principal or other amount, from the date such amount becomes due or the
expiration of any grace period applicable thereto, whichever is later, until the
date such amount is paid in full, and after as well as before any entry of
judgment thereon to the extent permitted by law, payable on demand, at a
fluctuating rate per annum equal to the Base Rate plus 2%.
(e) Anything herein to the contrary notwithstanding, the obligations
of the Company to any Bank hereunder shall be subject to the limitation that
payments of interest shall not be required for any period for which interest is
computed hereunder, to the extent (but only to the extent) that contracting for
or receiving such payment by such Bank would be contrary to the provisions of
any law applicable to such Bank limiting the highest rate of interest that may
be lawfully contracted for, charged or received by such Bank, and in such event
the Company shall pay such Bank interest at the highest rate permitted by
applicable law.
2.10 Fees. In addition to certain fees described in Section 3.08:
(a) Arrangement Fee. The Company shall pay to the Agent for the
ratable account of each Bank an arrangement fee in the amount of $175,000. The
arrangement fee is due and payable on the Closing Date.
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(b) Agency Fees. The Company shall pay an agency fee to the Agent for
the Agent's own account, as required by the letter agreement ("Fee Letter")
between the Company and the Agent dated January 6, 2000.
(c) Commitment Fees. The Company shall pay to the Agent for the
ratable account of each Bank a commitment fee on the average daily unused
portion of such Bank's Commitment, computed on a quarterly basis in arrears on
the last Business Day of each calendar quarter based upon the daily utilization
for that quarter as calculated by the Agent. The commitment fee shall be
calculated as indicated below:
(i) Between the date of this Agreement and June 30, 2000, the
commitment fee shall be calculated at the rate of .20% per annum; and
(ii) At all times that clause (i) is not applicable, the
commitment fee shall be calculated in accordance with this clause (ii). If, as
of the last Business Day of the calendar quarter for which the commitment fee is
calculated, the Company's Funded Debt to EBITDA Ratio as of the most recent
fiscal quarter for which the financial statements required under Section 7.01(a)
and (b) have been delivered to Agent and Banks (and provided such financial
statements have been delivered to Agent and Banks within the time periods set
forth in Section 7.01(a) and (b) is:
(A) greater than 2.0:1.0, the commitment fee shall be calculated at
the rate of .50%;
(B) greater than 1.75:1.0 but not exceeding 2.0:1.0, the commitment
fee shall be calculated at the rate of .40%;
(C) greater than 1.25:1.0 but not exceeding 1.75:1.0, the commitment
fee shall be calculated at the rate of .25%; o r
(D) 1.25:1.0 or lower, the commitment fee shall be calculated at the
rate of .20%.
For purposes of calculating utilization under this Section, the Commitments
shall be deemed used to the extent of the Effective Amount of Revolving Loans
then outstanding, plus the Effective Amount of L/C Obligations then outstanding.
Such commitment fee shall accrue from the Closing Date to the Revolving
Termination Date and shall be due and payable quarterly in arrears on the last
Business Day of each fiscal quarter commencing on March 31, 2000, through the
Revolving Termination Date, with the final payment to be made on the Revolving
Termination Date; provided that, in connection with any reduction or termination
of Commitments under Section 2.05, the accrued commitment
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fee calculated for the period ending on such date shall also be paid on the date
of such reduction or termination, with the following quarterly payment being
calculated on the basis of the period from such reduction or termination date to
such quarterly payment date. The commitment fees provided in this Section shall
accrue at all times after the above-mentioned commencement date, including at
any time during which one or more conditions in Article V are not met. 2.11
Computation of Fees and Interest.
(a) All computations of interest for Offshore Rate Loans shall
be made on the basis of a 360-day year and actual days elapsed (which results in
more interest being paid than if computed on the basis of a 365-day year). All
other computations of interest and fees shall be made on the basis of a year of
365 or 366 days, as the case may be, and actual days elapsed. Interest and fees
shall accrue during each period during which interest or such fees are computed
from the first day thereof to the last day thereof.
(b) Each determination of an interest rate by the Agent shall be
rebuttably presumptive evidence of such interest rate. 2.12 Payments by the
Company.
(a) All payments to be made by the Company shall be made without
set-off, recoupment or counterclaim. Except as otherwise expressly provided
herein, all payments by the Company shall be made to the Agent for the account
of the Banks at the Agent's Payment Office, and shall be made in dollars and in
immediately available funds, no later than 11:00 a.m. (San Francisco time) on
the date specified herein. The Agent will promptly distribute to each Bank its
Pro Rata Share (or other applicable share as expressly provided herein) of such
payment in like funds as received. Any payment received by the Agent later than
11:00 a.m. (San Francisco time) shall be deemed to have been received on the
following Business Day and any applicable interest or fee shall continue to
accrue.
(b) Subject to the provisions set forth in the definition of
"Interest Period" herein, whenever any payment is due on a day other than a
Business Day, such payment shall be made on the following Business Day, and such
extension of time shall in such case be included in the computation of interest
or fees, as the case may be.
(c) Unless the Agent receives notice from the Company prior to
the date on which any payment is due to the Banks that the Company will not make
such payment in full as and when required, the Agent may assume that the Company
has made such payment in full to the Agent on such date in immediately available
funds and the Agent may (but shall not be so required), in reliance upon such
assumption, distribute to each Bank on such due date an amount equal to the
amount then due such Bank. If and to the extent the Company has not made such
payment in full to the Agent, each Bank shall repay to the Agent
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on demand such amount distributed to such Bank, together with interest thereon
at the Federal Funds Rate for each day from the date such amount is distributed
to such Bank until the date repaid. 2.13 Payments by the Banks to the Agent.
(a) Unless the Agent receives notice from a Bank on or prior to
the Closing Date or, with respect to any Borrowing after the Closing Date, at
least one Business Day prior to the date of such Borrowing, that such Bank will
not make available as and when required hereunder to the Agent for the account
of the Company the amount of that Bank's Pro Rata Share of the Borrowing, the
Agent may assume that each Bank has made such amount available to the Agent in
immediately available funds on the Borrowing Date and the Agent may (but shall
not be so required), in reliance upon such assumption, make available to the
Company on such date a corresponding amount. If and to the extent any Bank shall
not have made its full amount available to the Agent in immediately available
funds and the Agent in such circumstances has made available to the Company such
amount, that Bank shall on the Business Day following such Borrowing Date make
such amount available to the Agent, together with interest at the Federal Funds
Rate for each day during such period. A notice of the Agent submitted to any
Bank with respect to amounts owing under this Section (a) shall be conclusive,
absent manifest error. If such amount is so made available, such payment to the
Agent shall constitute such Bank's Loan on the date of Borrowing for all
purposes of this Agreement. If such amount is not made available to the Agent on
the Business Day following the Borrowing Date, the Agent will notify the Company
of such failure to fund and, upon demand by the Agent, the Company shall pay
such amount to the Agent for the Agent's account, together with interest thereon
for each day elapsed since the date of such Borrowing, at a rate per annum equal
to the interest rate applicable at the time to the Loans comprising such
Borrowing.
(b) The failure of any Bank to make any Loan on any Borrowing
Date shall not relieve any other Bank of any obligation hereunder to make a Loan
on such Borrowing Date, but no Bank shall be responsible for the failure of any
other Bank to make the Loan to be made by such other Bank on any Borrowing Date.
2.14 Sharing of Payments, Etc. If, other than as expressly provided elsewhere
herein, any Bank shall obtain on account of the Loans made by it any payment
(whether voluntary, involuntary, through the exercise of any right of set-off,
or otherwise) in excess of its ratable share (or other share contemplated
hereunder), such Bank shall immediately (a) notify the Agent of such fact, and
(b) purchase from the other Banks such participations in the Loans made by them
as shall be necessary to cause such purchasing Bank to share the excess payment
pro rata with each of them; provided, however, that if all or any portion of
such excess payment is thereafter recovered from the purchasing Bank, such
purchase shall to that extent be rescinded and each other Bank shall repay to
the purchasing Bank the purchase price
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paid therefor, together with an amount equal to such paying Bank's ratable share
(according to the proportion of (i) the amount of such paying Bank's required
repayment to (ii) the total amount so recovered from the purchasing Bank) of any
interest or other amount paid or payable by the purchasing Bank in respect of
the total amount so recovered. The Company agrees that any Bank so purchasing a
participation from another Bank may, to the fullest extent permitted by law,
exercise all its rights of payment (including the right of set-off, but subject
to Section 11.11) with respect to such participation as fully as if such Bank
were the direct creditor of the Company in the amount of such participation. The
Agent will keep records (which shall be conclusive and binding in the absence of
manifest error) of participations purchased under this Section and will in each
case notify the Banks following any such purchases or repayments.
2.15 Existing Offshore Rate Loans; Risk Participations.
(a) On and after the Closing Date, the Existing Offshore Rate
Loans shall be deemed Offshore Rate Loans outstanding under this Agreement with
the same Offshore Rates and Interest Periods applicable under the Existing
Credit Agreement, but with the Applicable Offshore Rate Margin determined
pursuant to this Agreement, and all interest, fees, expenses and other amounts
owing under the Existing Agreement with respect to such Existing Offshore Rate
Loans shall be deemed continued as owing hereunder. On the Closing Date, Union
and Fleet ("Purchasing Banks") shall be deemed to, and hereby irrevocably and
unconditionally agree to, purchase from BofA, as a lending bank under the
Existing Credit Agreement, for each Purchasing Bank's own account and risk an
undivided interest equal to such Purchasing Bank's Pro Rata Share in such
Existing Offshore Rate Loans. Each Purchasing Bank unconditionally and
irrevocably agrees with BofA that, if any amount in respect of the principal,
interest or fees owing to BofA is not paid on its due date, Purchasing Bank
shall promptly pay to the Agent for the account of BofA an amount equal to
Purchasing Bank's Pro Rata Share of such unpaid amount. Each Purchasing Bank's
obligation to make the payment referred to in the immediately preceding sentence
shall be absolute and unconditional and shall not be affected by any
circumstance, including, without limitation, (i) any set-off, counterclaim,
recoupment, defense or other right which Purchasing Bank or the Company may have
against BofA or any other Person for any reason whatsoever, (ii) the occurrence
or continuance of a Default or an Event of Default, (iii) the occurrence of any
Material Adverse Effect, or (iv) any other circumstance, happening or event
whatsoever, whether or not similar to any of the foregoing. For purposes of
Section 2.01 and Section 2.10(b), the Existing Offshore Rate Loans shall be
deemed to utilize pro rata the Commitment of each Bank.
(b) If any amount required to be paid to BofA by any Purchasing
Bank pursuant to Section 2.15(a) is not paid by 12:00 noon (San Francisco time)
on the date such payment is due, then interest shall accrue on such Purchasing
Bank's obligation to make such
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payment, from the date due until Purchasing Bank makes such payment, at a rate
per annum equal to the Federal Funds Rate in effect from time to time during
such period. The Agent shall promptly give notice of the Company's failure to
pay principal or interest of an Existing Offshore Rate Loan on its due date, but
failure of the Agent to give any such notice on the due date or in sufficient
time to enable each Purchasing Bank to effect such payment on such due date
shall not relieve such Purchasing Bank from its obligations under this Section
2.15(b).
(c) BofA shall pay to each Purchasing Bank a risk participation
fee with respect to such Purchasing Bank's Pro Rata Share of the Existing
Offshore Rate Loans for the period from the Closing Date until the date of
repayment of each such Existing Offshore Rate Loan. The risk participation fee
shall be equal to 80% of the Applicable Offshore Rate Margin applicable to each
Purchasing Bank's Pro Rata Share of each such Existing Offshore Rate Loan. Such
risk participation fee shall be paid to each Purchasing Bank in arrears on the
date the Agent receives payment of interest from the Company on the Existing
Offshore Rate Loans. BofA hereby authorizes the Agent to deduct from each
interest payment made by the Company to the Agent with respect to the Existing
Offshore Rate Loans an amount equal to the risk participation fee payable to the
Purchasing Banks pursuant to this Section 2.15(b) and to remit said fee to each
Purchasing Bank promptly following the Agent's receipt thereof.
(d) Whenever, at any time after BofA has received from any
Purchasing Bank the full amount owing by such Purchasing Bank pursuant to and in
accordance with Section 2.15(a) in respect of any Existing Offshore Rate Loan,
BofA receives any payment related to such Existing Offshore Rate Loan (whether
directly from the Company or otherwise), or any payment of interest on account
thereof, BofA will distribute to such Purchasing Bank its Pro Rata Share
thereof.
(e) If any payment received by BofA pursuant to Section 2.15(d)
with respect to any Existing Offshore Rate Loan made by it shall be required to
be returned by BofA, each Purchasing Bank shall pay to BofA its Pro Rata Share
thereof.
ARTICLE III
THE LETTERS OF CREDIT
3.01 The Letter of Credit Subfacility.
(a) On the terms and conditions set forth herein (i) the Issuing
Bank agrees, (A) from time to time on any Business Day during the period from
the Closing Date to the Revolving Termination Date to issue Letters of Credit
for the account of the Company, the Parent, or any Subsidiary (provided such
Subsidiary is also a Guarantor), and to amend or renew Letters of Credit
previously issued by it, in
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accordance with Sections 3.02(c) and 3.02(d), and (B) to honor drafts under the
Letters of Credit previously issued by it; and (ii) the Banks severally agree to
participate in Letters of Credit Issued for the account of the Company, the
Parent, and its Subsidiaries; provided, that the Issuing Bank shall not be
obligated to Issue, and no Bank shall be obligated to participate in, any Letter
of Credit if as of the date of Issuance of such Letter of Credit (the "Issuance
Date") (1) the Effective Amount of all L/C Obligations plus the Effective Amount
of all Revolving Loans exceeds the combined Commitments, (2) the participation
of any Bank in the Effective Amount of all L/C Obligations plus the Effective
Amount of the Revolving Loans of such Bank exceeds such Bank's Commitment, or
(3) the Effective Amount of L/C Obligations exceeds the L/C Commitment. Within
the foregoing limits, and subject to the other terms and conditions hereof, the
Company's ability to obtain Letters of Credit shall be fully revolving, and,
accordingly, the Company may, during the foregoing period, obtain Letters of
Credit to replace Letters of Credit which have expired or which have been drawn
upon and reimbursed.
(b) The Issuing Bank is not under any obligation to Issue, and no
Bank shall be obligated to participate in, any Letter of Credit if:
(i) any order, judgment or decree of any Governmental
Authority or arbitrator shall by its terms purport to enjoin or restrain the
Issuing Bank from Issuing such Letter of Credit, or any Requirement of Law
applicable to the Issuing Bank or any request or directive (whether or not
having the force of law) from any Governmental Authority with jurisdiction over
the Issuing Bank shall prohibit, or request that the Issuing Bank refrain from,
the Issuance of letters of credit generally or such Letter of Credit in
particular or shall impose upon the Issuing Bank with respect to such Letter of
Credit any restriction, reserve or capital requirement (for which the Issuing
Bank is not otherwise compensated hereunder) not in effect on the Closing Date,
or shall impose upon the Issuing Bank any unreimbursed loss, cost or expense
which was not applicable on the Closing Date and which the Issuing Bank in good
faith deems material to it;
(ii) the Issuing Bank has received written notice from any
Bank, the Agent or the Company, on or prior to the Business Day prior to the
requested date of Issuance of such Letter of Credit, that one or more of the
applicable conditions contained in Article V is not then satisfied;
(iii) the expiry date of any requested commercial documentary
Letter of Credit is (A) more than 364 days after the date of Issuance, unless
the Majority Banks have approved such expiry date in writing, or (B) more than
90 days after the Revolving Termination Date, unless all of the Banks have
approved
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such expiry date in writing;
(iv) the expiry date of any requested standby Letter of Credit
is (A) more than 364 days after the date of Issuance, unless the Majority Banks
have approved such expiry date in writing, or (B) more than 90 days after the
Revolving Termination Date, unless all of the Banks have approved such expiry
date in writing;
(v) any requested Letter of Credit does not provide for
drafts, or is not otherwise in form and substance acceptable to the Issuing
Bank, or the Issuance of a Letter of Credit shall violate any applicable
policies of the Issuing Bank;
(vi) any standby Letter of Credit is for the purpose of
supporting the issuance of any letter of credit by any other Person;
(vii) any such Letter of Credit (other than standby Letters of
Credit supporting the Company's, the Parent's, or any Subsidiary's obligations
under space leases) is in a face amount less than $10,000; or
(viii) the Effective Amount of all commercial documentary Letters
of Credit exceeds $15,000,000 or the Effective Amount of all standby Letters of
Credit exceeds $5,000,000.
If Issuing Bank declines to issue a Letter of Credit for the reasons
specified in Section (i), (ii) or (v) above, Issuing Bank shall provide written
notice to Company.
3.02 Issuance, Amendment and Renewal of Letters of Credit.
(a) Each Letter of Credit shall be issued upon the irrevocable
written request of the Company received by the Issuing Bank (with a copy sent by
the Issuing Bank to the Agent) at least three Business Days (or such shorter
time as the Issuing Bank may agree in a particular instance in its sole
discretion) prior to the proposed date of issuance. Each such request for
issuance of a Letter of Credit shall be by facsimile, confirmed immediately in
an original writing, in the form of an L/C Application, and shall specify in
form and detail satisfactory to the Issuing Bank: (i) the proposed date of
issuance of the Letter of Credit (which shall be a Business Day); (ii) the face
amount and currency (which shall be Dollars or an Agreed Alternative Currency)
of the Letter of Credit; (iii) the expiry date of the Letter of Credit; (iv) the
name and address of the beneficiary thereof; (v) the documents to be presented
by the beneficiary of the Letter of Credit in case of any drawing thereunder;
(vi) the full text of any certificate to be presented by the beneficiary in case
of any drawing thereunder; (vii) the Person for whose account the Letter of
Credit is to be Issued (which shall be the Company, the Parent, or any
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of its Subsidiaries); and (viii) such other matters as the Issuing Bank may
require.
(b) At least two Business Days prior to the Issuance of any Letter of
Credit, the Issuing Bank will confirm with the Agent (by telephone or in
writing) that the Agent has received a copy of the L/C Application or L/C
Amendment Application from the Company and, if not, the Issuing Bank will
provide the Agent with a copy thereof. Unless the Issuing Bank has received
notice on or before the Business Day immediately preceding the date the Issuing
Bank is to issue a requested Letter of Credit from the Agent (A) directing the
Issuing Bank not to issue such Letter of Credit because such issuance is not
then permitted under Section 3.01(a) as a result of the limitations set forth in
clauses (1) through (3) thereof or Section 3.01(b)(ii); or (B) that one or more
conditions specified in Article V are not then satisfied; then, subject to the
terms and conditions hereof, the Issuing Bank shall, on the requested date,
issue a Letter of Credit for the account of the Company, the Parent, or a
Subsidiary, as applicable, in accordance with the Issuing Bank's usual and
customary business practices.
(c) From time to time while a Letter of Credit is outstanding and
prior to the Revolving Termination Date, the Issuing Bank will, upon the written
request of the Company received by the Issuing Bank (with a copy sent by the
Company to the Agent) at least five Business Days (or such shorter time as the
Issuing Bank may agree in a particular instance in its sole discretion) prior to
the proposed date of amendment, amend any Letter of Credit issued by it. Each
such request for amendment of a Letter of Credit shall be made by facsimile,
confirmed immediately in an original writing, made in the form of an L/C
Amendment Application and shall specify in form and detail satisfactory to the
Issuing Bank: (i) the Letter of Credit to be amended; (ii) the proposed date of
amendment of the Letter of Credit (which shall be a Business Day); (iii) the
nature of the proposed amendment; and (iv) such other matters as the Issuing
Bank may require. The Issuing Bank shall be under no obligation to amend any
Letter of Credit, and no Bank shall be obligated to participate in any Letter of
Credit in its amended form, if: (A) the Issuing Bank would have no obligation at
such time to issue such Letter of Credit in its amended form under the terms of
this Agreement; or (B) the beneficiary of any such letter of Credit does not
accept the proposed amendment to the Letter of Credit. The Agent will promptly
notify the Banks of the receipt by it of any L/C Application or L/C Amendment
Application.
(d) The Issuing Bank and the Banks agree that, while a Letter of
Credit is outstanding and prior to the Revolving Termination Date, at the option
of the Company and upon the written request of the Company received by the
Issuing Bank (with a copy sent by the Company to the Agent) at least five
Business Days (or such shorter time as the Issuing Bank may agree in a
particular instance in its sole discretion) prior to the proposed date of
notification of renewal, the
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Issuing Bank shall be entitled to authorize the automatic renewal of any Letter
of Credit issued by it. Each such request for renewal of a Letter of Credit
shall be made by facsimile, confirmed immediately in an original writing, in the
form of an L/C Amendment Application, and shall specify in form and detail
satisfactory to the Issuing Bank: (i) the Letter of Credit to be renewed; (ii)
the proposed date of notification of renewal of the Letter of Credit (which
shall be a Business Day); (iii) the revised expiry date of the Letter of Credit;
and (iv) such other matters as the Issuing Bank may require. The Issuing Bank
shall be under no obligation to so renew any Letter of Credit, and no Bank shall
be obligated to participate in any Letter of Credit in its renewed form, if: (A)
the Issuing Bank would have no obligation at such time to issue or amend such
Letter of Credit in its renewed form under the terms of this Agreement; or (B)
the beneficiary of any such Letter of Credit does not accept the proposed
renewal of the Letter of Credit. If any outstanding Letter of Credit shall
provide that it shall be automatically renewed unless the beneficiary thereof
receives notice from the Issuing Bank that such Letter of Credit shall not be
renewed, and if at the time of renewal the Issuing Bank would be entitled to
authorize the automatic renewal of such Letter of Credit in accordance with this
Section 3.02(d) upon the request of the Company but the Issuing Bank shall not
have received any L/C Amendment Application from the Company with respect to
such renewal or other written direction by the Company with respect thereto, the
Issuing Bank shall nonetheless be permitted to allow such Letter of Credit to
renew, and the Company and the Banks hereby authorize such renewal, and,
accordingly, the Issuing Bank shall be deemed to have received an L/C Amendment
Application from the Company requesting such renewal.
(e) The Issuing Bank may, at its election (or as required by the
Agent at the direction of the Majority Banks), deliver any notices of
termination or other communications to any Letter of Credit beneficiary or
transferee, and take any other action as necessary or appropriate, at any time
and from time to time, in order to cause the expiry date of such Letter of
Credit to be a date not later than 90 days after the Revolving Termination Date.
(f) This Agreement shall control in the event of any conflict with
any L/C-Related Document (other than any Letter of Credit).
(g) The Issuing Bank will also deliver to the Agent, concurrently or
promptly following its delivery of a Letter of Credit, or amendment to or
renewal of a Letter of Credit, to an advising bank or a beneficiary, a true and
complete copy of each such Letter of Credit or amendment to or renewal of a
Letter of Credit.
3.03 Existing Letters of Credit; Risk Participations, Drawings and
Reimbursements.
(a) On and after the Closing Date, the Existing Letters of
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Credit shall be deemed for all purposes, including for purposes of the fees to
be collected pursuant to Sections 3.08(a)(i) and 3.08(a)(ii) (without
duplication), and reimbursement of costs and expenses to the extent provided
herein, Letters of Credit outstanding under this Agreement and entitled to the
benefits of this Agreement and the other Loan Documents, and shall be governed
by the applications and agreements pertaining thereto and by this Agreement.
Each Bank shall be deemed to, and hereby irrevocably and unconditionally agrees
to, purchase from the Issuing Bank on the Closing Date a participation in each
such Letter of Credit and each drawing thereunder in an amount equal to the
product of (i) such Bank's Pro Rata Share times (ii) the maximum amount
available to be drawn under such Letter of Credit and the amount of such
drawing, respectively. For purposes of Section 2.01 and Section 2.10(b), the
Existing Letters of Credit shall be deemed to utilize pro rata the Commitment of
each Bank.
(b) Immediately upon the Issuance of each Letter of Credit in
addition to those described in Section 3.03(a), each Bank shall be deemed to,
and hereby irrevocably and unconditionally agrees to, purchase from the Issuing
Bank a participation in such Letter of Credit and each drawing thereunder in an
amount equal to the product of (i) the Pro Rata Share of such Bank, times (ii)
the maximum amount available to be drawn under such Letter of Credit and the
amount of such drawing, respectively. For purposes of Section 2.01 and Section
2.10(b), each Issuance of a Letter of Credit shall be deemed to utilize the
Commitment of each Bank by an amount equal to the amount of such participation.
(c) In the event of any request for a drawing under a Letter of
Credit by the beneficiary or transferee thereof, the Issuing Bank will promptly
notify the Company. The Company shall reimburse the Issuing Bank prior to 10:00
a.m. (San Francisco time), on each date that any amount is paid by the Issuing
Bank under any Letter of Credit (each such date, an "Honor Date"), in the
currency thereof and in an amount equal to the amount so paid by the Issuing
Bank. In the event the Company fails to reimburse the Issuing Bank for the full
amount of any drawing under any Letter of Credit by 10:00 a.m. (San Francisco
time) on the Honor Date, the Issuing Bank will promptly notify the Agent and the
Agent will promptly notify each Bank thereof, and the Company shall be deemed to
have requested that Base Rate Loans in Dollars be made by the Banks to be
disbursed on the Honor Date under such Letter of Credit in the amount of such
drawing, subject to the amount of the unutilized portion of the Revolving
Commitment and subject to the conditions set forth in Section 5.02. Any notice
given by the Issuing Bank or the Agent pursuant to this Section 3.03(c) may be
oral if immediately confirmed in writing (including by facsimile); provided that
the lack of such an immediate confirmation shall not affect the conclusiveness
or binding effect of such notice. If the Banks have made Base Rate Loans
pursuant to this subsection, any subsequent reimbursement by the Company for
such unreimbursed drawing in respect of which such Base Rate Loans were made
shall be deemed a payment on such Base Rate Loans.
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(d) Each Bank shall upon any notice pursuant to Section 3.03(c) make
available to the Agent for the account of the relevant Issuing Bank an amount in
Dollars and in immediately available funds equal to its Pro Rata Share of the
amount of the drawing, whereupon the participating Banks shall (subject to
Section 3.03(e)) each be deemed to have made a Revolving Loan consisting of a
Base Rate Loan in Dollars to the Company in that amount. If any Bank so notified
fails to make available to the Agent for the account of the Issuing Bank the
amount of such Bank's Pro Rata Share of the amount of the drawing by no later
than 12:00 noon (San Francisco time) on the Honor Date, then interest shall
accrue on such Bank's obligation to make such payment, from the Honor Date to
the date such Bank makes such payment, at a rate per annum equal to the Federal
Funds Rate in effect from time to time during such period. The Agent will
promptly give notice of the occurrence of the Honor Date, but failure of the
Agent to give any such notice on the Honor Date or in sufficient time to enable
any Bank to effect such payment on such date shall not relieve such Bank from
its obligations under this Section 3.03.
(e) With respect to any unreimbursed drawing that is not converted
into Revolving Loans consisting of Base Rate Loans to the Company in whole or in
part, because of the Company's failure to satisfy the conditions set forth in
Section 5.02 or for any other reason, the Company shall be deemed to have
incurred from the Issuing Bank an L/C Borrowing in the amount of such drawing,
which L/C Borrowing shall be due and payable on demand (together with interest)
and shall bear interest at a rate per annum equal to the Base Rate plus 2% per
annum, and each Bank's payment to the Issuing Bank pursuant to Section 3.03(d)
shall be deemed payment in respect of its participation in such L/C Borrowing
and shall constitute an L/C Advance from such Bank in satisfaction of its
participation obligation under this Section 3.03. If the Company has incurred an
L/C Borrowing pursuant to this subsection, any subsequent reimbursement by the
Company for such unreimbursed drawing in respect of which such L/C Borrowing was
incurred shall be deemed a payment on such Base Rate Loans.
(f) Each Bank's obligation in accordance with this Agreement to make
the Revolving Loans or L/C Advances, as contemplated by this Section 3.03, as a
result of a drawing under a Letter of Credit, shall be absolute and
unconditional and without recourse to the Issuing Bank and shall not be affected
by any circumstance, including (i) any set-off, counterclaim, recoupment,
defense or other right which such Bank may have against the Issuing Bank, the
Company or any other Person for any reason whatsoever; (ii) the occurrence or
continuance of a Default, an Event of Default or a Material Adverse Effect; or
(iii) any other circumstance, happening or event whatsoever, whether or not
similar to any of the foregoing; provided, however, that each Bank's obligation
to make Revolving Loans under this Section 3.03 is subject to the conditions set
forth in Section 5.02.
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3.04 Repayment of Participations.
(a) Upon (and only upon) receipt by the Agent for the account of the
Issuing Bank of immediately available funds from the Company (i) in
reimbursement of any payment made by the Issuing Bank under the Letter of Credit
with respect to which any Bank has paid the Agent for the account of the Issuing
Bank for such Bank's participation in the Letter of Credit pursuant to Section
3.03 or (ii) in payment of interest thereon, the Agent will pay to each Bank, in
the same funds as those received by the Agent for the account of the Issuing
Bank, the amount of such Bank's Pro Rata Share of such funds, and the Issuing
Bank shall receive the amount of the Pro Rata Share of such funds of any Bank
that did not so pay the Agent for the account of the Issuing Bank.
(b) If the Agent or the Issuing Bank is required at any time to
return to the Company, or to a trustee, receiver, liquidator, custodian, or any
official in any Insolvency Proceeding, any portion of the payments made by the
Company to the Agent for the account of the Issuing Bank pursuant to Section
3.04(a) in reimbursement of a payment made under the Letter of Credit or
interest or fee thereon, each Bank shall, on demand of the Agent, forthwith
return to the Agent or the Issuing Bank the amount of its Pro Rata Share of any
amounts so returned by the Agent or the Issuing Bank plus interest thereon from
the date such demand is made to the date such amounts are returned by such Bank
to the Agent or the Issuing Bank, at a rate per annum equal to the Federal Funds
Rate in effect from time to time.
3.05 Role of the Issuing Bank.
(a) Except as otherwise provided in this Agreement and in any Letter
of Credit, each Bank and the Company agree that, in paying any drawing under a
Letter of Credit, the Issuing Bank shall not have any responsibility to obtain
any document (other than any sight draft, certificates, and/or other documents
expressly required by the Letter of Credit) or to ascertain or inquire as to the
validity or accuracy of any such document or the authority of the Person
executing or delivering any such document.
(b) No Agent-Related Person nor the Issuing Bank or any of the
respective correspondents, participants or assignees of the Issuing Bank shall
be liable to any Bank for: (i) any action taken or omitted in connection
herewith at the request or with the approval of the Banks (including the
Majority Banks, as applicable); (ii) any action taken or omitted in the absence
of gross negligence or willful misconduct; or (iii) the due execution,
effectiveness, validity or enforceability of any L/C-Related Document.
(c) Except as otherwise provided in this Agreement and in any Letter
of Credit, the Company hereby assumes all risks of the acts or omissions of any
beneficiary or transferee with respect to its use
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of any Letter of Credit; provided, however, that this assumption is not intended
to, and shall not, preclude the Company's pursuing such rights and remedies as
it may have against the beneficiary or transferee at law or under any other
agreement. No Agent-Related Person, nor the Issuing Bank or any of the
respective correspondents, participants or assignees of the Issuing Bank, shall
be liable or responsible for any of the matters described in clauses (i) through
(vii) of Section 3.06; provided, however, anything in such clauses to the
contrary notwithstanding, that the Company may have a claim against the Issuing
Bank, and the Issuing Bank may be liable to the Company, to the extent, but only
to the extent, of any direct, as opposed to consequential or exemplary, damages
suffered by the Company which the Company proves were caused by the Issuing
Bank's willful misconduct or gross negligence or the Issuing Bank's willful
failure to pay under any Letter of Credit after the presentation to it by the
beneficiary of a sight draft and certificate(s) strictly complying with the
terms and conditions of a Letter of Credit. In furtherance and not in limitation
of the foregoing: (i) the Issuing Bank may accept documents that appear on their
face to be in order, without responsibility for further investigation,
regardless of any notice or information to the contrary; and (ii) the Issuing
Bank shall not be responsible for the validity or sufficiency of any instrument
transferring or assigning or purporting to transfer or assign a Letter of Credit
or the rights or benefits thereunder or proceeds thereof, in whole or in part,
which may prove to be invalid or ineffective for any reason.
3.06 Obligations Absolute. The obligations of the Company under this
Agreement and any L/C-Related Document to reimburse the Issuing Bank for a
drawing under a Letter of Credit, and to repay any L/C Borrowing and any drawing
under a Letter of Credit converted into Revolving Loans, shall be unconditional
and irrevocable, and shall be paid strictly in accordance with the terms of this
Agreement and each such other L/C-Related Document under all circumstances,
including the following:
(i) any lack of validity or enforceability of this Agreement or any
L/C-Related Document;
(ii) any change in the time, manner or place of payment of, or in any
other term of, all or any of the obligations of the Company in respect of any
Letter of Credit or any other amendment or waiver of or any consent to departure
from all or any of the L/C-Related Documents;
(iii) the existence of any claim, set-off, defense or other right that
the Company may have at any time against any beneficiary or any transferee of
any Letter of Credit (or any Person for whom any such beneficiary or any such
transferee may be acting), the Issuing Bank or any other Person, whether in
connection with this Agreement, the transactions contemplated hereby or by the
L/C-Related Documents or any unrelated
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transaction;
(iv) subject to the provisions of this Agreement, any draft, demand,
certificate or other document presented under any Letter of Credit proving to be
forged, fraudulent, invalid or insufficient in any respect or any statement
therein being untrue or inaccurate in any respect; or any loss or delay in the
transmission or otherwise of any document required in order to make a drawing
under any Letter of Credit;
(v) subject to the provisions of this Agreement, any payment by the
Issuing Bank under any Letter of Credit against presentation of a draft or
certificate that does not strictly or substantially comply with the terms of any
Letter of Credit; or any payment made by the Issuing Bank under any Letter of
Credit to any Person purporting to be a trustee in bankruptcy, debtor-in-
possession, assignee for the benefit of creditors, liquidator, receiver or other
representative of or successor to any beneficiary or any transferee of any
Letter of Credit, including any arising in connection with any Insolvency
Proceeding;
(vi) any exchange, release or non-perfection of any collateral, or
any release or amendment or waiver of or consent to departure from any other
guarantee, for all or any of the obligations of the Company in respect of any
Letter of Credit; or
(vii) any other circumstance or happening whatsoever, whether or not
similar to any of the foregoing, including any other circumstance that might
otherwise constitute a defense available to, or a discharge of, the Company or a
guarantor.
3.07 Cash Collateral Pledge. Upon the request of the Agent, if, as of the
Revolving Termination Date, any Letters of Credit for any reason remain
outstanding and partially or wholly undrawn, then the Company shall immediately
Cash Collateralize the L/C Obligations in an amount and in the currency equal to
such L/C Obligations in the currency of the Letter of Credit and the Company
hereby grants to the Agent for the ratable benefit of the Banks and the Issuing
Banks a security interest in such cash collateral for the purpose of securing
the Company's obligations under this Agreement.
3.08 Letter of Credit Fees.
(a) The Company shall pay to the Agent for the ratable account of
each of the Banks the following fees for Letters of Credit issued by each
Issuing Bank:
(i) For each standby Letter of Credit issued by the Issuing
Bank, the Company shall pay a fee at a rate per annum equal to the Standby
Letter of Credit Fee in effect on the date of Issuance of the standby Letter of
Credit. Such Standby Letter of Credit Fee shall be computed on a quarterly basis
in arrears
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on the last Business Day of each calendar quarter based upon the average daily
maximum amount available to be drawn under the standby Letter of Credit during
that quarter as calculated by the Agent. The Standby Letter of Credit Fee shall
be due and payable quarterly in arrears on the last Business Day of each
calendar quarter during which standby Letters of Credit are outstanding,
commencing on the first such quarterly date to occur after the Closing Date,
through the Revolving Termination Date (or such later date upon which the
outstanding Letters of Credit shall expire), with the final payment to be made
on the Revolving Termination Date (or such later expiration date).
Notwithstanding the foregoing, while any Event of Default exists, the Company
shall pay a Standby Letter of Credit Fee at a rate per annum which is determined
by adding 2% per annum to the applicable Standby Letter of Credit Fee then in
effect for each such standby Letter of Credit.
(ii) For each commercial documentary Letter of Credit issued by
the Issuing Bank, the Company shall pay an issuance fee at a rate per annum
equal to the Commercial Letter of Credit Fee in effect on the date of Issuance
of the commercial documentary Letter of Credit. Such Commercial Letter of Credit
Fee shall be computed on the maximum amount available to be drawn under the
commercial documentary Letter of Credit. Such issuance fee shall be due and
payable on each date of Issuance of a commercial documentary Letter of Credit,
or, in the case of an additional issuance fee payable as a result of an
amendment to increase the amount or extend the maturity of a commercial
documentary Letter of Credit, on the date of such amendment. The Company shall
not be entitled to any refund of the issuance fee if the amount of a commercial
documentary Letter of Credit is reduced by amendment, or the commercial
documentary Letter of Credit is cancelled. Notwithstanding the foregoing, while
any Event of Default exists, the Company shall pay an issuance fee for each
commercial documentary Letter of Credit issued by the Issuing Bank after the
occurrence of such Event of Default, or amended by the Issuing Bank after the
occurrence of such Event of Default to increase the amount or extend the
maturity date of such commercial documentary Letter of Credit, at a rate per
annum which is determined by adding 1/2% per annum to the applicable Commercial
Letter of Credit Fee in effect on the date of such Issuance or amendment.
(b) The Company shall pay to the Agent for the account of the Issuing
Bank a Letter of Credit fronting fee for each standby Letter of Credit Issued by
the Issuing Bank equal to .125% (or such lesser amount as may be agreed upon
between the Company and the Issuing Bank at the time any standby Letter of
Credit is Issued by such Issuing Bank) of the face amount (or increased face
amount, as the case may be) of such standby Letter of Credit. Such Letter of
Credit fronting fee shall be due and payable on each date of Issuance of a
standby Letter of Credit and shall be calculated on the face
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amount of such Letter of Credit.
(c) The Company shall pay to the Issuing Bank from time to time on demand
the normal issuance, presentation, amendment and other processing fees, and
other standard costs and charges, of the Issuing Bank relating to letters of
credit as from time to time in effect.
3.09 Uniform Customs and Practice. The Uniform Customs and Practice for
Documentary Credits as published by the International Chamber of Commerce most
recently at the time of issuance of any Letter of Credit shall (unless otherwise
expressly provided in the Letters of Credit) apply to the Letters of Credit.
3.10 Reports to Agent. Each Issuing Bank shall deliver to Agent, no later
than 10 days after the end of each calendar month, a summary of all outstanding
Letters of Credit issued by the Issuing Bank. Said summary shall include the
date of issuance, the expiry date and the amount available to be drawn under
each Letter of Credit. Upon receipt of said summary by Agent from the Issuing
Banks, Agent shall provide a copy to the Company.
ARTICLE IV
TAXES, YIELD PROTECTION AND ILLEGALITY
4.01 Taxes.
(a) Any and all payments by the Company to each Bank or the Agent
under this Agreement and any other Loan Document shall be made free and clear
of, and without deduction or withholding for, any Taxes. In addition, the
Company shall pay all Other Taxes.
(b) If the Company shall be required by law to deduct or withhold any
Taxes, Other Taxes or Further Taxes from or in respect of any sum payable
hereunder to any Bank or the Agent, then:
(i) the sum payable shall be increased as necessary so that,
after making all required deductions and withholdings (including deductions and
withholdings applicable to additional sums payable under this Section), such
Bank or the Agent, as the case may be, receives and retains an amount equal to
the sum it would have received and retained had no such deductions or
withholdings been made;
(ii) the Company shall make such deductions and withholdings;
(iii) the Company shall pay the full amount deducted or withheld
to the relevant taxing authority or other authority in accordance with
applicable law; and
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(iv) the Company shall also pay to each Bank or the Agent for
the account of such Bank, at the time interest is paid, Further Taxes in the
amount that the respective Bank specifies as necessary to preserve the after-tax
yield the Bank would have received if such Taxes, Other Taxes or Further Taxes
had not been imposed.
(c) The Company agrees to indemnify and hold harmless each Bank and
the Agent for the full amount of i) Taxes, ii) Other Taxes, and iii) Further
Taxes in the amount that the respective Bank specifies as necessary to preserve
the after-tax yield the Bank would have received if such Taxes, Other Taxes or
Further Taxes had not been imposed, and any liability (including penalties,
interest, additions to tax and expenses) arising therefrom or with respect
thereto, whether or not such Taxes, Other Taxes or Further Taxes were correctly
or legally asserted. Payment under this indemnification shall be made within 30
days after the date the Bank or the Agent makes written demand therefor.
(d) Within 30 days after the date of any payment by the Company of
Taxes, Other Taxes or Further Taxes, the Company shall furnish to each Bank or
the Agent the original or a certified copy of a receipt evidencing payment
thereof, or other evidence of payment satisfactory to such Bank or the Agent.
(e) If the Company is required to pay any amount to any Bank or the
Agent pursuant to Section (b) or (c) of this Section, then such Bank shall use
reasonable efforts (consistent with legal and regulatory restrictions) to change
the jurisdiction of its Lending Office so as to eliminate any such additional
payment by the Company which may thereafter accrue, if such change in the sole
judgment of such Bank is not otherwise disadvantageous to such Bank.
4.02 Illegality.
(a) If any Bank determines that the introduction of any Requirement
of Law, or any change in any Requirement of Law, or in the interpretation or
administration of any Requirement of Law, has made it unlawful, or that any
central bank or other Governmental Authority has asserted that it is unlawful,
for any Bank or its applicable Lending Office to make Offshore Rate Loans, then,
on notice thereof by the Bank to the Company through the Agent, any obligation
of that Bank to make Offshore Rate Loans shall be suspended until the Bank
notifies the Agent and the Company that the circumstances giving rise to such
determination no longer exist.
(b) If a Bank determines that it is unlawful to maintain any Offshore
Rate Loan, the Company shall, upon its receipt of notice of such fact and demand
from such Bank (with a copy to the Agent), prepay in full such Offshore Rate
Loans of that Bank then outstanding, together with interest accrued thereon and
amounts required under Section 4.04, either on the last day of the Interest
Period thereof,
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if the Bank may lawfully continue to maintain such Offshore Rate Loans to such
day, or immediately, if the Bank may not lawfully continue to maintain such
Offshore Rate Loan. If the Company is required to so prepay any Offshore Rate
Loan, then concurrently with such prepayment, the Company shall borrow from the
affected Bank, in the amount of such repayment, a Base Rate Loan.
4.03 Increased Costs and Reduction of Return.
(a) If any Bank determines that, due to either (i) the introduction of or
any change (other than any change by way of imposition of or increase in reserve
requirements included in the calculation of the Offshore Rate) in or in the
interpretation of any law or regulation or (ii) the compliance by that Bank with
any guideline or request from any central bank or other Governmental Authority
(whether or not having the force of law), there shall be any increase in the
cost to such Bank of agreeing to make or making, funding or maintaining any
Offshore Rate Loans or participating in Letters of Credit, or, in the case of
the Issuing Bank, any increase in the cost to the Issuing Bank of agreeing to
issue, issuing or maintaining any Letter of Credit or of agreeing to make or
making, funding or maintaining any unpaid drawing under any Letter of Credit,
then the Company shall be liable for, and shall from time to time, upon demand
(with a copy of such demand to be sent to the Agent), pay to the Agent for the
account of such Bank, additional amounts as are sufficient to compensate such
Bank for such increased costs.
(b) If any Bank shall have determined that (i) the introduction of
any Capital Adequacy Regulation, (ii) any change in any Capital Adequacy
Regulation, (iii) any change in the interpretation or administration of any
Capital Adequacy Regulation by any central bank or other Governmental Authority
charged with the interpretation or administration thereof, or (iv) compliance by
the Bank (or its Lending Office) or any corporation controlling the Bank with
any Capital Adequacy Regulation, affects or would affect the amount of capital
required or expected to be maintained by the Bank or any corporation controlling
the Bank and (taking into consideration such Bank's or such corporation's
policies with respect to capital adequacy and such Bank's desired return on
capital) determines that the amount of such capital is increased as a
consequence of its Commitment, loans, credits or obligations under this
Agreement, then, upon demand of such Bank to the Company through the Agent, the
Company shall pay to the Bank, from time to time as specified by the Bank,
additional amounts sufficient to compensate the Bank for such increase.
4.04 Funding Losses. The Company shall reimburse each Bank and hold each
Bank harmless from any loss or expense which the Bank may sustain or incur as a
result of:
(a) the failure of the Company to make on a timely basis any payment
of principal of any Offshore Rate Loan;
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(b) the failure of the Company to borrow, continue or convert a Loan
after the Company has given (or is deemed to have given) a Notice of Borrowing
or a Notice of Conversion/ Continuation;
(c) the failure of the Company to make any prepayment in accordance
with any notice delivered under Section 2.06;
(d) the prepayment or other payment of an Offshore Rate Loan on a day
that is not the last day of the relevant Interest Period (including mandatory
prepayments required pursuant to Section 2.07 and payments after acceleration
thereof); or
(e) the automatic conversion under Section 2.04 of any Offshore Rate
Loan to a Base Rate Loan on a day that is not the last day of the relevant
Interest Period; including any such loss or expense arising from the liquidation
or reemployment of funds obtained by it to maintain its Offshore Rate Loans or
from fees payable to terminate the deposits from which such funds were obtained,
but excluding any consequential or exemplary damages. For purposes of
calculating amounts payable by the Company to the Banks under this Section and
under Section 4.03(a), each Offshore Rate Loan made by a Bank (and each related
reserve, special deposit or similar requirement) shall be conclusively deemed to
have been funded at the LIBOR used in determining the Offshore Rate for such
Offshore Rate Loan by a matching deposit or other borrowing in the interbank
eurodollar market for a comparable amount and for a comparable period, whether
or not such Offshore Rate Loan is in fact so funded.
4.05 Inability to Determine Rates. If any Bank determines that for any
reason adequate and reasonable means do not exist for determining the Offshore
Rate for any requested Interest Period with respect to a proposed Offshore Rate
Loan, or that the Offshore Rate applicable pursuant to Section 2.09(a) for any
requested Interest Period with respect to a proposed Offshore Rate Loan does not
adequately and fairly reflect the cost to such Bank of funding such Loan, the
Agent will promptly so notify the Company and each Bank. Thereafter, the
obligation of the Banks to make or maintain Offshore Rate Loans hereunder shall
be suspended until the Agent revokes such notice in writing. Upon receipt of
such notice, the Company may revoke any Notice of Borrowing or Notice of
Conversion/Continuation then submitted by it. If the Company does not revoke
such Notice, the Banks shall make, convert or continue the Loans, as proposed by
the Company, in the amount specified in the applicable notice submitted by the
Company, but such Loans shall be made, converted or continued as Base Rate Loans
instead of Offshore Rate Loans.
4.06 Certificates of Banks. Any Bank claiming reimbursement or compensation
under this Article IV shall deliver to the Company (with a copy to the Agent) a
certificate setting forth in reasonable detail
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the calculation of the amount payable to the Bank hereunder and such certificate
shall be conclusive and binding on the Company in the absence of manifest error.
4.07 Substitution of Banks. If any Bank makes a claim for compensation
under Section 4.02 or 4.03 (an "Affected Bank"), the Company may: (a) request
one more of the other Banks to acquire and assume all or part of such Affected
Bank's Loans and Commitments, or (b) designate a new Bank acceptable to the
Agent and the other Banks (except the Affected Bank) to acquire and assume all
or part of such Affected Bank's Loans and Commitments.
4.08 Survival. The agreements and obligations of the Company in this
Article IV shall survive the payment of all other Obligations.
ARTICLE V
CONDITIONS PRECEDENT
5.01 Conditions of Initial Credit Extensions. The obligation of each Bank
to make its initial Credit Extension hereunder is subject to the condition that
the Agent shall have received on or before the date of the initial Credit
Extension all of the following, in form and substance satisfactory to the Agent
and each Bank, and in sufficient copies for each Bank:
(a) Credit Agreement. This Agreement executed by each party thereto;
(b) Resolutions; Incumbency.
(i) Copies of the resolutions of the board of directors of the
Company authorizing the transactions contemplated hereby, certified as of the
Closing Date by the Secretary or an Assistant Secretary of the Company; and
(ii) A certificate of the Secretary or Assistant Secretary of the
Company certifying the names and true signatures of the officers of the Company
authorized to execute, deliver and perform, as applicable, this Agreement, and
all other Loan Documents to be delivered by it hereunder;
(c) Guaranty. The Guaranty executed by the Guarantors, together with
a copy of the resolution of the board of directors of the Guarantors authorizing
the Guaranty, certified as of the Closing Date by the Secretary or an Assistant
Secretary of the Guarantors and a certificate of the Secretary or Assistant
Secretary of the Guarantors certifying the names and true signatures of the
officers of the Guarantors authorized to execute the Guaranty;
(d) Payment of Fees. Evidence of payment by the Company
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of all accrued and unpaid fees, costs and expenses to the extent then due and
payable to Agent or any Bank, as the case may be, on the Closing Date, together
with Attorney Costs of BofA to the extent invoiced prior to or on the Closing
Date, plus such additional amounts of Attorney Costs as shall constitute BofA's
reasonable estimate of Attorney Costs incurred or to be incurred by it through
the closing proceedings (provided that such estimate shall not thereafter
preclude final settling of accounts between the Company and BofA); including any
such costs, fees and expenses arising under or referenced in Sections 2.10 and
11.04;
(e) Payment of Existing Indebtedness. Payment by the Company of all
Indebtedness owing under the Existing Credit Agreement on the Closing Date,
other than the Existing Offshore Rate Loans and the Existing Letters of Credit.
(f) Other Documents. Such other approvals, opinions, documents or
materials as the Agent or any Bank may request.
5.02 Conditions to All Credit Extensions. The obligation of each Bank to
make any Revolving Loan to be made by it (including its initial Revolving Loan)
or to continue or convert any Revolving Loan under Section 2.04, the obligation
of the Issuing Bank to Issue any Letter of Credit (including the initial Letter
of Credit), and the obligation of any Bank to participate in any Letter of
Credit is subject to the satisfaction of the following conditions precedent on
the relevant Borrowing Date, Conversion/Continuation Date or Issuance Date:
(a) Notice, Application. The Agent shall have received (with, in the
case of the initial Revolving Loan only, a copy for each Bank) a Notice of
Borrowing or a Notice of Conversion/Continuation, as applicable or in the case
of any Issuance of any Letter of Credit, the Issuing Bank and the Agent shall
have received an L/C Application or L/C Amendment Application, as required under
Section 3.02;
(b) Continuation of Representations and Warranties. The
representations and warranties in Article VI shall be true and correct on and as
of such Borrowing Date or Conversion/Continuation Date or Issuance Date with the
same effect as if made on and as of such Borrowing Date or
Conversion/Continuation Date or Issuance Date (except to the extent such
representations and warranties expressly refer to an earlier date, in which case
they shall be true and correct as of such earlier date); and
(c) No Existing Default. No Default or Event of Default shall exist
or shall result from such Borrowing or continuation or conversion or Issuance.
Each Notice of Borrowing, Notice of Conversion/Continuation and L/C
Application or L/C Amendment Application submitted by the Company hereunder
shall constitute a representation and warranty by the
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Company hereunder, as of the date of each such notice and as of each Borrowing
Date, Conversion/Continuation Date, or Issuance Date, as applicable, that the
conditions in this Section 5.02 are satisfied.
5.03 Condition Subsequent. Within 45 days after the Closing Date, the
Company shall deliver to the Agent, in sufficient copies for each Bank, a
revised Schedule 8.01 setting forth all Liens existing on property of the Parent
and each Subsidiary as of the Closing Date and evidencing that, as of the
Closing Date, there were no Liens existing on the accounts receivable or
inventory of the Parent or any Subsidiary. The failure to deliver such revised
Schedule 8.01 by such time shall constitute an immediate Event of Default
hereunder.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to the Agent and each Bank
that:
6.01 Corporate Existence and Power. The Company:
(a) is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation;
(b) has the power and authority and all governmental licenses,
authorizations, consents and approvals to own its assets, carry on its business
and to execute, deliver, and perform its obligations under the Loan Documents;
(c) is duly qualified as a foreign corporation and is licensed and in
good standing under the laws of each jurisdiction where its ownership, lease or
operation of property or the conduct of its business requires such qualification
or license; and
(d) is in compliance with all Requirements of Law; except, in each
case referred to in clause (c) or clause (d), to the extent that the failure to
do so could not reasonably be expected to have a Material Adverse Effect.
6.02 Corporate Authorization; No Contravention. The execution, delivery and
performance by the Company of this Agreement and each other Loan Document to
which the Company is party, have been duly authorized by all necessary corporate
action, and do not and will not:
(a) contravene the terms of any of the Company's Organization
Documents;
(b) conflict with or result in any breach or contravention of, or the
creation of any Lien under, any document evidencing any
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Contractual Obligation to which the Company is a party or any order,
injunction, writ or decree of any Governmental Authority to which the
Company or its property is subject; or
(c) violate any Requirement of Law.
6.03 Governmental Authorization. No approval, consent, exemption,
authorization, or other action by, or notice to, or filing with, any
Governmental Authority is necessary or required in connection with the
execution, delivery or performance by, or enforcement against, the Company or
any of its Subsidiaries of the Agreement or any other Loan Document.
6.04 Binding Effect. This Agreement and each other Loan Document to which
the Company is a party constitute the legal, valid and binding obligations of
the Company, enforceable against the Company in accordance with their respective
terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, or similar laws affecting the enforcement of creditors' rights
generally or by equitable principles relating to enforceability.
6.05 Litigation. There are no actions, suits, proceedings, claims or
disputes pending, or to the best knowledge of the Company, threatened or
contemplated, at law, in equity, in arbitration or before any Governmental
Authority, against the Company or any of its properties which:
(a) purport to affect or pertain to this Agreement or any other Loan
Document, or any of the transactions contemplated hereby or thereby; or
(b) if determined adversely to the Company, would reasonably be
expected to have a Material Adverse Effect. No injunction, writ, temporary
restraining order or any order of any nature has been issued by any court or
other Governmental Authority purporting to enjoin or restrain the execution,
delivery or performance of this Agreement or any other Loan Document, or
directing that the transactions provided for herein or therein not be
consummated as herein or therein provided.
6.06 No Default. No Default or Event of Default exists or would result from
the incurring of any Obligations by the Company. As of the Closing Date, neither
the Company nor any Subsidiary is in default under or with respect to any
Contractual Obligation in any respect which, individually or together with all
such defaults, could reasonably be expected to have a Material Adverse Effect,
or that would, if such default had occurred after the Closing Date, create an
Event of Default under Section 9.01(e).
6.07 ERISA Compliance.
(a) Each Plan is in compliance in all material respects
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with the applicable provisions of ERISA, the Code and other federal or state
law. Each Plan which is intended to qualify under Section 401(a) of the Code has
received a favorable determination letter from the IRS and to the best knowledge
of the Company, nothing has occurred which would cause the loss of such
qualification. The Company and each ERISA Affiliate has made all required
contributions to any Plan subject to Section 412 of the Code, and no application
for a funding waiver or an extension of any amortization period pursuant to
Section 412 of the Code has been made with respect to any Plan.
(b) There are no pending or, to the best knowledge of Company,
threatened claims, actions or lawsuits, or action by any Governmental Authority,
with respect to any Plan which has resulted or could reasonably be expected to
result in a Material Adverse Effect. There has been no prohibited transaction or
violation of the fiduciary responsibility rules with respect to any Plan which
has resulted or could reasonably be expected to result in a Material Adverse
Effect.
(c) (i) No ERISA Event has occurred or is reasonably expected to
occur; (ii) no Pension Plan has any Unfunded Pension Liability in excess of
$3,000,000; (iii) neither the Company nor any ERISA Affiliate has incurred, or
reasonably expects to incur, any liability under Title IV of ERISA with respect
to any Pension Plan (other than premiums due and not delinquent under Section
4007 of ERISA); (iv) neither the Company nor any ERISA Affiliate has incurred,
or reasonably expects to incur, any liability (and no event has occurred which,
with the giving of notice under Section 4219 of ERISA, would result in such
liability) under Section 4201 or 4243 of ERISA with respect to a Multiemployer
Plan; and (v) neither the Company nor any ERISA Affiliate has engaged in a
transaction that could be subject to Section 4069 or 4212(c) of ERISA.
6.08 Use of Proceeds; Margin Regulations. The proceeds of the Loans are to
be used solely for the purposes set forth in and permitted by Section 7.12 and
Section 8.07. The Company is not generally engaged in the business of purchasing
or selling Margin Stock or extending credit for the purpose of purchasing or
carrying Margin Stock.
6.09 Title to Properties. The Company has good record and marketable title
in fee simple to, or valid leasehold interests in, all real property necessary
or used in the ordinary conduct of its business, except for such defects in
title as could not, individually or in the aggregate, have a Material Adverse
Effect. As of the Closing Date, the property of the Company is subject to no
Liens, other than Permitted Liens.
6.10 Taxes. The Company has filed all Federal and other material tax
returns and reports required to be filed, and has paid all Federal and other
material taxes, assessments, fees and other governmental charges levied or
imposed upon it or its properties, income or assets otherwise due and payable,
except those which are
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being contested in good faith by appropriate proceedings and for which adequate
reserves have been provided in accordance with GAAP. There is no proposed tax
assessment against the Company that would, if made, have a Material Adverse
Effect.
6.11 Environmental Matters. The Company conducts in the ordinary course of
business a review of the effect of existing Environmental Laws and existing
Environmental Claims on its business, operations and properties, and as a result
thereof the Company has reasonably concluded that such Environmental Laws and
Environmental Claims could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.
6.12 Regulated Entities. Neither the Company nor any Person controlling
the Company is an "Investment Company" within the meaning of the Investment
Company Act of 1940. The Company is not subject to regulation under the Public
Utility Holding Company Act of 1935, the Federal Power Act, the Interstate
Commerce Act, any state public utilities code, or any other Federal or state
statute or regulation limiting its ability to incur Indebtedness.
6.13 No Burdensome Restrictions. The Company is not a party to or bound by
any Contractual Obligation, or subject to any restriction in any Organization
Document, or any Requirement of Law, which could reasonably be expected to have
a Material Adverse Effect.
6.14 Copyrights, Patents, Trademarks and Licenses, etc. The Company owns
or is licensed or otherwise has the right to use all of the patents, trademarks,
service marks, trade names, copyrights, contractual franchises, authorizations
and other rights that are reasonably necessary for the operation of its
business, without conflict with the rights of any other Person. To the best
knowledge of the Company, no slogan or other advertising device, product,
process, method, substance, part or other material now employed, or now
contemplated to be employed, by the Company infringes upon any rights held by
any other Person. No claim or litigation regarding any of the foregoing is
pending or threatened, and no patent, invention, device, application, principle
or any statute, law, rule, regulation, standard or code is pending or, to the
knowledge of the Company, proposed, which, in either case, could reasonably be
expected to have a Material Adverse Effect.
6.15 Subsidiaries. The Company has no Subsidiaries and has no equity
investments in any other corporation or entity. The Parent has no Subsidiaries
and has no equity investments in any other corporation or entity other than the
Subsidiaries listed on Schedule 6.15. 6.16 Insurance. The properties of the
Company are insured with financially sound and reputable insurance companies not
Affiliates of the Company, in such amounts, with such deductibles and covering
such risks as are customarily carried by companies engaged in similar businesses
and owning similar properties in localities where the
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Company operates.
6.17 Swap Obligations. The Company has not incurred any outstanding
obligations under any Swap Contracts, other than Permitted Swap Obligations. The
Company has undertaken its own independent assessment of its consolidated
assets, liabilities and commitments and has considered appropriate means of
mitigating and managing risks associated with such matters and has not relied on
any swap counterparty or any Affiliate of any swap counterparty in determining
whether to enter into any Swap Contract.
6.18 Full Disclosure. None of the representations or warranties made by
the Company in the Loan Documents as of the date such representations and
warranties are made or deemed made, and none of the statements contained in any
exhibit, report, statement or certificate furnished by or on behalf of the
Company in connection with the Loan Documents (including the offering and
disclosure materials delivered by or on behalf of the Company to the Banks prior
to the Closing Date), contains any untrue statement of a material fact or omits
any material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances under which they are
made, not misleading as of the time when made or delivered.
ARTICLE VII
AFFIRMATIVE COVENANTS
So long as any Bank shall have any Commitment hereunder, or any Loan or
other Obligation shall remain unpaid or unsatisfied, or any Letter of Credit
shall remain outstanding, unless the Majority Banks (and all Banks in the case
of Section 7.13) waive compliance in writing:
7.01 Financial Statements. The Company and the Parent, as applicable,
shall deliver to the Agent and each Bank, in form and detail satisfactory to the
Agent and the Majority Banks:
(a) as soon as available, but not later than 95 days after the end
of each fiscal year, a copy of the audited consolidated balance sheet of the
Parent and its Subsidiaries as at the end of such year and the related
consolidated statement of income or operations, shareholders' equity and cash
flows for such year, setting forth in each case in comparative form the figures
for the previous fiscal year, and accompanied by the opinion of Deloitte &
Touche LLP or another nationally-recognized independent public accounting firm
("Independent Auditor") which report shall state that such consolidated
financial statements present fairly the financial position for the periods
indicated in conformity with GAAP applied on a basis consistent with prior
years;
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(b) as soon as available, but not later than 50 days after the end of
each of the first three fiscal quarters of each fiscal year, a copy of the
unaudited consolidated balance sheet of the Parent and its Subsidiaries as of
the end of such quarter and the related consolidated statement of income,
shareholders' equity and cash flows for the period commencing on the first day
and ending on the last day of such quarter, certified by a Responsible Officer
of the Company and the Parent as fairly presenting, in accordance with GAAP
(subject to ordinary, good faith year-end audit adjustments), the financial
position and the results of operations of the Parent and the Subsidiaries;
(c) as soon as available, but not later than 95 days after the end of
each fiscal year, a copy of the unaudited consolidating schedules for the
Subsidiaries; and
(d) as soon as available, but not later than 30 days after the end of
each fiscal year, the Parent's projected consolidated balance sheet, income
statement, and cash flow statement for the next fiscal year (prepared on a
monthly basis) and for each subsequent fiscal year through the Revolving
Termination Date (prepared on a quarterly basis).
7.02 Certificates; Other Information. The Company and the Parent, as
applicable, shall furnish to the Agent and each Bank:
(a) concurrently with the delivery of the financial statements
referred to in Sections 7.01(a) and (b), a Compliance Certificate executed by a
Responsible Officer of the Company and the Parent;
(b) concurrently with the delivery of the financial statements
referred to in Sections 7.01(a) and (b), store operating data of the Parent and
its Subsidiaries on a year-to-date basis in form and substance satisfactory to
the Agent and the Banks;
(c) promptly, copies of all financial statements and reports that the
Parent sends to its shareholders, and, within five days of filing, copies of all
financial statements and regular, periodical or special reports (including Forms
10K, 10Q and 8K) that the Parent or any Subsidiary may make to, or file with,
the SEC;
(d) promptly, any notification from Moody's Investors Service, Inc.
or Standard & Poor's Ratings Services regarding the establishment of, or any
change in, the rating for the Parent or the Parent's long term senior unsecured
debt;
(e) promptly upon receipt, copies of any and all final management
letters received by the Parent or any Subsidiary from the Independent Auditor;
and
(f) promptly, such additional information regarding the
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business, financial or corporate affairs of the Company, the Parent, or any
Subsidiary as the Agent, at the request of any Bank, may from time to time
request.
7.03 Notices. The Company and the Parent, as applicable, shall promptly
notify the Agent and each Bank:
(a) of the occurrence of any Default or Event of Default, and of the
occurrence or existence of any event or circumstance that foreseeably will
become a Default or Event of Default;
(b) of any matter that has resulted or could reasonably be expected
to result in a Material Adverse Effect, including (i) breach or non-performance
of, or any default under, a Contractual Obligation of the Company, the Parent,
or any Subsidiary; (ii) any dispute, litigation, investigation, proceeding or
suspension between the Company, the Parent, or any Subsidiary and any
Governmental Authority; or (iii) the commencement of, or any material
development in, any litigation or proceeding affecting the Company, the Parent,
or any Subsidiary; including pursuant to any applicable Environmental Laws;
(c) of the occurrence of any of the following events affecting the
Company, the Parent, or any ERISA Affiliate (but in no event more than 10 days
after such event), and deliver to the Agent and each Bank a copy of any notice
with respect to such event that is filed with a Governmental Authority and any
notice delivered by a Governmental Authority to the Company, the Parent, or any
ERISA Affiliate with respect to such event:
(i) an ERISA Event;
(ii) a material increase in the Unfunded Pension Liability of
any Pension Plan;
(iii) the adoption of, or the commencement of contributions to,
any Plan subject to Section 412 of the Code by the Company, the Parent, or
any ERISA Affiliate; or
(iv) the adoption of any amendment to a Plan subject to Section
412 of the Code, if such amendment results in a material increase in
contributions or Unfunded Pension Liability;
(d) of any material change in accounting policies or financial
reporting practices by the Parent or any of its consolidated Subsidiaries;
(e) of any actual contingent liabilities of the Company, the Parent,
or any Subsidiary, excluding Letters of Credit issued hereunder, and any such
contingent liabilities which are reasonably foreseeable, where such liabilities
are in excess of $1,000,000 in the aggregate.
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Each notice under this Section shall be accompanied by a written statement
by a Responsible Officer setting forth details of the occurrence referred to
therein, and stating what action the Company, the Parent, or any affected
Subsidiary proposes to take with respect thereto and at what time. Each notice
under Section 7.03(a) shall describe with particularity any and all clauses or
provisions of this Agreement or other Loan Document that have been (or
foreseeably will be) breached or violated.
7.04 Preservation of Corporate Existence, Etc. The Company and the Parent
shall, and the Parent shall cause each Subsidiary to:
(a) preserve and maintain in full force and effect its corporate
existence and good standing under the laws of its state or jurisdiction of
incorporation;
(b) preserve and maintain in full force and effect all governmental
rights, privileges, qualifications, permits, licenses and franchises necessary
or desirable in the normal conduct of its business except in connection with
transactions permitted by Section 8.03 and sales of assets permitted by Section
8.02;
(c) use reasonable efforts, in the ordinary course of business, to
preserve its business organization and goodwill; and
(d) preserve or renew all of its registered patents, trademarks,
trade names and service marks, the non-preservation of which could reasonably be
expected to have a Material Adverse Effect.
7.05 Maintenance of Property. The Company and the Parent shall maintain,
and the Parent shall cause each Subsidiary to maintain, and preserve all its
property which is used or useful in its business in good working order and
condition, ordinary wear and tear excepted and make all necessary repairs
thereto and renewals and replacements thereof except where the failure to do so
could not reasonably be expected to have a Material Adverse Effect. The Company,
the Parent, and each Subsidiary shall use the standard of care typical in the
industry in the operation and maintenance of its facilities.
7.06 Insurance. The Company and the Parent shall maintain, and the Parent
shall cause each Subsidiary to maintain, with financially sound and reputable
independent insurers, insurance with respect to its properties and business
against loss or damage of the kinds customarily insured against by Persons
engaged in the same or similar business, of such types and in such amounts as
are customarily carried under similar circumstances by such other Persons.
7.07 Payment of Obligations. The Company and the Parent shall, and the
Parent shall cause each Subsidiary to, pay and discharge as the same shall
become due and payable, all their respective obligations and liabilities,
including:
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(a) all tax liabilities, assessments and governmental charges or
levies upon it or its properties or assets, unless the same are being contested
in good faith by appropriate proceedings and adequate reserves in accordance
with GAAP are being maintained by the Company or such Subsidiary;
(b) all lawful claims which, if unpaid, would by law become a Lien
upon its property (other than Permitted Liens), unless the same are being
contested in good faith by appropriate proceedings and adequate reserves in
accordance with GAAP are being maintained by the Company or such Subsidiary; and
(c) all Indebtedness, as and when due and payable, but subject to any
subordination provisions contained in any instrument or agreement evidencing
such Indebtedness.
7.08 Compliance with Laws. The Company and the Parent shall comply, and the
Parent shall cause each Subsidiary to comply, in all material respects with all
Requirements of Law of any Governmental Authority having jurisdiction over it or
its business (including the Federal Fair Labor Standards Act) to the extent that
failure to comply would have a Material Adverse Effect, except such as may be
contested in good faith or as to which a bona fide dispute may exist.
7.09 Compliance with ERISA. The Company and the Parent shall, and shall
cause each ERISA Affiliate to: (a) maintain each Plan in compliance in all
material respects with the applicable provisions of ERISA, the Code and other
federal or state law; (b) cause each Plan which is qualified under Section
401(a) of the Code to maintain such qualification; and (c) make all required
contributions to any Plan subject to Section 412 of the Code.
7.10 Inspection of Property and Books and Records. The Company and the
Parent shall maintain, and the Parent shall cause each Subsidiary which
maintains books and records to maintain, proper books of record and account, in
which full, true and correct entries in conformity with GAAP consistently
applied shall be made of all financial transactions and matters involving the
assets and business of the Company, the Parent, and such Subsidiary. The Company
and the Parent shall permit, and the Parent shall cause each Subsidiary to
permit, representatives and independent contractors of the Agent or any Bank to
visit and inspect any of their respective properties, to examine their
respective corporate, financial and operating records, and make copies thereof
or abstracts therefrom, and to discuss their respective affairs, finances and
accounts with their respective officers, and independent public accountants, all
at such reasonable times during normal business hours and as often as may be
reasonably desired, upon reasonable advance notice to the Company or the Parent,
as applicable; provided, however, that the Agent or any Bank may inspect and
examine the books and records of the Company, the Parent, and each Subsidiary
not more than once every 12 months, unless an Event of Default exists, in which
case the Agent and any Bank may do
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any of the foregoing any number of times at the expense of the Company.
7.11 Environmental Laws. The Company and the Parent shall, and the Parent
shall cause each Subsidiary to, conduct its operations and keep and maintain its
property in compliance with all Environmental Laws to the extent that failure to
comply would have a Material Adverse Effect.
7.12 Use of Proceeds. The Company shall use the proceeds of the Loans to
provide financing to the Guarantors for working capital purposes, refinancing of
existing funded debt, Acquisitions, Joint Ventures, and other general corporate
purposes not in contravention of any Requirement of Law or of any Loan Document.
The Company shall not use the proceeds of the Loans to provide financing to any
Person which is not a Guarantor.
7.13 Financial Covenants. The Parent shall, on a consolidated basis:
(a) not permit the ratio of Funded Debt to EBITDA to exceed the ratio
indicated below as of the end of each fiscal quarter set forth below:
Fiscal Quarters Ratio
4th Qtr 1999 2.75 to 1.0
1st Qtr 2000 2.50 to 1.0
2nd Qtr 2000 - 4th Qtr 2000 2.00 to 1.0
1st Qtr 2001 2.50 to 1.0
2nd Qtr 2001 - 4th Qtr 2001 2.00 to 1.0
1st Qtr 2002 2.50 to 1.0
2nd Qtr 2002 and thereafter 2.00 to 1.0
This ratio shall be calculated quarterly using the results of the most
recently concluded fiscal quarter and each of the three immediately preceding
fiscal quarters.
"Funded Debt" means, without duplication, all Indebtedness permitted under
subsections (f), (g), (h) and (j) of Section 8.05 outstanding as of the date of
calculation, and all Loans outstanding hereunder as of the date of calculation.
"EBITDA" means the sum of net income before taxes, plus interest expense,
depreciation, and amortization.
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(b) achieve a Fixed Charge Coverage Ratio of at least 1.75:1.0 as of
the end of the fourth fiscal quarter of 1999, and at least 1.20:1.0 as of the
end of the second, third, and fourth fiscal quarters of 2000 and the first
fiscal quarter of 2001, and at least 1.25:1.0 as of the end of each fiscal
quarter thereafter. The Fixed Charge Coverage Ratio for the fourth fiscal
quarter of 1999 shall be calculated as set forth in the Existing Credit
Agreement. All subsequent calculations of the Fixed Charge Coverage Ratio shall
be made as set forth in this Agreement. This ratio shall be calculated quarterly
using the results of the most recently concluded fiscal quarter and each of the
three immediately preceding fiscal quarters.
"Fixed Charge Coverage Ratio" means the ratio obtained by dividing the sum
of net income after taxes, Rents, and Net Interest Expense, by the sum of Rents
and Net Interest Expense.
"Net Interest Expense" means, for any period of determination, interest
expense less interest income; provided, that in no event shall Net Interest
Expense be less than zero.
"Rents" means, for any period of determination, the sum of rental payments
under building leases (including all supplemental payments required under store
leases based on a percentage of sales generated from the leased premises), all
common area maintenance payments required under building leases, all payments
under equipment operating leases, all other rental expense, minus all sublease
revenue.
(c) maintain a ratio of current assets to current liabilities of at
least 1.50 to 1.0 as of the end of each fiscal quarter. For purposes of the
foregoing calculation, all Loans outstanding under this Agreement and all funded
Indebtedness under any other line of credit obtained by the Company shall be
deemed to be a current liability.
(d) maintain Tangible Net Worth at least equal to (i) $107,500,000;
plus (ii) the sum of 75% of net income after taxes (without subtracting losses)
earned in each fiscal quarter commencing after April 3, 1999; plus (iii) the net
proceeds from any equity securities issued after the date of this Agreement.
"Tangible Net Worth" means the gross book value of the assets of the Parent
(exclusive of goodwill, patents, trademarks, trade names, organization expense,
treasury stock, unamortized debt discount and expense, deferred charges and
other like intangibles) less (a) reserves applicable thereto, and (b) all
liabilities (including accrued and deferred income taxes).
7.14 New Guarantors. Upon any Person becoming a direct or indirect domestic
or foreign Subsidiary of the Parent, the Parent shall cause such Person to
become a Guarantor by executing and delivering to the Agent an amendment or
supplement to the Guaranty in
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the form of Exhibit B thereto adding such Person as a guarantor thereunder,
executed by all Guarantors party thereto. In connection therewith, the Company
shall deliver, or cause to be delivered, documents of the type described in
Section 5.01(b) and (c) relating to such Person.
ARTICLE VIII
NEGATIVE COVENANTS
So long as any Bank shall have any Commitment hereunder, or any Loan or
other Obligation shall remain unpaid or unsatisfied, or any Letter of Credit
shall remain outstanding, unless the Majority Banks waive compliance in writing:
8.01 Limitation on Liens. The Company and the Parent shall not, and the
Parent shall not suffer or permit any Subsidiary to, directly or indirectly,
make, create, incur, assume or suffer to exist any Lien upon or with respect to
any part of its property, whether now owned or hereafter acquired, other than
the following ("Permitted Liens"):
(a) any Lien existing on property of the Parent or any Subsidiary set
forth in Schedule 8.01 securing Indebtedness outstanding on the date of such
Schedule;
(b) any Lien created under any Loan Document;
(c) Liens for taxes, fees, assessments or other governmental charges
which are not delinquent or remain payable without penalty, or to the extent
that non-payment thereof is permitted by Section 7.07, provided that no notice
of lien has been filed or recorded under the Code;
(d) carriers', warehousemen's, mechanics', landlords', materialmen's,
repairmen's or other similar Liens arising in the ordinary course of business
which are not delinquent or remain payable without penalty or which are being
contested in good faith and by appropriate proceedings, which proceedings have
the effect of preventing the forfeiture or sale of the property subject thereto;
(e) Liens (other than any Lien imposed by ERISA) consisting of
pledges or deposits required in the ordinary course of business in connection
with workers' compensation, unemployment insurance and other social security
legislation;
(f) Liens on the property of the Parent or its Subsidiaries securing
(i) the non-delinquent performance of bids, trade contracts (other than for
borrowed money), leases, statutory obligations, (ii) contingent obligations on
surety and appeal bonds, and (iii) other non-delinquent obligations of a like
nature; in each case, incurred in the ordinary course of business, provided all
such
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Liens in the aggregate would not (even if enforced) cause a Material Adverse
Effect;
(g) Liens consisting of judgment or judicial attachment liens,
provided that the enforcement of such Liens is effectively stayed and all such
liens in the aggregate at any time outstanding for the Parent and its
Subsidiaries do not exceed $10,000,000;
(h) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business which, in the
aggregate, are not substantial in amount, and which do not in any case
materially detract from the value of the property subject thereto or interfere
with the ordinary conduct of the businesses of the Parent and its Subsidiaries;
(i) Liens on assets of corporations which become Subsidiaries after
the date of this Agreement, provided that (i) such Liens existed at the time the
respective corporations became Subsidiaries and were not created in anticipation
thereof, and (ii) any such Liens attach only to assets other than accounts
receivable or inventory;
(j) purchase money security interests on any property acquired or
held by the Parent or its Subsidiaries in the ordinary course of business,
securing Indebtedness incurred or assumed for the purpose of financing all or
any part of the cost of acquiring such property; provided that (i) any such Lien
attaches to such property concurrently with or within 20 days after the
acquisition thereof, (ii) such Lien attaches solely to the property so acquired
in such transaction, and (iii) the principal amount of the debt secured thereby
does not exceed 100% of the cost of such property;
(k) Liens securing obligations in respect of capital leases on assets
subject to such leases, provided that such capital leases are otherwise
permitted hereunder;
(l) Liens arising solely by virtue of any statutory or common law
provision relating to banker's liens, rights of set-off or similar rights and
remedies as to deposit accounts or other funds maintained with a creditor
depository institution; provided that (i) such deposit account is not a
dedicated cash collateral account and is not subject to restrictions against
access by the Parent or any Subsidiary in excess of those set forth by
regulations promulgated by the FRB, and (ii) such deposit account is not
intended by the Parent or any Subsidiary to provide collateral to the depository
institution;
(m) Liens consisting of pledges of cash collateral or government
securities to secure on a mark-to-market basis Permitted Swap Obligations only,
provided that (i) the counterparty to any Swap Contract relating to such
Permitted Swap Obligation is under a similar requirement to deliver similar
collateral from time to time to the Parent or the Subsidiary party thereto on a
mark-to-market basis; and
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(ii) the aggregate value of such collateral so pledged by the
Parent and the Subsidiaries together in favor of any counterparty does not at
any time exceed $1,000,000;
(n) Liens arising from security deposits and prepaid obligations in
connection with operating leases. 8.02 Disposition of Assets. The Company and
the Parent shall not, and the Parent shall not suffer or permit any Subsidiary
to, directly or indirectly, sell, assign, lease, convey, transfer or otherwise
dispose of (whether in one or a series of transactions) any property (including
accounts and notes receivable, with or without recourse) or enter into any
agreement to do any of the foregoing, except:
(a) dispositions of inventory, or used, worn-out or surplus
equipment, all in the ordinary course of business;
(b) the sale of equipment to the extent that such equipment is
exchanged for credit against the purchase price of similar replacement
equipment, or the proceeds of such sale are reasonably promptly applied to the
purchase price of such replacement equipment;
(c) dispositions of inventory, equipment, trademarks, accounts
receivable, operating space leases, and other assets by the Parent or any
Subsidiary to the Parent or any Subsidiary (provided such Subsidiary is also a
Guarantor) pursuant to reasonable business requirements;
(d) dispositions of assets acquired in a permitted Acquisition which
are made for fair market value; provided, that (i) the aggregate sales price
from such disposition shall be paid in cash or pursuant to a note receivable
with a maturity date not exceeding one year, and (ii) the disposition shall
occur within one year from the date of the permitted Acquisition (it being
understood that the term of any leases or subleases of such assets, and any
renewals of such leases or subleases, may be for a period longer than one year
so long as such leases or subleases were originally entered into within one year
from the date of the permitted Acquisition);
(e) dispositions (including in connection with a sale-leaseback) not
otherwise permitted hereunder which are made for fair market value; provided,
that (i) at the time of any disposition, no Event of Default shall exist or
shall result from such disposition, (ii) the aggregate sales price from such
disposition shall be paid in cash or pursuant to a note receivable with a
maturity date not exceeding one year, and (iii) the aggregate value of all
assets so sold by the Parent and its Subsidiaries, together, pursuant to this
Section 8.02(e) shall not exceed in any fiscal year $5,000,000; and
(f) assignments of accounts receivable for collection
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purposes, but not for financing, provided that the aggregate amount of all such
accounts receivable assigned at any one time does not exceed $1,000,000.
8.03 Consolidations and Mergers. The Company and the Parent shall not, and
the Parent shall not suffer or permit any Subsidiary to, merge, consolidate with
or into, or convey, transfer, lease or otherwise dispose of (whether in one
transaction or in a series of transactions) all or substantially all of its
assets (whether now owned or hereafter acquired) to or in favor of any Person,
except:
(a) any Subsidiary may merge with the Parent, provided that the
Parent shall be the continuing or surviving corporation, or with any one or more
Subsidiaries, provided that the continuing or surviving corporation shall also
be a Guarantor, and further provided that if any transaction shall be between a
Subsidiary and a Wholly-Owned Subsidiary, the Wholly-Owned Subsidiary shall be
the continuing or surviving corporation; and
(b) any Subsidiary may sell all or substantially all of its assets
(upon voluntary liquidation or otherwise), to the Parent or another Wholly-Owned
Subsidiary, provided that such Wholly-Owned Subsidiary is also a Guarantor.
8.04 Loans, Investments and Acquisitions. The Company and the Parent shall
not purchase or acquire, and the Parent shall not suffer or permit any
Subsidiary to purchase or acquire, or make any commitment therefor, any capital
stock, equity interest, or any obligations or other securities of, or any
interest in, any Person, or make or commit to make any Acquisitions, or make or
commit to make any advance, loan, extension of credit or capital contribution to
or any other investment in, any Person including any Affiliate of the Company
(together, "Investments"), except for:
(a) Investments held by the Parent or any Subsidiary in the form of
cash equivalents or short term marketable securities;
(b) extensions of credit in the nature of accounts receivable or
notes receivable arising from the sale or lease of goods or services in the
ordinary course of business; provided that no such extensions of credit shall be
made by the Company to any Person which is not a Guarantor;
(c) extensions of credit by the Parent to any Subsidiary or by any
Subsidiary to any other Subsidiary or to the Parent, provided that no such
extensions of credit shall be made by the Company to any Person which is not a
Guarantor;
(d) Investments incurred in order to consummate Acquisitions
otherwise permitted herein, provided that (i) the aggregate consideration paid
for all such Acquisitions undertaken by the Parent and its Subsidiaries after
the Closing Date, including
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assumption of existing obligations but excluding consideration in the form of
capital stock of the Parent, and less cash received as a result of the
Acquisition, does not exceed $5,000,000, (ii) such Acquisitions are undertaken
in accordance with all applicable Requirements of Law; (iii) the prior,
effective written consent or approval to such Acquisition of the board of
directors or equivalent governing body of the acquiree is obtained; (iv) the
acquiree is in a line of business related to or substantially similar to the
lines of business carried on by the Parent and its Subsidiaries on the date
hereof; (v) such Acquisition will not cause the Parent, on a projected basis, to
violate any of the financial covenants set forth in this Agreement; and (vi)
such Acquisition is not made by the Company;
(e) Investments in Subsidiaries operating substantially in the
Parent's line of business (or businesses supportive thereof) outside the United
States in an aggregate amount not exceeding $10,000,000 during the term of this
Agreement, provided that no such investments shall be made by the Company;
(f) Investments constituting Permitted Swap Obligations or payments
or advances under Swap Contracts relating to Permitted Swap Obligations;
(g) extensions of credit by the Parent or any Subsidiary to its
executives, officers, directors or shareholders, provided that the aggregate
outstanding amount of such extensions of credit does not exceed $1,000,000 at
any one time; and
(h) Investments in business entities operating substantially in the
Parent's line of business (or businesses supportive thereof), and which are not
carried on the Parent's financial statements on a consolidated basis, in an
aggregate amount not exceeding $3,000,000 during the term of this Agreement,
provided that no such investments shall be made by the Company.
8.05 Limitation on Indebtedness. The Company and the Parent shall not, and
the Parent shall not suffer or permit any Subsidiary to, create, incur, assume,
suffer to exist, or otherwise become or remain directly or indirectly liable
with respect to, any Indebtedness, except:
(a) Indebtedness incurred pursuant to this Agreement;
(b) Indebtedness consisting of Contingent Obligations permitted
pursuant to Section 8.08;
(c) Indebtedness existing on the Closing Date and set forth in
Schedule 8.05, including any refinancing of such existing Indebtedness on terms
substantially similar to the terms in effect as of the Closing Date;
(d) Indebtedness incurred in connection with the
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acquisition of goods, supplies or merchandise on normal trade credit;
(e) Indebtedness secured by Liens permitted by Section 8.01(m);
(f) Indebtedness assumed in connection with permitted Acquisitions
after the date of this Agreement and which is secured by Liens permitted by
Section 8.01(i), including any refinancing of such Indebtedness on terms
substantially similar to the terms in effect as of the date of the Acquisition;
provided that (i) such Indebtedness existed at the time of such Acquisition and
was not created in anticipation thereof, and (ii) the aggregate outstanding
amount of such Indebtedness does not exceed $5,000,000 at any one time;
(g) unsecured Indebtedness for business purposes, provided that the
aggregate outstanding amount of such Indebtedness does not exceed $5,000,000 at
any one time;
(h) Indebtedness incurred in connection with financing the
acquisition of fixed or capital assets by the Parent and its Subsidiaries,
including all such Indebtedness secured by Liens permitted by Section 8.01(j)
and Indebtedness incurred in connection with capital leases, and further
including any refinancing of such Indebtedness on terms substantially similar to
the terms in effect as of the date of the Indebtedness was initially incurred,
provided that the aggregate outstanding amount of such Indebtedness does not
exceed $10,000,000 at any one time (excluding the amount of capital leases
outstanding as of the Closing Date);
(i) Indebtedness permitted under Section 8.04(c);
(j) Indebtedness incurred pursuant to a private placement of the
Company's debt obligations, provided that (i) such Indebtedness is subject to
terms, covenants, and conditions which are reasonably acceptable to the Banks,
and (ii) the aggregate outstanding principal amount of all such Indebtedness
does not exceed $40,000,000 at any one time;
provided that, without duplication, the aggregate outstanding amount of all
additional Indebtedness permitted under subsections (f), (g) and (h) above does
not exceed $20,000,000 at any one time.
8.06 Transactions with Non-Guarantor Subsidiaries. The Company and the
Parent shall not, and the Parent shall not suffer or permit any Subsidiary to,
enter into any transaction with any other Subsidiary which is not a Guarantor
except upon fair and reasonable terms no less favorable than would obtain in a
comparable arm's-length transaction with a Person not a Subsidiary.
8.07 Use of Proceeds. The Company shall not use any portion of the Loan
proceeds or any Letter of Credit, directly or indirectly, (i) to purchase or
carry Margin Stock, (ii) to repay or otherwise
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refinance indebtedness of the Company or others incurred to purchase or carry
Margin Stock, (iii) to extend credit for the purpose of purchasing or carrying
any Margin Stock, (iv) to acquire any security in any transaction that is
subject to Section 13 or 14 of the Exchange Act, or (v) to purchase, redeem or
otherwise acquire from the Parent's shareholders any of the Parent's outstanding
capital stock.
8.08 Contingent Obligations. The Company and the Parent shall not, and the
Parent shall not suffer or permit any Subsidiary to, create, incur, assume or
suffer to exist any Contingent Obligations except:
(a) endorsements for collection or deposit in the ordinary course of
business;
(b) Permitted Swap Obligations;
(c) Contingent Obligations of the Parent and its Subsidiaries
existing as of the Closing Date and listed in Schedule 8.08;
(d) Contingent Obligations with respect to Surety Instruments or
leases incurred in the ordinary course of business; and
(e) guaranties by the Parent or any of its Subsidiaries of the
obligations of any Subsidiary or the Parent under space leases for stores or
capitalized or equipment leases.
8.09 Joint Ventures. The Company and the Parent shall not, and the Parent
shall not suffer or permit any Subsidiary to, enter into any Joint Venture,
except for marketing agreements and other joint ventures where the financial
risk to, and capital contributions by, the Parent and its Subsidiaries are less
than $3,000,000 in the aggregate.
8.10 Non-Hypothecation Agreements. Except with respect to any agreements
existing on the Closing Date, the Company and the Parent shall not, and the
Parent shall not suffer or permit any Subsidiary to, enter into any agreement
with any other Person pursuant to which the Company, the Parent, or any
Subsidiary is restricted or limited in any way from creating or permitting any
Lien upon or with respect to any part of its property for the purpose of
securing Indebtedness for borrowed money.
8.11 Restricted Payments. The Company and the Parent shall not, and the
Parent shall not suffer or permit any Subsidiary to, declare or make any
dividend payment or other distribution of assets, properties, cash, rights,
obligations or securities on account of any shares of any class of its capital
stock, or purchase, redeem or otherwise acquire for value any shares of its
capital stock or any warrants, rights or options to acquire such shares, now or
hereafter outstanding; except that:
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(a) the Parent or any Subsidiary may declare and make dividend
payments or other distributions payable solely in its common or preferred stock;
(b) the Parent or any Subsidiary may purchase, redeem or otherwise
acquire shares of its common stock or warrants or options to acquire any such
shares with the proceeds received from the substantially concurrent issue of new
shares of its common stock;
(c) any Wholly-Owned Subsidiary may declare and make dividend
payments to any other Wholly-Owned Subsidiary; and
(d) the Parent may cause its Subsidiaries to dividend money to the
Parent to enable the Parent to make payments not otherwise prohibited hereunder.
8.12 ERISA. The Company and the Parent shall not, and the Parent shall not
suffer or permit any of its ERISA Affiliates to: (a) engage in a prohibited
transaction or violation of the fiduciary responsibility rules with respect to
any Plan which has resulted or could reasonably be expected to result in
liability of the Parent in an aggregate amount in excess of $1,000,000; or (b)
engage in a transaction that could be subject to Section 4069 or 4212(c) of
ERISA.
8.13 Change in Business. The Company and the Parent shall not, and the
Parent shall not suffer or permit any Subsidiary to, engage in any material line
of business substantially different from those lines of business carried on by
the Parent and its Subsidiaries on the date hereof.
8.14 Accounting Changes. The Company and the Parent shall not, and the
Parent shall not suffer or permit any Subsidiary to, make any significant change
in accounting treatment or reporting practices, except as permitted by GAAP, or
change the fiscal year of the Parent or of any Subsidiary.
8.15 Capital Expenditures. The Company and the Parent shall not, and the
Parent shall not suffer or permit any Subsidiary to, make expenditures for the
acquisition of fixed or capital assets in excess of $20,000,000 (on an aggregate
basis for the Company and its Subsidiaries) for each fiscal year.
ARTICLE IX
EVENTS OF DEFAULT
9.01 Event of Default. Any of the following shall constitute an "Event of
Default":
(a) Non-Payment. The Company fails to pay, (i) when and
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as required to be paid herein, any amount of principal of any Loan or of any L/C
Obligation, or (ii) within five days after the same becomes due, any interest,
fee or any other amount payable hereunder or under any other Loan Document; or
(c) Representation or Warranty. Any representation or warranty by the
Company, the Parent, or any Subsidiary made or deemed made herein, in any other
Loan Document, or which is contained in any certificate, document or financial
or other statement by the Company, the Parent, any Subsidiary, or any
Responsible Officer, furnished at any time under this Agreement, or in or under
any other Loan Document, is incorrect in any material respect on or as of the
date made or deemed made; or
(c) Specific Defaults. The Company or the Parent fails to perform or
observe any term, covenant or agreement contained in any of Section 7.03 or 7.13
or in Article VIII; or
(d) Other Defaults. The Company or the Parent (i) fails to deliver to
Agent and Banks the financial statements and other information required under
Sections 7.01 and 7.02 within 15 days after same are required to be delivered,
or (ii) fails to perform or observe any other term or covenant contained in this
Agreement or any other Loan Document, and such default shall continue unremedied
for a period of 30 days after the earlier of (A) the date upon which a
Responsible Officer knew or reasonably should have known of such failure or (B)
the date upon which written notice thereof is given to the Company by the Agent
or any Bank; or
(e) Cross-Default. (i) The Company, the Parent, or any Subsidiary
fails to make any payment when due (whether by scheduled maturity, required
prepayment, acceleration, demand, or otherwise) in respect of any Indebtedness
(other than the Indebtedness described in Section 9.01(a)) or any Contingent
Obligation if the aggregate outstanding principal amount of such Indebtedness or
Contingent Obligation is owed to any Bank or exceeds $5,000,000 and such failure
continues after the applicable grace or notice period, if any, specified in the
relevant document on the date of such failure; or
(ii) fails to perform or observe any other condition or
covenant, or any other event shall occur or condition exist, under any agreement
or instrument relating to any Indebtedness or Contingent Obligation owing to any
Bank or exceeding $5,000,000, and such failure continues after the applicable
grace or notice period, if any, specified in the relevant document on the date
of such failure if the effect of such failure, event or condition is to cause,
or to permit the holder or holders of such Indebtedness or beneficiary or
beneficiaries of such Indebtedness (or a trustee or agent on behalf of such
holder or holders or beneficiary or beneficiaries) to cause such Indebtedness to
be declared to be due and payable prior to its stated maturity, or such
Contingent Obligation to become payable or cash collateral in respect thereof to
be demanded; or
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(f) Insolvency; Voluntary Proceedings. The Company, the Parent, or
any Subsidiary (i) ceases or fails to be solvent, or generally fails to pay, or
admits in writing its inability to pay, its debts as they become due, subject to
applicable grace periods, if any, whether at stated maturity or otherwise; (ii)
voluntarily ceases to conduct its business in the ordinary course; (iii)
commences any Insolvency Proceeding with respect to itself; or (iv) takes any
action to effectuate or authorize any of the foregoing; or
(g) Involuntary Proceedings. (i) Any involuntary Insolvency
Proceeding is commenced or filed against the Company, the Parent, or any
Subsidiary, or any writ, judgment, warrant of attachment, execution or similar
process, is issued or levied against a substantial part of the Company's or the
Parent's or any Subsidiary's properties, and any such proceeding or petition
shall not be dismissed, or such writ, judgment, warrant of attachment, execution
or similar process shall not be released, vacated or fully bonded within 60 days
after commencement, filing or levy; (ii) the Company or the Parent or any
Subsidiary admits the material allegations of a petition against it in any
Insolvency Proceeding, or an order for relief (or similar order under non-U.S.
law) is ordered in any Insolvency Proceeding; or (iii) the Company or the Parent
or any Subsidiary acquiesces in the appointment of a receiver, trustee,
custodian, conservator, liquidator, mortgagee in possession (or agent therefor),
or other similar Person for itself or a substantial portion of its property or
business; or
(h) ERISA. (i) An ERISA Event shall occur with respect to a Pension
Plan or Multiemployer Plan which has resulted or could reasonably be expected to
result in liability of the Company or the Parent under Title IV of ERISA to the
Pension Plan, Multiemployer Plan or the PBGC in an aggregate amount in excess of
$5,000,000; or (ii) the aggregate amount of Unfunded Pension Liability among all
Pension Plans at any time exceeds $5,000,000; or
(i) Monetary Judgments. One or more non-interlocutory judgments, non-
interlocutory orders, decrees or arbitration awards is entered against the
Company or the Parent or any Subsidiary involving in the aggregate a liability
(to the extent not covered by independent third-party insurance as to which the
insurer does not dispute coverage) as to any single or related series of
transactions, incidents or conditions, of $5,000,000 or more, and the same shall
remain unsatisfied, unvacated and unstayed pending appeal for a period of 10
days after the entry thereof; or
(j) Non-Monetary Judgments. Any non-monetary judgment, order or
decree is entered against the Company or the Parent or any Subsidiary which does
or would reasonably be expected to have a Material Adverse Effect, and there
shall be any period of 10 consecutive days during which a stay of enforcement of
such judgment or order, by reason of a pending appeal or otherwise, shall not be
in effect; or
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(k) Adverse Change. There occurs a Material Adverse Effect; or
(l) Change of Control. The Parent ceases to own directly or
indirectly 100% of the outstanding capital stock of the Company or any
Guarantor; or
(m) Guarantor Defaults. Any Guarantor fails in any material respect
to perform or observe any term, covenant or agreement in the Guaranty; or the
Guaranty is for any reason partially (including with respect to future advances)
or wholly revoked or invalidated, or otherwise ceases to be in full force and
effect, or any Guarantor or any other Person contests in any manner the validity
or enforceability thereof or denies that it has any further liability or
obligation thereunder; or any event described at Sections (f) or (g) of this
Section occurs with respect to the Guarantor.
9.02 Remedies. If any Event of Default occurs, the Agent shall, at the
request of, or may, with the consent of, the Majority Banks,
(a) declare the commitment of each Bank to make Loans and any
obligation of the Issuing Bank to Issue Letters of Credit to be terminated,
whereupon such commitments and obligation shall be terminated;
(b) declare an amount equal to the maximum aggregate amount that is
or at any time thereafter may become available for drawing under any outstanding
Letters of Credit (whether or not any beneficiary shall have presented, or shall
be entitled at such time to present, the drafts or other documents required to
draw under such Letters of Credit) to be immediately due and payable, and
declare the unpaid principal amount of all outstanding Loans, all interest
accrued and unpaid thereon, and all other amounts owing or payable hereunder or
under any other Loan Document to be immediately due and payable, without
presentment, demand, protest or other notice of any kind, all of which are
hereby expressly waived by the Company; and
(c) exercise on behalf of itself and the Banks all rights and
remedies available to it and the Banks under the Loan Documents or applicable
law;
provided, however, that upon the occurrence of any event specified in Section
(f) or (g) of Section 9.01 (in the case of clause (i) of Section (g) upon the
expiration of the 60-day period mentioned therein), the obligation of each Bank
to make Loans and any obligation of the Issuing Bank to Issue Letters of Credit
shall automatically terminate and the unpaid principal amount of all outstanding
Loans and all interest and other amounts as aforesaid shall automatically become
due and payable without further act of the Agent, the Issuing Bank or any Bank.
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9.03 Rights Not Exclusive. The rights provided for in this Agreement and
the other Loan Documents are cumulative and are not exclusive of any other
rights, powers, privileges or remedies provided by law or in equity, or under
any other instrument, document or agreement now existing or hereafter arising.
ARTICLE X
THE AGENT
10.01 Appointment and Authorization; "Agent".
(a) Each Bank hereby irrevocably (subject to Section 10.09)
appoints, designates and authorizes the Agent to take such action on its behalf
under the provisions of this Agreement and each other Loan Document and to
exercise such powers and perform such duties as are expressly delegated to it by
the terms of this Agreement or any other Loan Document, together with such
powers as are reasonably incidental thereto. Notwithstanding any provision to
the contrary contained elsewhere in this Agreement or in any other Loan
Document, the Agent shall not have any duties or responsibilities, except those
expressly set forth herein, nor shall the Agent have or be deemed to have any
fiduciary relationship with any Bank, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Agreement or any other Loan Document or otherwise exist against the Agent.
Without limiting the generality of the foregoing sentence, the use of the term
"agent" in this Agreement with reference to the Agent is not intended to connote
any fiduciary or other implied (or express) obligations arising under agency
doctrine of any applicable law. Instead, such term is used merely as a matter of
market custom, and is intended to create or reflect only an administrative
relationship between independent contracting parties.
(b) The Issuing Bank shall act on behalf of the Banks with respect
to any Letters of Credit Issued by it and the documents associated therewith
until such time and except for so long as the Agent may agree at the request of
the Majority Lenders to act for the Issuing Bank with respect thereto; provided,
however, that the Issuing Bank shall have all of the benefits and immunities (i)
provided to the Agent in this Article X with respect to any acts taken or
omissions suffered by the Issuing Bank in connection with Letters of Credit
Issued by it or proposed to be Issued by it and the application and agreements
for letters of credit pertaining to the Letters of Credit as fully as if the
term "Agent", as used in this Article X, included the Issuing Bank with respect
to such acts or omissions, and (ii) as additionally provided in this Agreement
with respect to the Issuing Bank.
10.02 Delegation of Duties. The Agent may execute any of its duties under
this Agreement or any other Loan Document by or through
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agents, employees or attorneys-in-fact and shall be entitled to advice of
counsel concerning all matters pertaining to such duties. The Agent shall not be
responsible for the negligence or misconduct of any agent or attorney-in-fact
that it selects with reasonable care.
10.03 Liability of Agent. None of the Agent-Related Persons shall (i) be
liable for any action taken or omitted to be taken by any of them under or in
connection with this Agreement or any other Loan Document or the transactions
contemplated hereby (except for its own gross negligence or willful misconduct),
or (ii) be responsible in any manner to any of the Banks for any recital,
statement, representation or warranty made by the Company or any Subsidiary or
Affiliate of the Company, or any officer thereof, contained in this Agreement or
in any other Loan Document, or in any certificate, report, statement or other
document referred to or provided for in, or received by the Agent under or in
connection with, this Agreement or any other Loan Document, or the validity,
effectiveness, genuineness, enforceability or sufficiency of this Agreement or
any other Loan Document, or for any failure of the Company or any other party to
any Loan Document to perform its obligations hereunder or thereunder. No Agent-
Related Person shall be under any obligation to any Bank to ascertain or to
inquire as to the observance or performance of any of the agreements contained
in, or conditions of, this Agreement or any other Loan Document, or to inspect
the properties, books or records of the Company or any of the Company's
Subsidiaries or Affiliates.
10.04 Reliance by Agent. (a) The Agent shall be entitled to rely, and shall
be fully protected in relying, upon any writing, resolution, notice, consent,
certificate, affidavit, letter, telegram, facsimile, telex or telephone message,
statement or other document or conversation believed by it to be genuine and
correct and to have been signed, sent or made by the proper Person or Persons,
and upon advice and statements of legal counsel (including counsel to the
Company), independent accountants and other experts selected by the Agent. The
Agent shall be fully justified in failing or refusing to take any action under
this Agreement or any other Loan Document unless it shall first receive such
advice or concurrence of the Majority Banks as it deems appropriate and, if it
so requests, it shall first be indemnified to its satisfaction by the Banks
against any and all liability and expense which may be incurred by it by reason
of taking or continuing to take any such action. The Agent shall in all cases be
fully protected in acting, or in refraining from acting, under this Agreement or
any other Loan Document in accordance with a request or consent of the Majority
Banks (or with the unanimous consent of all Banks when required under Section
11.01) and such request and any action taken or failure to act pursuant thereto
shall be binding upon all of the Banks.
(b) For purposes of determining compliance with the conditions
specified in Section 5.01, each Bank that has executed this Agreement shall be
deemed to have consented to, approved or accepted or to be satisfied with, each
document or other matter either sent by
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the Agent to such Bank for consent, approval, acceptance or satisfaction, or
required thereunder to be consented to or approved by or acceptable or
satisfactory to the Bank.
10.05 Notice of Default. The Agent shall not be deemed to have knowledge or
notice of the occurrence of any Default or Event of Default, except with respect
to defaults in the payment of principal, interest and fees required to be paid
to the Agent for the account of the Banks, unless the Agent shall have received
written notice from a Bank or the Company referring to this Agreement,
describing such Default or Event of Default and stating that such notice is a
"notice of default". The Agent will notify the Banks of its receipt of any such
notice. The Agent shall take such action with respect to such Default or Event
of Default as may be requested by the Majority Banks in accordance with Article
IX; provided, however, that unless and until the Agent has received any such
request, the Agent may (but shall not be obligated to) take such action, or
refrain from taking such action, with respect to such Default or Event of
Default as it shall deem advisable or in the best interest of the Banks.
10.06 Credit Decision. Each Bank acknowledges that none of the Agent-
Related Persons has made any representation or warranty to it, and that no act
by the Agent hereinafter taken, including any review of the affairs of the
Company and its Subsidiaries, shall be deemed to constitute any representation
or warranty by any Agent-Related Person to any Bank. Each Bank represents to the
Agent that it has, independently and without reliance upon any Agent-Related
Person and based on such documents and information as it has deemed appropriate,
made its own appraisal of and investigation into the business, prospects,
operations, property, financial and other condition and creditworthiness of the
Company and its Subsidiaries, and all applicable bank regulatory laws relating
to the transactions contemplated hereby, and made its own decision to enter into
this Agreement and to extend credit to the Company hereunder. Each Bank also
represents that it will, independently and without reliance upon any Agent-
Related Person and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit analysis, appraisals
and decisions in taking or not taking action under this Agreement and the other
Loan Documents, and to make such investigations as it deems necessary to inform
itself as to the business, prospects, operations, property, financial and other
condition and creditworthiness of the Company. Except for notices, reports and
other documents expressly herein required to be furnished to the Banks by the
Agent, the Agent shall not have any duty or responsibility to provide any Bank
with any credit or other information concerning the business, prospects,
operations, property, financial and other condition or creditworthiness of the
Company which may come into the possession of any of the Agent-Related Persons.
10.07 Indemnification of Agent. Whether or not the transactions
contemplated hereby are consummated, the Banks shall indemnify upon demand the
Agent-Related Persons (to the extent not reimbursed by or
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on behalf of the Company and without limiting the obligation of the Company to
do so), pro rata, from and against any and all Indemnified Liabilities;
provided, however, that no Bank shall be liable for the payment to the Agent-
Related Persons of any portion of such Indemnified Liabilities resulting solely
from such Person's gross negligence or willful misconduct. Without limitation of
the foregoing, each Bank shall reimburse the Agent upon demand for its ratable
share of any costs or out-of-pocket expenses (including Attorney Costs) incurred
by the Agent in connection with the preparation, execution, delivery,
administration, modification, amendment or enforcement (whether through
negotiations, legal proceedings or otherwise) of, or legal advice in respect of
rights or responsibilities under, this Agreement, any other Loan Document, or
any document contemplated by or referred to herein, to the extent that the Agent
is not reimbursed for such expenses by or on behalf of the Company. The
undertaking in this Section shall survive the payment of all Obligations
hereunder and the resignation or replacement of the Agent.
10.08 Agent in Individual Capacity. BofA and its Affiliates may make loans
to, issue letters of credit for the account of, accept deposits from, and
generally engage in any kind of banking, trust, financial advisory, underwriting
or other business with the Company and its Subsidiaries and Affiliates as though
BofA were not the Agent or the Issuing Bank hereunder and without notice to or
consent of the Banks. The Banks acknowledge that, pursuant to such activities,
BofA or its Affiliates may receive information regarding the Company or its
Affiliates (including information that may be subject to confidentiality
obligations in favor of the Company or such Subsidiary) and acknowledge that the
Agent shall be under no obligation to provide such information to them. With
respect to its Loans, BofA shall have the same rights and powers under this
Agreement as any other Bank and may exercise the same as though it were not the
Agent or the Issuing Bank.
10.09 Successor Agent. The Agent may, and at the request of the Majority
Banks shall, resign as Agent upon 30 days' notice to the Banks. If the Agent
resigns under this Agreement, the Majority Banks shall appoint from among the
Banks a successor agent for the Banks, which successor agent shall be subject to
approval by the Company. If no successor agent is appointed prior to the
effective date of the resignation of the Agent, the Agent may appoint, after
consulting with the Banks and the Company, a successor agent from among the
Banks. Upon the acceptance of its appointment as successor agent hereunder, such
successor agent shall succeed to all the rights, powers and duties of the
retiring Agent and the term "Agent" shall mean such successor agent and the
retiring Agent's appointment, powers and duties as Agent shall be terminated.
After any retiring Agent's resignation hereunder as Agent, the provisions of
this Article X and Sections 11.04 and 11.05 shall inure to its benefit as to any
actions taken or omitted to be taken by it while it was Agent under this
Agreement. If no successor agent has accepted appointment as Agent by
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the date which is 30 days following a retiring Agent's notice of resignation,
the retiring Agent's resignation shall nevertheless thereupon become effective
and the Banks shall perform all of the duties of the Agent hereunder until such
time, if any, as the Majority Banks appoint a successor agent as provided for
above. 10.10 Withholding Tax.
(a) If any Bank is a "foreign corporation, partnership or trust"
within the meaning of the Code and such Bank claims exemption from, or a
reduction of, U.S. withholding tax under Sections 1441 or 1442 of the Code, such
Bank agrees with and in favor of the Agent, to deliver to the Agent:
(i) if such Bank claims an exemption from, or a reduction of,
withholding tax under a United States tax treaty, two properly completed and
executed copies of IRS Form 1001 before the payment of any interest in the first
calendar year and before the payment of any interest in each third succeeding
calendar year during which interest may be paid under this Agreement;
(ii) if such Bank claims that interest paid under this Agreement
is exempt from United States withholding tax because it is effectively connected
with a United States trade or business of such Bank, two properly completed and
executed copies of IRS Form 4224 before the payment of any interest is due in
the first taxable year of such Bank and in each succeeding taxable year of such
Bank during which interest may be paid under this Agreement; and
(iii) such other form or forms as may be required under the Code
or other laws of the United States as a condition to exemption from, or
reduction of, United States withholding tax. Such Bank agrees to promptly notify
the Agent of any change in circumstances which would modify or render invalid
any claimed exemption or reduction.
(b) If any Bank claims exemption from, or reduction of, withholding
tax under a United States tax treaty by providing IRS Form 1001 and such Bank
sells, assigns, grants a participation in, or otherwise transfers all or part of
the Obligations of the Company to such Bank, such Bank agrees to notify the
Agent of the percentage amount in which it is no longer the beneficial owner of
Obligations of the Company to such Bank. To the extent of such percentage
amount, the Agent will treat such Bank's IRS Form 1001 as no longer valid.
(c) If any Bank claiming exemption from United States withholding tax
by filing IRS Form 4224 with the Agent sells, assigns, grants a participation
in, or otherwise transfers all or part of the Obligations of the Company to such
Bank, such Bank agrees to undertake
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sole responsibility for complying with the withholding tax requirements imposed
by Sections 1441 and 1442 of the Code.
(d) If any Bank is entitled to a reduction in the applicable
withholding tax, the Agent may withhold from any interest payment to such Bank
an amount equivalent to the applicable withholding tax after taking into account
such reduction. However, if the forms or other documentation required by Section
(a) of this Section are not delivered to the Agent, then the Agent may withhold
from any interest payment to such Bank not providing such forms or other
documentation an amount equivalent to the applicable withholding tax imposed by
Sections 1441 and 1442 of the Code, without reduction.
(e) If the IRS or any other Governmental Authority of the United
States or other jurisdiction asserts a claim that the Agent did not properly
withhold tax from amounts paid to or for the account of any Bank (because the
appropriate form was not delivered or was not properly executed, or because such
Bank failed to notify the Agent of a change in circumstances which rendered the
exemption from, or reduction of, withholding tax ineffective, or for any other
reason) such Bank shall indemnify the Agent fully for all amounts paid, directly
or indirectly, by the Agent as tax or otherwise, including penalties and
interest, and including any taxes imposed by any jurisdiction on the amounts
payable to the Agent under this Section, together with all costs and expenses
(including Attorney Costs). The obligation of the Banks under this Section shall
survive the payment of all Obligations and the resignation or replacement of the
Agent.
ARTICLE XI
MISCELLANEOUS
11.01 Amendments and Waivers. No amendment or waiver of any provision of
this Agreement or any other Loan Document, and no consent with respect to any
departure by the Company therefrom, shall be effective unless the same shall be
in writing and signed by the Majority Banks (or by the Agent at the written
request of the Majority Banks) and the Company and acknowledged by the Agent,
and then any such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given; provided, however, that
no such waiver, amendment, or consent shall, unless in writing and signed by all
the Banks and the Company and acknowledged by the Agent, do any of the
following:
(a) increase or extend the Commitment of any Bank (or reinstate any
Commitment terminated pursuant to Section 9.02);
(b) postpone or delay any date fixed by this Agreement or any other
Loan Document for any payment of principal, interest, fees or other amounts due
to the Banks (or any of them) hereunder or under any other Loan Document;
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(c) reduce the principal of, or the rate of interest specified herein
on any Loan, or (subject to clause (iii) below) any fees or other amounts
payable hereunder or under any other Loan Document;
(d) change the percentage of the Commitments or of the aggregate
unpaid principal amount of the Loans which is required for the Banks or any of
them to take any action hereunder; or
(e) release any Guarantor;
(f) amend this Section, or Section 2.14, or any provision herein
providing for consent or other action by all Banks;
(g) amend or waive Section 7.13; and, provided further, that (i) no
amendment, waiver or consent shall, unless in writing and signed by the Issuing
Bank in addition to the Majority Banks or all the Banks, as the case may be,
affect the rights or duties of the Issuing Bank under this Agreement or any L/C-
Related Document relating to any Letter of Credit Issued or to be Issued by the
Issuing Bank, (ii) no amendment, waiver or consent shall, unless in writing and
signed by the Agent in addition to the Majority Banks or all the Banks, as the
case may be, affect the rights or duties of the Agent under this Agreement or
any other Loan Document, and (iii) the Fee Letter may be amended, or rights or
privileges thereunder waived, in a writing executed by the parties
thereto.
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11.02 Notices.
(a) Except as otherwise provided in any Loan Document, notices,
requests, demands, directions, agreements and documents delivered in connection
with the Loan Documents (collectively, the "communications") shall be
transmitted by Requisite Notice to the number and address set forth on Schedule
11.02, may be delivered by the following modes of delivery, and shall be
effective as follows:
Mode of Delivery Effective on earlier of actual receipt and:
Courier Scheduled delivery date Facsimile When transmission in legible form
complete Mail Fourth Business Day after deposit in U.S. mail first class postage
pre-paid Personal delivery When received Telephone When conversation completed
Electronic Mail When received provided, however, that communications pursuant to
Article II, III or X to the Agent shall not be effective until actually received
by the Agent, and communications pursuant to Article III to the Issuing Bank
shall not be effective until actually received by the Issuing Bank.
(b) The Agent and the Banks shall be entitled to rely and act on any
communications purportedly given by or on behalf of the Company or any Guarantor
even if (i) such communications (A) were not made in a manner specified herein,
(B) were incomplete or (C) were not preceded or followed by any other notice
specified herein, or (ii) the terms thereof, as understood by the recipient,
varied from any subsequent related communications provided for herein. The
Company shall indemnify the Agent and the Banks from any loss, cost, expense or
liability as a result of relying on any communications permitted herein.
(c) Loan Documents may be transmitted and/or signed by facsimile. The
effectiveness of any such documents and signatures shall, subject to applicable
law, have the same force and effect as hardcopies with manual signatures and
shall be binding on the Company, the Guarantors, the Agent, and the Banks. The
Agent may also require that any such documents and signatures be confirmed by a
manually-signed hardcopy thereof; provided, however, that the failure to request
or deliver any such manually-signed hardcopy shall not affect the effectiveness
of any facsimile document or signature.
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(d) Electronic mail and internet websites may be used to distribute
routine communications, such as financial statements and other information and
to distribute agreements and other documents to be signed by the Banks;
provided, however, that no Notice of Borrowing, Notice of
Conversion/Continuation, L/C Application, or executed or legally-binding notice,
agreement, waiver, amendment or other communication may be sent by electronic
mail.
11.03 No Waiver; Cumulative Remedies. No failure to exercise and no delay
in exercising, on the part of any party hereto, any right, remedy, power or
privilege hereunder, shall operate as a waiver thereof; nor shall any single or
partial exercise of any right, remedy, power or privilege hereunder preclude any
other or further exercise thereof or the exercise of any other right, remedy,
power or privilege.
11.04 Costs and Expenses. The Company shall:
(a) whether or not the transactions contemplated hereby are
consummated, pay or reimburse BofA (including in its capacity as Agent and
Issuing Bank) within 30 Business Days after demand (subject to Section 5.01(e))
for all costs and expenses incurred by BofA (including in its capacity as Agent
and Issuing Bank) in connection with the development, preparation, delivery and
execution of, and any amendment, supplement, waiver or modification to (in each
case, whether or not consummated), this Agreement, any Loan Document and any
other documents prepared in connection herewith or therewith, and the
consummation of the transactions contemplated hereby and thereby, including
reasonable Attorney Costs incurred by BofA (including in its capacity as Agent
and Issuing Bank) with respect thereto; provided, however, that the maximum
amount the Company will be required to pay or reimburse BofA in connection with
the preparation of this Agreement and the related Loan Documents shall be
limited to $12,500; and
(b) pay or reimburse the Agent and each Bank within five Business
Days after demand (subject to Section 5.01(e)) for all costs and expenses
(including Attorney Costs) incurred by them in connection with the enforcement,
or preservation of any rights or remedies under this Agreement or any other Loan
Document during the existence of an Event of Default or after acceleration of
the Loans (including in connection with any "workout" or restructuring regarding
the Loans, and including in any Insolvency Proceeding or appellate proceeding).
11.05 Company Indemnification. Whether or not the transactions
contemplated hereby are consummated, the Company shall indemnify, defend and
hold the Agent-Related Persons, and each Bank and each of its respective
officers, directors, employees, counsel, agents and attorneys-in-fact (each, an
"Indemnified Person") harmless from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
charges, expenses and disbursements (including Attorney Costs) of any kind or
nature
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whatsoever which may at any time (including at any time following repayment of
the Loans, the termination of the Letters of Credit and the termination,
resignation or replacement of the Agent or replacement of any Bank) be imposed
on, incurred by or asserted against any such Person in any way relating to or
arising out of this Agreement or any document contemplated by or referred to
herein, or the transactions contemplated hereby, or any action taken or omitted
by any such Person under or in connection with any of the foregoing, including
with respect to any investigation, litigation or proceeding (including any
Insolvency Proceeding or appellate proceeding) related to or arising out of this
Agreement or the Loans or Letters of Credit or the use of the proceeds thereof,
whether or not any Indemnified Person is a party thereto (all the foregoing,
collectively, the "Indemnified Liabilities"); provided, that the Company shall
have no obligation hereunder to any Indemnified Person with respect to
Indemnified Liabilities resulting solely from the gross negligence or willful
misconduct of such Indemnified Person. The agreements in this Section shall
survive payment of all other Obligations.
11.06 Payments Set Aside. To the extent that the Company makes a payment
to the Agent or the Banks, or the Agent or the Banks exercise their right of
set-off, and such payment or the proceeds of such set-off or any part thereof
are subsequently invalidated, declared to be fraudulent or preferential, set
aside or required (including pursuant to any settlement entered into by the
Agent or such Bank in its discretion) to be repaid to a trustee, receiver or any
other party, in connection with any Insolvency Proceeding or otherwise, then (a)
to the extent of such recovery the obligation or part thereof originally
intended to be satisfied shall be revived and continued in full force and effect
as if such payment had not been made or such set-off had not occurred, and (b)
each Bank severally agrees to pay to the Agent upon demand its Pro Rata Share of
any amount so recovered from or repaid by the Agent.
11.07 Successors and Assigns. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns, except that the Company may not assign or transfer any
of its rights or obligations under this Agreement without the prior written
consent of the Agent and each Bank.
11.08 Assignments, Participations, etc.
(a) Any Bank may, with the written consent of the Company at all
times other than during the existence of an Event of Default and the Agent and
the Issuing Bank, which consents shall not be unreasonably withheld, at any time
assign and delegate to one or more Eligible Assignees (provided that no written
consent of the Company, the Agent or the Issuing Bank shall be required in
connection with any assignment and delegation by a Bank to an Eligible Assignee
that is an Affiliate of such Bank or another Bank) (each an "Assignee") all, or
any ratable part of all, of the Loans, the Commitments, the
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Obligations and the other rights and obligations of such Bank hereunder, in a
minimum amount of $10,000,000; provided, however, that the Company and the Agent
may continue to deal solely and directly with such Bank in connection with the
interest so assigned to an Assignee until (i) written notice of such assignment,
together with payment instructions, addresses and related information with
respect to the Assignee, shall have been given to the Company and the Agent by
such Bank and the Assignee; (ii) such Bank and its Assignee shall have delivered
to the Company and the Agent an Assignment and Acceptance in the form of Exhibit
E ("Assignment and Acceptance") and (iii) the assignor Bank or Assignee has paid
to the Agent a processing fee in the amount of $3,500.
(b) From and after the date that the Agent notifies the assignor Bank
that it has received (and provided its consent with respect to) an executed
Assignment and Acceptance and payment of the above-referenced processing fee,
(i) the Assignee thereunder shall be a party hereto and, to the extent that
rights and obligations hereunder have been assigned to it pursuant to such
Assignment and Acceptance, shall have the rights and obligations of a Bank under
the Loan Documents, and (ii) the assignor Bank shall, to the extent that rights
and obligations hereunder and under the other Loan Documents have been assigned
by it pursuant to such Assignment and Acceptance, relinquish its rights and be
released from its obligations under the Loan Documents.
(c) Immediately upon each Assignee's making its processing fee
payment under the Assignment and Acceptance, this Agreement shall be deemed to
be amended to the extent, but only to the extent, necessary to reflect the
addition of the Assignee and the resulting adjustment of the Commitments arising
therefrom. The Commitment allocated to each Assignee shall reduce such
Commitments of the assigning Bank pro tanto.
(d) Any Bank may at any time sell to one or more commercial banks or
other Persons not Affiliates of the Company (a "Participant") participating
interests in any Loans, the Commitment of that Bank and the other interests of
that Bank (the "originating Bank") hereunder and under the other Loan Documents;
provided, however, that (i) the originating Bank's obligations under this
Agreement shall remain unchanged, (ii) the originating Bank shall remain solely
responsible for the performance of such obligations, (iii) the Company, the
Issuing Bank and the Agent shall continue to deal solely and directly with the
originating Bank in connection with the originating Bank's rights and
obligations under this Agreement and the other Loan Documents, and (iv) no Bank
shall transfer or grant any participating interest under which the Participant
has rights to approve any amendment to, or any consent or waiver with respect
to, this Agreement or any other Loan Document, except to the extent such
amendment, consent or waiver would require unanimous consent of the Banks as
described in the first proviso to Section 11.01. In the case of any such
participation, the Participant shall not have any rights
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under this Agreement, or any of the other Loan Documents, and all amounts
payable by the Company hereunder shall be determined as if such Bank had not
sold such participation; except that, if amounts outstanding under this
Agreement are due and unpaid, or shall have been declared or shall have become
due and payable upon the occurrence of an Event of Default, each Participant
shall be deemed to have the right of set-off in respect of its participating
interest in amounts owing under this Agreement to the same extent as if the
amount of its participating interest were owing directly to it as a Bank under
this Agreement.
(e) Notwithstanding any other provision in this Agreement, any Bank
may at any time create a security interest in, or pledge, all or any portion of
its rights under and interest in this Agreement in favor of any Federal Reserve
Bank in accordance with Regulation A of the FRB or U.S. Treasury Regulation 31
CFR (S)203.14, and such Federal Reserve Bank may enforce such pledge or security
interest in any manner permitted under applicable law.
11.09 Reallocation of Commitments in Event of Merger, Etc. If after the
Closing Date any Bank merges or consolidates with or into one or more other
Banks, the surviving entity of such merger or consolidation (the "Surviving
Bank") shall at the request of the Company, if no Default or Event of Default
then exists, assign all or a portion of its Resulting Increased Commitment (as
defined below) to one or more entities selected by the Company that are Eligible
Assignees (each an "Acquiring Entity"); provided that (i) each Acquiring Entity
shall unconditionally offer in writing (with a copy to the Agent) to purchase a
portion of such Surviving Bank's Resulting Increased Commitment and the portion
of the Revolving Loans and L/C Borrowings owing to such Surviving Bank and the
Surviving Bank's obligation to participate in Letters of Credit allocable to the
Resulting Increased Commitment to be acquired; (ii) the portion of the Resulting
Increased Commitment of the Surviving Bank acquired by each Acquiring Entity
shall be in integral multiples of $1,000,000; (iii) the purchase price to be
paid by the Acquiring Entity shall be the outstanding principal amount of the
Revolving Loans and L/C Borrowings owing to such Surviving Bank on the date of
purchase (plus interest and fees accrued thereon) that are allocable to the
amount of the Resulting Increased Commitment being acquired; and (iv) each
Acquiring Entity, if it is not already a Bank, shall be reasonably acceptable to
the Agent. Each Assignment hereunder shall be accomplished in accordance with
clauses (i), (ii) and (iii) of Section 11.08(a), and to the extent of any such
assignment, the Surviving Bank shall be relieved of its obligations hereunder
with respect to its assigned Commitment. The amounts owed by the Company to the
Surviving Bank under the Agreement that are allocable to the amount of the
Resulting Increased Commitment being acquired pursuant to this Section 11.09
shall be the product of (a) all amounts owed by the Company to the Surviving
Bank hereunder on the date of acquisition (including the outstanding principal
amount of the Revolving Loans and L/C Borrowings owed to the Surviving Bank and
interest and fees accrued thereon), and
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(b) a fraction having as it numerator the amount of the Resulting
Increased Commitment being acquired and having as its denominator the total
amount of the Surviving Bank's Commitment without giving effect to such
acquisition. For the purposes of this Section 11.09, "Resulting Increased
Commitment" shall mean (a) the total combined Commitment of the Surviving Bank
immediately following a merger or consolidation contemplated by this Section
11.09, minus (b) the amount of the largest Commitment (immediately prior to such
merger or consolidation) of any Bank that was a party to such merger or
consolidation.
11.10 Confidentiality. Each Bank agrees to take and to cause its
Affiliates to take normal and reasonable precautions and exercise due care to
maintain the confidentiality of all information identified as "confidential" or
"secret" by the Company and provided to it by the Company or any Subsidiary, or
by the Agent on the Company's or such Subsidiary's behalf, under this Agreement
or any other Loan Document, and neither it nor any of its Affiliates shall use
any such information other than in connection with or in enforcement of this
Agreement and the other Loan Documents or in connection with other business now
or hereafter existing or contemplated with the Company or any Subsidiary; except
to the extent such information (i) was or becomes generally available to the
public other than as a result of disclosure by the Bank, or (ii) was or becomes
available on a non-confidential basis from a source other than the Company,
provided that such source is not bound by a confidentiality agreement with the
Company known to the Bank; provided, however, that any Bank may disclose such
information (A) at the request or pursuant to any requirement of any
Governmental Authority to which the Bank is subject or in connection with an
examination of such Bank by any such authority; (B) pursuant to subpoena or
other court process (and the affected Bank or Agent shall use reasonable efforts
to notify the Company thereof, provided that the failure to provide such notice
shall not subject the affected Person to liability to the Company or prevent the
affected Person from complying with therewith); (C) when required to do so in
accordance with the provisions of any applicable Requirement of Law; (D) to the
extent reasonably required in connection with any litigation or proceeding to
which the Agent, any Bank or their respective Affiliates may be party; (E) to
the extent reasonably required in connection with the exercise of any remedy
hereunder or under any other Loan Document; (F) to such Bank's independent
auditors and other professional advisors; (G) to any Participant or Assignee,
actual or potential, provided that such Person agrees in writing to keep such
information confidential to the same extent required of the Banks hereunder; (H)
as to any Bank or its Affiliate, as expressly permitted under the terms of any
other document or agreement regarding confidentiality to which the Company or
any Subsidiary is party or is deemed party with such Bank or such Affiliate; and
(I) to its Affiliates.
11.11 Set-off. In addition to any rights and remedies of the Banks
provided by law, if an Event of Default exists, each Bank is
<PAGE>
-83-
authorized at any time and from time to time, without prior notice to the
Company, any such notice being waived by the Company to the fullest extent
permitted by law, to set off and apply any and all deposits (general or special,
time or demand, provisional or final) at any time held by, and other
indebtedness at any time owing by, such Bank to or for the credit or the account
of the Company against any and all Obligations owing to such Bank, now or
hereafter existing, irrespective of whether or not the Agent or such Bank shall
have made demand under this Agreement or any Loan Document and although such
Obligations may be contingent or unmatured. Each Bank agrees promptly to notify
the Company and the Agent after any such set-off and application made by such
Bank; provided, however, that the failure to give such notice shall not affect
the validity of such set-off and application.
11.12 Automatic Debits of Fees. With respect to any interest, commitment
fee, letter of credit fee or agency fee due and payable to the Agent, the
Issuing Bank or BofA under the Loan Documents, the Company hereby authorizes
BofA to debit any deposit account of the Company with BofA in an amount such
that the aggregate amount debited from all such deposit accounts does not exceed
such fee or other cost or expense with notice, if agreed to by such Person in
accordance with its procedures. If there are insufficient funds in such deposit
accounts to cover the amount of the fee or other cost or expense then due, such
debits will be reversed (in whole or in part, in BofA's sole discretion) and
such amount not debited shall be deemed to be unpaid. No such debit under this
Section shall be deemed a setoff.
11.13 Notification of Addresses, Lending Offices, Etc. Each Bank and the
Issuing Bank shall notify the Agent in writing of any changes in the address to
which notices to such Bank or Issuing Bank should be directed, of addresses of
any Lending Office, of payment instructions in respect of all payments to be
made to it hereunder and of such other administrative information as the Agent
shall reasonably request.
11.14 Counterparts. This Agreement may be executed in any number of
separate counterparts, each of which, when so executed, shall be deemed an
original, and all of said counterparts taken together shall be deemed to
constitute but one and the same instrument.
11.15 Severability. The illegality or unenforceability of any provision of
this Agreement or any instrument or agreement required hereunder shall not in
any way affect or impair the legality or enforceability of the remaining
provisions of this Agreement or any instrument or agreement required hereunder.
11.16 No Third Parties Benefited. This Agreement is made and entered into
for the sole protection and legal benefit of the Company, the Banks, the Agent
and the Agent-Related Persons, and their permitted successors and assigns, and
no other Person shall be a
<PAGE>
-84-
direct or indirect legal beneficiary of, or have any direct or indirect cause of
action or claim in connection with, this Agreement or any of the other Loan
Documents.
11.17 Governing Law and Jurisdiction.
(a) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAW OF THE STATE OF CALIFORNIA; PROVIDED THAT THE AGENT AND THE BANKS
SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW.
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR
ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF CALIFORNIA
OR OF THE UNITED STATES FOR THE NORTHERN DISTRICT OF CALIFORNIA, AND BY
EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE COMPANY, THE AGENT AND THE
BANKS CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE
JURISDICTION OF THOSE COURTS. EACH OF THE COMPANY, THE AGENT AND THE BANKS
IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE
OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER
HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT
OF THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO. THE COMPANY, THE AGENT AND THE
BANKS EACH WAIVE PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS,
WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY CALIFORNIA LAW.
11.18 Waiver of Jury Trial. THE COMPANY, THE BANKS AND THE AGENT EACH WAIVE
THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED
UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS,
OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR
OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER
PARTY OR ANY AGENT-RELATED PERSON, PARTICIPANT OR ASSIGNEE, WHETHER WITH RESPECT
TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. THE COMPANY, THE BANKS AND THE
AGENT EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A
COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER
AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF
THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN
WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT
OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER
SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS
TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.
11.19 Entire Agreement. This Agreement, together with the other Loan
Documents, embodies the entire agreement and understanding among the Company,
the Banks and the Agent, and supersedes all prior or contemporaneous agreements
and understandings of such Persons, verbal or written, relating to the subject
matter hereof and thereof.
11.20 Termination of Existing Credit Agreement. On the Closing Date, the
Existing Credit Agreement will be cancelled and terminated,
<PAGE>
-85-
any Existing Offshore Rate Loans and Existing Letters of Credit outstanding
thereunder will be deemed Offshore Rate Loans and Letters of Credit outstanding
hereunder.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered in California by their proper and duly authorized
officers as of the day and year first above written.
WEST MARINE FINANCE COMPANY,
INC.
By______________________________
John Edmondson
President and Chief Executive
Officer
BANK OF AMERICA, N.A., as Agent
By______________________________
Gary Flieger
Vice President
BANK OF AMERICA, N.A., as a Bank
and an Issuing Bank
By______________________________
Kenneth E. Jones
Senior Vice President
FLEET NATIONAL BANK, as a Bank
By______________________________
Jeff Kinney
Vice President
UNION BANK OF CALIFORNIA, N.A.,
as a Bank
By_____________________________
James Goudy
Vice President
<PAGE>
-86-
SCHEDULE 2.01
COMMITMENTS AND PRO RATA SHARES
Pro Rata
Bank Commitment Share
Bank of America, N.A. $ 40,000,000 50.00%
Fleet National Bank $ 20,000,000 25.00%
Union Bank of California, N.A. $ 20,000,000 25.00%
TOTAL $ 80,000,000 100.00%
<PAGE>
-87-
SCHEDULE 3.03
EXISTING LETTERS OF CREDIT
Standby Letters of Credit
Issuer: Bank of America, N.A.
L/C Number Beneficiary Amount Expiry Date
225945 Confederation Life 100,000.00 10/09/00
001090 Reliance Industry Company 263,500.00 04/01/00
Commercial Letters of Credit
Issuer: Bank of America, N.A.
L/C Number Beneficiary Amount Expiry Date
5040753 Zhejiang Native Produce and Animal By Products 24,652.64 01/31/00
5040754 Seatoman Far East Ltd 47,930.54 12/15/99
5040755 Seatoman Far East Ltd. 21,305.19 03/06/00
5040757 Million Time Industrial 19,352.50 01/15/00
5040758 Xiamen C and D Inc. 28,125.00 02/05/00
5040759 Jason Rubber Works Ltd. 18,207.00 02/17/00
5040760 Seatoman Far East Ltd. 73,458.26 02/05/00
5040761 Seatoman Far East Ltd. 41,673.81 05/17/00
5040762 Seatoman Far East Ltd. 77,576.30 04/15/00
5040763 Seatoman Far East Ltd. 11,624.63 03/15/00
5040764 Seatoman Far East Ltd. 156,142.08 05/22/00
<PAGE>
-88-
SCHEDULE 6.15
SUBSIDIARIES OF WEST MARINE, INC.
Place of
Name of Subsidiary Incorporation Operations
West Marine Products, Inc.* California Operating Subsidiary
West Marine Puerto Rico, Inc.* California Operating Subsidiary
West Marine FSC, Inc.* Barbados Foreign Sales Co.
West Marine Finance Company, Inc.* California Finance Co.
W Marine Management Company, Inc.* California Inactive
West Marine LBC, Inc.*** California Holding Co.
West Marine IHC I, Inc.*** California Holding Co.
West Marine IHC II, Inc.*** California Holding Co.
E&B Marine Inc.* Delaware Holding Co.
E&B Marine LBC, Inc.** California Holding Co.
E&B Marine IHC I, Inc.** California Holding Co.
E&B Marine IHC II, Inc.** California Holding Co.
E&B Marine Supply (Florida) Inc.** Delaware Operating Subsidiary
E&B Marine Supply, Inc. (NJ)** New Jersey Operating Subsidiary
E&B Marine Supply, Inc. (MD)** Maryland Operating Subsidiary
James Bliss & Co., Inc.** Massachusetts Operating Subsidiary
Goldbergs' Marine Distributors, Inc.** Delaware Operating Subsidiary
Central Marine Supply Inc.** New Jersey Inactive
Krista Corporation** Delaware Inactive
Sea Ranger Marine Inc.** Delaware Inactive
*Wholly owned subsidiaries of West Marine, Inc.
**Wholly owned subsidiaries of E&B Marine Inc.
***Wholly owned subsidiaries of West Marine Products, Inc.
<PAGE>
-89-
SCHEDULE 8.01
PERMITTED LIENS
AS OF 11/24/97
West Marine
California UCC
Secured Party Lien Filing No/Date
EKCC. Purchase Money security 9436361468 interest in
Kodak copier 12/24/94
IBM Corporation Computer equipment 9607360162
referenced on IBM Sup 3/8/96
#Y73481 dated 2/20/96
QTY-TYPE 1-9406
IBM Corporation Computer equipment 9607460900
referenced on IBM Sup 3/11/96
#Y72889 dated 2/09/96
QTY-TYPE 1-9406
IBM Corporation Monitors 9634460187 12/06/96
IBM Corporation Servers 9634460176 12/06/96
IBM Corporation Desktops 9634460195 12/06/96
IBM Corporation Hubs 9636260881 12/26/96
IBM Corporation AS400 "Hobie" 9610860588 4/16/96
IBM Corporation Additional "Hobie" 9610860588
AS400 equipment 4/16/96
IBM Corporation Power supply for 9619060984
AS400 "Hobie" 7/03/96
IBM Corporation Software upgrade 9632360658
"Hobie" 11/14/96
IBM Corporation Additional AS400 9518460088
equipment 6/28/95
<PAGE>
-90-
IBM Corporation Additional AS400 95229C0456
equipment 8/16/95
Metlife Capital Ltd. Point of sale system, 92222813
Partnership DC equipment, computer and telephone equipment 10/16/92
<PAGE>
-91-
SCHEDULE 8.05
PERMITTED INDEBTEDNESS
AS OF THE CLOSING DATE
Amount
Description of Indebtedness in Thousands
Current portion of long term debt $ 689
under capital leases
Line of credit from Bank of
America/Fleet Bank $ 38,000
Swing Line of credit from
Bank of America 0
Deferred rent $ 1,633
Long term portion of debt under
capital leases $ 343
Private placement debt $ 40,000
<PAGE>
-92-
SCHEDULE 8.08
CONTINGENT LIABILITIES
AS OF THE CLOSING DATE
Letters of Credit as described in Schedule 3.03.
<PAGE>
-93-
SCHEDULE 11.02
ADDRESSES FOR NOTICES
BORROWER
WEST MARINE FINANCE COMPANY, INC.
500 Westridge Drive
Watsonville, CA 95076
Attention: Chief Financial Officer
With a copy to: Director of Cash Management
Telephone: (408) 761-4229
Facsimile: (408) 761-4406
BANK OF AMERICA, N.A.
as Agent
For administrative notices regarding borrowings, payments, conversions,
continuations, letters of credit, fees and interest:
Bank of America, N.A.
Agency Management Services #5596
1850 Gateway Blvd.
Concord, CA 94520
Attention: Kristine Kelleher
Telephone: (510) 675-8373
Facsimile: (510) 969-2817
For notices regarding waivers, amendments, financial statements,
assignments and all other notices:
Bank of America, N.A.
Agency Management Services #10831
1455 Market Street, 12th Floor
San Francisco, California 94103
Attention: Gary Flieger
Vice President
Telephone: (415) 436-3484
Facsimile: (415) 503-5005
BANK OF AMERICA, N.A.,
as a Bank
Bank of America, N.A.
101 Park Center Plaza
San Jose, CA 95113
Attention: Kenneth E. Jones
Senior Vice President
Telephone: (408) 277-7644
Facsimile: (408) 277-7087
<PAGE>
-94-
BANK OF AMERICA, N.A.,
as an Issuing Bank
Bank of America, N.A.
International Trade
Banking Division #5655
333 S. Beaudry Ave., 19th Floor
Los Angeles, CA 90017
FLEET NATIONAL BANK,
as a Bank
Fleet National Bank
777 Main Street
CT MO 0237
Hartford, CT 06115
Attn: Jeff Kinney
Vice President
Telephone: (890) 986-2158
Facsimile: (890) 986-3450
UNION BANK OF CALIFORNIA, N.A.,
as a Bank
Union Bank of California, N.A.
350 California St., 10th Floor
San Francisco, CA 94104
Attn: James Goudy
Vice President
Telephone: (415) 705-7165
Facsimile: _____________
CREDIT AGREEMENT
Dated as of January 13, 2000
Among
WEST MARINE FINANCE COMPANY, INC.,
BANK OF AMERICA, N.A.,
as Agent,
a Letter of Credit Issuing Bank
and Bank,
FLEET NATIONAL BANK,
as a Bank
and
UNION BANK OF CALIFORNIA, N.A.,
as a Bank
<PAGE>
Exhibit 21.1
LIST OF SUBSIDIARIES
West Marine Products, Inc., a California corporation
West Marine Puerto Rico, Inc., a California corporation
West Marine FSC, Inc., a Barbados corporation
West Marine Finance Company, a California corporation
West Marine Management Company, a California corporation
West Marine LBC, Inc., a California corporation
West Marine IHC I, Inc., a California corporation
West Marine IHC II, Inc., a California corporation
E&B Marine, Inc., a Delaware corporation
E&B Marine LBC, Inc., a California corporation
E&B Marine IHC I, Inc., a California corporation
E&B Marine IHC II, Inc., a California corporation
E&B Marine Supply, Inc., a New Jersey corporation
E&B Marine Supply, Inc., a Maryland corporation
E&B Marine Supply (Florida), Inc., a Delaware corporation
Goldbergs' Marine Distributors, Inc., a Delaware Corporation
James Bliss & Co., Inc., Massachusetts corporation
Sea Ranger Marine Inc., a Delaware corporation
Krista Corporation, a Delaware corporation
Central Marine Supply Inc., a New Jersey corporation
<PAGE>
[LETTERHEAD OF DELOITTE & TOUCHE]
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements No. 333-
04712, No. 333-03728, No. 33-89322, No. 33-72956, No. 333-02903, No. 333-71147
of West Marine, Inc. on Form S-8 of our report dated February 17, 2000 appearing
in the Annual Report on Form 10-K of West Marine, Inc. for the year ended
January 1, 2000.
/s/Deloitte & Touche LLP
March 24, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
CONSOLIDATED FINANCIAL STATEMENTS DATED JAN 1, 2000
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-START> JAN-03-1999
<PERIOD-END> JAN-01-2000
<CASH> 3,231
<SECURITIES> 0
<RECEIVABLES> 5,101<F1>
<ALLOWANCES> 0
<INVENTORY> 165,838
<CURRENT-ASSETS> 183,199
<PP&E> 66,036<F2>
<DEPRECIATION> 0
<TOTAL-ASSETS> 286,860
<CURRENT-LIABILITIES> 52,660
<BONDS> 0
0
0
<COMMON> 17
<OTHER-SE> 159,880
<TOTAL-LIABILITY-AND-EQUITY> 286,860
<SALES> 486,491
<TOTAL-REVENUES> 486,491
<CGS> 356,215
<TOTAL-COSTS> 356,215
<OTHER-EXPENSES> 109,881<F3>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,630
<INCOME-PRETAX> 14,765
<INCOME-TAX> 6,054
<INCOME-CONTINUING> 8,711
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,711
<EPS-BASIC> 0.51
<EPS-DILUTED> 0.50
<FN>
<F1>AMOUNT REPRESENTS RECEIVABLES, NET OF ALLOWANCES FOR DOUBTFUL ACCOUNTS.
<F2>AMOUNT REPRESENTS PP&E, NET OF ACCUMULATED DEPRECIATION.
<F3>AMOUNT REPRESENTS SELLING, GENERAL AND ADMINISTRATIVE COSTS.
</FN>
</TABLE>
