<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NUMBER 1-13848
OAKLEY, INC.
(Exact name of registrant as specified in its charter)
WASHINGTON 95-3194947
(State or other jurisdiction of (IRS Employer ID No.)
incorporation or organization)
ONE ICON, FOOTHILL RANCH, CALIFORNIA 92610
(Address of principal executive offices) (zip code)
(949) 951-0991
(Registrant's telephone number, including area code)
------------------------
Indicate by 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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<S> <C>
Common Stock, par value $.01 per
share 70,678,057 shares
- ------------------------------------ --------------------------------
(Outstanding on November 6,
(Class) 1998)
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
OAKLEY, INC.
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
ITEM 1 - Financial Statements
<S> <C>
Consolidated Balance Sheets as of December 31, 1997
and September 30, 1998 (unaudited) . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Income for the three- and nine-month
periods ended September 30, 1997 and 1998 (unaudited). . . . . . . . 4
Consolidated Statements of Cash Flows for the nine-month periods
ended September 30, 1997 and 1998 (unaudited). . . . . . . . . . . . 5
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . 6-8
ITEM 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . . . . . . . . 9-14
ITEM 3 - Quantitative and Qualitative Disclosures About
Market Risk. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14-15
PART II. OTHER INFORMATION
ITEM 1 - Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . 16-19
ITEM 2 - Changes in Securities and Use of Proceeds . . . . . . . . . . 19
ITEM 3 - Defaults Upon Senior Securities . . . . . . . . . . . . . . . 19
ITEM 4 - Submission of Matters to a Vote of Security Holders . . . . . 19
ITEM 5 - Other Information . . . . . . . . . . . . . . . . . . . . . . 19
ITEM 6 - Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . 20
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
OAKLEY, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ASSETS
December 31,1997 September 30, 1998
-----------------------------------------
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 2,657 $ 4,256
Accounts receivable, less allowance for
doubtful accounts of $551 (1997), $503 (1998) 24,015 41,116
Inventories (Note 2) 26,200 34,472
Other receivables 2,427 2,775
Deferred income taxes 4,829 4,829
Prepaid expenses 2,978 3,427
--------------- -----------------
Total current assets 63,106 90,875
Property and equipment, net 104,230 116,963
Deposits 1,519 1,591
Other assets 12,436 18,784
--------------- -----------------
TOTAL ASSETS $ 181,291 $ 228,213
--------------- -----------------
--------------- -----------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Line of credit (Note 3) $ 2,800 $ 16,000
Accounts payable 6,762 14,289
Accrued expenses and other current liabilities 8,666 12,452
Income taxes payable 1,671 4,091
Current maturities of long-term debt (Note 3) 1,519 1,519
--------------- -----------------
Total current liabilities 21,418 48,351
Deferred income taxes 2,030 2,030
Long-term debt, net of current maturities (Note 3) 20,882 19,743
COMMITMENTS AND CONTINGENCIES (Note 4)
SHAREHOLDERS' EQUITY
Preferred stock, par value $.01 per share: 20,000,000
shares authorized; no shares issued - -
Common stock, par value $.01 per share: 200,000,000
shares authorized; 70,659,086 (1997) and
70,678,057 (1998) issued and outstanding 707 707
Additional paid-in capital 55,170 55,506
Retained earnings 82,238 102,952
Foreign currency translation adjustment (1,154) (1,076)
--------------- -----------------
Total shareholders' equity 136,961 158,089
--------------- -----------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 181,291 $ 228,213
--------------- -----------------
--------------- -----------------
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
OAKLEY, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------ ------------------------------
1997 1998 1997 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $ 59,418 $ 67,263 $ 148,971 $ 178,293
Cost of goods sold 23,370 25,360 57,212 66,111
---------- ---------- ---------- ----------
Gross profit 36,048 41,903 91,759 112,182
Operating expenses:
Research and development 1,111 1,288 2,654 3,800
Selling 15,485 18,428 40,730 49,184
Shipping and warehousing 1,629 2,020 4,308 5,266
General and administrative 6,352 6,293 16,898 18,930
---------- ---------- ---------- ----------
Total operating expenses 24,577 28,029 64,590 77,180
Operating income 11,471 13,874 27,169 35,002
Interest expense, net 407 499 849 1,376
---------- ---------- ---------- ----------
Income before provision for income taxes 11,064 13,375 26,320 33,626
Provision for income taxes 4,249 5,136 10,107 12,912
---------- ---------- ---------- ----------
Net income $ 6,815 $ 8,239 $ 16,213 $ 20,714
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Basic net income per common share $ 0.10 $ 0.12 $ 0.23 $ 0.29
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Basic weighted average common shares 70,659 70,678 70,659 70,678
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Diluted net income per common share $ 0.10 $ 0.12 $ 0.23 $ 0.29
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Diluted weighted average common shares 70,816 71,027 70,703 70,960
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
OAKLEY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS) (UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
------------------------------
1997 1998
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 16,213 $ 20,714
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 9,288 12,071
Deferred compensation 85 75
Loss (gain) on disposition of equipment 234 (613)
Changes in assets and liabilities, net of effects
of business acquisitions:
Accounts receivable (3,557) (16,973)
Inventories 4,808 (8,272)
Other receivables (577) (422)
Prepaid expenses and other 1,673 (444)
Accounts payable 3,698 7,418
Accrued expenses and other current liabilities (1,281) 3,533
Income taxes payable 6,288 2,435
---------- ----------
Net cash provided by operating activities 36,872 19,522
CASH FLOWS FROM INVESTING ACTIVITIES:
Deposits (114) (80)
Acquisitions of property and equipment (33,783) (24,060)
Proceeds from sale of property and equipment 241 811
Other assets (3,342) (7,321)
---------- ----------
Net cash used in investing activities (36,998) (30,650)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bank borrowings 40,000 78,150
Repayments of bank borrowings (35,220) (66,089)
Net proceeds from issuance of common shares 36 261
Repurchase of common shares (3,200) -
---------- ----------
Net cash provided by financing activities 1,616 12,322
EFFECT OF EXCHANGE RATE CHANGES ON CASH (889) 405
NET INCREASE
IN CASH AND CASH EQUIVALENTS 601 1,599
CASH AND CASH EQUIVALENTS, beginning of period 8,063 2,657
---------- ----------
CASH AND CASH EQUIVALENTS, end of period $ 8,664 $ 4,256
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
OAKLEY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying consolidated financial statements of Oakley, Inc. and its
wholly-owned subsidiaries (the "Company") have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission ("SEC").
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles ("GAAP") for complete financial
statements.
In the opinion of management, the consolidated financial statements contain all
adjustments, consisting only of normal recurring adjustments, considered
necessary for a fair statement of the balance sheets as of December 31, 1997 and
September 30, 1998, the statements of income for the three- and nine-month
periods ended September 30, 1997 and 1998 and the statements of cash flows for
the nine- month periods ended September 30, 1997 and 1998. The results of
operations for the three- and nine-month periods ended September 30, 1998 are
not necessarily indicative of the results of operations for the entire fiscal
year ending December 31, 1998.
NOTE 2 - INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31, 1997 September 30, 1998
----------------- ------------------
<S> <C> <C>
Raw Materials $ 11,814,000 $ 16,966,000
Finished Goods 14,386,000 17,506,000
----------------- ------------------
$ 26,200,000 $ 34,472,000
----------------- ------------------
----------------- ------------------
</TABLE>
NOTE 3 - FINANCING ARRANGEMENTS
LINE OF CREDIT - Effective August 25, 1998, the Company amended its unsecured
line of credit with a bank syndicate by increasing its borrowing limits from
$30.0 million to $50.0 million and extended the maturity date from June 1999 to
August 2001. The amended line of credit bears interest at either the bank's
prime lending rate (8.25% at September 30, 1998) or LIBOR plus 0.75% (6.35% at
September 30, 1998). At September 30, 1998, the Company had $16.0 million
outstanding under the credit agreement. The credit agreement contains various
restrictive covenants including the maintenance of certain financial ratios. At
September 30, 1998, the Company was in compliance with all restrictive covenants
and financial ratios.
LONG-TERM DEBT - In August 1998, the Company amended its term loan by lowering
the borrowing rate by 0.15% and extending the due date to September 2007. The
term loan, which is collateralized by the Company's corporate headquarters,
requires quarterly principal payments of approximately $380,000 ($1,519,000
annually), plus interest based upon LIBOR plus 1.00% (6.69% at September 30,
1998) for ten years. At September 30, 1998, the outstanding balance under the
term loan was $21.3 million.
NOTE 4 - LITIGATION
During December 1996, three putative class action lawsuits (the "California
Securities Actions") were filed in the California Superior Court for the County
of Orange (the "Superior Court") against the Company and three of its officers
and directors alleging material misstatements and omissions in certain of the
Company's public statements, SEC filings and reports of third-party analysts.
The plaintiffs seek unspecified damages and other relief. In addition, one of
the lawsuits also asserted claims against firms who served as underwriters of
the June 6, 1996 offering of the Company's common stock by certain of its
shareholders of (the "Secondary Offering"). Pursuant to certain
6
<PAGE>
provisions of the underwriting agreement between the Company and the firms,
the Company agreed to indemnify the firms against certain liabilities,
including liabilities under the Securities Act of 1933, as amended. Pursuant
to a court order sustaining demurrers to certain claims and to plaintiffs'
dismissal without prejudice of certain other claims, the only claim remaining
in the Superior Court in the California Securities Actions is a claim for
purported violations of the antifraud provision of the California Corporation
Code with respect to two of the Company's officers and directors. On April
1, 1998, the Superior Court entered a judgment (the "Judgment") in the
California Securities Actions in favor of the Company, one of the Company's
officers and directors and the firms who served as underwriters of the
Secondary Offering. On April 15, 1998, plaintiffs filed a notice of appeal
from the Judgment in the Superior Court, which concerns plaintiffs' cause of
action for purported violations of the antifraud provisions of the California
Corporations Code. On September 24, 1998, plaintiffs filed a motion for class
certification in the Superior Court. In March 1997, the Company was named as
a nominal defendant in a putative derivative action (the "California
Derivative Action") filed in the Superior Court against two of the Company's
officers and directors based on substantially the same allegations as those
in the California Securities Actions. The derivative plaintiff seeks to
recover damages and other relief on behalf of the Company. On February 4,
1998, the court entered a final order of dismissal of the putative derivative
action. On April 8, 1998, the derivative plaintiff filed a notice of appeal
in the Superior Court. In November 1998, the parties to the California
Derivative Action anticipate filing a stipulation with the California Court of
Appeal, Fourth Appellate District, to remand the case to the Superior Court for
purposes of approving a settlement conditionally agreed to by the parties.
Among other things, any settlement agreed to by the parties is subject to
approval by both the Superior Court and the Company's Board of Directors.
During October, November and December 1997, five putative class action
lawsuits (the "Federal Securities Actions") were filed in the United States
District Court for the Central District of California, Southern Division,
against the Company, three of its officers and directors and firms that
served as underwriters of the Secondary Offering, alleging material
misstatements and omissions in certain of the Company's public statements,
the reports of third-party analysts and/or certain of the Company's SEC
filings. The plaintiffs in the Federal Securities Actions seek unspecified
damages and other relief. On July 10, 1998, the Company and the other
defendants filed motions to dismiss the Federal Securities Actions. The
hearing on the motions to dismiss the Federal Securities Action is scheduled
for November 23, 1998. Although it is too soon to predict the outcome of the
California Securities Actions, the California Derivative Action or the
Federal Securities Actions with any certainty, based on its current
understanding of the facts, the Company believes that the plaintiffs' claims
are without merit and intends to vigorously defend the actions.
In addition, the Company is currently involved in litigation incidental to the
Company's business. In the opinion of management, the ultimate resolution of
such litigation, in the aggregate, will not have a significant effect on the
accompanying consolidated financial statements.
NOTE 5 - CHANGES IN ACCOUNTING PRINCIPLES
Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income". This statement requires
that all items recognized under accounting standards as components of
comprehensive earnings be reported in an annual financial statement that is
displayed with the same prominence as other annual financial statements. This
statement also requires that an entity classify items of other comprehensive
earnings by their nature in an annual financial statement. For example, other
comprehensive earnings include foreign currency translation adjustments. Annual
financial statements for prior periods will be restated, as required. The
Company's total comprehensive income is as follows:
7
<PAGE>
<TABLE>
<CAPTION>
Nine months ended September 30,
--------------------------------------
1997 1998
------------- -------------
<S> <C> <C>
Net income $ 16,213,000 $ 20,714,000
Foreign currency translation (loss)/gain (889,000) 405,000
------------- -------------
Total comprehensive income $ 15,324,000 $ 21,119,000
------------- -------------
------------- -------------
</TABLE>
8
<PAGE>
NOTE 6 - RECENT ACCOUNTING DEVELOPMENTS
In 1997, SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," was issued and is effective for the year ending December 31, 1998.
The Company is reviewing the impact of the statement on its year end financial
statements.
NOTE 7 - EARNINGS PER SHARE
Basic earnings per share is computed using the weighted average number of common
shares outstanding during the reporting period. Earnings per share assuming
dilution is computed using the weighted average number of common shares
outstanding and the dilutive effect of potential common shares outstanding. For
the three months ended September 30, 1998 and 1997, the diluted weighted average
common shares outstanding includes 349,000 and 157,000, respectively, of
dilutive stock options. For the nine months ended September 30, 1998 and 1997,
the diluted weighted average common shares outstanding includes 282,000 and
44,000, respectively, of dilutive stock options.
9
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion includes the operations of Oakley, Inc. and
subsidiaries for each of the periods discussed.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
NET SALES
Net sales increased to $67.3 million for the three months ended
September 30, 1998 from $59.4 million for the three months ended September
30, 1997, an increase of $7.9 million, or 13.3%. During the three months
ended September 30, 1998, the JACKET group continued to lead in sales of
existing product, followed by sport shield sunglasses, WIRES and FIVES.
Sales of new products introduced in 1998 accounted for 30.2% of sunglass
sales. The Company's domestic net sales increased 4.3% to $38.5 million from
$36.9 million in the comparable 1997 period, principally as a result of
timely shipments of the Company's expanded fall apparel line and strong sales
of goggles, particularly the new A-FRAME goggle introduced this quarter, to
key winter markets. Sales to Sunglass Hut, the Company's largest customer,
decreased 6.7% primarily due to Sunglass Hut's change in its inventory
replenishment system of high volume items which allows Sunglass Hut to more
closely match purchases to their retail sales. The Company believes this
replenishment system has resulted in a shift of a portion of Sunglass Hut
revenue from the third quarter into the second and fourth quarters, in
preparation for key selling seasons. The Company's international sales
increased 27.0% to $28.7 million in 1998 from $22.6 million in 1997,
principally as a result of increased sales in all major markets. Southeast
Asia and Latin America sales represented 2.0% and 2.8%, respectively, of
total net sales for the three months ended September 30, 1998. International
net sales in the 1998 period were negatively affected by the strength of the
dollar compared to the functional currency of direct operations in Japan,
Mexico, South Africa and Canada, while international net sales were
positively affected primarily by the French Franc. Footwear net sales were
$0.9 million, or 1.3% of net sales, for the quarter ended September 30, 1998.
GROSS PROFIT
Gross profit increased to $41.9 million for the three months ended September 30,
1998 from $36.0 million for the three months ended September 30, 1997, an
increase of $5.9 million, or 16.4%. As a percentage of net sales, gross profit
increased to 62.3% in 1998 from 60.7% in 1997. Gross profit as a percentage of
net sales increased due to improvements in goggle and apparel margins and
reduced product returns, offset by a lower sunglass contribution and a negative
impact on consolidated gross margin attributable to footwear start-up costs.
OPERATING EXPENSES
Operating expenses increased to $28.0 million for the three months ended
September 30, 1998 from $24.6 million for the three months ended September 30,
1997, an increase of $3.4 million. Research and development expenses were $1.3
million, or 1.9% of net sales, in the 1998 period as compared to $1.1 million,
or 1.9% of net sales, in the 1997 period, an increase of $0.2 million. Selling
expenses increased $2.9 million to $18.4 million, or 27.3% of net sales, for the
three months ended September 30, 1998 from $15.5 million, or 26.1% of net sales,
in the 1997 period. The increase in selling expenses is a result of greater
personnel costs and related expenses, additional warranty expenses associated
with our direct distribution operation, greater promotional expenses, increases
in variable expenses such as commissions, and increased depreciation associated
with additional capital equipment and product displays. As a percentage of net
sales, shipping expenses increased to 3.0%
10
<PAGE>
for the three months ended September 30, 1998 compared to 2.7% for the
comparable 1997 period. General and administrative expenses for the three
months ended September 30, 1998 were $6.3 million, or 9.4% of net sales,
compared to $6.4 million, or 10.8% of net sales, in the same period in 1997.
This decrease in general and administrative expenses was a result of lower
professional fees, insurance and other expenses for the 1998 quarter, offset
by an increase in personnel costs and related expenses.
OPERATING INCOME
The Company's operating income increased to $13.9 million for the three months
ended September 30, 1998 from $11.5 million for the three months ended September
30, 1997, an increase of $2.4 million, or 20.9%, over the same period in the
previous year. As a percentage of net sales, operating income increased to
20.6% for the three months ended September 30, 1998 from 19.4% for the three
months ended September 30, 1997. This increase was the result of an increase in
net sales and higher gross profit margin, offset by slightly higher operating
costs. Excluding footwear costs, the Company's operating income as a percentage
of net sales would have been 23.5% versus 19.4% for the comparable 1997 period.
INTEREST EXPENSE, NET
The Company had net interest expense of $0.5 million for the three months ended
September 30, 1998 compared to $0.4 million for the three months ended September
30, 1997.
NET INCOME
The Company's net income increased to $8.2 million for the three months ended
September 30, 1998 from $6.8 million for the three months ended September 30,
1997, an increase of $1.4 million, or 20.6%, over the comparable 1997 quarter.
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
NET SALES
Net sales increased to $178.3 million for the nine months ended September 30,
1998 from $149.0 million for the nine months ended September 30, 1997, an
increase of $29.3 million, or 19.7%. This increase was the result of strong
sales of FIVES and initial sales from the new RACING JACKET introduced in
January 1998, MARS introduced in March 1998, the MINUTE and A WIRE introduced in
May 1998 and TENS introduced in August 1998. Sales of new products introduced
in 1998 accounted for 18.7% of sunglass sales. The Company's domestic net sales
increased 20.4% to $107.8 million from $89.5 million in the comparable 1997
period, principally as a result of a 39.9% increase in net sales to the
Company's largest customer, Sunglass Hut. The significant increase in net sales
to Sunglass Hut is attributable to a large reduction in 1997 in Sunglass Hut
purchases related to their 1997 inventory realignment initiative, in addition to
an increase in overall sales rates. The Company's international sales increased
18.7% to $70.5 million in 1998 from $59.4 million in 1997, principally as a
result of increased sales in all major markets except Southeast Asia and the
Middle East. Southeast Asia and Latin America sales represented 1.5% and 2.5%,
respectively, of total net sales for the nine months ended September 30, 1998.
International net sales in the 1998 period were negatively affected by the
strength of the dollar compared to the functional currency of direct operations
in Europe, Japan, Mexico, South Africa and Canada.
GROSS PROFIT
Gross profit increased to $112.2 million for the nine months ended September 30,
1998 from $91.8 million for the nine months ended September 30, 1997, an
increase of $20.4 million, or 22.2%. As a percentage of net sales, gross profit
increased to 62.9% in 1998 from 61.6% in 1997. Gross profit as a percentage of
net sales was positively affected by increased X METAL production, lower product
11
<PAGE>
returns and an increase in sunglass unit volume sales and average selling
prices. These positive factors were partially offset by an increase in
inventory reserves, higher sales discounts and initial footwear production
costs.
OPERATING EXPENSES
Operating expenses increased to $77.2 million for the nine months ended
September 30, 1998 from $64.6 million for the nine months ended September 30,
1997, an increase of $12.6 million. As a percentage of net sales, operating
expenses were 43.3% for the nine months ended September 30, 1998 and 1997.
Research and development costs increased $1.1 million to $3.8 million for the
nine months ended September 30, 1998. The 1997 period included a $0.9 million
reduction related to the forfeiture of the Chairman and President's 1996 bonus.
Excluding this non-recurring adjustment to the 1997 period, research and
development expenses increased $0.2 million to $3.8 million, or 2.1% of net
sales, in 1998 from $3.6 million, or 2.4% of net sales, in the 1997 period.
Selling expenses were $49.2 million, or 27.6% of net sales, in 1998 as compared
to $40.7 million, or 27.3% of net sales, in 1997, an increase of $8.5 million,
or 20.9%. This increase is a result of greater personnel expenses and variable
expenses such as commissions, greater promotional expenses and increased
depreciation associated with additional capital equipment and product displays.
As a percentage of net sales, shipping expenses increased to 3.0% for the nine
months ended September 30, 1998 from 2.9% in the comparable 1997 period.
General and administrative expenses increased $2.0 million to $18.9 million, or
10.6% of net sales, in the 1998 period from $16.9 million, or 11.3% of net
sales, in the 1997 period. This increase is primarily due to increased
personnel costs and related expenses, including an increase of $0.4 million in
the Company's vacation benefit expense, increased tax and license expense and
greater depreciation and amortization expenses associated with additional
capital equipment and the acquisition of Oakley Canada, offset by income in the
1998 period of $0.6 million on the disposal of certain assets. For the nine
months ended September 30, 1997, general and administrative expenses included
income of $0.8 million paid to the Company by Arnet Optic to settle litigation,
$0.7 million of relocation costs associated with the new facility and
professional fees of $0.5 million related to lawsuits filed by shareholders
against the Company and three of its officers (see Note 4 to the consolidated
financial statements).
OPERATING INCOME
The Company's operating income increased to $35.0 million for the nine months
ended September 30, 1998 from $27.2 million for the nine months ended September
30, 1997, an increase of $7.8 million. As a percentage of net sales, operating
income increased to 19.6% for the nine months ended September 30, 1998 from
18.2% for the nine months ended September 30, 1997. This increase was the
result of the Company's increase in net sales and gross profit margin as a
percentage of net sales.
INTEREST EXPENSE, NET
The Company had net interest expense of $1.4 million for the nine months ended
September 30, 1998, as compared with net interest expense of $0.8 million for
the comparable 1997 period. Net interest expense for the 1997 period excludes
$0.5 million of interest costs which were capitalized in the period as part of
the construction of its new facility.
NET INCOME
The Company's net income increased to $20.7 million for the nine months ended
September 30, 1998 from $16.2 million for the nine months ended September 30,
1997, an increase of 27.8%.
12
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES The Company historically has financed its
operations almost entirely with cash flow generated from operations and
borrowings from its credit facilities. Cash provided by operating activities
totaled $19.5 million for the nine months ended September 30, 1998 and $36.8
million for the comparable period of 1997. At September 30, 1998, working
capital was $42.5 million. Working capital may vary from time to time as a
result of seasonality, new product introductions and changes in accounts
receivable and inventory levels. Accounts receivable days at September 30,
1998 were 51 compared to 43 for the comparable 1997 period. This increase in
receivable days is attributable to increased sales during the quarter ended
September 30, 1998 of goggles and apparel which carry extended terms
consistent with industry norms and the extension of terms to a limited number
of more credit worthy accounts. Inventories were $34.5 million at September
30, 1998 compared to $32.4 million at June 30, 1998 and $25.1 million at
September 30, 1997. As a Company expands its product offerings and
diversifies into other product categories, its inventory levels generally
will increase to accommodate these new products. In August 1998, the Company
amended its unsecured line of credit to increase its borrowing limits from
$30.0 million to $50.0 million. At September 30, 1998, the Company had an
outstanding balance of $16.0 million under such facility. Additionally, in
August 1998, the Company amended its term loan by lowering the borrowing rate
by 0.15% and extending the due date to September 2007. The term loan, which
is collateralized by the Company's corporate headquarters, requires quarterly
principal payments of approximately $380,000 plus interest based on LIBOR
plus 1.00% (6.69% at September 30, 1998) for ten years. At September 30,
1998, the outstanding balance on the term loan was $21.3 million.
Capital expenditures for the nine months ended September 30, 1998 totaled $24.1
million. These expenditures were primarily attributable to the expansion of the
Company's information technology capabilities, facility improvements, product
displays, and production equipment for the Company's sunglass and footwear
lines. Other assets increased by $7.3 million for the nine months ended
September 30, 1998, primarily due to the acquisition of an international
distributor and certain patented technology. As of September 30, 1998, the
Company had commitments of approximately $2.9 million for future capital
purchases.
The Company believes that existing capital, anticipated cash flow from
operations and current credit facilities will be sufficient to meet operating
needs and capital expenditures for the foreseeable future.
SEASONALITY
Historically, the Company's sales, in the aggregate, generally have been higher
in the period from March to September, the period during which sunglass use is
typically highest. As a result, gross and operating margins are typically lower
in the first and fourth quarters, as fixed operating costs are spread over
generally lower sales volume. In anticipation of seasonal increases in demand,
the Company typically builds inventories in the fourth quarter and first quarter
when net sales have historically been lower. In addition, the Company's
shipments of goggles, which generate gross margins at significantly lower levels
than sunglasses, are lowest in the second quarter. This seasonal trend
contributes to the Company's gross margin in the second quarter, which
historically has been the highest of the year. Although the Company's business
generally follows this seasonal trend, new product introductions and the
Company's international expansion have partially mitigated the impact of
seasonality.
13
<PAGE>
BACKLOG
Historically, the Company has generally shipped domestic orders (other than
pre-season orders for ski goggles and apparel and orders from certain sunglass
specialty chains) within one day of receipt and international orders within two
weeks of receipt. At September 30, 1998, the Company had a backlog of $7.4
million, including backorders (merchandise remaining unshipped beyond its
scheduled shipping date) of $2.1 million as of such date. In September 1997,
the Company implemented changes in its replenishment system with Sunglass Hut,
which affected its reported backlog. Under the new system, in an effort to more
closely match inventory replenishment with Sunglass Hut's sales, certain
high-volume Oakley products are shipped to Sunglass Hut weekly, based on the
previous week's retail sales. As a result, Sunglass Hut no longer places future
shipment orders for these products except in anticipation of major seasonal
sales increases. These changes reduced the Company's reported backlog at
September 30, 1997 and have continued to do so in subsequent periods. These
system enhancements are the result of the joint efforts of the two companies to
achieve the long-term benefits of lower overall inventory levels, while
increasing inventory turns and sales at retail.
INFLATION
The Company does not believe inflation has had a material impact on the Company
in the past, although there can be no assurance that this will be the case in
the future.
YEAR 2000
The Company has established a Year 2000 Project team that is currently reviewing
the internal and external readiness of its date sensitive hardware systems,
computer systems, business practices, suppliers and customers for handling Year
2000 issues. These issues involve systems that are date sensitive and may not
be able to properly process the transition from year 1999 to year 2000 and
beyond, resulting in miscalculations and software failures. The Company's Year
2000 compliance strategy includes several phases: Inventory, Assessment,
Remediation, and Testing.
The Company has substantially completed the inventory phase and is in the
process of completing the assessment phase, with respect to its internal
systems. The Company is also in the process of performing diagnostics and
implementing Year 2000 compliant solutions on "in-house" critical software
programs, which are expected to be substantially completed by June 1999.
Included in this group are systems used in the information technology group
as well as non-information technology systems, such as production equipment
that is date sensitive. Assessment of the Year 2000 readiness with respect
to the Company's subsidiaries is targeted to begin January 1999.
The Company has initiated communications with all of its key external business
partners to determine their extent and plans for Year 2000 compliance. As part
of this process, the Company has requested written assurances from its key
external business partners as to their Year 2000 readiness status and their
plans to become Year 2000 compliant when necessary. This process is ongoing and
is expected to continue throughout 1999.
The Company is in the process of developing Year 2000 contingency plans as it
applies to each department. The Company is also communicating with its
external business partners to determine their Year 2000 contingency plans.
Based on analysis completed to date, management believes its current staff
will be sufficient to address the Year 2000 issues and that the staff time
required to address these issues should not have a material adverse effect on
other projects. The costs associated with the Year 2000 project have not
been budgeted and tracked as separate projects, but have been occurring in
conjunction with normal operating activities. These costs are being funded
through operating cash flows and are not expected to materially impact the
Company's operating results. There can be no assurance that there will not
be a delay in, or increased costs associated with, the implementation of the
necessary systems and changes to address the Year 2000 issues, and the
Company's inability to implement such systems and changes in a timely manner
could have a material adverse effect on
14
<PAGE>
future results of operations. In addition, the failure of certain of the
Company's significant customers or vendors to appropriately address the Year
2000 issue in a timely manner could have a material adverse effect on the
Company.
FORWARD-LOOKING STATEMENTS
When used in this document, the words "believes", "anticipates", "expects" and
similar expressions are intended to identify in certain circumstances
forward-looking statements. Such statements are subject to a number of risks
and uncertainties that could cause actual results to differ materially from
those projected, including risks related to the dependence on sales to Sunglass
Hut; the acceptance in the marketplace of new products (including the Company's
athletic footwear and watch line); the ability to source raw materials at prices
favorable to the Company; the ability to develop and introduce innovative
products; currency fluctuations; and other risks outlined in the Company's
previously filed public documents, copies of which may be obtained without cost
from the Company. Given these uncertainties, prospective investors are
cautioned not to place undue reliance on such statements. The Company also
undertakes no obligation to update these forward-looking statements.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
The Company and its foreign subsidiaries may enter into derivative financial
instruments, including foreign currency forward exchange contracts and
foreign currency option contracts, to manage foreign exchange risk on foreign
currency transactions and do not use the contracts for trading purposes.
These financial instruments are used to protect the Company from the risk
that the eventual net cash inflows from the foreign currency transactions
will be adversely affected by changes in exchange rates. Gains and losses
associated with forward exchange contracts related to hedges of firmly
committed transactions are deferred and recognized when the hedged
transaction occurs. Gains and losses resulting from foreign exchange
contracts which are not hedges of firmly committed transactions are recorded
each period to the consolidated statement of income. Unrealized gains
associated with option contracts are recorded each period. Unrealized losses
associated with option contracts are recorded each period to the extent of
gains on such contracts previously recorded. Premiums associated with option
contracts are amortized on a straight line basis over the life of the option
contract.
A summary of exchange contracts is as follows:
<TABLE>
<CAPTION>
September 30, 1998
----------------------------------------------------
U.S. Dollar Fair
Equivalent Maturity Value
------------ ------------ ------------
<S> <C> <C> <C>
Option Contracts:
Canadian dollars $ 1,900,019 Dec. 1998 $ 1,979,522
Japanese yen 1,382,353 Dec. 1998 1,424,242
Japanese yen 1,382,353 Mar. 1999 1,424,242
Japanese yen 1,470,588 Jun. 1999 1,353,272
Japanese yen 1,500,000 Sep. 1999 1,420,217
Japanese yen 1,551,471 Dec. 1999 1,468,950
French francs 2,590,883 Dec. 1998 2,400,000
German marks 1,424,897 Dec. 1998 1,300,000
------------ ------------
$13,202,564 $12,770,445
------------ ------------
------------ ------------
</TABLE>
15
<PAGE>
The Company is exposed to credit losses in the event of nonperformance by
counterparties to its forward exchange contracts but has no off-balance sheet
credit risk of accounting loss. The Company anticipates, however, that the
counterparties will be able to fully satisfy their obligations under the
contracts. The Company does not obtain collateral or other security to
support the forward exchange contracts subject to credit risk but monitors
the credit standing of the counterparties. As of September 30, 1998,
outstanding contracts were recorded at fair market value (except for certain
option contracts with unrealized losses) and the resulting gains and losses
were recorded to the consolidated statements of income pursuant to the
policy set forth above.
16
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
THE CALIFORNIA SECURITIES ACTIONS
The Company and certain of its officers and directors have been named as
defendants in three putative class action lawsuits (the "California Securities
Actions") filed in December 1996 in the California Superior Court for the County
of Orange (the "Superior Court"). The cases are captioned:
YOSEF S. ROSENSHEIN V. OAKLEY, INC., MIKE PARNELL, LINK NEWCOMB AND JIM
JANNARD, Case No. 773051 (filed December 17, 1996);
HERSCHEL HARMAN V. OAKLEY, INC., MIKE PARNELL, LINK NEWCOMB AND JIM
JANNARD, Case No. 773053 (filed December 17, 1996); and
ERIC SHER, HAROLD BARON AND DAVID O. ECKERT V. OAKLEY, INC., MIKE PARNELL,
LINK NEWCOMB, JIM JANNARD, MERRILL LYNCH & CO. AND ALEX. BROWN & SONS,
INC., Case No. 773366 (filed December 24, 1996).
By order dated January 30, 1997, the Superior Court ordered that the California
Securities Actions be assigned to the Superior Court's Complex Litigation Panel,
where they have since been consolidated. On April 18, 1997, the plaintiffs
filed a consolidated amended complaint in the California Securities Actions.
The plaintiffs seek to represent a class of persons who purchased the Company's
common stock between March 22, 1996 and December 5, 1996.
The complaint in the California Securities Actions alleges claims for violations
of the antifraud provisions of the California Corporations Code, unfair business
practices and false advertising in violation of certain provisions of the
California Business and Professions Code, fraud and negligent misrepresentation.
The plaintiffs' claims are based on alleged material misstatements and omissions
in certain of the Company's public statements, Securities and Exchange
Commission filings and in the reports of third-party analysts regarding the
Company's retail distribution practices, market conditions, new product
developments and extensions of existing product lines, business with Sunglass
Hut and earnings prospects. The plaintiffs seek unspecified damages and other
relief against the Company and the other defendants.
The plaintiffs in the California Securities Actions have also asserted claims
against Merrill Lynch & Co. ("Merrill Lynch") and Alex. Brown and Sons, Inc.
("Alex. Brown"), which served as the U.S. Representatives of the U.S.
Underwriters of the June 6, 1996 offering of five million shares of common stock
of the Company by certain of its shareholders (the "Secondary Offering"). By
letter dated February 7, 1997, counsel for Merrill Lynch and Alex. Brown gave
the Company notice pursuant to the indemnification provisions of the U.S.
Purchase Agreement dated June 6, 1996, for the Secondary Offering that they were
asserting a claim for indemnification under such provisions and requested that
the Company reimburse Merrill Lynch and Alex. Brown on a current basis for their
attorneys' fees and expenses incurred in defending the California Securities
Actions. Counsel for Merrill Lynch and Alex. Brown subsequently indicated that
this claim for indemnification also applies to attorneys' fees and expenses
incurred in defending the Federal Securities Actions (described below).
The Company and the other defendants filed demurrers to the California
Securities Actions and also filed a motion to stay proceedings in the California
Securities Actions pending the resolution of the Federal Securities Actions
(described below).
17
<PAGE>
On November 14, 1997, the Superior Court (1) sustained the demurrers without
leave to amend with respect to the Company and defendants Link Newcomb, Merrill
Lynch and Alex. Brown on plaintiffs' cause of action for purported violations of
the antifraud provisions of the California Corporations Code; (2) overruled the
demurrer with respect to the Company and defendants Mike Parnell, Link Newcomb
and Jim Jannard, but sustained the demurrer with leave to amend with respect to
defendants Merrill Lynch and Alex. Brown, on plaintiffs' cause of action for
fraud and negligent misrepresentation; and (3) sustained the demurrers with
leave to amend with respect to the Company and each of the other defendants on
plaintiffs' cause of action for unfair business practices and false advertising
in violation of certain provisions of the California Business and Professions
Code. Subsequently, plaintiffs dismissed without prejudice their causes of
action for fraud and negligent misrepresentation and unfair business practices
and false advertising. The only claim remaining in the Superior Court is
plaintiffs' cause of action for purported violations of the antifraud provisions
of the California Corporations Code with respect to defendants Mike Parnell and
Jim Jannard. On April 1, 1998, the Superior Court entered a judgment (the
"Judgment") in favor of the Company and defendants Link Newcomb, Merrill Lynch
and Alex. Brown. On April 15, 1998, plaintiffs filed a notice of appeal from
the Judgment in the Superior Court, which concerns plaintiffs' cause of action
for purported violations of the antifraud provisions of the California
Corporations Code with respect to the Company and defendants Link Newcomb,
Merrill Lynch and Alex. Brown.
On September 24, 1998, plaintiffs in the California Securities Actions filed a
motion for class certification in the Superior Court. The hearing on the motion
for class certification currently is scheduled for January 29, 1999. The
plaintiffs in the California Securities Actions have served document requests on
the Company and others, and documents have been produced.
THE FEDERAL SECURITIES ACTIONS
The Company and certain of its officers and directors have been named as
defendants in five putative class action lawsuits (the "Federal Securities
Actions") filed in October, November and December 1997 in the United States
District Court for the Central District of California, Southern Division (the
"District Court"). The cases are captioned:
KENSINGTON CAPITAL MANAGEMENT V. OAKLEY, INC., MIKE PARNELL, LINK NEWCOMB,
JIM JANNARD, MERRILL LYNCH & CO. AND ALEX. BROWN & SONS INCORPORATED, No.
SACV 97-808 GLT (EEx) (filed October 10, 1997) (the "KENSINGTON CAPITAL
MANAGEMENT Action");
FRANK LISTER, JAMES J. SCOTELLA, RAYMOND E. NEVEAU, JAMES S. LEWINSKI, JACK
ROSENSON AND LEE SPERLING V. OAKLEY, INC., MIKE PARNELL, LINK NEWCOMB, JIM
JANNARD, MERRILL LYNCH & CO. AND ALEX. BROWN & SONS INCORPORATED, No. SACV
97-809 LHM (EEx) (filed October 10, 1997) (the "LISTER Action");
STUART CHAIT AND MARILYN SCHWARTZ V. OAKLEY, INC., MIKE PARNELL, LINK
NEWCOMB, JIM JANNARD, MERRILL LYNCH & CO. AND ALEX. BROWN & SONS,
INCORPORATED, No. SACV 97-829 AHS (EEx) (filed October 20, 1997) (the
"CHAIT Action");
VAL FICHERA V. OAKLEY, INC., MIKE PARNELL, LINK NEWCOMB, JIM JANNARD,
MERRILL LYNCH & CO. AND ALEX. BROWN AND SONS INCORPORATED, No. SACV 97-928
GLT (EEx) (filed November 17, 1997 (the "FICHERA Action"); and
YOSEF J. ROSENSHEIN AND HERSHEL HARMAN V. OAKLEY, INC., MIKE PARNELL, LINK
NEWCOMB, JIM JANNARD, MERRILL LYNCH & CO. AND ALEX. BROWN & SONS
INCORPORATED, No. SACV 97-993 AHS (EEx) (filed December 5, 1997 (the
"ROSENSHEIN Federal Action").
18
<PAGE>
The plaintiffs in the KENSINGTON CAPITAL MANAGEMENT and the FICHERA Actions seek
to represent a class of persons who purchased the Company's common stock in the
Secondary Offering and allege claims for violations of sections 11, 12(a)(2) and
15 of the Securities Act of 1933. The plaintiffs' claims are based on alleged
material misstatements and omissions in the prospectus issued and registration
statement filed in connection with the Secondary Offering regarding the
Company's retail distribution practices, market conditions, new product
developments and extensions of existing product lines, business with Sunglass
Hut and quality control standards. The plaintiffs seek unspecified damages and
other relief against the Company and the other defendants. Plaintiffs in the
KENSINGTON CAPITAL MANAGEMENT Action filed a motion to consolidate that action
with the FICHERA Action, and plaintiffs in the KENSINGTON CAPITAL MANAGEMENT and
the FICHERA Actions filed competing motions to be appointed lead plaintiffs for
the purported plaintiff class and for the selection of lead counsel to the
purported plaintiff class. Plaintiff's motion in the FICHERA Action was later
withdrawn.
The plaintiffs in the LISTER and CHAIT Actions and the ROSENSHEIN Federal Action
seek to represent a class of persons who purchased the Company's common stock
between March 22, 1996 and December 5, 1996, including in the Secondary
Offering, and allege claims for violations of sections 10(b) and 20(a) of the
Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. The
plaintiffs' claims are based on alleged material misstatements and omissions in
certain of the Company's public statements, Securities and Exchange Commission
filings and in the reports of third-party analysts regarding the Company's
retail distribution practices, market conditions, new product developments and
extensions of existing product lines, business with Sunglass Hut, earnings
prospects and quality control standards. The plaintiffs seek unspecified
damages and other relief against the Company and the other defendants.
Plaintiffs in the LISTER and CHAIT Actions filed a motion to consolidate the
LISTER and CHAIT Actions and the ROSENSHEIN Federal Action, to appoint certain
persons as lead plaintiffs for the purported plaintiff class and for the
selection of lead counsel to the purported plaintiff class.
On January 26, 1998, the District Court granted the plaintiffs' motions for
appointment of lead plaintiffs and for the selection of lead counsel to the
purported plaintiff classes. The District Court further ordered that all of the
Federal Securities Actions be consolidated for pretrial purposes. On April 3,
1998, plaintiffs filed consolidated amended complaints in the Federal Securities
Actions.
On July 10, 1998, the Company and defendants Mike Parnell, Link Newcomb and Jim
Jannard filed motions to dismiss the Federal Securities Actions. Merrill Lynch
and Alex. Brown also filed motions to dismiss the Federal Securities Actions.
The hearing on the motions to dismiss the Federal Securities Action is scheduled
for November 23, 1998. To date, no discovery has been taken in the Federal
Securities Actions.
THE CALIFORNIA DERIVATIVE ACTION
The Company has been named as a nominal defendant in a putative derivative
lawsuit against certain of its directors and officers filed in March 1997 in the
Superior Court. The case is captioned BLACKMAN V. JAMES JANNARD, MIKE PARNELL
AND DOES 1 THROUGH 100, Case No. 777098 (filed March 27, 1997) (the "California
Derivative Action").
In the California Derivative Action, the plaintiff, purporting to sue on behalf
of the Company, alleges claims for breach of fiduciary duty, constructive fraud,
unjust enrichment and violations of the insider trading provisions of the
California Corporations Code. Like the California Securities Actions, the
plaintiff's claims in the California Derivative Action are, among other things,
based upon alleged material misstatements and omissions in certain of the
Company's public statements and Securities and Exchange Commission filings
regarding the Company, its operation and future prospects. The plaintiff seeks
to recover damages and other relief on behalf of the Company. The defendants
filed a demurrer to the original complaint in the California Derivative Action,
and the plaintiff subsequently
19
<PAGE>
filed an amended complaint. The defendants filed a demurrer to the amended
complaint in the California Derivative Action, and the Superior Court
sustained the demurrer with leave to amend in September 1997. The plaintiff
subsequently filed a second amended complaint in the California Derivative
Action. The defendants then filed a demurrer to the second amended complaint
in the California Derivative Action and the Superior Court sustained the
demurrer without leave to amend on December 19, 1997. On February 4, 1998,
the Superior Court entered a final order of dismissal of the California
Derivative Action. On April 8, 1998, the plaintiff in the California
Derivative Action filed a notice of appeal in the Superior Court. In
November 1998, the parties to the California Derivative Action anticipate
filing a stipulation with the California Court of Appeal, Fourth Appellate
District, to remand the case to the Superior Court for purposes of approving a
settlement conditionally agreed to by the parties. Among other things, any
settlement agreed to by the parties is subject to approval by both the
Superior Court and the Company's Board of Directors.
Although it is too soon to predict the outcome of any of the litigations
described above with any certainty, based on its current knowledge of the facts,
the Company believes that the plaintiffs' claims are without merit and intends
to defend the actions vigorously.
In addition, the Company is a party to various claims, complaints and other
legal actions that have arisen in the normal course of business from time to
time. The Company believes the outcome of these pending legal proceedings, in
the aggregate, will not have a material adverse effect on the operations or
financial position of the Company.
ITEM 2. Changes in Securities and Use of Proceeds
None
ITEM 3. Defaults Upon Senior Securities
None
ITEM 4. Submission of Matters to a Vote of Security-Holders
None
ITEM 5. Other Information
The Securities and Exchange Commission recently amended certain rules under the
Securities Exchange Act of 1934 regarding the use of a company's discretionary
proxy voting authority with respect to shareholder proposals submitted to the
Company for consideration at the Company's next annual meeting.
Shareholder proposals submitted to the Company outside the processes of Rule
14a-8 (i.e., the procedures for placing a shareholder's proposal in the
Company's proxy materials) with respect to the Company's 1999 Annual Meeting of
Shareholders will not be considered timely if received by the Company after
December 28, 1998. Accordingly, the proxy with respect to the Company's 1999
Annual Meeting of Shareholders will confer discretionary authority to vote on
any shareholder proposals received by the Company after December 28, 1998.
20
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The following exhibits are included herein:
3.1 (1) Articles of Incorporation of the Company
3.2 (1) Bylaws of the Company
3.3 (2) Amendment No. 1 to the Articles of Incorporation, as filed with
the Secretary of State of the State of Washington on
September 26, 1996
10.71 Second Amended and Restated Credit Agreement, dated August 25,
1998, between Oakley, Inc. and Bank of America National Trust And
Savings Association, as agent and the Lenders named therein
10.72 Modification Agreement (Short Form), dated August 10, 1998,
between Oakley, Inc. and Bank of America National Trust and
Savings Association
10.73 Modification Agreement (Long Form), dated August 10, 1998,
between Oakley, Inc. and Bank of America National Trust and
Savings Association
27.1 Financial Data Schedule
(1) Previously filed with the Registration Statement on Form S-1 of Oakley,
Inc. (Registration No. 33-93080)
(2) Previously filed with the Form 10-K of Oakley, Inc. for the year ended
December 31, 1996.
The Company did not file any reports on Form 8-K during the three months ended
September 30, 1998.
21
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
Oakley, Inc.
/s/ Link Newcomb November 13, 1998
- ------------------------------
Link Newcomb
Chief Executive Officer
/s/ Thomas George November 13, 1998
- ------------------------------
Thomas George
Chief Financial Officer
22
<PAGE>
- --------------------------------------------------------------------------------
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
DATED AS OF AUGUST 25, 1998
AMONG
OAKLEY, INC.,
AS BORROWER,
THE LENDERS LISTED HEREIN,
AS LENDERS,
AND
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION,
AS AGENT
- --------------------------------------------------------------------------------
<PAGE>
OAKLEY, INC.
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
SECTION 1. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . .8
1.1 Certain Defined Terms. . . . . . . . . . . . . . . . . . . . . . .8
1.2 Accounting Terms; Utilization of GAAP for Purposes of
Calculations Under Agreement. . . . . . . . . . . . . . . . . .25
1.3 Other Definitional Provisions. . . . . . . . . . . . . . . . . . .26
SECTION 2. AMOUNTS AND TERMS OF COMMITMENTS AND LOANS . . . . . . . . . . . .26
2.1 Commitments; Making of Loans; the Register; Optional Notes . . . .26
2.2 Interest on the Loans. . . . . . . . . . . . . . . . . . . . . . .32
2.3 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35
2.4 Repayments, Prepayments and Reductions in Revolving Loan
Commitments; General Provisions Regarding Payments. . . . . . .35
2.5 Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . .38
2.6 Special Provisions Governing LIBOR Loans . . . . . . . . . . . . .38
2.7 Increased Costs; Taxes; Capital Adequacy . . . . . . . . . . . . .40
2.8 Obligation of Lenders and Issuing Lender to Mitigate . . . . . . .44
2.9 Replacement of Lenders . . . . . . . . . . . . . . . . . . . . . .44
SECTION 3. LETTERS OF CREDIT. . . . . . . . . . . . . . . . . . . . . . . . .45
3.1 Issuance of Letters of Credit and Lenders' Purchase of
Participations Therein. . . . . . . . . . . . . . . . . . . . .45
3.2 Letter of Credit Fees. . . . . . . . . . . . . . . . . . . . . . .47
3.3 Drawings and Reimbursement of Amounts Drawn Under Letters of
Credit. . . . . . . . . . . . . . . . . . . . . . . . . . . . .48
3.4 Obligations Absolute . . . . . . . . . . . . . . . . . . . . . . .50
3.5 Indemnification; Nature of Issuing Lender's Duties . . . . . . . .51
3.6 Increased Costs and Taxes Relating to Letters of Credit. . . . . .52
3.7 Letter of Credit Agreement . . . . . . . . . . . . . . . . . . . .53
2
<PAGE>
SECTION 4. CONDITIONS TO LOANS AND LETTERS OF CREDIT. . . . . . . . . . . . .53
4.1 Conditions to Revolving Loans and Swing Line Loans . . . . . . . .53
4.2 Conditions to All Loans. . . . . . . . . . . . . . . . . . . . . .55
4.3 Conditions to Letters of Credit. . . . . . . . . . . . . . . . . .55
SECTION 5. COMPANY'S REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . .56
5.1 Organization, Powers, Qualification, Good Standing, Business
and Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . .56
5.2 Authorization of Borrowing, etc. . . . . . . . . . . . . . . . . .57
5.3 Financial Condition. . . . . . . . . . . . . . . . . . . . . . . .58
5.4 No Material Adverse Change . . . . . . . . . . . . . . . . . . . .58
5.5 Title to Properties; Liens . . . . . . . . . . . . . . . . . . . .58
5.6 Litigation; Adverse Facts. . . . . . . . . . . . . . . . . . . . .59
5.7 Payment of Taxes . . . . . . . . . . . . . . . . . . . . . . . . .59
5.8 Performance of Agreements; Materially Adverse Agreements . . . . .59
5.9 Governmental Regulation. . . . . . . . . . . . . . . . . . . . . .59
5.10 Securities Activities. . . . . . . . . . . . . . . . . . . . . . .60
5.11 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . .60
5.12 Certain Fees . . . . . . . . . . . . . . . . . . . . . . . . . . .60
5.13 Environmental Protection . . . . . . . . . . . . . . . . . . . . .60
5.14 Employee Matters . . . . . . . . . . . . . . . . . . . . . . . . .60
5.15 Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . .61
5.16 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . .61
5.17 Year 2000. . . . . . . . . . . . . . . . . . . . . . . . . . . . .61
SECTION 6. COMPANY'S AFFIRMATIVE COVENANTS. . . . . . . . . . . . . . . . . .61
6.1 Financial Statements and Other Reports . . . . . . . . . . . . . .62
6.2 Corporate Existence, etc.. . . . . . . . . . . . . . . . . . . . .65
6.3 Payment of Taxes and Claims; Tax Consolidation . . . . . . . . . .65
6.4 Maintenance of Properties; Insurance . . . . . . . . . . . . . . .66
6.5 Inspection; Lender Meeting . . . . . . . . . . . . . . . . . . . .66
6.6 Compliance with Laws, etc. . . . . . . . . . . . . . . . . . . . .66
6.7 Environmental Compliance and Disclosure. . . . . . . . . . . . . .66
3
<PAGE>
6.8 Material Subsidiaries. . . . . . . . . . . . . . . . . . . . . . .67
6.9 Guarantor Documents. . . . . . . . . . . . . . . . . . . . . . . .67
6.10 Pledge Documents.. . . . . . . . . . . . . . . . . . . . . . . . .68
SECTION 7. COMPANY'S NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . .68
7.1 Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . .68
7.2 Liens and Related Matters. . . . . . . . . . . . . . . . . . . . .69
7.3 Investments; Joint Ventures. . . . . . . . . . . . . . . . . . . .71
7.4 Contingent Obligations . . . . . . . . . . . . . . . . . . . . . .72
7.5 Financial Covenants. . . . . . . . . . . . . . . . . . . . . . . .73
7.6 Restriction on Fundamental Changes; Asset Sales and
Acquisitions. . . . . . . . . . . . . . . . . . . . . . . . . .74
7.7 Sales and Lease-Backs. . . . . . . . . . . . . . . . . . . . . . .75
7.8 Sale or Discount of Receivables. . . . . . . . . . . . . . . . . .75
7.9 Transactions with Principal Shareholders and Affiliates. . . . . .75
7.10 Conduct of Business. . . . . . . . . . . . . . . . . . . . . . . .76
7.11 Fiscal Year. . . . . . . . . . . . . . . . . . . . . . . . . . . .76
SECTION 8. EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . . . . . . . . .76
8.1 Failure to Make Payments When Due. . . . . . . . . . . . . . . . .76
8.2 Default in Other Agreements. . . . . . . . . . . . . . . . . . . .76
8.3 Breach of Certain Covenants. . . . . . . . . . . . . . . . . . . .77
8.4 Breach of Warranty . . . . . . . . . . . . . . . . . . . . . . . .77
8.5 Other Defaults Under Loan Documents. . . . . . . . . . . . . . . .77
8.6 Involuntary Bankruptcy; Appointment of Receiver, etc.. . . . . . .77
8.7 Voluntary Bankruptcy; Appointment of Receiver, etc.. . . . . . . .78
8.8 Judgments and Attachments. . . . . . . . . . . . . . . . . . . . .78
8.9 Dissolution. . . . . . . . . . . . . . . . . . . . . . . . . . . .78
8.10 Invalidity of Guaranty . . . . . . . . . . . . . . . . . . . . . .78
8.11 Failure of Security. . . . . . . . . . . . . . . . . . . . . . . .79
8.12 Material Adverse Effect. . . . . . . . . . . . . . . . . . . . . .79
8.13 Change in Control. . . . . . . . . . . . . . . . . . . . . . . . .79
SECTION 9. AGENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .80
9.1 Appointment. . . . . . . . . . . . . . . . . . . . . . . . . . . .80
4
<PAGE>
9.2 Powers; General Immunity . . . . . . . . . . . . . . . . . . . . .81
9.3 Representations and Warranties; No Responsibility For
Appraisal of Creditworthiness . . . . . . . . . . . . . . . . .82
9.4 Right to Indemnity . . . . . . . . . . . . . . . . . . . . . . . .82
9.5 Successor Agent. . . . . . . . . . . . . . . . . . . . . . . . . .83
9.6 Collateral Documents . . . . . . . . . . . . . . . . . . . . . . .84
SECTION 10. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . .84
10.1 Assignments and Participations in Loans and Letters of Credit. . .84
10.2 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . .86
10.3 Indemnity. . . . . . . . . . . . . . . . . . . . . . . . . . . . .87
10.4 Set-Off; Security Interest in Deposit Accounts . . . . . . . . . .87
10.5 Ratable Sharing. . . . . . . . . . . . . . . . . . . . . . . . . .88
10.6 Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . .88
10.7 Independence of Covenants. . . . . . . . . . . . . . . . . . . . .89
10.8 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .89
10.9 Survival of Representations, Warranties and Agreements . . . . . .90
10.10 Failure or Indulgence Not Waiver; Remedies Cumulative. . . . . . .90
10.11 Marshalling; Payments Set Aside. . . . . . . . . . . . . . . . . .90
10.12 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . .90
10.13 Obligations Several; Independent Nature of Lenders' Rights . . . .91
10.14 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . .91
10.15 Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . .91
10.16 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . .91
10.17 Consent to Jurisdiction and Service of Process . . . . . . . . . .91
10.18 Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . . . .92
10.19 Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . . .92
10.20 Counterparts; Effectiveness. . . . . . . . . . . . . . . . . . . .93
10.21 Existing Credit Agreement. . . . . . . . . . . . . . . . . . . . .93
Signature pages . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
</TABLE>
5
<PAGE>
EXHIBITS
I FORM OF NOTICE OF BORROWING
II FORM OF NOTICE OF CONVERSION/CONTINUATION
III FORM OF NOTICE OF ISSUANCE OF LETTER OF CREDIT
IV FORM OF REVOLVING NOTE
V FORM OF SWING LINE NOTE
VI FORM OF COMPLIANCE CERTIFICATE
VII FORMS OF OPINIONS OF COUNSEL TO COMPANY
VIII FORM OF ASSIGNMENT AGREEMENT
IX FORM OF COLLATERAL ACCOUNT AGREEMENT
X FORM OF GUARANTY
XI FORM OF LETTER OF CREDIT AGREEMENT
XII FORM OF CONFORMATION OF SHAREHOLDER PLEDGE AGREEMENT
6
<PAGE>
SCHEDULES
2.1 LENDERS' COMMITMENTS AND PRO RATA SHARES
3.1 EXISTING LETTERS OF CREDIT
5.1 SUBSIDIARIES OF COMPANY
7.1 CERTAIN EXISTING INDEBTEDNESS
7.2 CERTAIN EXISTING LIENS
7.3 CERTAIN EXISTING INVESTMENTS
7.9 CERTAIN PERMITTED AFFILIATE TRANSACTIONS
7
<PAGE>
OAKLEY, INC.
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
This SECOND AMENDED AND RESTATED CREDIT AGREEMENT is dated as of
August 25, 1998 and entered into by and among OAKLEY, INC., a Washington
corporation ("COMPANY"), THE FINANCIAL INSTITUTIONS LISTED ON THE SIGNATURE
PAGES HEREOF (each individually referred to herein as a "LENDER" and
collectively as "LENDERS"), and BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION ("BOFA"), as agent for Lenders (in such capacity, "AGENT").
R E C I T A L S
WHEREAS, pursuant to an Amended and Restated Credit Agreement dated as
of August 15, 1995 ("EXISTING CREDIT AGREEMENT"), certain financial
institutions, including certain of the Lenders, extended certain credit
facilities to Company for working capital and other general corporate purposes;
WHEREAS, Bazooka and other Domestic Subsidiaries that may become
Guarantors in the future will be benefited by the making of the Loans hereunder
and are therefore willing to guarantee all of the Obligations;
WHEREAS, Company is willing to pledge 65% of the stock of Oakley
Europe and any other Material Subsidiaries that are Foreign Subsidiaries to
secure the Obligations;
WHEREAS, Company, Agent and Lenders desire to amend and restate the
Existing Credit Agreement in order to, among other things, (i) increase the
aggregate amount of the Revolving Loan Commitment to $50,000,000, (ii) add The
Chase Manhattan Bank as a Lender, (iii) revise certain covenants, and (iv) make
certain other modifications;
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, Company, Lenders and Agent agree to
amend and restate the Existing Credit Agreement as follows:
SECTION 1. DEFINITIONS
1.1 Certain Defined Terms.
The following terms used in this Agreement shall have the following
meanings:
"AFFECTED LENDER" has the meaning assigned to that term in subsection
2.6B.
"AFFILIATE", as applied to any Person, means any other Person directly
or indirectly controlling, controlled by, or under common control with, that
Person. For the purposes of this definition, "control" (including, with
correlative meanings, the terms
8
<PAGE>
"controlling", "controlled by" and "under common control with"), as applied to
any Person, means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of that Person, whether
through the ownership of voting securities or by contract or otherwise.
"AGENT" has the meaning assigned to that term in the introduction to
this Agreement and also means and includes any successor Agent appointed
pursuant to subsection 9.5A.
"AGREEMENT" means this Second Amended and Restated Credit Agreement
dated as of August 25, 1998, as it may be amended, supplemented or otherwise
modified from time to time.
"ASSET SALE" means the sale or other disposition (whether voluntary or
involuntary) by Company or any of its Subsidiaries to any Person other than
Company or any of its Wholly-Owned Subsidiaries of any assets (whether tangible
or intangible, including capital stock of Subsidiaries) of Company or any of its
Subsidiaries outside the ordinary course of business; PROVIDED that cash
distributions by Company in respect of its outstanding capital stock shall not
be deemed "Asset Sales" for the purposes of this Agreement.
"ASSIGNMENT AGREEMENT" means an Assignment Agreement in substantially
the form of EXHIBIT VIII annexed hereto.
"BANKRUPTCY CODE" means Title 11 of the United States Code entitled
"Bankruptcy", as now and hereafter in effect, or any successor statute.
"BARTER" means Barter Optical, Inc., a Washington corporation.
"BASE RATE" means, for any day, the higher of (a) the rate which is
1/2 of 1% in excess of the Federal Funds Effective Rate and (b) the Reference
Rate.
"BASE RATE LOANS" means Loans bearing interest at rates determined by
reference to the Base Rate as provided in subsection 2.2A.
"BAZOOKA" means Bazooka, Inc., a State of Washington corporation.
"BUSINESS DAY" means (i) for all purposes other than as covered by
clause (ii) below, any day excluding Saturday, Sunday and any day which is a
legal holiday under the laws of the State of California or is a day on which
banking institutions located in such state are authorized or required by law or
other governmental action to close, and (ii) with respect to all notices,
determinations, fundings and payments in connection with LIBOR or any LIBOR
Loans, any day that is a Business Day described in clause (i) above and that is
also a day for trading by and between banks in Dollar deposits in the London
interbank market.
"CAPITAL EXPENDITURES" means, for any period, the sum of the aggregate
of all expenditures (whether paid in cash or other consideration or accrued as a
liability and including that portion of Capital Leases which is capitalized on
the consolidated balance sheet of Company and its Subsidiaries) by Company and
its Subsidiaries during that period that, in conformity with
9
<PAGE>
GAAP, are included (or should be included) in "additions to property, plant or
equipment" or comparable items reflected in the consolidated statement of cash
flows of Company and its Subsidiaries.
"CAPITAL LEASE", as applied to any Person, means any lease of any
property (whether real, personal or mixed) by that Person as lessee that, in
conformity with GAAP, is accounted for as a capital lease on the balance sheet
of that Person.
"CASH EQUIVALENTS" means, as at any date of determination,
(i) marketable securities (a) issued or directly and unconditionally guaranteed
as to interest and principal by the United States Government or (b) issued by
any agency of the United States the obligations of which are backed by the full
faith and credit of the United States, in each case maturing within one year
after such date; (ii) marketable direct obligations issued by any state of the
United States of America or any political subdivision of any such state or any
public instrumentality thereof, in each case maturing within one year after such
date and having, at the time of the acquisition thereof, the highest rating
obtainable from either Standard & Poor's Rating Group ("S&P") or Moody's
Investors Service, Inc. ("MOODY'S"); (iii) commercial paper maturing no more
than one year from the date of creation thereof and having, at the time of the
acquisition thereof, a rating of at least A-1 from S&P or at least P-1 from
Moody's; (iv) certificates of deposit or bankers' acceptances maturing within
one year after such date and issued or accepted by any Lender or by any
commercial bank organized under the laws of the United States of America or any
state thereof or the District of Columbia that (a) is at least "adequately
capitalized" (as defined in the regulations of its primary Federal banking
regulator) and (b) has Tier 1 capital (as defined in such regulations) of not
less than $100,000,000; (v) shares of any money market mutual fund that (a) has
at least 95% of its assets invested continuously in the types of investments
referred to in clauses (i) and (ii) above, (b) has net assets of not less than
$500,000,000, and (c) has the highest rating obtainable from either S&P or
Moody's and (vii) in the case of funds held by any Foreign Subsidiary (a) direct
obligations of the sovereign nation (or any agency thereof) in which such
Foreign Subsidiary is organized and is conducting business or in obligations
fully and unconditionally guaranteed by such sovereign nation (or agency
thereof), (b) investments of the type and maturity described in clauses (i)
through (v) above of foreign obligors, which investments or obligors (or the
direct or indirect parents of such obligors) have ratings described in such
clauses or equivalent ratings from comparable foreign rating agencies or (c)
investments of the type and maturity described in clause (i) through (v) above
of foreign obligors (or the direct or indirect parents of such obligors) which
investments or obligors (or the direct or indirect parents of such obligors) are
not rated as provided in such clauses or in clause (b) above but which are, in
the reasonable judgment of Company or its Subsidiaries, comparable in investment
quality to such investment and obligors (or the direct or indirect parent of
such obligors), such investments under this clause (c) not to exceed an
aggregate amount of $250,000.
"CASH PROCEEDS" means, with respect to any issuance of Securities by
Company or any of its Subsidiaries, cash payments received (including any cash
received by way of deferred payment pursuant to, or monetization of, a note
receivable or otherwise, but only as and when the cash is so received) from such
issuance of Securities.
"CLOSING DATE" means August 25, 1998.
10
<PAGE>
"COLLATERAL" means the property of Company in which a security
interest is created in favor of Agent and Lenders pursuant to the Collateral
Documents.
"COLLATERAL ACCOUNT" has the meaning assigned to that term in the
Collateral Account Agreement.
"COLLATERAL ACCOUNT AGREEMENT" means the Collateral Account Agreement
executed and delivered by Company and Agent on the Closing Date, substantially
in the form of Exhibit X annexed hereto, pursuant to which Company may pledge
cash to Agent to secure the obligations of Company to reimburse Issuing Lender
for payments made under one or more Letters of Credit as provided in Section 8,
as such Collateral Account Agreement may hereafter be amended, supplemented or
otherwise modified from time to time.
"COLLATERAL DOCUMENTS" means the Conformation of Shareholder Pledge
Agreement, Oakley Europe Pledge Agreement, any other Pledge Agreement executed
and delivered pursuant to subsection 6.8 and the Collateral Account Agreement.
"COMMERCIAL LETTER OF CREDIT" means any letter of credit or similar
instrument issued for the purpose of providing the primary payment mechanism in
connection with the purchase of any materials, goods or services by Company or
any of its Subsidiaries in the ordinary course of business of Company or such
Subsidiary.
"COMMITMENTS" means the commitments of Lenders to make Loans as set
forth in subsection 2.1A.
"COMPANY" has the meaning assigned to that term in the introduction to
this Agreement.
"COMPANY COMMON STOCK" means the common stock of Company, par value
$.01 per share.
"COMPLIANCE CERTIFICATE" means a certificate substantially in the form
of EXHIBIT VI annexed hereto delivered to Agent and Lenders by Company pursuant
to subsection 6.1(iii).
"CONFORMATION OF SHAREHOLDER PLEDGE AGREEMENT" means the Conformation
of Shareholder Pledge Agreement executed and delivered by Company on the Closing
Date, substantially in the form of EXHIBIT XII annexed hereto, pursuant to which
Company confirms the pledge of 65% of the shares of Oakley, Europe to Agent to
secure the obligations of Company, as such Conformation of Shareholder Pledge
Agreement may hereafter be amended, supplemented or otherwise modified from time
to time.
"CONSOLIDATED ADJUSTED NET INCOME" means, for any period, Net Income
PLUS Non-Operating Charges to the extent such Non-Operating Charges have reduced
Net Income, provided that the sum of all such Non-Operating Charges for the
duration of this Agreement shall not exceed $10,000,000 in the aggregate and
that such Non-Operating Charges shall not be added back for more than two fiscal
quarters. The Company shall designate from time to time each
11
<PAGE>
fiscal quarter as to which it elects that such Non-Operating Charges shall be
added back into Net Income. Once Company makes such an election, the election
is irrevocable, and the Non-Operating Charges in the fiscal quarter elected
shall thereafter be added back to the Net Income earned in the elected fiscal
quarter subject to the limitations set forth above.
"CONSOLIDATED EBITDA" means, for any period, the sum of the amounts
for such period of (i) Net Income, (ii) Interest Expense, (iii) provisions for
taxes, if any, based on income, (iv) total depreciation expense, (v) total
amortization expense, and (vi) non-cash charges reducing net income (excluding
any charge constituting an extraordinary item or any such charge which requires
an accrual of or a reserve for charges for any future period); LESS other
non-cash items increasing net income, all of the foregoing as determined on a
consolidated basis for Company and its Subsidiaries in conformity with GAAP.
"CONSOLIDATED FIXED CHARGES" means, for any period, (without
duplication) the sum of (i) Gross Interest Expense payable in cash during such
period, and (ii) scheduled principal payments during such period in respect of
Indebtedness (including, without limitation, such payments in respect of Capital
Leases), all for Company and its Subsidiaries on a consolidated basis determined
in accordance with GAAP.
"CONTINGENT OBLIGATION", as applied to any Person, means any direct or
indirect liability, contingent or otherwise, of that Person (i) with respect to
any Indebtedness, lease, dividend or other obligation of another Person if the
primary purpose or intent thereof by the Person incurring the Contingent
Obligation is to provide assurance to the obligee of such obligation of another
that such obligation of another Person will be paid or discharged, or that any
agreements relating thereto will be complied with, or that the holders of such
obligation will be protected, in whole or in part, against loss in respect
thereof (excluding, however, any contingent liability under any customary
indemnity or warranty provided under any asset sale agreement), (ii) with
respect to any letter of credit issued for the account of that Person or as to
which that Person is otherwise liable for reimbursement of drawings, or
(iii) under Interest Rate Agreements and Currency Agreements. Subject to the
parenthetical clause set forth in clause (i) above, Contingent Obligations shall
include, without limitation, (a) the direct or indirect guaranty, endorsement
(otherwise than for collection or deposit in the ordinary course of business),
co-making, discounting with recourse or sale with recourse by such Person of the
obligation of another, (b) the obligation to make take-or-pay or similar
payments if required regardless of non-performance by any other party or parties
to an agreement, and (c) any liability of such Person for the obligation of
another through any agreement (contingent or otherwise) (X) to purchase,
repurchase or otherwise acquire such obligation or any security therefor, or to
provide funds for the payment or discharge of such obligation (whether in the
form of loans, advances, stock purchases, capital contributions or otherwise) or
(Y) to maintain the solvency or any balance sheet item, level of income or
financial condition of another if, in the case of any agreement described under
subclauses (X) or (Y) of this sentence, the primary purpose or intent thereof is
as described in the preceding sentence. The amount of any Contingent Obligation
shall be equal to the amount of the obligation so guaranteed or otherwise
supported or, if less, the amount to which such Contingent Obligation is
specifically limited.
12
<PAGE>
"CONTRACTUAL OBLIGATION", as applied to any Person, means any
provision of any material indenture, mortgage, deed of trust, contract,
undertaking, agreement or other instrument to which that Person is a party or by
which it or any of its properties is bound or to which it or any of its
properties is subject.
"CURRENCY AGREEMENT" means any foreign exchange contract, currency
swap agreement, futures contract, option contract, synthetic cap or other
similar agreement or arrangement designed to protect Company or any of its
Subsidiaries against fluctuations in currency values.
"DOLLARS" and the sign "$" mean the lawful money of the United States
of America.
"DOMESTIC SUBSIDIARY" means a Subsidiary organized under the laws of
the United States or any state or territory thereof or the District of Columbia.
"ELIGIBLE ASSIGNEE" means (i) a commercial bank organized under the
laws of the United States or any state thereof and (ii) a commercial bank
organized under the laws of any other country or a political subdivision
thereof; PROVIDED that (x) such bank is acting through a branch or agency
located in the United States or (y) such bank is organized under the laws of a
country that is a member of the Organization for Economic Cooperation and
Development or a political subdivision of such country; PROVIDED that, in any
case, such commercial bank has assets in the United States of $100,000,000 or
more and PROVIDED FURTHER that neither Company nor any of its Affiliates shall
be an Eligible Assignee.
"EMPLOYEE BENEFIT PLAN" means any "employee benefit plan" as defined
in Section 3(3) of ERISA which is, or was at any time, maintained or contributed
to by Company or any of its ERISA Affiliates.
"ENVIRONMENTAL LAWS" means all statutes, ordinances, orders, rules,
regulations or decrees regulating (i) environmental matters, including, without
limitation, those relating to fines, injunctions, penalties, damages,
contribution, cost recovery, losses or injuries resulting from the Release or
threatened Release of Hazardous Materials, (ii) the generation, use, storage,
transportation or disposal of Hazardous Materials, or (iii) environmental
provisions of laws governing occupational safety and health, land use or the
protection of the environment or health or welfare, applicable to Company or any
of its Subsidiaries or any of their respective properties, including, without
limitation, the Comprehensive Environmental Response, Compensation, and
Liability Act (42 U.S.C. Section 9601 ET SEQ.), the Hazardous Materials
Transportation Act (49 U.S.C. Section 1801 ET SEQ.), the Resource Conservation
and Recovery Act (42 U.S.C. Section 6901 ET SEQ.), the Federal Water Pollution
Control Act ( 33 U.S.C. Section 1251 ET SEQ.), the Clean Air Act (42 U.S.C.
Section 7401 ET SEQ.), the Toxic Substances Control Act (15 U.S.C. Section
2601 ET SEQ.), the Federal Insecticide, Fungicide and Rodenticide Act (7 U.S.C.
Section 136 ET SEQ.), the environmental provisions of the Occupational Safety
and Health Act (29 U.S.C. Section 651 ET SEQ.) and the Emergency Planning and
Community Right-to-Know Act (42 U.S.C. Section 11001 ET SEQ.), each as amended
or supplemented, and any similar local, state and federal statutes and
regulations promulgated pursuant thereto.
13
<PAGE>
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any successor statute.
"ERISA AFFILIATE", as applied to any Person, means (i) any corporation
which is, or was at any time, a member of a controlled group of corporations
(within the meaning of Section 414(b) of the Internal Revenue Code) of which
that Person is, or was at any time, a member; (ii) any trade or business
(whether or not incorporated) which is, or was at any time, a member of a group
of trades or businesses under common control (within the meaning of
Section 414(c) of the Internal Revenue Code) of which that Person is, or was at
any time, a member; and (iii) any member of an affiliated service group (within
the meaning of Section 414(m) or (o) of the Internal Revenue Code) of which that
Person, any corporation described in clause (i) above or any trade or business
described in clause (ii) above is, or was at any time, a member.
"EVENT OF DEFAULT" means each of the events set forth in Section 8.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended
from time to time, and any successor statute.
"EXECUTIVE OFFICER" means the Chairman of the Board, the President,
the Chief Executive Officer, the Controller and Secretary, the Vice President of
Operations and the Executive Vice President of Company.
"EXISTING COMMITMENTS" means the "Commitments" under and as defined in
the Existing Credit Agreement.
"EXISTING CREDIT AGREEMENT" has the meaning assigned to that term in
Recitals hereto.
"EXISTING REVOLVING LOANS" means all Revolving Loans (as that term is
defined in the Existing Credit Agreement) outstanding under the Existing Credit
Agreement.
"EXISTING REVOLVING NOTES" means the "Revolving Notes" under and as
defined in the Existing Credit Agreement.
"FACILITIES" means any and all real property (including, without
limitation, all buildings, fixtures or other improvements located thereon)
owned, leased, operated or used by Company or any of its Subsidiaries.
"FEDERAL FUNDS EFFECTIVE RATE" means, for any period, a fluctuating
interest rate equal for each day during such period to the weighted average of
the rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers, as published for such day (or,
if such day is not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of New York, or, if such rate is not so published for any
day that is a Business Day, the average of the quotations for such day on such
transactions received by Agent from three Federal funds brokers of recognized
standing selected by Agent.
14
<PAGE>
"FISCAL YEAR" means the fiscal year of Company and its Subsidiaries
ending on December 31 of each calendar year. For purposes of this Agreement,
any particular Fiscal Year shall be designated by reference to the calendar year
in which such Fiscal Year ends.
"FOREIGN SUBSIDIARY" means any Subsidiary that is not a Domestic
Subsidiary.
"FUNDED DEBT" means (a) all Indebtedness of Company and its
Subsidiaries (excluding any Indebtedness owed to Company or any of its
Subsidiaries), and (b) without duplication of Indebtedness under clause (a) of
this definition, Contingent Obligations of the type described in clauses (i) and
(ii) of the definition of "Contingent Obligation," but excluding Commercial
Letters of Credit; PROVIDED that Funded Debt shall exclude Contingent
Obligations owed to the Company or its Subsidiaries.
"FUNDING AND PAYMENT OFFICE" means the Office of the Agent located at:
Bank of America NT & SA, Agency Administrative Services 5596, 1850 Gateway
Boulevard, Fifth Floor, Concord, California 94520-3281, or such other of Agent's
offices as Agent may designate from time to time.
"FUNDING DATE" means the date of the funding of a Loan.
"GAAP" means, subject to the limitations on the application thereof
set forth in subsection 1.2, generally accepted accounting principles set forth
in opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a significant segment of
the accounting profession, in each case as the same are applicable to the
circumstances as of the date of determination.
"GOVERNMENTAL AUTHORIZATION" means any permit, license, authorization,
plan, directive, consent order or consent decree of or from any federal, state
or local governmental authority, agency or court.
"GUARANTOR" and "GUARANTORS" means Bazooka and any Person that, upon
becoming a Material Subsidiary that is a Domestic Subsidiary after the Closing
Date, executes a counterpart of the Guaranty in accordance with the provisions
of subsection 6.8.
"GUARANTY" means the Guaranty executed and delivered by the Guarantors
pursuant to subsection 6.9, substantially in the form of EXHIBIT X annexed
hereto, pursuant to which the Guarantors shall guaranty the Obligations, as such
Guaranty may hereafter be amended, supplemented or otherwise modified from time
to time.
"HAZARDOUS MATERIALS" means any chemical, material or substance
regulated as "hazardous substances", "hazardous wastes", "hazardous materials",
"extremely hazardous waste", "restricted hazardous waste", "infectious waste" or
"toxic substances" under any applicable Environmental Laws or regulations
promulgated pursuant thereto.
15
<PAGE>
"HOSTILE ACQUISITION" means the acquisition of the capital stock or
other equity interests of a Person through a tender offer or similar
solicitation of the owners of such capital stock or other equity interests which
has not been approved (prior to such acquisition) by resolutions of the Board of
Directors of such Person or by similar action if such Person is not a
corporation, and as to which such approval has not been withdrawn.
"INDEBTEDNESS", as applied to any Person, means (i) all indebtedness
for borrowed money, (ii) that portion of obligations with respect to Capital
Leases that is properly classified as a liability on a balance sheet in
conformity with GAAP, (iii) notes payable and drafts accepted representing
extensions of credit, (iv) any obligation owed for all or any part of the
deferred purchase price of property or services, which purchase price is (a) due
more than six months from the date of incurrence of the obligation in respect
thereof or (b) evidenced by a note or similar written instrument, and (v) all
indebtedness secured by any Lien on any property or asset owned or held by that
Person regardless of whether the indebtedness secured thereby shall have been
assumed by that Person or is nonrecourse to the credit of that Person.
Obligations under Interest Rate Agreements and Currency Agreements constitute
Contingent Obligations and not Indebtedness.
"INDEMNITEE" has the meaning assigned to that term in subsection 10.3.
"INTEREST EXPENSE" means, for any period, total interest expense
(including that portion attributable to Capital Leases in accordance with GAAP
and capitalized interest) of Company and its Subsidiaries on a consolidated
basis with respect to all outstanding Indebtedness of Company and its
Subsidiaries, including, without limitation, all commissions, discounts and
other fees and charges owed with respect to letters of credit and bankers'
acceptance financing and net costs under Interest Rate Agreements.
"INTEREST PAYMENT DATE" means (i) with respect to any Base Rate Loan,
each Quarterly Payment Date, commencing on the first such date to occur after
the Closing Date, and (ii) with respect to any LIBOR Loan, the last day of each
Interest Period applicable to such Loan; PROVIDED that in the case of each
Interest Period of longer than three months "Interest Payment Date" shall also
include each date that is three months, or an integral multiple thereof, after
the commencement of such Interest Period.
"INTEREST PERIOD" has the meaning assigned to that term in subsection
2.2B.
"INTEREST RATE AGREEMENT" means any interest rate swap agreement,
interest rate cap agreement, interest rate collar agreement or other similar
agreement or arrangement designed to protect Company or any of its Subsidiaries
against fluctuations in interest rates.
"INTEREST RATE DETERMINATION DATE" means, with respect to any Interest
Period, the second Business Day prior to the first day of such Interest Period.
"INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as
amended to the date hereof and from time to time hereafter.
16
<PAGE>
"INVESTMENT" means (i) any direct or indirect purchase or other
acquisition by Company or any of its Subsidiaries of, or of a beneficial
interest in, any Securities of any other Person or (ii) any direct or indirect
loan, advance or capital contribution by Company or any of its Subsidiaries to
any other Person, including all indebtedness of and accounts receivable from
that other Person that are not current assets and did not arise from sales to
that other Person in the ordinary course of business. The amount of any
Investment shall be the original cost of such Investment plus the cost of all
additions thereto, without any adjustments for increases or decreases in value,
or write-ups, write-downs or write-offs with respect to such Investment.
"ISSUING LENDER" means, with respect to any Letter of Credit, BofA or
any Person serving as a successor Agent hereunder, in its capacity as Issuing
Lender hereunder as provided in subsection 9.5C.
"JOINT VENTURE" means a joint venture, partnership or other similar
arrangement, whether in corporate, partnership or other legal form; PROVIDED
that in no event shall any corporate Subsidiary of any Person be considered to
be a Joint Venture to which such Person is a party.
"LENDER" and "LENDERS" means the persons identified as "Lenders" and
listed on the signature pages of this Agreement, together with their successors
and permitted assigns pursuant to subsection 10.1, and the term "Lenders" shall
include the Swing Line Lender unless the context otherwise requires.
"LETTER OF CREDIT" or "LETTERS OF CREDIT" means Commercial Letters of
Credit and Standby Letters of Credit issued or to be issued by Issuing Lender
for the account of Company pursuant to subsection 3.1.
"LETTER OF CREDIT AGREEMENT" means Issuing Lender's standard form
Letter of Credit Application and Agreement substantially in the form of EXHIBIT
XI annexed hereto, together with any confirmations or supplements thereto.
"LETTER OF CREDIT USAGE" means, as at any date of determination, the
sum of (i) the maximum aggregate amount that is or at any time thereafter may
become available for drawing under all Letters of Credit then outstanding PLUS
(ii) the aggregate amount of all drawings under Letters of Credit honored by
Issuing Lender and not theretofore reimbursed by Company (including any such
reimbursement out of the proceeds of Revolving Loans pursuant to subsection
3.3B).
"LEVERAGE RATIO" means, as of any date of determination, the ratio of
Funded Debt as of such date to Consolidated EBITDA for the four fiscal quarters
ending on or immediately prior to such date.
"LIBOR" means, for any Interest Period, the rate of interest per annum
(rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on
Telerate Page 3750 (or any successor page) as the London interbank offered rate
for deposits in Dollars at approximately 11:00 a.m. (London time) two Business
Days prior to the first day of such Interest Period for a term comparable to
such Interest Period. If for any reason such rate is not available, the term
17
<PAGE>
"LIBOR" shall mean, for any LIBOR Loan for any Interest Period therefor, the
rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%)
appearing on Reuters Screen LIBO Page as the London interbank offered rate for
deposits in Dollars at approximately 11:00 a.m. (London time) two Business Days
prior to the first day of such Interest Period for a term comparable to such
Interest Period; PROVIDED, HOWEVER, if more than one rate is specified on
Reuters Screen LIBO page, the applicable rate shall be the arithmetic mean of
all such rates (rounded upwards, if necessary, to the nearest 1/100 of 1%).
"LIBOR LOANS" means Loans bearing interest at rates determined by
reference to LIBOR as provided in subsection 2.2A.
"LIEN" means any lien, mortgage, pledge, assignment, security
interest, charge or encumbrance of any kind (including any conditional sale or
other title retention agreement, any lease in the nature thereof, and any
agreement to give any security interest) and any option, trust or other
preferential arrangement having the practical effect of any of the foregoing.
"LOAN" or "LOANS" means the Revolving Loans or Swing Line Loans, or
any combination thereof.
"LOAN DOCUMENTS" means this Agreement, the Notes, the Letters of
Credit (and any Letter of Credit Agreement or other documents or certificates
executed by Company in favor of Issuing Lender relating to, the Letters of
Credit), the Collateral Documents, and the Guaranty.
"LOAN PARTY" means any of Company and Material Subsidiaries.
"MARGIN STOCK" has the meaning assigned to that term in Regulation U
of the Board of Governors of the Federal Reserve System as in effect from time
to time.
"MATERIAL ADVERSE EFFECT" means a material adverse effect upon the
business, operations, properties, assets, condition (financial or otherwise) or
prospects of Company and its Subsidiaries, taken as a whole, it being agreed and
understood that an adverse change in general economic conditions shall not
constitute an adverse change in the prospects of Company and its Subsidiaries
taken as a whole.
"MATERIAL SUBSIDIARY" means, as of any date, any Subsidiary of Company
that (i) has a net worth (excluding in the determination thereof any
intercompany Indebtedness) of at least 10% of the consolidated net worth of
Company and its Subsidiaries as of the last day of the most recently ended
fiscal quarter of Company or (ii) has annual revenues (or annualized revenues in
the case of any Person that has not been a Subsidiary of Company for a full
year) of at least 10% of the consolidated annual revenues of Company and its
Subsidiaries as of the most recently ended fiscal quarter of Company, or (iii)
has annual net income (or annualized net income in the case of any Person that
has not been a Subsidiary of Company for a full year) of at least 10% of the
consolidated annual net income of Company and its Subsidiaries as of the most
recently ended fiscal quarter of Company.
"NET INCOME" means, for any period, the net income (or loss) of
Company and its Subsidiaries on a consolidated basis for such period taken as a
single accounting period
18
<PAGE>
determined in conformity with GAAP; PROVIDED that there shall be excluded
(i) the income (or loss) of any Person (other than Company or any of its
Subsidiaries) in which any other Person has a joint interest, except to the
extent of the amount of dividends or other distributions actually paid to
Company or such Subsidiary by such Person during such period, (ii) the income
(or loss) of any Person accrued prior to the date it becomes a Subsidiary or, in
the case of a Person that is not a Subsidiary, the date such Person is merged
into or consolidated with Company or any Subsidiary or such Person's assets are
acquired by Company or any of its Subsidiaries, (iii) the income of any
Subsidiary of Company to the extent that the declaration or payment of dividends
or similar distributions by that Subsidiary of that income is not at the time
permitted by operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation applicable to
that Subsidiary, (iv) any after-tax gains or losses attributable to Asset Sales,
and (v) (to the extent not included in clauses (i) through (iv) above) any net
extraordinary gains or net non-cash extraordinary losses.
"NON-OPERATING CHARGES" means, for any period, restructuring charges,
charges in connection with dispositions of assets or lines of business, charges
relating to legal judgments (net of insurance proceeds), charges related to
poolings of interest, and charges relating to expropriations of assets by
foreign governments, all for Company and its Subsidiaries on a consolidated
basis determined in accordance with GAAP.
"NOTES" means one or more of the Revolving Notes or Swing Line Notes
or any combination thereof.
"NOTICE OF BORROWING" means a notice substantially in the form of
EXHIBIT I annexed hereto delivered by Company to Agent pursuant to subsection
2.1B with respect to a proposed borrowing.
"NOTICE OF CONVERSION/CONTINUATION" means a notice substantially in
the form of EXHIBIT II annexed hereto delivered by Company to Agent pursuant to
subsection 2.2D with respect to a proposed conversion or continuation of the
applicable basis for determining the interest rate with respect to the Loans
specified therein.
"NOTICE OF ISSUANCE OF LETTER OF CREDIT" means a notice substantially
in the form of EXHIBIT III annexed hereto delivered by Company to Agent pursuant
to subsection 3.1B(i) with respect to the proposed issuance of a Letter of
Credit.
"OAKLEY EUROPE" means Oakley Europe, Sarl, a French limited liability
company.
"OBLIGATIONS" means all obligations of every nature of Company from
time to time owed to Agent, Lenders or any of them under the Loan Documents,
whether for principal, interest, reimbursement of amounts drawn under Letters of
Credit, fees, expenses, indemnification or otherwise.
"OFFICERS' CERTIFICATE" means, as applied to any corporation, a
certificate executed on behalf of such corporation by its chairman of the board
(if an officer) or its president or one of its vice presidents and by its chief
financial officer, treasurer or controller; PROVIDED
19
<PAGE>
that every Officers' Certificate with respect to the compliance with a condition
precedent to the making of any Loans hereunder shall include (i) a statement
that the officer or officers making or giving such Officers' Certificate have
read such condition and any definitions or other provisions contained in this
Agreement relating thereto, (ii) a statement that, in the opinion of the
signers, they have made or have caused to be made such examination or
investigation as is necessary to enable them to express an informed opinion as
to whether or not such condition has been complied with, and (iii) a statement
as to whether, in the opinion of the signers, such condition has been complied
with.
"OPERATING LEASE" means, as applied to any Person, any lease
(including, without limitation, leases that may be terminated by the lessee at
any time) of any property (whether real, personal or mixed) that is not a
Capital Lease other than any such lease under which that Person is the lessor.
"PERMITTED ACQUISITION" means the acquisition of a business (whether
through the purchase of assets or of shares of capital stock) by Company or one
of its Subsidiaries (i) which is not a Hostile Acquisition, (ii) which is in a
line of business related to the lines of business of Company and its
Subsidiaries, (iii) for total consideration (including without limitation, cash
purchase price, deferred or financed purchase price and the assumption of
Indebtedness and other liabilities) when aggregated with the consideration for
all other Permitted Acquisitions, does not exceed $5,000,000 per Fiscal Year
unless the Requisite Lenders otherwise consent in writing, and (iv) at a time at
which no Event of Default or Potential Event of Default shall exist or shall
occur as a result of giving effect to such proposed acquisition.
"PERMITTED ENCUMBRANCES" means the following types of Liens (other
than any such Lien imposed pursuant to Section 401(a)(29) or 412(n) of the
Internal Revenue Code or by ERISA):
(i) Liens for Taxes, assessments or governmental charges or claims
the payment of which is not, at the time, required by subsection 6.3;
(i) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics and materialmen and other Liens imposed by law incurred in the
ordinary course of business for sums not yet delinquent or being contested
in good faith, if such reserve or other appropriate provision, if any, as
shall be required by GAAP shall have been made therefor;
(iii) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance
and other types of social security, or to secure the performance of
tenders, statutory obligations, surety and appeal bonds, bids, leases,
government contracts, trade contracts, performance and return-of-money
bonds and other similar obligations (exclusive of obligations for the
payment of borrowed money);
(iv) any attachment or judgment Lien not constituting an Event of
Default under subsection 8.8;
20
<PAGE>
(v) leases, subleases or licenses granted to others not interfering
in any material respect with the ordinary conduct of the business of
Company or any of its Subsidiaries;
(vi) easements, rights-of-way, restrictions, minor defects,
encroachments or irregularities in title and other similar charges or
encumbrances not interfering in any material respect with the ordinary
conduct of the business of Company or any of its Subsidiaries;
(vii) any (a) interest or title of a lessor, sublessor or licensor
under any lease or license, (b) restriction or encumbrance that the
interest or title of such lessor, sublessor or licensor may be subject to,
or (c) subordination of the interest of the lessee, sublessee or licensor
under such lease to any restriction or encumbrance referred to in the
preceding clause (b); PROVIDED that any such interest of a lessor,
sublessor or licensor does not interfere in any material respect with the
ordinary conduct of the business of Company or any of its Subsidiaries;
(viii) Liens arising from filing UCC financing statements relating
solely to leases permitted by this Agreement;
(ix) Liens in favor of customs and revenue authorities arising as a
matter of law to secure payment of customs duties in connection with the
importation of goods; and
(x) Liens securing reimbursement obligations under Commercial Letters
of Credit, which Liens encumber documents and other property to be acquired
by drawings under such Commercial Letters of Credit.
"PERMITTED TRANSFER RESTRICTIONS" means restrictions or prohibitions
on the ability of Company or any of its Subsidiaries to grant Liens on, sell or
otherwise transfer any of its properties or assets arising (a) under any of the
Loan Documents, or any other agreements or contracts in effect on the Closing
Date, (b) with respect to a Subsidiary that is not a Subsidiary on the Closing
Date, under any agreement in existence at the time such Subsidiary becomes a
Subsidiary of Company, (c) with respect to any Subsidiary, pursuant to an
agreement that has been entered into with respect to the sale or disposition of
all or substantially all of the capital stock or assets of such Subsidiary
permitted under subsection 7.6, (d) by operation of applicable laws, (e) with
respect to specific property or assets, under leases of, or mortgages and other
agreements relating to Liens on, such property or assets (including, without
limitation, non-assignment clauses, due-on-sale clauses and clauses prohibiting
junior Liens), (f) with respect to patents, copyrights and trademark rights
licensed by Company or any of its Subsidiaries, pursuant to the applicable
licenses relating thereto, and (g) any restrictions existing under any agreement
that amends, refinances or replaces any agreement containing restrictions
permitted under the preceding clauses (a) through (c) and (e) and (f) PROVIDED
that the terms and conditions of any such agreement are no less favorable taken
as a whole to Company and its Subsidiaries than those under the agreement so
amended, refinanced or replaced.
"PERSON" means and includes natural persons, corporations, limited
partnerships, general partnerships, joint stock companies, Joint Ventures,
associations, companies, trusts,
21
<PAGE>
banks, trust companies, land trusts, business trusts, limited liability
companies or other organizations, whether or not legal entities, and governments
and agencies and political subdivisions thereof.
"POTENTIAL EVENT OF DEFAULT" means a condition or event that, after
notice or lapse of time or both, would constitute an Event of Default.
"PRICING MARGIN" means .75% per annum.
"PRINCIPAL SHAREHOLDER" means each of James H. Jannard and Mike D.
Parnell.
"PRO RATA SHARE" means, with respect to each Lender, the percentage
(expressed as a decimal, rounded to the ninth decimal place) obtained by
DIVIDING the Revolving Loan Exposure of that Lender by the aggregate Revolving
Loan Exposure of all Lenders, as such percentage may be adjusted by assignments
permitted pursuant to subsection 10.1. The initial Pro Rata Share of each
Lender is set opposite the name of that Lender in Schedule 2.1 annexed hereto.
"QUARTERLY PAYMENT DATE" means the last day of March, June, September,
and December in each calendar year.
"REAL ESTATE LOAN" means the Indebtedness of the Company secured by a
lien on the corporate headquarters of Company located at One Icon, Foothill
Ranch, California, 92610.
"REFERENCE RATE" means the rate of interest publicly announced from
time to time of BofA in San Francisco, California, as its 'Reference Rate'. The
Reference Rate is 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 Reference Rate announced by BofA
shall take effect at the opening of business on the day specified in the public
announcement of such change.
"REFUNDED SWING LINE LOANS" has the meaning assigned to that term in
subsection 2.1A(ii).
"REGISTER" has the meaning assigned to that term in subsection 2.1D.
"REIMBURSEMENT DATE" has the meaning assigned to that term in
subsection 3.3B.
"RELEASE" means any release, spill, emission, leaking, pumping,
pouring, injection, escaping, deposit, disposal, discharge, dispersal, dumping,
leaching or migration of Hazardous Materials into the indoor or outdoor
environment (including, without limitation, the abandonment or disposal of any
barrels, containers or other closed receptacles containing any Hazardous
Materials), at or from any Facility, including emissions or migration of any
Hazardous Material into the air, soil, surface water, groundwater or property.
22
<PAGE>
"RENTAL PAYMENTS" means, for any period, the aggregate amount of all
rents paid or payable by Company and its Subsidiaries on a consolidated basis
during that period under all Capital Leases and Operating Leases to which
Company or any of its Subsidiaries is a party as lessee.
"REQUISITE LENDERS" means two or more Lenders having or holding 51% or
more of the sum of the aggregate Revolving Loan Exposure of all Lenders.
"REVOLVING LOAN COMMITMENT" means the commitment of a Lender to make
Revolving Loans to Company pursuant to subsection 2.1A, and "REVOLVING LOAN
COMMITMENTS" means such commitments of all Lenders in the aggregate.
"REVOLVING LOAN COMMITMENT TERMINATION DATE" means August 31, 2001.
"REVOLVING LOAN EXPOSURE" means, with respect to any Lender as of any
date (i) prior to the termination of the Revolving Loan Commitments, that
Lender's Revolving Loan Commitment and (ii) after the termination of the
Revolving Loan Commitments, the sum of (a) the aggregate outstanding principal
amount of the Revolving Loans of that Lender PLUS (b) in the event that Lender
is the Issuing Lender, the aggregate Letter of Credit Usage in respect of all
Letters of Credit issued by that Lender (in each case net of any participations
purchased by other Lenders in such Letters of Credit or any unreimbursed
drawings thereunder) PLUS (c) the aggregate amount of all participations
purchased by that Lender in any outstanding Letters of Credit or any
unreimbursed drawings under any Letters of Credit, PLUS (d) in the case of Swing
Line Lender, the aggregate outstanding principal amount of all Swing Line Loans
(net of any participations therein purchased by other Lenders), PLUS (e) the
aggregate amount of all participations purchased by that Lender in any
outstanding Swing Line Loans.
"REVOLVING LOANS" means the Loans made by Lenders to Company pursuant
to subsection 2.1A.
"REVOLVING NOTES" means any promissory notes of Company issued
pursuant to subsection 2.1E to evidence the Revolving Loans of any Lenders, and
any promissory notes issued by Company pursuant to the last sentence of
subsection 10.1B(i) in connection with assignments of the Revolving Loan
Commitments and Revolving Loans of any Lenders, in each case substantially in
the form of EXHIBIT IV annexed hereto, as they may be amended, supplemented or
otherwise modified from time to time.
"SEC" means the United States Securities and Exchange Commission.
"SECURITIES" means any stock, shares, partnership interests, voting
trust certificates, certificates of interest or participation in any
profit-sharing agreement or arrangement, options, warrants, bonds, debentures,
notes, or other evidences of indebtedness, secured or unsecured, convertible,
subordinated or otherwise, or in general any instruments commonly known as
"securities" or any certificates of interest, shares or participations in
temporary or interim certificates for the purchase or acquisition of, or any
right to subscribe to, purchase or acquire, any of the foregoing.
23
<PAGE>
"SECURITIES ACT" means the Securities Act of 1933, as amended from
time to time, and any successor statute.
"SOLVENT" means, with respect to any Person, as of any date, that both
(A) (i) the then fair saleable value of the property of such Person is
(y) greater than the total amount of liabilities (including contingent
liabilities) of such Person and (z) not less than the amount that will be
required to pay the probable liabilities on such Person's then existing debts as
they become absolute and matured considering all financing alternatives and
potential asset sales reasonably available to such Person; (ii) such Person's
capital is not unreasonably small in relation to its business or any
contemplated or undertaken transaction; and (iii) such Person does not intend to
incur, or believe (nor should it reasonably believe) that it will incur, debts
beyond its ability to pay such debts as they become due; and (B) such Person is
"solvent" within the meaning given that term and similar terms under applicable
laws relating to fraudulent transfers and conveyances. For purposes of this
definition, the amount of any contingent liability at any time shall be computed
as the amount that, in light of all of the facts and circumstances existing at
such time, represents the amount that can reasonably be expected to become an
actual or matured liability.
"STANDBY LETTER OF CREDIT" means any standby letter of credit or
similar instrument issued for the purpose of supporting (i) Indebtedness of
Company or any of its Subsidiaries in respect of industrial revenue or
development bonds or financings, (ii) workers' compensation liabilities of
Company or any of its Subsidiaries, (iii) the obligations of third party
insurers of Company or any of its Subsidiaries arising by virtue of the laws of
any jurisdiction requiring third party insurers, (iv) obligations with respect
to Capital Leases or Operating Leases of Company or any of its Subsidiaries, and
(v) performance, payment, deposit or surety obligations of Company or any of its
Subsidiaries, in any case if required by law or governmental rule or regulation
or in accordance with custom and practice in the industry; PROVIDED that Standby
Letters of Credit may not be issued for the purpose of supporting (a) trade
payables or (b) any Indebtedness constituting "antecedent debt" (as that term is
used in Section 547 of the Bankruptcy Code).
"SUBORDINATED INDEBTEDNESS" means unsecured Indebtedness of the
Company, convertible into common stock of the Company, subordinated in right of
payment to the Obligations pursuant to documentation containing maturities,
amortization schedules, covenants, defaults, remedies, subordination provisions,
conversion provisions and other material terms in form and substance reasonably
satisfactory to the Agent and the Requisite Lenders.
"SUBSIDIARY" means, with respect to any Person, any corporation,
partnership, association, joint venture or other business entity of which more
than 50% of the total voting power of shares of stock or other ownership
interests entitled (without regard to the occurrence of any contingency) to vote
in the election of the Person or Persons (whether directors, managers, trustees
or other Persons performing similar functions) having the power to direct or
cause the direction of the management and policies thereof is at the time owned
or controlled, directly or indirectly, by that Person or one or more of the
other Subsidiaries of that Person or a combination thereof.
24
<PAGE>
"SWING LINE LENDER" means BofA or any Person serving as a successor
Agent hereunder, in its capacity as Swing Line Lender hereunder.
"SWING LINE LOAN COMMITMENT" means the commitment of Swing Line Lender
to make Swing Line Loans to Company pursuant to subsection 2.1A(ii).
"SWING LINE LOANS" means the Loans made by Swing Line Lender to
Company pursuant to subsection 2.1A(ii).
"SWING LINE NOTE" means any promissory note of Company issued
pursuant to subsection 2.1E on the Closing Date and any promissory note issued
by Company to any successor Agent and Swing Line Lender pursuant to the last
sentence of subsection 9.5B , in each case substantially in the form of Exhibit
V annexed hereto, as it may be amended, supplemented or otherwise modified from
time to time.
"TAX" or "TAXES" means any present or future tax, levy, impost, duty,
charge, fee, deduction or withholding of any nature and whatever called, by
whomsoever, on whomsoever and wherever imposed, levied, collected, withheld or
assessed; PROVIDED that "TAX ON THE OVERALL NET INCOME" of a Person shall be
construed as a reference to a tax imposed by the jurisdiction in which that
Person's principal office (and/or, in the case of a Lender, its lending office)
is located or in which that Person is deemed to be doing business on or measured
by all or part of the net income, profits or gains of that Person (whether
worldwide, or only insofar as such income, profits or gains are considered to
arise in or to relate to a particular jurisdiction, or otherwise).
"TOTAL UTILIZATION OF REVOLVING LOAN COMMITMENTS" means, on any date,
the sum of (i) the aggregate principal amount of all outstanding Revolving Loans
(other than Revolving Loans made for the purpose of repaying any Refunded Swing
Line Loans but not yet so repaid or reimbursing Issuing Lender for any amount
drawn under any Letter of Credit but not yet so applied) PLUS (ii) the aggregate
principal amount of all outstanding Swing Line Loans, PLUS (iii) the Letter of
Credit Usage.
"WHOLLY-OWNED SUBSIDIARY" means, as to any Person, any Subsidiary of
such Person that is, directly or indirectly, wholly-owned by such Person, it
being agreed and understood that directors' qualifying shares shall be
disregarded in determining whether a Subsidiary is wholly-owned.
1.2 ACCOUNTING TERMS; UTILIZATION OF GAAP FOR PURPOSES OF CALCULATIONS UNDER
AGREEMENT.
Except as otherwise expressly provided in this Agreement, all
accounting terms not otherwise defined herein shall have the meanings assigned
to them in conformity with GAAP. Financial statements and other information
required to be delivered by Company to Lenders shall be prepared in accordance
with GAAP as in effect at the time of such preparation (and delivered together
with the reconciliation statements provided for in subsection 6.1(iv)).
Calculations in connection with the definitions, covenants and other provisions
of this
25
<PAGE>
Agreement shall utilize accounting principles and policies in conformity with
those used to prepare the financial statements referred to in subsection 5.3.
1.3 OTHER DEFINITIONAL PROVISIONS.
References to "Sections" and "subsections" shall be to Sections and
subsections, respectively, of this Agreement unless otherwise specifically
provided. Any of the terms defined in subsection 1.1 may, unless the context
otherwise requires, be used in the singular or the plural, depending on the
reference.
SECTION 2. AMOUNTS AND TERMS OF COMMITMENTS AND LOANS
2.1 COMMITMENTS; MAKING OF LOANS; THE REGISTER; OPTIONAL NOTES.
A. COMMITMENTS.
(i) REVOLVING LOANS. Each Lender severally agrees, subject to the
limitations set forth below with respect to the maximum amount of Revolving
Loans permitted to be outstanding from time to time, and in reliance upon
the representations and warranties of Company herein set forth, to lend to
Company from time to time during the period from the Closing Date to but
excluding the Revolving Loan Commitment Termination Date an aggregate
amount not exceeding its Pro Rata Share of the aggregate amount of the
Revolving Loan Commitments to be used for the purposes identified in
subsection 2.5A. The original amount of each Lender's Revolving Loan
Commitment is set forth opposite its name on SCHEDULE 2.1 annexed hereto
and the aggregate original amount of the Revolving Loan Commitments is
$50,000,000; PROVIDED that the Revolving Loan Commitments of Lenders shall
be adjusted to give effect to any assignments of the Revolving Loan
Commitments pursuant to subsection 10.1B; and PROVIDED FURTHER that the
amount of the Revolving Loan Commitments shall be reduced from time to time
by the amount of any reductions thereto made pursuant to subsection
2.4A(ii); PROVIDED FURTHER that the Revolving Loans on the Closing Date
shall be in an aggregate amount equal to the Existing Revolving Loans
outstanding on the Closing Date PLUS the amount of any additional Revolving
Loans made on the Closing Date. Each Lender's Revolving Loan Commitment
shall expire on the Revolving Loan Commitment Termination Date and all
Revolving Loans and all other amounts owed hereunder with respect to the
Revolving Loans and the Revolving Loan Commitments shall be paid in full no
later than that date. Amounts borrowed under this subsection 2.1A may be
repaid and reborrowed to but excluding the Revolving Loan Commitment
Termination Date.
Anything contained in this Agreement to the contrary notwithstanding,
the Revolving Loans and the Revolving Loan Commitments shall be subject to the
limitation that in no event shall the Total Utilization of Revolving Loan
Commitments at any time exceed the Revolving Loan Commitments then in effect.
(ii) SWING LINE LOANS. Swing Line Lender hereby agrees, subject to
the limitations set forth below with respect to the maximum amount of Swing
Line Loans permitted to be outstanding from time to time, to make a portion
of the Revolving Loan
26
<PAGE>
Commitments available to Company from time to time during the period from
the Closing Date to but excluding the Revolving Loan Commitment Termination
Date by making Swing Line Loans to Company in an aggregate amount not
exceeding the amount of the Swing Line Loan Commitment to be used for the
purposes identified in subsection 2.5A, notwithstanding the fact that such
Swing Line Loans, when aggregated with Swing Line Lender's outstanding
Revolving Loans and Swing Line Lender's Pro Rata Share of the Letter of
Credit Usage then in effect, may exceed Swing Line Lender's Revolving Loan
Commitment. The original amount of the Swing Line Loan Commitment is
$5,000,000; PROVIDED that any reduction of the Revolving Loan Commitments
made pursuant to subsection 2.4A(ii) which reduces the aggregate Revolving
Loan Commitments to an amount less than the then current amount of the
Swing Line Loan Commitment shall result in an automatic corresponding
reduction of the Swing Line Loan Commitment to the amount of the Revolving
Loan Commitments, as so reduced, without any further action on the part of
Company, Agent or Swing Line Lender. The Swing Line Loan Commitment shall
expire on the Revolving Loan Commitment Termination Date and all Swing Line
Loans and all other amounts owed hereunder with respect to the Swing Line
Loans shall be paid in full no later than that date. Amounts borrowed
under this subsection 2.1A(ii) may be repaid and reborrowed to but
excluding the Revolving Loan Commitment Termination Date.
Anything contained in this Agreement to the contrary notwithstanding,
the Swing Line Loans and the Swing Line Loan Commitment shall be subject to the
limitation that in no event shall the Total Utilization of Revolving Loan
Commitments at any time exceed the Revolving Loan Commitments then in effect.
With respect to any Swing Line Loans which have not been voluntarily
prepaid by Company pursuant to subsection 2.4B(i), Swing Line Lender may, at any
time in its sole and absolute discretion, deliver to Agent (with a copy to
Company), no later than 10:30 A.M. (California time) on the first Business Day
in advance of the proposed Funding Date, a notice (which shall be deemed to be a
Notice of Borrowing given by Company) requesting the Lenders to make Revolving
Loans under subsection 2.1A(i) that are Base Rate Loans on such Funding Date in
an amount equal to each Lender's Pro Rata Share of the amount of such Swing Line
Loans (the "REFUNDED SWING LINE LOANS") outstanding on the date such notice is
given which Swing Line Lender requests Lenders to prepay. Anything contained in
this Agreement to the contrary notwithstanding, (i) the proceeds of such
Revolving Loans made by Lenders other than Swing Line Lender shall be
immediately delivered by Agent to Swing Line Lender (and not to Company) and
applied to repay a corresponding portion of the Refunded Swing Line Loans and
(ii) on the day such Revolving Loans are made, Swing Line Lender's Pro Rata
Share of the Refunded Swing Line Loans shall be deemed to be paid with the
proceeds of a Revolving Loan made by Swing Line Lender, and such portion of the
Swing Line Loans deemed to be so paid shall no longer be outstanding as Swing
Line Loans and shall no longer be due under the Swing Line Note, if any, of
Swing Line Lender but shall instead constitute part of Swing Line Lender's
outstanding Revolving Loans and shall be due under the Revolving Note, if any,
of Swing Line Lender. If any portion of any such amount paid (or deemed to be
paid) to Swing Line Lender should be recovered by or on behalf of Company from
Swing Line Lender in bankruptcy, by assignment for the benefit of creditors or
otherwise, the loss of the amount so recovered shall be
27
<PAGE>
ratably shared among all Lenders in the manner contemplated by subsection 10.5.
If for any reason (a) Revolving Loans are not made upon the request of
Swing Line Lender as provided in the immediately preceding paragraph in an
amount sufficient to repay any amounts owed to Swing Line Lender in respect of
any outstanding Swing Line Loans or (b) the Revolving Loan Commitments are
terminated at a time when any Swing Line Loans are outstanding, each Lender
shall be deemed to, and hereby agrees to, have purchased a participation in such
outstanding Swing Line Loans in an amount equal to its Pro Rata Share
(calculated, in the case of the foregoing clause (b), immediately prior to such
termination of the Revolving Loan Commitments) of the unpaid amount of such
Swing Line Loans together with accrued interest thereon. Upon one Business
Day's notice from Swing Line Lender through Agent, each Lender shall deliver to
Agent for delivery to Swing Line Lender an amount equal to its respective
participation in same day funds at the Funding and Payment Office. In order to
further evidence such participation (and without prejudice to the effectiveness
of the participation provisions set forth above), each Lender agrees to enter
into a separate participation agreement at the request of Swing Line Lender in
form and substance reasonably satisfactory to Swing Line Lender. In the event
any Lender fails to make available to Swing Line Lender the amount of such
Lender's participation as provided in this paragraph, Swing Line Lender shall be
entitled to recover such amount on demand from such Lender together with
interest thereon at the rate customarily used by Swing Line Lender for the
correction of errors among banks for three Business Days and thereafter at the
Base Rate. In the event Swing Line Lender receives a payment of any amount in
which other Lenders have purchased participations as provided in this paragraph,
Swing Line Lender shall promptly distribute to Agent for delivery to each such
other Lender its Pro Rata Share of such payment.
Anything contained herein to the contrary notwithstanding, each
Lender's obligation to make Revolving Loans for the purpose of repaying any
Refunded Swing Line Loans pursuant to the second preceding paragraph and each
Lender's obligation to purchase a participation in any unpaid Swing Line Loans
pursuant to the immediately preceding paragraph shall be absolute and
unconditional and shall not be affected by any circumstance, including (a) any
set-off, counterclaim, recoupment, defense or other right which such Lender may
have against Swing Line Lender, Company or any other Person for any reason
whatsoever; (b) the occurrence or continuation of an Event of Default or a
Potential Event of Default; (c) any adverse change in the business, operations,
properties, assets, condition (financial or otherwise) or prospects of Company
or any of its Subsidiaries; (d) any breach of this Agreement or any other Loan
Document by any party thereto; or (e) any other circumstance, happening or event
whatsoever, whether or not similar to any of the foregoing; PROVIDED that such
obligations of each Lender are subject to the condition that (X) Swing Line
Lender believed in good faith that all conditions under Section 4 to the making
of the applicable Refunded Swing Line Loans or other unpaid Swing Line Loans, as
the case may be, were satisfied at the time such Refunded Swing Line Loans or
unpaid Swing Line Loans were made or (Y) the satisfaction of any such condition
not satisfied had been waived in accordance with subsection 10.6 prior to or at
the time such Refunded Swing Line Loans or other unpaid Swing Line Loans were
made.
Notwithstanding the foregoing, a Lender shall not have any obligation
to acquire a participation in a Swing Line Loan if an Event of Default shall
have occurred (other than a non-
28
<PAGE>
material default under subsections 8.4 and 8.5) and be continuing at the time
such Swing Line Loan was made and such Lender shall have notified the Swing Line
Lender in writing (such notice to be made pursuant to subsection 10.8), at least
one Business Day prior to the time such Swing Line Loan was made, that such
Event of Default has occurred and that such Lender will not acquire
participations in Swing Line Loans made while such Event of Default is
continuing.
B. BORROWING MECHANICS. Revolving Loans made on any Funding Date (other
than Revolving Loans made pursuant to a request by Swing Line Lender pursuant to
subsection 2.1A(ii) for the purpose of repaying any Refunded Swing Line Loans or
Revolving Loans or made pursuant to subsection 3.3B for the purpose of
reimbursing Issuing Lender for the amount of a drawing under a Letter of Credit)
shall be in an aggregate minimum amount of $500,000 and integral multiples of
$10,000 in excess of that amount; PROVIDED that Revolving Loans made on any
Funding Date as LIBOR Loans with a particular Interest Period shall be in an
aggregate minimum amount of $2,000,000 and integral multiples of $10,000 in
excess of that amount.. Swing Line Loans made on any Funding Date shall be in
an aggregate minimum amount of $100,000 and integral multiples of $10,000 in
excess of that amount. Whenever Company desires that Lenders make Revolving
Loans, it shall deliver to Agent a Notice of Borrowing no later than 1:00 p.m.
(California time) at least three Business Days in advance of the proposed
Funding Date (in the case of a LIBOR Loan) and no later than 10:30 a.m.
(California time) on the proposed Funding Date (in the case of a Base Rate
Loan). Whenever Company desires that Swing Line Lender make a Swing Line Loan,
it shall deliver to Agent a Notice of Borrowing no later than 1:00 p.m.
(California time) on the proposed Funding Date. The Notice of Borrowing shall
specify (i) the proposed Funding Date (which shall be a Business Day), (ii) the
amount and type of Loans requested, (iii) in the case of any Loans made on the
Closing Date and in the case of all Swing Line Loans, that such Loans shall be
Base Rate Loans, (iv) in the case of Loans not made on the Closing Date (other
than Swing Line Loans), whether such Loans shall be Base Rate Loans or LIBOR
Loans, (v) in the case of any Loans requested to be made as LIBOR Loans, the
initial Interest Period requested therefor, and (vi) in the case of any Loans,
that after giving effect to such Loans the Total Utilization of Revolving Loan
Commitments will not exceed the Revolving Loan Commitments then in effect. In
lieu of delivering the above-described Notice of Borrowing, Company may give
Agent telephonic notice by the required time of any proposed borrowing under
this subsection 2.1B; PROVIDED that such notice shall be promptly confirmed in
writing by delivery of a Notice of Borrowing to Agent on or before the
applicable Funding Date. Loans may be continued as or converted into Base Rate
Loans or LIBOR Loans in the manner provided in subsection 2.2D.
Neither Agent nor any Lender shall incur any liability to Company in
acting upon any telephonic notice referred to above that Agent believes in good
faith to have been given by a duly authorized officer or other person authorized
to borrow on behalf of Company, and upon funding of Loans by Lenders in
accordance with this Agreement pursuant to any such telephonic notice Company
shall have effected Loans hereunder.
Company shall notify Agent prior to the funding of any Loans in the
event that any of the matters to which Company is required to certify in the
applicable Notice of Borrowing is no longer true and correct as of the
applicable Funding Date, and the acceptance by Company of the proceeds of any
Loans shall constitute a re-certification by Company, as of the applicable
29
<PAGE>
Funding Date, as to the matters to which Company is required to certify in the
applicable Notice of Borrowing.
Except as otherwise provided in subsections 2.6A, 2.6B and 2.6F, a
Notice of Borrowing for a LIBOR Loan (or telephonic notice in lieu thereof)
shall be irrevocable on and after the related Interest Rate Determination Date,
and Company shall be obligated to make a borrowing in accordance therewith or,
in the event Company retracts the applicable Notice of Borrowing prior to the
funding of such Loan, to pay such amounts as shall be payable under subsection
2.6C if such borrowing does not occur as the result of such retraction.
C. DISBURSEMENT OF FUNDS. Except as set forth in subsection 2.6B, upon
satisfaction of the conditions set forth in subsections 4.1 and 4.2, all
Revolving Loans under this Agreement shall be made by Lenders simultaneously and
proportionately to their respective Pro Rata Shares, it being understood that no
Lender shall be responsible for any default by any other Lender in that other
Lender's obligation to make a Loan requested hereunder nor shall the Commitment
of any Lender to make the particular type of Loan requested be increased or
decreased as a result of a default by any other Lender in that other Lender's
obligation to make a Loan requested hereunder. Promptly after receipt by Agent
of a Notice of Borrowing pursuant to subsection 2.1B (or telephonic notice in
lieu thereof), Agent shall notify each Lender or Swing Line Lender, as the case
may be, of the proposed borrowing. Each Lender shall make the amount of its
Revolving Loan available to Agent not later than 12:00 noon (California time) on
the applicable Funding Date, in same day funds in Dollars, at the Funding and
Payment Office. Swing Line Lender shall make the amount of each Swing Line Loan
available to Agent not later than 3:00 p.m. (California time) on the applicable
Funding Date, in same day funds in Dollars, at the Funding and Payment Office.
Except as provided in subsection 2.1A(ii) or subsection 3.3B with respect to
Revolving Loans used to repay Refunded Swing Line Loans or to reimburse Issuing
Lender for the amount of a drawing under a Letter of Credit, upon satisfaction
or waiver of the conditions precedent specified in subsections 4.1 (in the case
of Loans made on the Closing Date) and 4.2 (in the case of all Loans), Agent
shall make the proceeds of such Loans available to Company on the applicable
Funding Date by causing an amount of immediately available funds in Dollars
equal to the proceeds of all such Loans received by Agent from Lenders or Swing
Line Lender, as the case may be, to be credited to the account of Company at the
Funding and Payment Office.
Unless Agent shall have been notified by any Lender prior to the
Funding Date for any Loans that such Lender does not intend to make available to
Agent the amount of such Lender's Loan requested on such Funding Date, Agent may
assume that such Lender has made such amount available to Agent on such Funding
Date and Agent may, in its sole discretion, but shall not be obligated to, make
available to Company a corresponding amount on such Funding Date. If such
corresponding amount is not in fact made available to Agent by such Lender and
Agent shall have, in accordance with the preceding sentence, made such
corresponding amount available to Company, provided that Agent shall have timely
notified such Lender of the borrowing of the applicable Loan, Agent shall be
entitled to recover such corresponding amount on demand from such Lender
together with interest thereon, for each day from such Funding Date until the
date such amount is paid to Agent, at the interest rate applicable to such Loan.
If such Lender does not pay such corresponding amount forthwith upon Agent's
demand therefor,
30
<PAGE>
Agent shall promptly notify Company and Company shall immediately pay such
corresponding amount to Agent together with interest thereon, for each day from
such Funding Date until the date such amount is paid to Agent, at the rate
payable under this Agreement for Base Rate Loans. Nothing in this subsection
2.1C shall be deemed to relieve any Lender from its obligation to fulfill its
Commitments hereunder or to prejudice any rights that Company may have against
any Lender as a result of any default by such Lender hereunder.
D. THE REGISTER.
(i) Agent shall maintain, at its address referred to in subsection
10.8, a register for the recordation of the names and addresses of Lenders
and the Commitments and Loans of each Lender from time to time (the
"REGISTER"). The Register shall be available for inspection by Company or
any Lender at any reasonable time and from time to time upon reasonable
prior notice.
(ii) Agent shall record in the Register the Revolving Loan
Commitment and Revolving Loans from time to time of each Lender, the Swing
Line Loan Commitment and the Swing Line Loans from time to time of Swing
Line Lender, the issuance of any Letter of Credit and the Letter of Credit
Usage from time to time; and each repayment or prepayment in respect of the
principal amount of the Revolving Loans of each Lender and the Swing Line
Loans of Swing Line Lender. Any such recordation shall be conclusive and
binding on Company and each Lender, absent manifest error; PROVIDED that
failure to make any such recordation, or any error in such recordation,
shall not affect Company's Obligations in respect of the applicable Loans.
(iii) Each Lender shall record on its internal records (including,
without limitation, any Notes held by such Lender) the amount of each
Revolving Loan made by it and each payment in respect thereof. Any such
recordation shall be conclusive and binding on Company, absent manifest
error; PROVIDED that failure to make any such recordation, or any error in
such recordation, shall not affect Company's Obligations in respect of the
applicable Loans; and PROVIDED FURTHER that in the event of any
inconsistency between the Register and any Lender's records, the
recordations in the Register shall govern.
(iv) Company, Agent and Lenders shall deem and treat the Persons
listed as Lenders in the Register as the holders and owners of the
corresponding Commitments and Loans listed therein for all purposes hereof,
and no assignment or transfer of any such Commitment or Loan shall be
effective, in each case unless and until an Assignment Agreement effecting
the assignment or transfer thereof shall have been accepted by Agent and
recorded in the Register as provided in subsection 10.1B(ii). Prior to
such recordation, all amounts owed with respect to the applicable
Commitment or Loan shall be owed to the Lender listed in the Register as
the owner thereof, and any request, authority or consent of any Person who,
at the time of making such request or giving such authority or consent, is
listed in the Register as a Lender shall be conclusive and binding on any
subsequent holder, assignee or transferee of the corresponding Commitments
or Loans.
31
<PAGE>
E. OPTIONAL NOTES. If so requested by any Lender by written notice to
Company (with a copy to Agent) at least two Business Days prior to the Closing
Date or at any time thereafter, Company shall execute and deliver to such Lender
(and/or, if applicable and if so specified in such notice, to any Person who is
an assignee of such Lender pursuant to subsection 10.1) on the Closing Date (or,
if such notice is delivered after the Closing Date, promptly after Company's
receipt of such notice) a promissory note or promissory notes to evidence such
Lender's Revolving Loans or Swing Line Loans, as the case may be, substantially
in the form of EXHIBIT IV or EXHIBIT V, as applicable, annexed hereto,
respectively, with appropriate insertions.
Except as set forth in subsection 2.1D(iv) above, Agent may deem and
treat the payee of any Note as the owner thereof for all purposes hereof unless
and until an Assignment Agreement effecting the assignment or transfer thereof
shall have been accepted by Agent as provided in subsection 10.1B(ii). Any
request, authority or consent of any person or entity who, at the time of making
such request or giving such authority or consent, is the holder of any Note
shall be conclusive and binding on any subsequent holder, assignee or transferee
of that Note or of any Note or Notes issued in exchange therefor.
2.2 INTEREST ON THE LOANS.
A. RATE OF INTEREST. Subject to the provisions of subsections 2.6 and
2.7, each Revolving Loan shall bear interest on the unpaid principal amount
thereof from the date made through maturity (whether by acceleration or
otherwise) at a rate determined by reference to the Base Rate or LIBOR, as the
case may be. Subject to the provisions of subsection 2.7, each Swing Line Loan
shall bear interest on the unpaid principal amount thereof from the date made
through maturity (whether by acceleration or otherwise) at a rate determined by
reference to the Base Rate. The applicable basis for determining the rate of
interest with respect to any Revolving Loan shall be selected by Company
initially at the time a Notice of Borrowing is given with respect to such
Revolving Loan pursuant to subsection 2.1B. The basis for determining the
interest rate with respect to any Revolving Loan may be changed from time to
time pursuant to subsection 2.2D. If on any day a Revolving Loan is outstanding
with respect to which notice has not been delivered to Agent in accordance with
the terms of this Agreement specifying the applicable basis for determining the
rate of interest, then for that day that Loan shall bear interest determined by
reference to the Base Rate.
Subject to the provisions of subsections 2.2E and 2.7, the Revolving
Loans shall bear interest through maturity as follows:
(i) if a Base Rate Loan, then at the Base Rate per annum; or
(ii) if a LIBOR Loan, then at the sum of LIBOR PLUS the Pricing
Margin.
Subject to the provisions of subsections 2.2E and 2.7, the Swing Line Loans
shall bear interest through maturity at the Base Rate less 0.20% per annum.
B. INTEREST PERIODS. In connection with each LIBOR Loan, Company may,
pursuant to the applicable Notice of Borrowing or Notice of
Conversion/Continuation, as the case may be, select an interest period (each an
"INTEREST PERIOD") to be applicable to such Loan, which
32
<PAGE>
Interest Period shall be, at Company's option, either a one, two, three, six or
twelve-month period; PROVIDED that:
(i) the initial Interest Period for any LIBOR Loan shall commence
on the Funding Date in respect of such Loan, in the case of a Loan
initially made as a LIBOR Loan, or on the date specified in the applicable
Notice of Conversion/Continuation, in the case of a Loan converted to a
LIBOR Loan;
(ii) in the case of immediately successive Interest Periods
applicable to a LIBOR Loan continued as such pursuant to a Notice of
Conversion/Continuation, each successive Interest Period shall commence on
the day on which the next preceding Interest Period expires;
(iii) if an Interest Period would otherwise expire on a day that is
not a Business Day, such Interest Period shall expire on the next
succeeding Business Day; PROVIDED that, if any Interest Period would
otherwise expire on a day that is not a Business Day but is a day of the
month after which no further Business Day occurs in such month, such
Interest Period shall expire on the next preceding Business Day;
(iv) any Interest Period 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,
subject to clause (v) of this subsection 2.2B, end on the last Business Day
of a calendar month;
(v) no Interest Period with respect to any portion of the
Revolving Loans shall extend beyond the Revolving Loan Commitment
Termination Date;
(vi) there shall be no more than six Interest Periods outstanding
at any time with respect to all LIBOR Loans; and
(vii) in the event Company fails to specify an Interest Period for
any LIBOR Loan in the applicable Notice of Borrowing or Notice of
Conversion/Continuation, Company shall be deemed to have selected an
Interest Period of one month.
C. INTEREST PAYMENTS. Subject to the provisions of subsection 2.2E,
interest on each Loan shall be payable in arrears on and to each Interest
Payment Date applicable to that Loan, upon conversion of a LIBOR Loan (to the
extent accrued on the amount being converted), upon any prepayment of a LIBOR
Loan (to the extent accrued on the amount being prepaid) and at maturity
(including final maturity).
D. CONVERSION OR CONTINUATION. Subject to the provisions of subsection
2.6, Company shall have the option (i) to convert at any time all or any part of
its outstanding Base Rate Loans equal to $2,000,000 and integral multiples of
$10,000 in excess of that amount from Revolving Loans bearing interest at the
Base Rate to Revolving Loans bearing interest at LIBOR, plus the Pricing Margin;
(ii) to convert at any time all or any part of its outstanding LIBOR Loans equal
to $500,000 and integral multiples of $10,000 in excess of that amount from
Revolving Loans bearing interest at LIBOR to Revolving Loans bearing interest at
the Base Rate
33
<PAGE>
(PROVIDED that any LIBOR Loan remaining after the partial conversion of a LIBOR
Loan to a Base Rate Loan permitted under this clause (ii) shall be of an amount
equal to at least $2,000,000) or (iii) upon the expiration of any Interest
Period applicable to a LIBOR Loan, to continue all or any portion of such Loan
equal to $2,000,000 and integral multiples of $10,000 in excess of that amount
as a LIBOR Loan; PROVIDED, HOWEVER, that a LIBOR Loan may not be converted into
a Base Rate Loan except on the expiration date of an Interest Period applicable
thereto. Swing Line Loans may not be converted into LIBOR Loans.
Company shall deliver a Notice of Conversion/Continuation to Agent no
later than 10:30 a.m. (California time) at least one Business Day in advance of
the proposed conversion date (in the case of a conversion to a Base Rate Loan)
and at least three Business Days in advance of the proposed
conversion/continuation date (in the case of a conversion to, or a continuation
of, a LIBOR Loan). A Notice of Conversion/Continuation shall specify (i) the
proposed conversion/continuation date (which shall be a Business Day), (ii) the
amount and type of the Revolving Loan to be converted/continued, (iii) the
nature of the proposed conversion/continuation, (iv) in the case of a conversion
to, or a continuation of, a LIBOR Loan, the requested Interest Period, and
(v) in the case of a conversion to, or a continuation of, a LIBOR Loan, that no
Potential Event of Default or Event of Default has occurred and is continuing.
In lieu of delivering the above-described Notice of Conversion/Continuation,
Company may give Agent telephonic notice by the required time of any proposed
conversion/continuation under this subsection 2.2D; PROVIDED that such notice
shall be promptly confirmed in writing by delivery of a Notice of
Conversion/Continuation to Agent on or before the proposed conversion/
continuation date.
Neither Agent nor any Lender shall incur any liability to Company in
acting upon any telephonic notice referred to above that Agent believes in good
faith to have been given by a duly authorized officer or other person authorized
to act on behalf of Company, and upon conversion or continuation of the
applicable basis for determining the interest rate with respect to any Loans in
accordance with this Agreement pursuant to any such telephonic notice Company
shall have effected a conversion or continuation, as the case may be, hereunder.
Except as otherwise provided in subsections 2.6A, 2.6B and 2.6F, a
Notice of Conversion/Continuation for conversion to, or continuation of, a LIBOR
Loan (or telephonic notice in lieu thereof) shall be irrevocable on and after
the related Interest Rate Determination Date, and Company shall be bound to
effect a conversion or continuation in accordance therewith or, in the event
Company retracts the applicable Notice of Conversion/Continuation prior to the
conversion to or continuation of such LIBOR Loan, to pay such amounts as shall
be payable under subsection 2.6C if such conversion or continuation does not
occur as the result of such retraction.
E. DEFAULT RATE. Upon the occurrence and during the continuation of any
Event of Default, the outstanding principal amount of all Loans and, to the
extent permitted by applicable law, any interest payments thereon not paid when
due and any fees and other amounts payable hereunder not paid when due, shall
thereafter bear interest (including post-petition interest in any proceeding
under the Bankruptcy Code or other applicable bankruptcy laws) payable upon
demand at a rate that is 2% per annum in excess of the interest rate otherwise
payable under this Agreement with respect to the applicable Loans (or, in the
case of any such fees and other
34
<PAGE>
amounts, at a rate which is 2% per annum in excess of the interest rate
otherwise payable under this Agreement for Base Rate Loans); PROVIDED that, in
the case of LIBOR Loans, upon the expiration of the Interest Period in effect at
the time any such increase in interest rate is effective (if such increased rate
is still effective and an Event of Default is still continuing) such LIBOR Loans
shall thereupon become Base Rate Loans and shall thereafter bear interest
payable upon demand at a rate which is 2% per annum in excess of the interest
rate otherwise payable under this Agreement for Base Rate Loans. Payment or
acceptance of the increased rates of interest provided for in this
subsection 2.2E is not a permitted alternative to timely payment and shall not
constitute a waiver of any Event of Default or otherwise prejudice or limit any
rights or remedies of Agent or any Lender.
F. COMPUTATION OF INTEREST. Interest on Loans shall be computed on the
basis of a 360-day year for the actual number of days elapsed in the period
during which it accrues. In computing interest on any Loan, the date of the
making of such Loan or the first day of an Interest Period applicable to such
Loan or, with respect to a Base Rate Loan being converted from a LIBOR Loan, the
date of conversion of such LIBOR Loan to such Base Rate Loan, as the case may
be, shall be included, and the date of payment of such Loan or the expiration
date of an Interest Period applicable to such Loan or, with respect to a Base
Rate Loan being converted to a LIBOR Loan, the date of conversion of such Base
Rate Loan to such LIBOR Loan, as the case may be, shall be excluded; PROVIDED
that if a Loan is repaid on the same day on which it is made, one day's interest
shall be paid on that Loan.
2.3 FEES.
A. COMMITMENT FEES. Company agrees to pay to Agent, for distribution to
each Lender in proportion to that Lender's Pro Rata Share, commitment fees for
the period from and including the Closing Date to and excluding the Revolving
Loan Commitment Termination Date equal to the product of (i) the actual daily
excess of the Revolving Loan Commitments over the sum of (A) the aggregate
principal amount of Revolving Loans outstanding PLUS (B) the Letter of Credit
Usage (determined for the purposes of this subsection 2.3 only so as to exclude
the aggregate outstanding face amount of all outstanding Commercial Letters of
Credit) MULTIPLIED BY (ii) 0.20% per annum, such commitment fees to be
calculated on the basis of a 360-day year and the actual number of days elapsed
and to be payable quarterly in arrears on each Quarterly Payment Date,
commencing on the first such date to occur after the Closing Date, and on the
Revolving Loan Commitment Termination Date.
B. OTHER FEES. Company agrees to pay to Agent such other reasonable fees
in the amounts and at the times separately agreed upon between Company and Agent
including, without limitation, fees to be distributed by Agent to Lenders on the
Closing Date.
2.4 REPAYMENTS, PREPAYMENTS AND REDUCTIONS IN REVOLVING LOAN COMMITMENTS;
GENERAL PROVISIONS REGARDING PAYMENTS.
A. PREPAYMENTS AND REDUCTIONS IN REVOLVING LOAN COMMITMENTS.
(i) VOLUNTARY PREPAYMENTS. Company may, upon written or
telephonic notice to Agent on or prior to 1:00 p.m. (California time) on
the date of prepayment, which
35
<PAGE>
notice, if telephonic, shall be promptly confirmed in writing, at any time
and from time to time prepay any Swing Line Loan on any Business Day in
whole or in part in an aggregate minimum amount of $100,000 and integral
multiples of $10,000 in excess of that amount. Company may, on any
Business Day, give written or telephonic notice, in the case of Base Rate
Loans, and three Business Days' prior written or telephonic notice, in the
case of LIBOR Loans, in each case given to Agent by 10:30 a.m. (California
time) on the date required and, if given by telephone, promptly confirmed
in writing to Agent (which original written or telephonic notice Agent will
promptly transmit by telefacsimile or telephone to each Lender) and at any
time and from time to time prepay, without premium or penalty other than as
set forth in this subsection, any Revolving Loans on any Business Day in
whole or in part in an aggregate minimum amount of $1,000,000 and integral
multiples of $10,000 in excess of that amount (unless the outstanding
Revolving Loans are less than such amount, in which case all Revolving
Loans may be repaid); PROVIDED, HOWEVER, that a LIBOR Loan may be prepaid
prior to the expiration of the Interest Period applicable thereto only upon
Company's payment of such additional amounts as may be required under
subsection 2.6C, Company being advised of this amount by the Agent. Notice
of prepayment having been given as aforesaid, the principal amount of the
Loans specified in such notice shall become due and payable on the
prepayment date specified therein. Any such voluntary prepayment shall be
applied as specified in subsection 2.4A(iv).
(ii) VOLUNTARY REDUCTIONS OF REVOLVING LOAN COMMITMENTS. Company
may, upon not less than five Business Days' prior written or telephonic
notice confirmed in writing to Agent (which original written or telephonic
notice Agent will promptly transmit by telefacsimile or telephone to each
Lender), at any time and from time to time terminate in whole or
permanently reduce in part, without premium or penalty, the Revolving Loan
Commitments in an amount up to the amount by which the Revolving Loan
Commitments exceed the Total Utilization of Revolving Loan Commitments at
the time of such proposed termination or reduction; PROVIDED that any such
partial reduction of the Revolving Loan Commitments shall be in an
aggregate minimum amount of $1,000,000 and integral multiples of $100,000
in excess of that amount. Company's notice to Agent shall designate the
date (which shall be a Business Day) of such termination or reduction and
the amount of any partial reduction, and such termination or reduction of
the Revolving Loan Commitments shall be effective on the date specified in
Company's notice and shall reduce the Revolving Loan Commitment of each
Lender proportionately to its Pro Rata Share.
(iii) PREPAYMENTS WITH RESPECT TO REVOLVING LOAN COMMITMENTS.
Company shall from time to time prepay first the Swing Line Loans and
second the Revolving Loans to the extent necessary so that the Total
Utilization of Revolving Loan Commitments shall not at any time exceed the
Revolving Loan Commitments then in effect.
(iv) APPLICATION OF PREPAYMENTS
(a) APPLICATION OF VOLUNTARY PREPAYMENTS. Any voluntary
prepayments pursuant to subsection 2.4A(i) shall be applied as
specified by
36
<PAGE>
Company in the applicable notice of prepayment. In the event Company
fails to specify the Loans to which any such prepayment shall be
applied, such prepayments shall be applied first to repay outstanding
Swing Line Loans to the full extent thereof and second to repay
outstanding Revolving Loans.
(b) APPLICATION OF PREPAYMENTS TO BASE RATE LOANS AND LIBOR
LOANS. Any prepayment of Revolving Loans shall be applied first to
Base Rate Loans to the full extent thereof before application to LIBOR
Loans, in each case in a manner which minimizes the amount of any
payments required to be made by Company pursuant to subsection 2.6C.
B. GENERAL PROVISIONS REGARDING PAYMENTS.
(i) MANNER AND TIME OF PAYMENT. All payments by Company of
principal, interest, fees and other Obligations hereunder and under the
Notes shall be made in Dollars in same day funds, without defense, setoff
or counterclaim, free of any restriction or condition, and delivered to
Agent not later than 1:00 p.m. (California time) for Swing Line Loans and
no later than 10:30 a.m. for Revolving Loans on the date due at the Funding
and Payment Office for the account of Swing Line Lender or Lenders, as the
case may be; funds received by Agent after that time on such due date shall
be deemed to have been paid by Company on the next succeeding Business Day.
Company hereby authorizes Agent, upon notice delivered to Company prior
thereto or promptly thereafter, to charge its accounts with Agent in order
to cause timely payment to be made to Agent of all principal, interest,
fees and expenses due hereunder (subject to sufficient funds being
available in its accounts for that purpose).
(ii) APPLICATION OF PAYMENTS TO PRINCIPAL AND INTEREST. All
payments in respect of the principal amount of any LIBOR Loan shall include
payment of accrued interest on the principal amount being repaid or
prepaid, and all such payments shall be applied to the payment of interest
before application to principal.
(iii) APPORTIONMENT OF PAYMENTS. Aggregate principal and interest
payments in respect of Revolving Loans shall be apportioned among all
outstanding Revolving Loans to which such payments relate, in each case
proportionately to Lenders' respective Pro Rata Shares. Agent shall
promptly distribute to each Lender, at its primary address set forth below
its name on the appropriate signature page hereof or at such other address
as such Lender may request, its Pro Rata Share of all such payments
received by Agent and the commitment fees of such Lender when received by
Agent pursuant to subsection 2.3. Notwithstanding the foregoing provisions
of this subsection 2.4B(iii), if, pursuant to the provisions of subsection
2.6B, any Notice of Conversion/Continuation is withdrawn as to any Affected
Lender or if any Affected Lender makes Base Rate Loans in lieu of its Pro
Rata Share of any LIBOR Loans, Agent shall give effect thereto in
apportioning payments received thereafter.
(iv) PAYMENTS ON BUSINESS DAYS. Whenever any payment to be made
hereunder shall be stated to be due on a day that is not a Business Day,
such payment shall be made on the next succeeding Business Day and such
extension of time shall be
37
<PAGE>
included in the computation of the payment of interest hereunder or of the
commitment fees hereunder, as the case may be.
(v) NOTATION OF PAYMENT. Each Lender agrees that before disposing
of any Note held by it, or any part thereof (other than by granting
participations therein), that Lender will make a notation thereon of all
Loans evidenced by that Note and all principal payments previously made
thereon and of the date to which interest thereon has been paid; PROVIDED
that the failure to make (or any error in the making of) a notation of any
Loan made under such Note shall not limit or otherwise affect the
obligations of Company hereunder or under such Note with respect to any
Loan or any payments of principal or interest on such Note.
2.5 USE OF PROCEEDS.
A. REVOLVING LOANS AND SWING LINE LOANS. The Revolving Loans and Swing
Line Loans shall be applied by Company for general corporate purposes, which may
include the making of loans to Company's Subsidiaries, in accordance with
subsection 7.1(iv), for their own general corporate purposes; PROVIDED, HOWEVER,
that in no event shall the proceeds of Revolving Loans or Swing Line Loans be
applied, directly or indirectly, to finance the payment of dividends or other
distributions on equity to shareholders of Company (it being understood that
proceeds of Loans may be applied to repurchase shares of the Company's capital
stock.)
B. MARGIN REGULATIONS. No portion of the proceeds of any borrowing under
this Agreement shall be used by Company or any of its Subsidiaries in any manner
that might cause the borrowing or the application of such proceeds to violate
Regulation U, Regulation T or Regulation X of the Board of Governors of the
Federal Reserve System or any other regulation of such Board or to violate the
Exchange Act, in each case as in effect on the date or dates of such borrowing
and such use of proceeds.
2.6 SPECIAL PROVISIONS GOVERNING LIBOR LOANS.
Notwithstanding any other provision of this Agreement to the contrary,
the following provisions shall govern with respect to LIBOR Loans as to the
matters covered:
A. INABILITY TO DETERMINE APPLICABLE INTEREST RATE. In the event that
Agent shall have determined (which determination shall be final and conclusive
and binding upon all parties hereto), on any Interest Rate Determination Date
with respect to any LIBOR Loans, that by reason of circumstances affecting the
London interbank market adequate and fair means do not exist for ascertaining
the interest rate applicable to such Loans on the basis provided for in the
definition of LIBOR, Agent shall on such date give notice (by telefacsimile or
by telephone confirmed in writing) to Company and each Lender of such
determination, whereupon (i) no Loans may be made as, or converted to, LIBOR
Loans until such time as Agent notifies Company and Lenders that the
circumstances giving rise to such notice no longer exist and (ii) any Notice of
Borrowing or Notice of Conversion/Continuation given by Company with respect to
the Loans in respect of which such determination was made shall be deemed to be
rescinded by Company.
38
<PAGE>
B. ILLEGALITY OR IMPRACTICABILITY OF LIBOR LOANS. In the event that on
any date any Lender shall have determined (which determination shall be final
and conclusive and binding upon all parties hereto but shall be made only after
consultation with Company and Agent) that the making, maintaining or
continuation of its LIBOR Loans (i) has become unlawful as a result of
compliance by such Lender in good faith with any law, treaty, governmental rule,
regulation, guideline or order (or would conflict with any such treaty,
governmental rule, regulation, guideline or order not having the force of law
even though the failure to comply therewith would not be unlawful) or (ii) has
become impracticable, or would cause such Lender material hardship, as a result
of contingencies occurring after the date of this Agreement which materially and
adversely affect the London interbank market or the position of such Lender in
that market, then, and in any such event, such Lender shall be an "AFFECTED
LENDER" and it shall on that day give notice (by telefacsimile or by telephone
confirmed in writing) to Company and Agent of such determination (which notice
Agent shall promptly transmit to each other Lender). Thereafter (a) the
obligation of the Affected Lender to make Loans as, or to convert Loans to,
LIBOR Loans shall be suspended until such notice shall be withdrawn by the
Affected Lender, (b) to the extent such determination by the Affected Lender
relates to a LIBOR Loan then being requested by Company pursuant to a Notice of
Borrowing or a Notice of Conversion/Continuation, the Affected Lender shall make
such Loan as (or convert such Loan to, as the case may be) a Base Rate Loan,
(c) the Affected Lender's obligation to maintain its outstanding LIBOR Loans
(the "AFFECTED LOANS") shall be terminated at the earlier to occur of the
expiration of the Interest Period then in effect with respect to the Affected
Loans or when required by law, and (d) the Affected Loans shall automatically
convert into Base Rate Loans on the date of such termination. Notwithstanding
the foregoing, to the extent a determination by an Affected Lender as described
above relates to a LIBOR Loan then being requested by Company pursuant to a
Notice of Borrowing or a Notice of Conversion/Continuation, Company shall have
the option, subject to the provisions of subsection 2.6C, to rescind such Notice
of Borrowing or Notice of Conversion/Continuation as to all Lenders by giving
notice (by telefacsimile or by telephone confirmed in writing) to Agent of such
rescission on the date on which the Affected Lender gives notice of its
determination as described above (which notice of rescission Agent shall
promptly transmit to each other Lender); it being agreed and understood that, in
the event of any such rescission, no amounts shall be payable under subsection
2.6C to such Affected Lender. Except as provided in the immediately preceding
sentence, nothing in this subsection 2.6B shall affect the obligation of any
Lender other than an Affected Lender to make or maintain Loans as, or to convert
Loans to, LIBOR Loans in accordance with the terms of this Agreement.
C. COMPENSATION FOR BREAKAGE OR NON-COMMENCEMENT OF INTEREST PERIODS.
Company shall compensate each Lender, upon written request by that Lender (which
request shall set forth in writing the basis for requesting such amounts), for
all reasonable losses, expenses and liabilities (including, without limitation,
any interest paid by that Lender to lenders of funds borrowed by it to make or
carry its LIBOR Loans and any loss (excluding any anticipated profit associated
with the Pricing Margin), expense or liability sustained by that Lender in
connection with the liquidation or re-employment of such funds) which that
Lender may sustain: (i) if for any reason (other than a default by that Lender)
a borrowing of any LIBOR Loan does not occur on a date specified therefor in a
Notice of Borrowing or a telephonic request for borrowing, or a conversion to or
continuation of any LIBOR Loan does not occur on a date specified therefor in a
Notice of Conversion/Continuation or a telephonic request for
39
<PAGE>
conversion or continuation, (ii) if any prepayment or other principal payment or
any conversion of any of its LIBOR Loans occurs on a date prior to the last day
of an Interest Period applicable to that Loan, (iii) if any prepayment of any of
its LIBOR Loans is not made on any date specified in a notice of prepayment
given by Company, or (iv) as a consequence of any other default by Company in
the repayment of its LIBOR Loans when required by the terms of this Agreement.
D. BOOKING OF LIBOR LOANS. Subject to the provisions of subsection 2.8,
any Lender may make, carry or transfer LIBOR Loans at, to, or for the account of
any of its branch offices or the office of an Affiliate of that Lender.
E. ASSUMPTIONS CONCERNING FUNDING OF LIBOR LOANS. Calculation of all
amounts payable to a Lender under this subsection 2.6 and under subsection 2.7A
shall be made as though that Lender had actually funded each of its relevant
LIBOR Loans through the purchase of a Eurodollar deposit bearing interest at the
rate obtained in accordance with the definition of LIBOR in an amount equal to
the amount of such LIBOR Loan and having a maturity comparable to the relevant
Interest Period and through the transfer of such Eurodollar deposit from an
offshore office of that Lender to a domestic office of that Lender in the United
States of America; PROVIDED, HOWEVER, that each Lender may fund each of its
LIBOR Loans in any manner it sees fit and the foregoing assumptions shall be
utilized only for the purposes of calculating amounts payable under this
subsection 2.6 and under subsection 2.7A.
F. LIBOR LOANS AFTER DEFAULT. After the occurrence of and during the
continuation of a Potential Event of Default or an Event of Default, (i) Company
may not elect to have a Loan be made or maintained as, or converted to, a LIBOR
Loan after the expiration of any Interest Period then in effect for that Loan
and (ii) subject to the provisions of subsection 2.6C, any Notice of Borrowing
or Notice of Conversion/Continuation given by Company with respect to a
requested borrowing or conversion/continuation that has not yet occurred shall
be deemed to be rescinded by Company.
2.7 INCREASED COSTS; TAXES; CAPITAL ADEQUACY.
A. COMPENSATION FOR INCREASED COSTS AND TAXES. Subject to the provisions
of subsection 2.7B, in the event that any Lender shall determine (which
determination shall, absent manifest error, be final and conclusive and binding
upon all parties hereto) that any change in law, treaty or governmental rule,
regulation or order, or any change in the interpretation, administration or
application thereof (including the introduction of any new law, treaty or
governmental rule, regulation or order), or any determination of a court or
governmental authority, in each case that becomes effective after the date
hereof, or compliance by such Lender with any guideline, request or directive
issued or made after the date hereof by any central bank or other governmental
or quasi-governmental authority (whether or not having the force of law):
(i) subjects such Lender (or its applicable lending office) to any
additional Tax (other than any Tax on the overall net income of such
Lender) with respect to this Agreement or any of its obligations hereunder
or any payments to such Lender (or its applicable lending office) of
principal, interest, fees or any other amount payable hereunder;
40
<PAGE>
(ii) imposes, modifies or holds applicable any reserve (including
without limitation any marginal, emergency, supplemental, special or other
reserve), special deposit, compulsory loan, FDIC insurance or similar
requirement against assets held by, or deposits or other liabilities in or
for the account of, or advances or loans by, or other credit extended by,
or any other acquisition of funds by, any office of such Lender (other than
any such reserve or other requirements with respect to LIBOR Loans that are
reflected in the definition of LIBOR); or
(iii) imposes any other condition (other than with respect to a Tax
matter) on or affecting such Lender (or its applicable lending office) or
its obligations hereunder or the London interbank market;
and the result of any of the foregoing is to increase the cost to such Lender of
agreeing to make, making or maintaining Loans hereunder or to reduce any amount
received or receivable by such Lender (or its applicable lending office) with
respect thereto; then, in any such case, Company shall promptly pay to such
Lender, upon receipt of the statement referred to in the next sentence, such
additional amount or amounts (in the form of an increased rate of, or a
different method of calculating, interest or otherwise as such Lender in its
sole discretion shall determine) as may be necessary to compensate such Lender
for any such increased cost or reduction in amounts received or receivable
hereunder. Such Lender shall deliver to Company (with a copy to Agent) a
written statement, setting forth in reasonable detail the basis for calculating
the additional amounts owed to such Lender under this subsection 2.7A, and
specifically showing how (i) such change in law, treaty or governmental rule,
regulation or order, (ii) such change in the interpretation, administration or
application thereof, (iii) such determination of a court or governmental
authority or (iv) such compliance by such Lender with any such guideline,
request or directive, as applicable, increases such costs or results in such
reductions with respect to Loans and Commitments of such Lender hereunder
(without regard to other assets or the quality of such other assets of such
Lender, or any liabilities and reserves of such Lender that do not specifically
relate to the Loans or Commitments of such Lender hereunder), which statement
shall be conclusive and binding upon all parties hereto absent manifest error.
B. WITHHOLDING OF TAXES.
(i) PAYMENTS TO BE FREE AND CLEAR. All sums payable by Company
under this Agreement and the other Loan Documents shall be paid free and
clear of and (except to the extent required by law) without any deduction
or withholding on account of any Tax (other than a Tax on the overall net
income of any Lender) imposed, levied, collected, withheld or assessed by
or within the United States of America or any political subdivision in or
of the United States of America or any other jurisdiction from or to which
a payment is made by or on behalf of Company or by any federation or
organization of which the United States of America or any such jurisdiction
is a member at the time of payment.
(ii) GROSSING-UP OF PAYMENTS. If Company or any other Person is
required by law to make any deduction or withholding on account of any such
Tax from any sum paid or payable by Company to Agent or any Lender under
any of the Loan Documents:
41
<PAGE>
(a) Company shall notify Agent of any such requirement or any
change in any such requirement as soon as Company becomes aware of it;
(b) Company shall pay any such Tax before the date on which
penalties attach thereto, such payment to be made (if the liability to pay
is imposed on Company) for its own account or (if that liability is imposed
on Agent or such Lender, as the case may be) on behalf of and in the name
of Agent or such Lender;
(c) the sum payable by Company in respect of which the relevant
deduction, withholding or payment is required shall be increased to the
extent necessary to ensure that, after the making of that deduction,
withholding or payment, Agent or such Lender, as the case may be, receives
on the due date a net sum equal to what it would have received had no such
deduction, withholding or payment been required or made; and
(d) within 30 days after paying any sum from which it is required
by law to make any deduction or withholding, and within 30 days after the
due date of payment of any Tax which it is required by clause (b) above to
pay, Company shall deliver to Agent evidence satisfactory to the other
affected parties of such deduction, withholding or payment and of the
remittance thereof to the relevant taxing or other authority;
PROVIDED that no such additional amount shall be required to be paid to any
Lender under clause (c) above except to the extent that any change after the
date hereof (in the case of each Lender listed on the signature pages hereof) or
after the date of the Assignment Agreement pursuant to which such Lender became
a Lender (in the case of each other Lender) in any such requirement for a
deduction, withholding or payment as is mentioned in such clause (c) shall
result in an increase in the rate of such deduction, withholding or payment from
that in effect at the date of this Agreement or at the date of such Assignment
Agreement, as the case may be, in respect of payments to such Lender.
(iii) Evidence of Exemption from U.S. Withholding Tax.
(a) Each Lender that is organized under the laws of any
jurisdiction other than the United States or any state or other political
subdivision thereof (for purposes of this subsection 2.7B(iii), a "NON-US
LENDER") shall deliver to Agent for transmission to Company, on or prior to
the Closing Date (in the case of each Lender listed on the signature pages
hereof) or on the date of the Assignment Agreement pursuant to which it
becomes a Lender (in the case of each other Lender), and at such other
times as may be necessary in the determination of Company or Agent (each in
the reasonable exercise of its discretion), two original copies of Internal
Revenue Service Form 1001 or 4224 (or any successor forms), properly
completed and duly executed by such Lender, together with any other
certificate or statement of exemption required under the Internal Revenue
Code or the regulations issued thereunder to establish that such Lender is
not subject to deduction or withholding of United States federal income tax
with respect to any
42
<PAGE>
payments to such Lender of principal, interest, fees or other amounts
payable under any of the Loan Documents.
(b) Each Lender required to deliver any forms, certificates or
other evidence with respect to United States federal income tax withholding
matters pursuant to subsection 2.7B(iii)(a) hereby agrees, from time to
time after the initial delivery by such Lender of such forms, certificates
or other evidence, whenever a lapse in time or change in circumstances
renders such forms, certificates or other evidence obsolete or inaccurate
in any material respect, such Lender shall (1) deliver to Agent for
transmission to Company two new original copies of Internal Revenue Service
Form 1001 or 4224, as the case may be, properly completed and duly executed
by such Lender, together with any other certificate or statement of
exemption required in order to confirm or establish that such Lender is not
subject to deduction or withholding of United States federal income tax
with respect to payments to such Lender under the Loan Documents or
(2) immediately notify Agent and Company of its inability to deliver any
such forms, certificates or other evidence.
(c) Company shall not be required to pay any additional amount to
any Non-US Lender under clause (c) of subsection 2.7B(ii) if such Lender
shall have failed to satisfy the requirements of subsection 2.7B(iii)(a);
PROVIDED that if such Lender shall have satisfied such requirements on the
Closing Date (in the case of each Lender listed on the signature pages
hereof) or on the date of the Assignment Agreement pursuant to which it
became a Lender (in the case of each other Lender), nothing in this
subsection 2.7B(iii)(c) shall relieve Company of its obligation to pay any
additional amounts pursuant to clause (c) of subsection 2.7B(ii) in the
event that, as a result of any change in any applicable law, treaty or
governmental rule, regulation or order, or any change in the
interpretation, administration or application thereof, such Lender is no
longer properly entitled to deliver forms, certificates or other evidence
at a subsequent date establishing the fact that such Lender is not subject
to withholding as described in subsection 2.7B(iii)(a).
C. CAPITAL ADEQUACY ADJUSTMENT. If any Lender shall have determined that
the adoption, effectiveness, phase-in or applicability after the date hereof of
any law, rule or regulation (or any provision thereof) regarding capital
adequacy, or any change therein or in the interpretation or administration
thereof by any governmental authority, central bank or comparable agency charged
with the interpretation or administration thereof, or compliance by any Lender
(or its applicable lending office) with any guideline, request or directive
regarding capital adequacy (whether or not having the force of law) of any such
governmental authority, central bank or comparable agency, has or would have the
effect of reducing the rate of return on the capital of such Lender or any
corporation controlling such Lender as a consequence of, or with reference to,
such Lender's Loans or Commitments or Letters of Credit or participations
therein or other obligations hereunder with respect to the Loans or the Letters
of Credit to a level below that which such Lender or such controlling
corporation could have achieved but for such adoption, effectiveness, phase-in,
applicability, change or compliance (taking into consideration
43
<PAGE>
the policies of such Lender or such controlling corporation with regard to
capital adequacy), then from time to time, within five Business Days after
receipt by Company from such Lender of the statement referred to in the next
sentence, Company shall pay to such Lender such additional amount or amounts as
will compensate such Lender or such controlling corporation on an after-tax
basis for such reduction. Such Lender shall deliver to Company (with a copy to
Agent) a written statement, setting forth in reasonable detail the basis of the
calculation of such additional amounts, which statement shall be conclusive and
binding upon all parties hereto absent manifest error.
2.8 OBLIGATION OF LENDERS AND ISSUING LENDER TO MITIGATE.
Each Lender and Issuing Lender agrees that, as promptly as practicable
after the officer of such Lender or Issuing Lender responsible for administering
the Loans or Letters of Credit of such Lender or Issuing Lender, as the case may
be, becomes aware of the occurrence of an event or the existence of a condition
that would cause such Lender to become an Affected Lender or that would entitle
such Lender or Issuing Lender to receive payments under subsection 2.6, 2.7 or
3.6, it will, to the extent not inconsistent with the internal policies of such
Lender or Issuing Lender and any applicable legal or regulatory restrictions,
use reasonable efforts (i) to make, issue, fund or maintain the Commitments of
such Lender or the affected Loans or Letters of Credit of such Lender or Issuing
Lender through another lending or letter of credit office of such Lender or
Issuing Lender, or (ii) take such other measures as such Lender or Issuing
Lender may deem reasonable, if as a result thereof the circumstances which would
cause such Lender to be an Affected Lender would cease to exist or the
additional amounts which would otherwise be required to be paid to such Lender
or Issuing Lender pursuant to subsection 2.6, 2.7 or 3.6 would be materially
reduced and if, as determined by such Lender or Issuing Lender in its sole
discretion, the making, issuing, funding or maintaining of such Commitments or
Loans or Letters of Credit through such other lending or letter of credit office
or in accordance with such other measures, as the case may be, would not
otherwise materially adversely affect such Commitments or Loans or Letters of
Credit or the interests of such Lender or Issuing Lender; PROVIDED that such
Lender or Issuing Lender will not be obligated to utilize such other lending or
letter of credit office pursuant to this subsection 2.8 unless Company agrees to
pay all incremental expenses incurred by such Lender or Issuing Lender as a
result of utilizing such other lending or letter of credit office as described
in clause (i) above. A certificate as to the amount of any such expenses
payable by Company pursuant to this subsection 2.8 (setting forth in reasonable
detail the basis for requesting such amount) submitted by such Lender or Issuing
Lender to Company (with a copy to Agent) shall be conclusive absent manifest
error.
2.9 REPLACEMENT OF LENDERS.
In the event Company is required under the provisions of subsection
2.6 or 2.7 to make payments to any Lender, or in the event any Lender fails to
fund any Loan in accordance with the provisions of subsection 2.1C, Company may,
within 120 days after the date any notice or demand requiring such payment under
subsection 2.6 or 2.7 is given or such Lender fails to fund such Loan and so
long as no Event of Default shall have occurred and be continuing, elect to
terminate such Lender as a party to this Agreement; PROVIDED that, concurrently
with such termination, (i) Company shall pay that Lender, without duplication,
all principal, interest and fees and other amounts owed to such Lender through
such date of termination, (ii) another
44
<PAGE>
Lender or Eligible Assignee shall agree, as of such date, to become a Lender for
all purposes under this Agreement (whether by assignment or amendment, if
necessary) and to assume all obligations of the Lender to be terminated as of
such date and (iii) all documents and supporting materials necessary, in the
judgment of Agent to evidence the substitution of such Lender shall have been
received and approved by Agent as of such date.
SECTION 3. LETTERS OF CREDIT
3.1 ISSUANCE OF LETTERS OF CREDIT AND LENDERS' PURCHASE OF PARTICIPATIONS
THEREIN.
A. LETTERS OF CREDIT. In addition to Company requesting that Lenders
make Revolving Loans pursuant to subsection 2.1A(i) and that Swing Line Lender
make Swing Line Loans pursuant to subsection 2.1A(ii), Company may request, in
accordance with the provisions of this subsection 3.1, from time to time during
the period from the Closing Date to but excluding the Revolving Loan Commitment
Termination Date, that Issuing Lender issue Letters of Credit for the account of
Company for the purposes specified in the definitions of Standby Letters of
Credit and Commercial Letters of Credit. Subject to the terms and conditions of
this Agreement and in reliance upon the representations and warranties of
Company herein set forth, Issuing Lender shall issue such Letters of Credit in
accordance with the provisions of this subsection 3.1; PROVIDED that Company
shall not request:
(i) any Letter of Credit if, after giving effect to such issuance,
the Total Utilization of Revolving Loan Commitments would exceed the
Revolving Loan Commitments then in effect;
(ii) any Letter of Credit if, after giving effect to such issuance,
the Letter of Credit Usage would exceed $5,000,000;
(iii) any Standby Letter of Credit having an expiration date later
than the earlier of (a) the date which is fifteen (15) days prior to the
Revolving Loan Commitment Termination Date and (b) the date which is one
year from the date of issuance of such Letter of Credit; PROVIDED that the
immediately preceding clause (b) shall not prevent Issuing Lender from
agreeing that a Letter of Credit will automatically be extended for one or
more successive periods not to exceed one year each unless Issuing Lender
elects not to extend for any such additional period; PROVIDED FURTHER that
Issuing Lender shall deliver a written notice to Agent setting forth the
last day on which Issuing Lender may give notice that it will not extend
such Letter of Credit (the "NOTIFICATION DATE" with respect to such Letter
of Credit) at least ten Business Days prior to such Notification Date; and
PROVIDED FURTHER that, unless Requisite Lenders otherwise consent, Issuing
Lender shall give notice that it will not extend such Letter of Credit if
it has knowledge that an Event of Default has occurred and is continuing on
such Notification Date;
(iv) any Commercial Letter of Credit having an expiration date
(a) later than the earlier of (X) the date which is fifteen (15) days prior
to the Revolving Loan Commitment Termination Date and (Y) the date which is
365 days from the date of issuance of such Commercial Letter of Credit or
(b) that is otherwise unacceptable to the applicable Issuing Lender in its
reasonable discretion; or
45
<PAGE>
(v) any Letter of Credit denominated in a currency other than
Dollars.
B. MECHANICS OF ISSUANCE.
(i) NOTICE OF ISSUANCE. Whenever Company desires the issuance of
a Letter of Credit, it shall deliver to Agent and Issuing Lender a Notice
of Issuance of Letter of Credit substantially in the form of EXHIBIT III
annexed hereto together with a duly executed Letter of Credit Agreement no
later than 11:00 a.m. (California time) at least three Business Days, or
such shorter period as may be agreed to by Issuing Lender in any particular
instance, in advance of the proposed date of issuance. The Notice of
Issuance of Letter of Credit shall specify (a) whether such Letter of
Credit is to be a Standby Letter of Credit or a Commercial Letter of
Credit, (b) the proposed date of issuance (which shall be a Business Day),
(c) the face amount of the Letter of Credit, (d) the expiration date of the
Letter of Credit, (e) that the Letter of Credit, upon giving effect to the
issuance thereof, would not cause the Total Utilization of Revolving Loan
Commitments to exceed the Revolving Loan Commitments, (f) the name and
address of the beneficiary, and (g) the verbatim text of the proposed
Letter of Credit or the proposed terms and conditions thereof, including a
precise description of any documents and the verbatim text of any
certificates to be presented by the beneficiary which, if presented by the
beneficiary prior to the expiration date of the Letter of Credit, would
require Issuing Lender to make payment under the Letter of Credit; PROVIDED
that Issuing Lender, in its reasonable discretion, may require changes in
the text of the proposed Letter of Credit or any such documents or
certificates; and PROVIDED FURTHER that no Letter of Credit shall require
payment against a conforming draft to be made thereunder on the same
Business Day that such draft is presented if such presentation is made
after 10:00 a.m. (California time) on such Business Day.
Company shall notify Issuing Lender and Agent prior to the issuance of
any Letter of Credit in the event that any of the matters to which Company
is required to certify in the applicable Notice of Issuance of Letter of
Credit is no longer true and correct as of the proposed date of issuance of
such Letter of Credit, and upon the issuance of any Letter of Credit
Company shall be deemed to have re-certified, as of the date of such
issuance, as to the matters to which Company is required to certify in the
applicable Notice of Issuance of Letter of Credit.
(ii) ISSUANCE OF LETTER OF CREDIT. Upon satisfaction or waiver (in
accordance with subsection 10.6) of the conditions set forth in subsection
4.3, Issuing Lender shall issue the requested Letter of Credit in
accordance with Issuing Lender's standard operating procedures.
(iii) NOTIFICATION TO LENDERS. Upon the issuance of any Letter of
Credit, Issuing Lender shall notify Agent and Agent shall notify each other
Lender of such issuance, which notice shall be accompanied by a copy of
such Letter of Credit. Promptly after receipt of such notice, Agent shall
notify each Lender of the amount of such Lender's respective participation
in such Letter of Credit, determined in accordance with subsection 3.1C.
46
<PAGE>
(iv) REPORTS TO LENDERS. Within 15 days after the end of each
Quarterly Payment Date after the Closing Date, so long as any Letter of
Credit shall have been outstanding during such calendar quarter, Agent
shall deliver to each other Lender a report setting forth the average for
such calendar quarter of the daily maximum amount available to be drawn
under the Letters of Credit that were outstanding during such calendar
quarter.
C. LENDERS' PURCHASE OF PARTICIPATIONS IN LETTERS OF CREDIT. Immediately
upon the issuance of each Letter of Credit, each Lender shall be deemed to, and
hereby agrees to, have irrevocably purchased from Issuing Lender a participation
in such Letter of Credit and drawings thereunder in an amount equal to such
Lender's Pro Rata Share of the maximum amount which is or at any time may become
available to be drawn thereunder.
D. EXISTING LETTERS OF CREDIT. On the Closing Date, each Letter of
Credit issued and outstanding under the Existing Credit Agreement in accordance
with its terms shall be deemed for all purposes, including for purposes of the
fees to be collected pursuant to subsection 3.2, and reimbursement of costs and
expenses to the extent provided herein, to be issued and outstanding hereunder,
and each Lender shall be deemed to have a risk participation therein pursuant to
the terms of this Section. Each such letter of Credit is detailed on Schedule
3.1.
3.2 LETTER OF CREDIT FEES.
Company agrees to pay the following amounts to Issuing Lender:
(i) with respect to each Standby Letter of Credit, (a) a fronting
fee equal to the greater of .25% per annum on the stated amount of such
Letter of Credit or $100 and (b) a letter of credit fee equal to the
Pricing Margin, per annum on the daily maximum amount available to be drawn
under such Letter of Credit, in each case payable in arrears on and to (but
excluding) each Quarterly Payment Date and computed on the basis of a
360-day year for the actual number of days elapsed;
(ii) with respect to each Commercial Letter of Credit, the Issuing
Lender's standard and customary fees and commissions, as set forth in its
schedule of customer fees as in effect from time to time, payable at the
times and calculated in the manner required by the Issuing Lender; and
(iii) with respect to the amendment or transfer of each Letter of
Credit and each drawing made thereunder (without duplication of the fees
payable under clauses (i) and (ii) above), documentary and processing
charges in accordance with Issuing Lender's standard schedule for such
charges in effect at the time of such issuance, amendment, transfer or
drawing, as the case may be.
Promptly upon receipt by Issuing Lender of any amount described in clause (i)(b)
of this subsection 3.2, Agent shall distribute to each other Lender its Pro Rata
Share of such amount.
47
<PAGE>
3.3 DRAWINGS AND REIMBURSEMENT OF AMOUNTS DRAWN UNDER LETTERS OF CREDIT.
A. RESPONSIBILITY OF ISSUING LENDER WITH RESPECT TO DRAWINGS. In
determining whether to honor any drawing under any Letter of Credit by the
beneficiary thereof, Issuing Lender shall be responsible only to use reasonable
care to determine that the documents and certificates required to be delivered
under such Letter of Credit have been delivered and that they comply on their
face with the requirements of such Letter of Credit.
B. REIMBURSEMENT BY COMPANY OF AMOUNTS DRAWN UNDER LETTERS OF CREDIT. In
the event Issuing Lender has determined to honor a drawing under a Letter of
Credit, Issuing Lender shall immediately notify Company and Agent, and Company
shall reimburse Issuing Lender on or before the Business Day immediately
following the date on which such drawing is honored (the "REIMBURSEMENT DATE")
in an amount in Dollars and in same day funds equal to the amount of such
drawing; PROVIDED that, anything contained in this Agreement to the contrary
notwithstanding, (i) unless Company shall have notified Agent and Issuing Lender
prior to 10:00 a.m. (California time) on the date of such drawing that Company
intends to reimburse Issuing Lender for the amount of such drawing with funds
other than the proceeds of Revolving Loans, Company shall be deemed to have
given a timely Notice of Borrowing to Agent requesting Lenders to make Revolving
Loans that are Base Rate Loans on the Reimbursement Date in an amount in Dollars
equal to the amount of such drawing and (ii) subject only to satisfaction or
waiver of the conditions specified in subsection 4.2B, Lenders shall, on the
Reimbursement Date, make Revolving Loans that are Base Rate Loans in the amount
of such drawing, the proceeds of which shall be applied directly by Agent to
reimburse Issuing Lender for the amount of such drawing; and PROVIDED FURTHER
that if for any reason proceeds of Revolving Loans are not received by Issuing
Lender on the Reimbursement Date in an amount equal to the amount of such
drawing, Company shall reimburse such Issuing Lender, on demand, in an amount in
same day funds equal to the excess of the amount of such drawing over the
aggregate amount of such Revolving Loans, if any, which are so received.
Nothing in this subsection 3.3B shall be deemed to relieve any Lender from its
obligation to make Revolving Loans on the terms and conditions set forth in this
Agreement, and Company shall retain any and all rights it may have against any
Lender resulting from the failure of such Lender to make such Revolving Loans
under this subsection 3.3B.
C. PAYMENT BY LENDERS OF UNREIMBURSED DRAWINGS UNDER LETTERS OF CREDIT.
(i) PAYMENT BY LENDERS. In the event that Company shall fail for
any reason to reimburse Issuing Lender as provided in subsection 3.3B in an
amount equal to the amount of any drawing honored by Issuing Lender under a
Letter of Credit, Agent shall promptly notify each other Lender of the
unreimbursed amount of such drawing and of such other Lender's respective
participation therein based on such Lender's Pro Rata Share. Each Lender
shall make available to Issuing Lender an amount equal to its respective
participation, in Dollars and in same day funds, at the Funding and Payment
Office, not later than 10:00 a.m. (California time) on the first Business
Day after the date notified by Agent. In the event that any Lender fails
to make available to Issuing Lender on such business day the amount of such
Lender's participation in such Letter of Credit as provided in this
subsection 3.3C, provided that the Issuing Lender shall have timely
notified such Lender of such unreimbursed amount of such drawing, Issuing
Lender shall
48
<PAGE>
be entitled to recover such amount on demand from Lender together with
interest thereon at the Base Rate. Nothing in this subsection 3.3C shall
be deemed to prejudice the right of any Lender to recover from Issuing
Lender any amounts made available by such Lender to Issuing Lender pursuant
to this subsection 3.3C in the event that it is determined by the final
judgment of a court of competent jurisdiction that the payment with respect
to a Letter of Credit by Issuing Lender in respect of which payment was
made by such Lender constituted gross negligence or willful misconduct on
the part of Issuing Lender.
(ii) DISTRIBUTION TO LENDERS OF REIMBURSEMENTS RECEIVED FROM
COMPANY. In the event Issuing Lender shall have been reimbursed by other
Lenders pursuant to subsection 3.3C(i) for all or any portion of any
drawing honored by Issuing Lender under a Letter of Credit, Agent shall
distribute to each other Lender which has paid all amounts payable by it
under subsection 3.3C(i) with respect to such drawing such other Lender's
Pro Rata Share of all payments subsequently received by Issuing Lender from
Company in reimbursement of such drawing when such payments are received.
Any such distribution shall be made to a Lender at its primary address set
forth below its name on the appropriate signature page hereof or at such
other address as such Lender may request.
D. INTEREST ON AMOUNTS DRAWN UNDER LETTERS OF CREDIT.
(i) PAYMENT OF INTEREST BY COMPANY. Company agrees to pay to
Issuing Lender, with respect to drawings made under any Letters of Credit,
interest on the amount paid by Issuing Lender in respect of each such
drawing from the date of such drawing to but excluding the date such amount
is reimbursed by Company (including any such reimbursement out of the
proceeds of Revolving Loans pursuant to subsection 3.3B) at a rate equal to
(a) for the period from the date of such drawing to but excluding the
Reimbursement Date, the rate then in effect under this Agreement with
respect to Base Rate Loans and (b) thereafter, a rate which is 2% per annum
in excess of the rate of interest otherwise payable under this Agreement
with respect to Base Rate Loans. Interest payable pursuant to this
subsection 3.3D(i) shall be computed on the basis of a 360-day year for the
actual number of days elapsed in the period during which it accrues and
shall be payable on demand or, if no demand is made, on the date on which
the related drawing under a Letter of Credit is reimbursed in full.
(ii) DISTRIBUTION OF INTEREST PAYMENTS BY ISSUING LENDER. Promptly
upon receipt by Issuing Lender of any payment of interest pursuant to
subsection 3.3D(i) with respect to a drawing under a Letter of Credit,
(a) such Issuing Lender shall distribute to each other Lender, out of the
interest received by Agent in respect of the period from the date of such
drawing to but excluding the date on which Issuing Lender is reimbursed for
the amount of such drawing (including any such reimbursement out of the
proceeds of Revolving Loans pursuant to subsection 3.3B), the amount that
such other Lender would have been entitled to receive in respect of the
letter of credit fee that would have been payable in respect of such Letter
of Credit for such period pursuant to subsection 3.2 if no drawing had been
made under such Letter of Credit, and (b) in the event Issuing Lender shall
have been reimbursed by other Lenders pursuant to subsection 3.3C(i) for
all or any
49
<PAGE>
portion of such drawing, Issuing Lender shall distribute to each other
Lender which has paid all amounts payable by it under subsection 3.3C(i)
with respect to such drawing such other Lender's Pro Rata Share of any
interest received by Issuing Lender in respect of that portion of such
drawing so reimbursed by other Lenders for the period from the date on
which Issuing Lender was so reimbursed by other Lenders to and including
the date on which such portion of such drawing is reimbursed by Company.
Any such distribution shall be made to a Lender at its primary address set
forth below its name on the appropriate signature page hereof or at such
other address as such Lender may request.
3.4 OBLIGATIONS ABSOLUTE.
The obligation of Company to reimburse Issuing Lender for drawings
made under the Letters of Credit and to repay any Revolving Loans made by
Lenders pursuant to subsection 3.3B and the obligations of Lenders under
subsection 3.3C(i) shall be unconditional and irrevocable and shall be paid
strictly in accordance with the terms of this Agreement under all circumstances
including, without limitation, the following circumstances:
(i) any lack of validity or enforceability of any Letter of
Credit;
(ii) the existence of any claim, set-off, defense or other right
which Company or any Lender may have at any time against a beneficiary or
any transferee of any Letter of Credit (or any Persons for whom any such
transferee may be acting), Issuing Lender or other Lender or any other
Person or, in the case of a Lender, against Company, whether in connection
with this Agreement, the transactions contemplated herein or any unrelated
transaction (including any underlying transaction between Company or one of
its Subsidiaries and the beneficiary for which any Letter of Credit was
procured);
(iii) 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;
(iv) payment by Issuing Lender under any Letter of Credit against
presentation of a demand, draft or certificate or other document which does
not comply with the terms of such Letter of Credit;
(v) any adverse change in the business, operations, properties,
assets, condition (financial or otherwise) or prospects of Company or any
of its Subsidiaries;
(vi) any breach of this Agreement or any other Loan Document by any
party thereto;
(vii) any other circumstance or happening whatsoever, whether or not
similar to any of the foregoing; or
(viii) the fact that an Event of Default or a Potential Event of
Default shall have occurred and be continuing;
50
<PAGE>
PROVIDED, in each case, that payment by Issuing Lender under the applicable
Letter of Credit shall not have constituted gross negligence or willful
misconduct of Issuing Lender under the circumstances in question (as determined
by a final judgment of a court of competent jurisdiction).
3.5 INDEMNIFICATION; NATURE OF ISSUING LENDER'S DUTIES.
A. INDEMNIFICATION. In addition to amounts payable as provided in
subsection 3.6, Company hereby agrees to protect, indemnify, pay and save
harmless Issuing Lender from and against any and all claims, demands,
liabilities, damages, losses, costs, charges and expenses (including reasonable
fees, expenses and disbursements of counsel and allocated costs of internal
counsel) which Issuing Lender may incur or be subject to as a consequence,
direct or indirect, of (i) the issuance of any Letter of Credit by Issuing
Lender, other than as a result of (a) the gross negligence or willful misconduct
of Issuing Lender as determined by a final judgment of a court of competent
jurisdiction or (b) subject to the following clause (ii), the wrongful dishonor
by Issuing Lender of a proper demand for payment made under any Letter of Credit
or (ii) the failure of Issuing Lender to honor a drawing under any such Letter
of Credit as a result of any act or omission, whether rightful or wrongful, of
any present or future de jure or de facto government or governmental authority
(all such acts or omissions herein called "GOVERNMENTAL ACTS") other than as a
result of the gross negligence or willful misconduct of Issuing Lender, as
determined by a court of competent jurisdiction.
B. NATURE OF ISSUING LENDER'S DUTIES. As between Company and Issuing
Lender, Company assumes all risks of the acts and omissions of, or misuse of the
Letters of Credit issued by Issuing Lender by, the respective beneficiaries of
such Letters of Credit. In furtherance and not in limitation of the foregoing,
Issuing Lender shall not be responsible for: (i) the validity, sufficiency,
accuracy, genuineness or legal effect of any document submitted by any party in
connection with the application for and issuance of any such Letter of Credit,
even if it should in fact prove to be in any or all respects invalid,
insufficient, inaccurate, fraudulent or forged; (ii) the validity or sufficiency
of any instrument transferring or assigning or purporting to transfer or assign
any such 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; (iii) failure of the beneficiary of any such Letter of Credit to
comply fully with any conditions required in order to draw upon such Letter of
Credit; (iv) errors, omissions, interruptions or delays in transmission or
delivery of any messages, by mail, cable, telegraph, telex or otherwise, whether
or not they be in cipher; (v) errors in interpretation of technical terms;
(vi) any loss or delay in the transmission or otherwise of any document required
in order to make a drawing under any such Letter of Credit or of the proceeds
thereof; (vii) the misapplication by the beneficiary of any such Letter of
Credit of the proceeds of any drawing under such Letter of Credit; or (viii) any
consequences arising from causes beyond the control of Issuing Lender, including
without limitation any Governmental Acts, and none of the above shall affect or
impair, or prevent the vesting of, any of Issuing Lender's rights or powers
hereunder.
In furtherance and extension and not in limitation of the specific
provisions set forth in the first paragraph of this subsection 3.5B, any action
taken or omitted by Issuing Lender under or in connection with the Letters of
Credit or any documents and certificates delivered
51
<PAGE>
thereunder, if taken or omitted in good faith and without gross negligence,
shall not put Issuing Lender under any resulting liability to Company.
Notwithstanding anything to the contrary contained in this subsection
3.5, Company shall retain any and all rights it may have against Issuing Lender
for any liability arising solely out of the gross negligence or willful
misconduct of Issuing Lender, as determined by a court of competent
jurisdiction.
3.6 INCREASED COSTS AND TAXES RELATING TO LETTERS OF CREDIT.
In the event that Issuing Lender or any Lender shall determine (which
determination shall, absent manifest error, be final and conclusive and binding
upon all parties hereto) that any change in law, treaty or governmental rule,
regulation or order, or any change in the interpretation, administration or
application thereof (including the introduction of any new law, treaty or
governmental rule, regulation or order), or any determination of a court or
governmental authority, in each case that becomes effective after the date
hereof, or compliance by Issuing Lender or such Lender with any guideline,
request or directive issued or made after the date hereof by any central bank or
other governmental or quasi-governmental authority (whether or not having the
force of law):
(i) subjects Issuing Lender or such Lender (or its applicable
lending or letter of credit office) to any additional Tax (other than any
Tax on the overall net income of Issuing Lender or such Lender) with
respect to the issuing or maintaining of any Letters of Credit or the
purchasing or maintaining of any participations therein or any other
obligations under this Section 3, whether directly or by such being imposed
on or suffered by Issuing Lender;
(ii) imposes, modifies or holds applicable any reserve (including
without limitation any marginal, emergency, supplemental, special or other
reserve), special deposit, compulsory loan, FDIC insurance or similar
requirement in respect of any Letters of Credit issued by Issuing Lender or
participations therein purchased by such Lender; or
(iii) imposes any other condition (other than with respect to a Tax
matter) on or affecting Issuing Lender or such Lender (or its applicable
lending or letter of credit office) regarding this Section 3 or any Letter
of Credit or any participation therein;
and the result of any of the foregoing is to increase the cost to Issuing Lender
or such Lender of agreeing to issue, issuing or maintaining any Letter of Credit
or agreeing to purchase, purchasing or maintaining any participation therein or
to reduce any amount received or receivable by Issuing Lender or such Lender (or
its applicable lending or letter of credit office) with respect thereto; then,
in any case, Company shall promptly pay to Issuing Lender or such Lender, upon
receipt of the statement referred to in the next sentence, such additional
amount or amounts as may be necessary to compensate Issuing Lender or such
Lender for any such increased cost or reduction in amounts received or
receivable hereunder. Issuing Lender or such Lender shall deliver to Company a
written statement, setting forth in reasonable detail the basis for calculating
the additional amounts owed to Issuing Lender or such Lender under this
subsection 3.6 and showing how (i) such change in law, treaty or governmental
rule, regulation or order, (ii) such
52
<PAGE>
change in the interpretation, administration or application thereof, (iii) such
determination of a court or governmental authority or (iv) such compliance by
such Lender with any such guideline, request or directive, as applicable,
increases such costs or results in such reductions with respect to the Letters
of Credit or participations therein of such Lender hereunder (without regard to
other assets or the quality of such other assets of such Lender, or any
liabilities and reserves of such Lender that do not specifically relate to the
Letters of Credit or participations therein of such Lender hereunder), which
statement shall be conclusive and binding upon all parties hereto absent
manifest error.
3.7 LETTER OF CREDIT AGREEMENT.
As between Company and Issuing Lender, the provisions of subsections 3.4,
3.5 and 3.6 shall be deemed supplemental to the provisions of any applicable
Letter of Credit Agreement and the provisions of this Agreement shall not be
construed to limit any rights that Issuing Lender may have under any Letter of
Credit Agreement; PROVIDED, HOWEVER, that in the event the provisions of any
Letter of Credit Agreement conflict with the provisions of subsections 3.1, 3.2
or 3.3 of this Agreement, the provisions of this Agreement shall be controlling
and the contrary provisions of the Letter of Credit Agreement shall be
disregarded; PROVIDED FURTHER that the provisions of subsection 3.5 shall be
limited so as to merely supplement, not to duplicate, any indemnification that
may be available to Issuing Lender under any applicable Letter of Credit
Agreement.
SECTION 4. CONDITIONS TO LOANS AND LETTERS OF CREDIT
The obligations of Lenders to make Loans and the issuance of Letters
of Credit hereunder are subject to the satisfaction of the following conditions.
4.1 CONDITIONS TO REVOLVING LOANS AND SWING LINE LOANS.
The obligations of Lenders to make any Revolving Loans and Swing Line
Loans are, in addition to the conditions precedent specified in subsection 4.2,
subject to prior or concurrent satisfaction of the following conditions:
A. COMPANY DOCUMENTS. On or before the Closing Date, Company shall
deliver or cause to be delivered to Lenders (or to Agent for Lenders with
sufficient originally executed copies, where appropriate, for each Lender) the
following, each, unless otherwise noted, dated the Closing Date:
(i) Certified copies of its Articles of Incorporation, together
with a good standing certificate from the Secretary of State of the State
of Washington and each other state in which it is qualified as a foreign
corporation to do business and, to the extent generally available, a
certificate or other evidence of good standing as to payment of any
applicable franchise or similar taxes from the appropriate taxing authority
of each of such states, each dated a recent date prior to the Closing Date;
(ii) Copies of its Bylaws, certified as of the Closing Date by its
corporate secretary or an assistant secretary;
53
<PAGE>
(iii) Resolutions of its Board of Directors approving and authorizing
the execution, delivery and performance of this Agreement, the Notes, the
Collateral Documents and any other Loan Documents to which it is a party,
certified as of the Closing Date by its corporate secretary or an assistant
secretary as being in full force and effect without modification or
amendment;
(iv) Signature and incumbency certificates of its officers executing
this Agreement, the Notes, the Collateral Documents, and the other Loan
Documents to which it is a party;
(v) Executed originals of this Agreement, the Notes (duly executed
in accordance with subsection 2.1, drawn to the order of each Lender and
with appropriate insertions), the Collateral Documents, and the other Loan
Documents, in each case, to which it is a party; and
(vi) Such other documents as Agent or any Lender may reasonably
request.
B. OPINIONS OF COMPANY'S COUNSEL. Lenders and their respective counsel
shall have received (i) originally executed copies of one or more favorable
written opinions of Skadden, Arps, Slate, Meagher & Flom, LLP, counsel for
Company, and Preston, Gates, & Ellis, special Washington counsel for Company, in
each case in form and substance reasonably satisfactory to Agent and its
counsel, dated as of the Closing Date and setting forth substantially the
matters in the opinions designated in Exhibit VII annexed hereto and as to such
other matters as Agent acting on behalf of Lenders may reasonably request; and
(ii) evidence satisfactory to Agent that Company has requested such counsel to
deliver such opinions to Lenders.
C. FEES. Company shall have paid to Agent, for distribution (as
appropriate) to Agent and Lenders, the fees payable on the Closing Date referred
to in subsections 2.3, 3.2 and 10.2.
D. NO MATERIAL ADVERSE EFFECT. Since December 31, 1997, no Material
Adverse Effect (in the sole opinion of each Lender) shall have occurred.
E. REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF AGREEMENTS. Company
shall have delivered to Agent an Officers' Certificate, in form and substance
satisfactory to Agent, to the effect that the representations and warranties in
Section 5 hereof are true, correct and complete in all material respects on and
as of the Closing Date to the same extent as though made on and as of that date
(except to the extent such representations and warranties specifically relate to
an earlier date, in which case such representations and warranties shall have
been true, correct and complete in all material respects as of such earlier
date) and that Company shall have performed in all material respects all
agreements and satisfied all conditions which this Agreement provides shall be
performed or satisfied by it on or before the Closing Date except as otherwise
disclosed to and agreed to in writing by Agent and Requisite Lenders.
F. REPAYMENT OF THE EXISTING LOANS. On the Closing Date: (a) Company
shall have repaid in full with the proceeds of Loans made hereunder (i) the
outstanding principal amount of all Loans outstanding under the Existing Credit
Agreement and (ii) all accrued and
54
<PAGE>
unpaid interest, commitment fees and other amounts payable under the Existing
Credit Agreement as of the Closing Date, and (b) all Existing Commitments under
the Existing Credit Agreement shall have terminated.
G. COMPLETION OF PROCEEDINGS. All corporate and other proceedings taken
or to be taken in connection with the transactions contemplated hereby and all
documents incidental thereto not previously found acceptable by Agent, acting on
behalf of Lenders, and its counsel shall be satisfactory in form and substance
to Agent and such counsel, and Agent and such counsel shall have received all
such counterpart originals or certified copies of such documents as Agent may
reasonably request.
4.2 CONDITIONS TO ALL LOANS.
The obligations of Lenders to make Loans on each Funding Date are
subject to the following further conditions precedent:
A. Agent shall have received before that Funding Date, in accordance with
the provisions of subsection 2.1B, an originally executed Notice of Borrowing,
in each case signed by the chief executive officer, the chief financial officer,
the treasurer or the controller of Company, or by any executive officer of
Company designated by any of the above-described officers (with a signature
specimen of any such designee), on behalf of Company in a writing delivered to
Agent.
B. As of that Funding Date:
(i) The representations and warranties contained herein and in the
other Loan Documents shall be true, correct and complete in all material
respects on and as of that Funding Date to the same extent as though made
on and as of that date, except to the extent such representations and
warranties specifically relate to an earlier date, in which case such
representations and warranties shall have been true, correct and complete
in all material respects on and as of such earlier date;
(ii) No event shall have occurred and be continuing or would result
from the consummation of the borrowing contemplated by such Notice of
Borrowing that would constitute an Event of Default or a Potential Event of
Default;
(iii) No order, judgment or decree of any court, arbitrator or
governmental authority shall enjoin or restrain any Lender from making the
Loans to be made by it on that Funding Date; and
(iv) The making of the Loans requested on such Funding Date shall
not violate any law including, without limitation, Regulation T,
Regulation U or Regulation X of the Board of Governors of the Federal
Reserve System.
4.3 CONDITIONS TO LETTERS OF CREDIT.
The issuance of any Letter of Credit hereunder (whether or not the
Issuing Lender is obligated to issue such Letter of Credit) is subject to the
following conditions precedent:
55
<PAGE>
A. On or before the date of issuance of the initial Letter of Credit
pursuant to this Agreement, the initial Loans shall have been made.
B. On or before the date of issuance of such Letter of Credit, Issuing
Lender and Agent shall have received, in accordance with the provisions of
subsection 3.1B(i), an originally executed Notice of Issuance of Letter of
Credit and Letter of Credit Agreement, in each case signed by the chief
executive officer, the chief financial officer, the controller or the treasurer
of , or by any executive officer of Company designated by any of the
above-described (with a signature specimen of any such designee), on behalf of
Company in a writing delivered to Agent, together with all other information
specified in subsection 3.1B(i) and such other documents or information as
Issuing Lender may reasonably require in connection with the issuance of such
Letter of Credit.
C. On the date of issuance of such Letter of Credit, all conditions
precedent described in subsection 4.2B shall be satisfied to the same extent as
if the issuance of such Letter of Credit were the making of a Loan and the date
of issuance of such Letter of Credit were a Funding Date.
SECTION 5. COMPANY'S REPRESENTATIONS AND WARRANTIES
In order to induce Lenders to enter into this Agreement and to make
the Loans, to induce Issuing Lender to issue Letters of Credit and to induce
other Lenders to purchase participations therein, Company represents and
warrants to each Lender, on the date of this Agreement, on each Funding Date and
on the date of issuance of each Letter of Credit, that the following statements
are true, correct and complete:
5.1 ORGANIZATION, POWERS, QUALIFICATION, GOOD STANDING, BUSINESS AND
SUBSIDIARIES.
A. ORGANIZATION AND POWERS. Each Loan Party is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation. Company has all requisite corporate power and
authority to own and operate its properties, to carry on its business as now
conducted and as proposed to be conducted, to enter into the Loan Documents and
to carry out the transactions contemplated thereby.
B. QUALIFICATION AND GOOD STANDING. Company is qualified to do business
and in good standing in every jurisdiction where its assets are located and
wherever necessary to carry out its business and operations, except in
jurisdictions where the failure to be so qualified or in good standing has not
had and will not have a Material Adverse Effect.
C. CONDUCT OF BUSINESS. Company and its Subsidiaries are engaged only in
the businesses permitted to be engaged in pursuant to subsection 7.10.
D. SUBSIDIARIES. All of the Subsidiaries of Company are identified in
SCHEDULE 5.1 annexed hereto, as supplemented from time to time subject to the
provisions of subsection 6.8. The capital stock of each of the Subsidiaries of
Company identified in SCHEDULE 5.1 annexed hereto (as so supplemented) is duly
authorized, validly issued, fully paid and nonassessable and none of such
capital stock constitutes Margin Stock. Each of the Subsidiaries of Company
56
<PAGE>
identified in SCHEDULE 5.1 annexed hereto (as so supplemented) is a partnership,
corporation or limited liability company, duly formed, incorporated or
organized, validly existing and in good standing under the laws of its
respective jurisdiction of incorporation or formation set forth therein, has all
requisite partnership, corporate or company power and authority to own and
operate its properties and to carry on its business as now conducted and as
proposed to be conducted, and is qualified to do business and in good standing
in every jurisdiction where its assets are located and wherever necessary to
carry out its business and operations, in each case except where failure to be
so qualified or in good standing or a lack of such corporate power and authority
has not had and will not have a Material Adverse Effect. SCHEDULE 5.1 annexed
hereto (as so supplemented) correctly sets forth the ownership interest of
Company and each of its Subsidiaries in each of the Subsidiaries of Company
identified therein.
E. MATERIAL SUBSIDIARIES. As of the Closing Date, no Domestic Subsidiary
is a Material Subsidiary and Oakley Europe is the only Foreign Subsidiary that
is a Material Subsidiary.
5.2 AUTHORIZATION OF BORROWING, ETC.
A. AUTHORIZATION OF BORROWING. The execution, delivery and performance
of the Loan Documents to which it is a party have been duly authorized by all
necessary corporate action on the part of Company.
B. NO CONFLICT. The execution, delivery and performance by each of
Company and its Subsidiaries of the Loan Documents to which it is a party and
the consummation of the transactions contemplated by the Loan Documents do not
and will not (i) violate the Certificate or Articles of Incorporation or Bylaws
of Company or any of its Subsidiaries, (ii) constitute a violation of any
provision of any law or any governmental rule or regulation applicable to
Company or any its Subsidiaries or any order, judgment or decree of any court or
other agency of government binding on Company or any of its Subsidiaries, which
violation could reasonably be expected to have a Material Adverse Effect,
(iii) conflict with, result in a breach of or constitute (with due notice or
lapse of time or both) a default under any Contractual Obligation of Company or
any of its Subsidiaries in a manner that could reasonably be expected to have a
Material Adverse Effect, (iv) result in or require the creation or imposition of
any Lien upon any of the properties or assets of Company or any of its
Subsidiaries (other than any Liens created under any of the Loan Documents in
favor of Agent on behalf of Lenders), or (iv) require any approval of
stockholders or any approval or consent of any Person under any Contractual
Obligation of Company or any of its Subsidiaries, except for such approvals or
consents which will be obtained on or before the Closing Date and disclosed in
writing to Lenders.
C. GOVERNMENTAL CONSENTS. The execution, delivery and performance by
Loan Parties of the Loan Documents to which it is a party and the consummation
of the transactions contemplated by the Loan Documents do not and will not
require any registration with, consent or approval of, or notice to, or other
action to, with or by, any federal, state or other governmental authority or
regulatory body in the United States.
D. BINDING OBLIGATION. Each of the Loan Documents to which any Loan
Party is a party has been duly executed and delivered by each Loan Party thereto
and is the legally valid
57
<PAGE>
and binding obligation of such Loan Party, enforceable against such Loan Party
in accordance with its respective terms, except as may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws relating to or limiting
creditors' rights generally or by equitable principles relating to
enforceability.
5.3 FINANCIAL CONDITION.
Company has heretofore delivered to Lenders, at Lenders' request, the
following financial statements and information: (i) the audited consolidated
balance sheet of Company and its Subsidiaries, as at December 31, 1997 and the
related consolidated statements of income, stockholders' equity and cash flows
of Company and its Subsidiaries for the Fiscal Year then ended and (ii) the
unaudited consolidated balance sheet of Company and its Subsidiaries as at
March 31, 1998 and the related unaudited consolidated statement of income and
cash flows of Company and its Subsidiaries for the three months then ended. All
such statements were prepared in conformity with GAAP and fairly present the
consolidated financial position of the entities described in such financial
statements as at the respective dates thereof and the consolidated results of
operations and cash flows of the entities described therein for each of the
periods then ended, subject, in the case of any such unaudited financial
statements, to changes resulting from audit and normal year-end adjustments.
Company and its Subsidiaries do not have any Contingent Obligation, contingent
liability or liability for taxes, long-term lease or unusual forward or
long-term commitment (other than any Contingent Obligation permitted under
subsection 7.4) that is not reflected in the foregoing financial statements or
the notes thereto and which in any such case is material in relation to the
business, operations, properties, assets, condition (financial or otherwise) or
prospects of Company and its Subsidiaries taken as a whole, as the case may be,
other than as permitted by this Agreement, it being agreed that an adverse
change in general economic conditions shall not constitute an adverse change in
the prospects of Company and its Subsidiaries taken as a whole.
5.4 NO MATERIAL ADVERSE CHANGE.
Since December 31, 1997, no event or change has occurred that has
caused or evidences, either in any case or in the aggregate, a Material Adverse
Effect.
5.5 TITLE TO PROPERTIES; LIENS.
Company and its Subsidiaries have (i) good, sufficient and legal title
to (in the case of fee interests in real property), (ii) valid leasehold
interests in (in the case of leasehold interests in real or personal property),
or (iii) good title to (in the case of all other personal property), all of
their respective properties and assets reflected in the financial statements
referred to in subsection 5.3 or in the most recent financial statements
delivered pursuant to subsection 6.1, in each case except for assets disposed of
since the date of such financial statements in the ordinary course of business
or as otherwise permitted under subsection 7.6. Except as permitted by this
Agreement, all such properties and assets are free and clear of Liens.
58
<PAGE>
5.6 LITIGATION; ADVERSE FACTS.
There are no actions, suits, proceedings, arbitrations or governmental
investigations (whether or not purportedly on behalf of Company or any of its
Subsidiaries) at law or in equity or before or by any federal, state, municipal
or other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, pending or, to the knowledge of Company,
threatened against or affecting Company or any or its Subsidiaries or any
property of Company or any of its Subsidiaries that, individually or in the
aggregate, could reasonably be expected to result in a Material Adverse Effect.
None of Company or any of its Subsidiaries is (i) in violation of any applicable
laws that, individually or in the aggregate, could reasonably be expected to
result in a Material Adverse Effect or (ii) subject to or in default with
respect to any final judgments, writs, injunctions, decrees, rules or
regulations of any court or any federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, that, individually or in the aggregate, could reasonably be expected to
result in a Material Adverse Effect.
5.7 PAYMENT OF TAXES.
Except to the extent permitted by subsection 6.3, all material tax
returns and reports of Company and its Subsidiaries required to be filed by any
of them have been timely filed, and all material taxes, assessments, fees and
other governmental charges upon Company and its Subsidiaries and upon their
respective properties, assets, income, businesses and franchises which are due
and payable have been paid when due and payable. Company knows of no proposed
tax assessment against Company or any of its Subsidiaries that is not being
actively contested by Company or such Subsidiary, as the case may be, in good
faith and by appropriate proceedings; PROVIDED that such reserves or other
appropriate provisions, if any, as shall be required in conformity with GAAP
shall have been made or provided therefor.
5.8 PERFORMANCE OF AGREEMENTS; MATERIALLY ADVERSE AGREEMENTS.
A. None of Company or any of its Subsidiaries is in default in the
performance, observance or fulfillment of any of the obligations, covenants or
conditions contained in any of its Contractual Obligations which default could
reasonably be expected to have a Material Adverse Effect, and no condition
exists that, with the giving of notice or the lapse of time or both, would
constitute such a default, except where the consequences, direct or indirect, of
such default or defaults, if any, would not have a Material Adverse Effect.
B. None of Company or any of its Subsidiaries is a party to or is
otherwise subject to any agreements or instruments or any charter or other
internal restrictions which, individually or in the aggregate, could reasonably
be expected to result in a Material Adverse Effect.
5.9 GOVERNMENTAL REGULATION.
Neither Company nor any of its Subsidiaries is subject to regulation
under the Public Utility Holding Company Act of 1935, the Federal Power Act, the
Interstate Commerce Act or the Investment Company Act of 1940 or under any other
federal or state statute or
59
<PAGE>
regulation which may limit its ability to incur Indebtedness or which may
otherwise render all or any portion of the Obligations unenforceable.
5.10 SECURITIES ACTIVITIES.
A. None of Company or any of its Subsidiaries is engaged principally, or
as one of its important activities, in the business of extending credit for the
purpose of purchasing or carrying any Margin Stock.
B. Following application of the proceeds of each Loan, not more than 25%
of the value of the assets (either of Company only or of Company and its
Subsidiaries on a consolidated basis) subject to the provisions of subsection
7.2 or 7.6 or subject to any restriction contained in any agreement or
instrument, between Company and any Lender or any Affiliate of any Lender,
relating to Indebtedness and within the scope of subsection 8.2, will be Margin
Stock.
5.11 EMPLOYEE BENEFIT PLANS.
Company does not maintain, and is not liable directly or indirectly
with respect to, any Employee Benefit Plan that is subject to Title IV of ERISA
or Section 412 of the Internal Revenue Code or that provides post-retirement
welfare benefits to its employees (other than (i) benefits the full cost of
which is borne by employees or their beneficiaries, (ii) post retirement medical
benefits to certain of the Executive Officers of Company and members of their
immediate families, (iii) benefits that are mandated under applicable laws or
(iv) benefits the cost of which is not material to Company).
5.12 CERTAIN FEES.
No broker's or finder's fee or commission will be payable with respect
to this Agreement or any of the transactions contemplated hereby.
5.13 ENVIRONMENTAL PROTECTION.
The operations of Company and its Subsidiaries (including, without
limitation, all operations and conditions at or in the Facilities) comply in all
material respects with applicable Environmental Laws, and Company and its
Subsidiaries have obtained all Governmental Authorizations under Environmental
Laws that are material and necessary to their respective operations, and all
such Governmental Authorizations are in good standing, and Company and its
Subsidiaries are in compliance with all material terms and conditions of such
Governmental Authorizations. To Company's knowledge, no Hazardous Materials
exist on, under or about any Facility in a manner that is a reasonably likely to
expose Company or any of its Subsidiaries to any liability that could reasonably
be expected to have a Material Adverse Effect.
5.14 EMPLOYEE MATTERS.
There is no strike or work stoppage in existence or threatened
involving Company or any of its Subsidiaries that could reasonably be expected
to have a Material Adverse Effect.
60
<PAGE>
5.15 SOLVENCY.
Company is and, upon the incurrence of any Obligations by Company on
any date on which this representation is made, will be, Solvent.
5.16 DISCLOSURE.
No representation or warranty of Company or any of its Subsidiaries
contained in any Loan Document or in any other document, certificate or written
statement furnished to Lenders by or on behalf of Company or any of its
Subsidiaries for use in connection with the transactions contemplated by this
Agreement contains any untrue statement of a material fact or omits to state a
material fact (known to Company, in the case of any document not furnished by
it) necessary in order to make the statements contained herein or therein not
misleading in light of the circumstances in which the same were made. Any
projections and pro forma financial information contained in such materials are
based upon good faith estimates and assumptions believed by Company to be
reasonable at the time made, it being recognized by Lenders that such
projections as to future events are not to be viewed as facts and that actual
results during the period or periods covered by any such projections may differ
from the projected results. There are no facts known (or which should upon the
reasonable exercise of diligence be known) to Company (other than matters of a
general economic nature) that, individually or in the aggregate, could
reasonably be expected to result in a Material Adverse Effect and that have not
been disclosed herein or in such other documents, certificates and statements
furnished to Lenders for use in connection with the transactions contemplated
hereby.
5.17 YEAR 2000.
The Company is in the process of conducting a comprehensive review and
assessment of Company's systems and equipment and making inquiry of Company's
material suppliers, vendors and customers. Based on the results of such review
to date, Company reasonably believes that the "Year 2000 Problem" (that is, the
inability of computers, as well as embedded microchips in non-computing devices,
to perform properly date-sensitive functions with respect to certain dates prior
to and after December 31, 1999), including costs of remediation, will not result
in a material adverse change in the operations, business, properties, condition
(financial or otherwise) or prospects of Company and its Subsidiaries, taken as
a whole. Company is in the process of developing feasible contingency plans for
continued operations in the case of a business interruption due to the Year 2000
Problem. Company shall make reasonable efforts to ensure that failure of its
own systems or equipment, or those of Company's material suppliers, vendors and
customers, due to the Year 2000 Problem will not result in a material adverse
change in the operations, business, properties, conditions or prospects of
Company and its Subsidiaries, taken as whole.
SECTION 6. COMPANY'S AFFIRMATIVE COVENANTS
Company covenants and agrees that, so long as any of the Commitments
hereunder shall remain in effect and until payment in full of all of the Loans
and other Obligations and the cancellation or expiration of all Letters of
Credit, unless Requisite Lenders
61
<PAGE>
shall otherwise give prior written consent, Company shall perform, and shall
cause each of its Subsidiaries to perform, all covenants in this Section 6.
6.1 FINANCIAL STATEMENTS AND OTHER REPORTS.
Company will maintain, and cause each of its Subsidiaries to maintain,
a system of accounting established and administered in accordance with sound
business practices to permit preparation of financial statements in conformity
with GAAP. Company will deliver to Agent and Lenders:
(i) QUARTERLY FINANCIAL STATEMENTS: as soon as available and in
any event within 60 days after the end of the first three fiscal quarters
of each Fiscal Year, (a) the quarterly report of Company filed with the SEC
on Form 10-Q or the financial statements of Company that would be required
to be filed on Form 10-Q if such Form 10-Q is not filed and (b)
consolidating financial statements of the Company and its Subsidiaries for
the period coinciding with the period addressed by the Form 10-Q or
financial statements provided pursuant to clause (a) above, certified by
the Chief Financial Officer of Company;
(ii) ANNUAL FINANCIAL STATEMENTS: as soon as available and in any
event within 120 days after the end of each Fiscal Year, (a) the Annual
Report on Form 10-K of Company filed with the SEC on Form 10-K or the
audited financial statements of Company that would be required to be filed
on Form 10-K if such Form 10-K is not filed, (b) in the case of such
consolidated financial statements, a report thereon of Deloitte & Touche or
other independent certified public accountants of nationally recognized
standing selected by Company, which report shall be unqualified and shall
state that such consolidated financial statements fairly present the
consolidated financial position of Company and its Subsidiaries as at the
dates indicated and the results of their operations and their cash flows
for the periods indicated in conformity with GAAP and that the examination
by such accountants in connection with such consolidated financial
statements has been made in accordance with generally accepted auditing
standards and (c) consolidating financial statements of the Company and its
Subsidiaries for the period coinciding with the period addressed by the
Form 10-K or financial statements provided pursuant to clause (a) above,
certified by the Chief Financial Officer of Company;
(iii) OFFICERS' AND COMPLIANCE CERTIFICATES; YEAR 2000 REPORT:
together with each delivery of financial statements of Company and its
Subsidiaries pursuant to subdivisions (i) and (ii) above, (a) an Officers'
Certificate of Company stating that the signers have reviewed the terms of
this Agreement and have made, or caused to be made under their supervision,
a review in reasonable detail, and to the extent they deem appropriate to
deliver such Officers' Certificate, of the transactions and condition of
Company and its Subsidiaries during the accounting period covered by such
financial statements and that such review has not disclosed the existence
at the end of or, to the extent applicable, during such accounting period,
and that the signers do not have knowledge of the existence as at the date
of such Officers' Certificate, of any condition or event that constitutes
an Event of Default or Potential Event of Default, or, if any such
condition or event existed or exists, specifying the nature and period of
existence thereof
62
<PAGE>
and what action Company has taken, is taking and proposes to take with
respect thereto; (b) a Compliance Certificate demonstrating in reasonable
detail compliance during (if applicable) and at the end of the applicable
accounting periods with the restrictions contained in subsections 7.5; and
(c) for the periods ending on December 31, 1998, June 30, 1999, and
December 31, 1999, a written status report executed by an Executive Officer
of Company, in form and detail reasonably satisfactory to Agent and
Requisite Lenders, describing the steps being taken by Company and its
Subsidiaries to ensure that the "Year 2000 Problem" (as defined in
subsection 5.17) is successfully addressed in all material respects;
(iv) RECONCILIATION STATEMENTS: if, as a result of any change in
accounting principles and policies from those used in the preparation of
the audited financial statements referred to in subsection 5.3, the
consolidated financial statements of Company and its Subsidiaries delivered
pursuant to subdivisions (i) or (ii) of this subsection 6.1 will differ in
any material respect from the financial statements that would have been
delivered pursuant to such subdivisions had no such change in accounting
principles and policies been made, then (a) if prepared by Company's
independent certified public accountants, together with the first delivery
of financial statements pursuant to subdivision (i) or (ii) of this
subsection 6.1 following such change, consolidated financial statements of
Company and its Subsidiaries for the current Fiscal Year to the end of the
fiscal quarter in which the effective date of such change occurred,
prepared on a pro forma basis as if such change had been in effect during
such period, and (b) together with each delivery of financial statements
pursuant to subdivision (i) or (ii) of this subsection 6.1 following such
change, copies of all analyses prepared by Company for its internal use due
to such change in connection with preparation of its financial statements.
(v) ACCOUNTANTS' CERTIFICATION: together with each delivery of
financial statements of Company and its Subsidiaries pursuant to
subdivision (ii) above, a written statement by the independent certified
public accountants giving the report thereon (a) stating that their audit
examination has included a review of the terms of this Agreement and the
other Loan Documents as they relate to accounting matters, (b) stating
whether, in connection with their audit examination, any condition or event
that constitutes an Event of Default or Potential Event of Default has come
to their attention and, if such a condition or event has come to their
attention, specifying the nature and period of existence thereof; PROVIDED
that such accountants shall not be liable by reason of any failure to
obtain knowledge of any such Event of Default or Potential Event of Default
that would not be disclosed in the course of their audit examination, and
(c) stating that based on their audit examination nothing has come to their
attention that causes them to believe either or both that the information
contained in the certificates delivered therewith pursuant to subdivision
(iii) above is not correct or that the matters set forth in the Compliance
Certificates delivered therewith pursuant to clause (b) of subdivision
(iii) above for the applicable Fiscal Year are not stated in accordance
with the terms of this Agreement;
63
<PAGE>
(vi) ACCOUNTANTS' REPORTS: promptly upon receipt thereof (unless
restricted by applicable professional standards), copies of (a) all draft
reports revealing the existence of an Event of Default and (b) all final
reports submitted to Company by independent certified public accountants in
connection with each annual, interim or special audit of the financial
statements of Company or any of its Subsidiaries made by such accountants,
including, without limitation, any comment letter submitted by such
accountants to management in connection with their annual audit;
(vii) SEC FILINGS AND PRESS RELEASES: promptly upon their becoming
available, copies of (a) any financial statements, reports, notices and
proxy statements sent or made available generally by Company or any of its
Subsidiaries to its security holders other than the Principal Shareholders,
Company or a Subsidiary, (b) any regular and periodic reports and all
registration statements (other than on Form S-8 or a similar form) and
prospectuses and current reports on Form 8-K, if any, filed by Company or
any of its Subsidiaries with any securities exchange or with the SEC or any
governmental or private regulatory authority, and (c) all press releases
and other statements made available generally by Company or any of its
Subsidiaries to the public concerning material developments in the business
of Company or any of its Subsidiaries;
(viii) EVENTS OF DEFAULT, ETC.: promptly upon (but not later than
five Business Days after) any Executive Officer of Company obtaining
knowledge (a) of any condition or event that constitutes an Event of
Default or Potential Event of Default, or becoming aware that any Lender
has given any notice (other than to Agent) or taken any other action with
respect to a claimed Event of Default or Potential Event of Default,
(b) that any Person has given any notice to Company or any of its
Subsidiaries or taken any other action with respect to a claimed default or
event or condition of the type referred to in subsection 8.2, or (c) of the
occurrence of any event or change that has caused or evidences, either in
any case or in the aggregate, a Material Adverse Effect, an Officers'
Certificate specifying the nature and period of existence of such
condition, event or change, or specifying the notice given or action taken
by any such Person and the nature of such claimed Event of Default,
Potential Event of Default, default, event or condition, and what action
Company or any of its Subsidiaries, as applicable, has taken, is taking and
proposes to take with respect thereto;
(ix) LITIGATION OR OTHER PROCEEDINGS: (a) promptly upon any
Executive Officer of Company obtaining knowledge of (X) the institution of
any action, suit, proceeding (whether administrative, judicial or
otherwise), governmental investigation or arbitration against or affecting
Company or any of its Subsidiaries or any property of Company or any of its
Subsidiaries (collectively, "PROCEEDINGS") not previously disclosed in
writing by Company to Lenders or (Y) any material development in any
Proceeding that, in any case:
(1) has a reasonable possibility of giving rise to a
Material Adverse Effect;
64
<PAGE>
(2) seeks to enjoin or otherwise prevent the
consummation of, or to recover any damages or obtain relief as
a result of, the transactions contemplated hereby; or
(3) seeks damages in an amount greater than $5,000,000
that is not covered by insurance and that is not subject to a
dispute as to whether insurance covers the amounts claimed in
the proceeding;
written notice thereof together with such other information as may be
reasonably available to Company to enable Lenders and their counsel to
evaluate such matters;
(x) FINANCIAL PLANS: as soon as practicable and in any event no
later than 60 days after the beginning of each Fiscal Year, commencing with
Company's 1999 Fiscal Year, a consolidated financial plan and forecast for
such Fiscal Year, including without limitation (a) forecasted consolidated
balance sheets, forecasted consolidated and consolidating statements of
income and forecasted consolidated cash flows of Company and its
Subsidiaries for such Fiscal Year and (b) such other information and
projections as Agent may reasonably request;
(xi) ENVIRONMENTAL AUDITS AND REPORTS: as soon as practicable
following receipt thereof, copies of all environmental audits and reports,
whether prepared by personnel of Company or any of its Subsidiaries or by
independent consultants, with respect to significant environmental matters
at any Facility;
(xii) SUBSIDIARIES OF COMPANY: promptly upon any Person becoming a
Material Subsidiary of Company, such written notice as to the requirements
such Material Subsidiary must fulfill under subsection 6.8; and
(xiii) OTHER INFORMATION: with reasonable promptness, such other
information and data with respect to Company or any of its Subsidiaries as
from time to time may be reasonably requested by any Lender.
6.2 CORPORATE EXISTENCE, ETC.
Except as permitted under subsection 7.6, Company will, and will cause
each of its Subsidiaries to, at all times preserve and keep in full force and
effect its corporate existence and all rights and franchises material to its
business.
6.3 PAYMENT OF TAXES AND CLAIMS; TAX CONSOLIDATION.
A. Company will, and will cause each of its Subsidiaries to, pay all
material taxes, assessments and other governmental charges imposed upon it or
any of its properties or assets or in respect of any of its income, businesses
or franchises before any penalty accrues thereon, and all claims (including,
without limitation, claims for labor, services, materials and supplies) for sums
that have become due and payable and that by law have become or could reasonably
be expected to become a Lien upon any of its properties or assets, prior to the
time when any penalty or fine shall be incurred with respect thereto; PROVIDED
that no such charge or claim need
65
<PAGE>
be paid if being contested in good faith by appropriate proceedings promptly
instituted and diligently conducted and if such reserve or other appropriate
provision, if any, as shall be required in conformity with GAAP shall have been
made therefor.
B. Company will not, nor will it permit any of its Subsidiaries to, file
or consent to the filing of any consolidated income tax return with any Person
(other than Company or any of its Subsidiaries).
6.4 MAINTENANCE OF PROPERTIES; INSURANCE.
Company will, and will cause each of its Subsidiaries to, maintain or
cause to be maintained in good repair, working order and condition, ordinary
wear and tear excepted, all material properties then used or useful in the
business of Company and its Subsidiaries and from time to time will make or
cause to be made all appropriate repairs, renewals and replacements thereof.
Company will maintain or cause to be maintained, with financially sound and
reputable insurers, insurance with respect to its properties and business and
the properties and businesses of its Subsidiaries against loss or damage of the
kinds customarily carried or maintained under similar circumstances by
corporations of established reputation engaged in similar businesses. Any
proceeds of any such insurance received in relation to any damage to, or loss
of, any properties or assets shall be paid to Company to permit its repair or
replacement of such damaged or lost properties or assets.
6.5 INSPECTION; LENDER MEETING.
Company shall, and shall cause each of its Subsidiaries to, permit any
authorized representatives designated by the Agent or any Lender to visit and
inspect any of the properties of Company or any of its Subsidiaries, including
its and their financial and accounting records, and to make copies and take
extracts therefrom, and to discuss its and their affairs, finances and accounts
with its and their officers and independent public accountants (provided that
Company may, if it so chooses, be present at or participate in any such
discussion), all upon reasonable notice and at such reasonable times during
normal business hours and as often as may be reasonably requested. Without in
any way limiting the foregoing, Company will, upon the request of Agent or
Requisite Lenders, participate in a meeting of Agent and Lenders once during
each Fiscal Year to be held at Company's corporate offices (or such other
location as may be agreed to by Company and Agent) at such time as may be agreed
to by Company and Agent.
6.6 COMPLIANCE WITH LAWS, ETC.
Company shall, and shall cause each of its Subsidiaries to, comply
with the requirements of all applicable laws, rules, regulations and orders of
any governmental authority, noncompliance with which could reasonably be
expected to cause a Material Adverse Effect.
6.7 ENVIRONMENTAL COMPLIANCE AND DISCLOSURE.
A. Company shall, and shall cause each of its Subsidiaries to, exercise
all due diligence in order to comply and cause the Facilities to comply with all
Environmental Laws.
66
<PAGE>
B. Company shall promptly advise Lenders in writing and in reasonable
detail of (i) any Release of any Hazardous Materials required to be reported to
any federal, state or local governmental or regulatory agency under any
applicable Environmental Laws and (ii) any request for information from any
governmental agency that suggests such agency is investigating whether Company
or any of its Subsidiaries may be potentially responsible for a Release of
Hazardous Materials.
6.8 MATERIAL SUBSIDIARIES.
Company shall cause any Person that becomes a Material Subsidiary of
Company after the Closing Date, within sixty days of such Person becoming such a
Material Subsidiary, to become a Guarantor and duly execute and deliver to Agent
counterparts of the Guaranty together with such certificates and documents as
Company would have been required to deliver in relation to such Person, as a
Guarantor, pursuant to subsection 6.9, if such Person had been a Guarantor on
the Closing Date; PROVIDED that in the event any such Material Subsidiary is a
Foreign Subsidiary, Company shall, in lieu of making such Material Subsidiary a
party to the Guaranty, pledge 65% of the stock of such Material Subsidiary to
Agent for the benefit of Lenders as security for the Obligations, upon such
terms and conditions as Agent may deem appropriate.
6.9 GUARANTOR DOCUMENTS.
On or before October 15, 1998, Company shall cause the Guarantor to
deliver or cause to be delivered to Agent, for Lenders with sufficient
originally executed copies, where appropriate, for each Lender and its counsel,
the following, each, unless otherwise noted, dated as of the date of the
Guaranty:
(i) Certified copies of its Certificate or Articles of
Incorporation, together with a good standing certificate from the
jurisdiction of its incorporation and each other jurisdiction in which it
is qualified as a foreign corporation to do business and, to the extent
generally available, a certificate or other evidence of good standing as to
payment of any applicable franchise or similar taxes from the appropriate
taxing authority of each of such states, each dated a recent date prior to
the date of the Guaranty;
(ii) Copies of its Bylaws, certified as of the date of the Guaranty
by its corporate secretary or an assistant secretary;
(iii) Resolutions of its Board of Directors approving and authorizing
the execution, delivery and performance of the Guaranty, and the other Loan
Documents to which it is a party, certified as of the date of the Guaranty
by its corporate secretary or an assistant secretary as being in full force
and effect without modification or amendment;
(iv) Signature and incumbency certificates of its officers executing
the Guaranty, and the other Loan Documents to which it is a party;
(v) Executed originals of the Guaranty, and any other Loan
Documents, in each case, to which it is a party;
67
<PAGE>
(vi) Originally executed copies of one or more favorable written
opinions of counsel for the Guarantor, in each case dated the date the
Guarantor executes the Guaranty and setting forth the matters customarily
given with respect to the execution of documents such as the Guaranty in
form and substance reasonably satisfactory to Agent with evidence that
Guarantor has requested such counsel to deliver such opinions to Lenders;
and
(vii) Such other documents as Agent may reasonably request.
6.10 PLEDGE DOCUMENTS.
On or before the September 30, 1998, the Company shall deliver or cause to
be delivered to Agent, for Lenders with sufficient originally executed copies,
where appropriate, for each Lender and its counsel, the following:
(i) All documents required, in the reasonable judgment of Agent, to
perfect the Company's pledge of 65% of the outstanding shares of Oakley,
Europe as Collateral; and
(ii) originally executed copies of one or more favorable written
opinions of Jose Arilla, in form and substance reasonably satisfactory to
Agent and its counsel, setting forth the opinion that, under French law,
the pledge of the shares of Oakley, Europe as Collateral is perfected and
enforceable, and as to such other matters as Agent acting on behalf of
Lenders may reasonably request.
SECTION 7. COMPANY'S NEGATIVE COVENANTS
Company covenants and agrees that, so long as any of the Commitments
hereunder shall remain in effect and until payment in full of all of the Loans
and other Obligations and the cancellation or expiration of all Letters of
Credit, unless Requisite Lenders shall otherwise give prior written consent,
Company shall perform, and shall cause each of its Subsidiaries to perform, all
covenants in this Section 7.
7.1 INDEBTEDNESS.
Company shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, create, incur, assume or guaranty, or otherwise become
or remain directly or indirectly liable with respect to, any Indebtedness,
except:
(i) Company and its Subsidiaries may become and remain liable with
respect to the Obligations;
(ii) Company and its Subsidiaries may become and remain liable with
respect to Contingent Obligations permitted by subsection 7.4 and, upon any
matured obligations actually arising pursuant thereto, the Indebtedness
corresponding to the Contingent Obligations so extinguished;
68
<PAGE>
(iii) Company and its Subsidiaries may become and remain liable with
respect to purchase-money Indebtedness incurred to finance Capital
Expenditures (including, without limitation, Capital Leases); PROVIDED that
the outstanding principal amount of such Indebtedness (including, in the
case of any Capital Lease, the portion of the liability thereunder
allocable to principal) does not exceed $15,000,000 in the aggregate at any
time and the principal amount of such Indebtedness incurred in any Fiscal
Year does not exceed $5,000,000;
(iv) Company may become and remain liable with respect to
Indebtedness to any of its Wholly-Owned Subsidiaries and any Subsidiary of
Company may become and remain liable with respect to Indebtedness to
Company or any Subsidiary of Company;
(v) Company and its Subsidiaries may remain liable with respect to
Indebtedness described in SCHEDULE 7.1 annexed hereto and extensions,
replacements and refinancings thereof, in each case upon terms and
conditions no less favorable to Company and its Subsidiaries than the terms
and conditions of such Indebtedness as in effect on the Closing Date;
(vi) Company and its Subsidiaries may become and remain liable with
respect to other Indebtedness in an outstanding principal amount that at no
time exceeds $5,000,000 in the aggregate;
(i) Company may remain liable with respect to the existing Real
Estate Loan, together with any refinancing thereof in an aggregate
principal amount not exceeding 80% of the appraised value of the corporate
headquarters MINUS, in each case, the amount of Subordinated Indebtedness
issued by the Company in excess of $25,000,000; PROVIDED that any lien
securing such Indebtedness is limited to the property securing the Real
Estate Loan on the Closing Date;
(vii) Company and its Subsidiaries may remain liable with respect to
the Indebtedness of a Person assumed by Company or any of its Subsidiaries
pursuant to a Permitted Acquisition; PROVIDED that the principal amount of
such Indebtedness outstanding at any time does not exceed $5,000,000 in the
aggregate; and
(viii) Company may become and remain liable with respect to
Subordinated Indebtedness in a principal amount not to exceed $50,000,000;
PROVIDED that any proceeds of Subordinated Indebtedness in excess of
$25,000,000 must be used to reduce the amount outstanding under the Real
Estate Loan within five Business Days of receipt by the Company until the
amount owed by the Company under the Real Estate Loan is reduced to $0.
7.2 LIENS AND RELATED MATTERS.
A. PROHIBITION ON LIENS. Company shall not, and shall not permit any of
its Subsidiaries to, directly or indirectly, create, incur, assume or permit to
exist any Lien on or with respect to any property or asset of any kind
(including any document or instrument in respect of goods or accounts
receivable) of Company or any of its Subsidiaries, whether now owned or
69
<PAGE>
hereafter acquired, or any income or profits therefrom, or file or permit the
filing of, or permit to remain in effect, any financing statement or other
similar notice of any Lien with respect to any such property, asset, income or
profits under the Uniform Commercial Code of any State or under any similar
recording or notice statute, except:
(i) Permitted Encumbrances;
(ii) Liens created and existing under the Collateral Documents in
favor of Agent for the benefit of Lenders with respect to (a) the
Obligations and (b) any liabilities of Company under any Interest Rate
Agreement or Currency Agreement between Company and any Lender that is
expressly permitted under subsection 7.4(ii) or 7.4(vi);
(iii) Liens described in SCHEDULE 7.2 annexed hereto;
(iv) Liens arising pursuant (a) to purchase money mortgages or
security interests securing Indebtedness permitted under subsection
7.1(iii) representing the purchase price (or financing of the purchase
price within 180 days after the respective purchase) of property or other
assets acquired by Company or any of its Subsidiaries (including, without
limitation, Liens arising under Capital Leases) or (b) mortgages or
security agreements securing financing incurred to refurbish, renovate or
otherwise improve existing assets, PROVIDED, in any event, that (1) any
such Liens attach only to the assets so purchased, refurbished, renovated
or improved, and (2) the principal amount of Indebtedness secured by any
such Lien is neither greater than 100% nor less than 80% of the purchase
price of the assets being purchased or the fair market value at the time
such Indebtedness is incurred of the assets being refurbished, renovated or
improved (determined in Company's reasonable judgment so as to give effect
to such refurbishment, renovation or improvement), as applicable;
(v) Liens existing on specific tangible assets at the time acquired
(including by acquisition, merger or consolidation) by Company or any of
its Subsidiaries or on assets of a Person at the time such Person first
becomes a Subsidiary of Company, PROVIDED that (a) any such Liens were not
created at the time of or in contemplation of the acquisition of such
assets or Person by Company or any of its Subsidiaries, (b) any such Lien
attached only to specific tangible assets of such Person and not assets of
such Person generally, and (c) in Company's reasonable judgment the
Indebtedness secured by any such Lien does not exceed 100% of the fair
market value of the asset to which such Lien attaches, determined at the
time of the acquisition of such asset or the time at which such Person
first becomes a Subsidiary, as the case may be;
(vi) Liens securing Indebtedness owed to Company or a Wholly-Owned
Subsidiary of Company or a Guarantor PROVIDED such Lien is junior to any
Lien existing under the Collateral Documents and PROVIDED FURTHER that the
holder of such secured Indebtedness may not transfer any such secured
Indebtedness to any Person other than Company or a Wholly-Owned Subsidiary
of Company or a Guarantor unless, upon giving effect to such transfer, such
Liens would be permitted under the provisions of this subsection 7.2 (other
than this clause (vi)); and
70
<PAGE>
(vii) Other Liens securing Indebtedness in an outstanding principal
amount, which would not in the aggregate exceed $1,000,000 at any time;
(viii) Liens arising pursuant to the Real Estate Loan or refinancings
thereof permitted under subsection 7.1(vii); PROVIDED, that any such Liens
attach only to the real property, improvements, fixtures attached to such
improvements, and other property securing the Real Estate Loan as of the
Closing Date; and
(viii) Liens securing Indebtedness permitted under subsection
7.1(viii).
B. NO FURTHER NEGATIVE PLEDGES. Except with respect to specific property
encumbered to secure payment of particular Indebtedness or to be sold pursuant
to an executed agreement with respect to an Asset Sale, neither Company nor any
of its Subsidiaries shall enter into any agreement prohibiting the creation or
assumption of any Lien upon any of its properties or assets to or for the
benefit of the Lenders, whether now owned or hereafter acquired, except for
Permitted Transfer Restrictions.
C. NO RESTRICTIONS ON SUBSIDIARY DISTRIBUTIONS TO COMPANY OR OTHER
SUBSIDIARIES. Except as provided herein, Company will not, and will not permit
any of its Subsidiaries to, create or otherwise cause or suffer to exist or
become effective any consensual encumbrance or restriction of any kind on the
ability of any such Subsidiary to (i) pay dividends or make any other
distributions on any of such Subsidiary's capital stock owned by Company or any
other Subsidiary of Company, (ii) repay or prepay any Indebtedness owed by such
Subsidiary to Company or any other Subsidiary of Company, (iii) make loans or
advances to Company or any other Subsidiary of Company, or (iv) transfer any of
its property or assets to Company or any other Subsidiary of Company, except for
such restrictions or encumbrances existing by reason of Permitted Transfer
Restrictions.
7.3 INVESTMENTS; JOINT VENTURES.
Company shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, make or own any Investment in any Person, including any
Joint Venture, except:
(i) Company and its Subsidiaries may make and own Investments in
Cash Equivalents;
(ii) Company and its Subsidiaries may make intercompany loans to the
extent permitted under subsection 7.1(iv);
(iii) Company and its Subsidiaries may acquire and maintain
Investments in promissory notes received in consideration of assets or
property sold in a transaction permitted under subsection 7.6 PROVIDED the
aggregate outstanding principal amount of all such notes does not exceed
$5,000,000 at any time and PROVIDED FURTHER that the aggregate principal
amount of such notes acquired by Company and its Subsidiaries does not, in
relation to any such sale (whether effected through a single transaction or
a series of related transactions) exceed 50% of the fair market value of
all consideration received by Company and its Subsidiaries in relation to
such sale;
71
<PAGE>
(iv) Company and its Subsidiaries may continue to own the
Investments owned by them and described in SCHEDULE 7.3 annexed hereto;
(v) Company may make loans and advances to employees and Principal
Shareholders for moving, entertainment and travel expenses, drawing
accounts and similar expenditures in the ordinary course of business and
consistent with past practices provided that the aggregate outstanding
amount of such loans and advances shall not at any time exceed $750,000;
(vi) Company and its Subsidiaries may make Permitted Acquisitions;
(vii) Company and its Subsidiaries may make Investments in the
Company, other wholly owned Subsidiaries and Barter (PROVIDED that the
Company owns at least 95% of all equity interests in Barter);
(viii) Company and its Subsidiaries may make and own Investments,
in addition to the Investments described in clauses (i) through (vii) and
(ix) through (x) of this subsection 7.3, in an amount that does not exceed
an aggregate amount of $5,000,000 per fiscal year, and does not exceed a
total aggregate amount of $10,000,000 during the term of this Agreement
(after giving effect to all payments received in respect of such
Investments, whether principal, interest, dividends or otherwise);
(ix) Company may make Investments, in addition to Investments
described in clauses (i) through (viii) of this subsection 7.3; PROVIDED
that the only consideration given by Company to make such Investments
consists of (a) Company Common Stock and (b) the assumption of liabilities
in an outstanding amount (after giving effect to all payments received in
respect of such Investments, whether principal, interest, dividends,
distributions or otherwise) that does not, in the aggregate for all such
Investments, exceed $5,000,000 at any time; PROVIDED FURTHER that the
assumption of such liabilities is permitted under subsection 7.1; and
(x) Company may make Investments received in connection with the
bankruptcy or reorganization of suppliers and customers and in settlement
of delinquent obligations of, and other disputes with, suppliers and
customers.
7.4 CONTINGENT OBLIGATIONS.
Company shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, create or become or remain liable with respect to any
Contingent Obligation, except:
(i) Company may become and remain liable with respect to Contingent
Obligations in respect of Letters of Credit;
(ii) Company may become and remain liable with respect to Contingent
Obligations under Interest Rate Agreements; PROVIDED that the aggregate
notional amount with respect to such Interest Rate Agreements shall not
exceed at any time the aggregate amount of the Commitments then in effect;
72
<PAGE>
(iii) Company and its Subsidiaries may become and remain liable with
respect to Contingent Obligations in respect of customary indemnification
and purchase price adjustment obligations incurred in connection with Asset
Sales or other sales of assets;
(iv) Company and its Subsidiaries may become and remain liable with
respect to Contingent Obligations under guarantees in the ordinary course
of business of the obligations of suppliers, customers, franchisees and
licensees of Company and its Subsidiaries in an amount that does not exceed
$1,000,000 in the aggregate at any time;
(v) Company and its Subsidiaries may become and remain liable with
respect to Contingent Obligations in respect of the Obligations;
(vi) Company and its Subsidiaries may become and remain liable with
respect to Contingent Obligations under Currency Agreements entered into in
the ordinary course of business of Company and such Subsidiaries; and
(vii) Company may become and remain liable with respect to unsecured
guaranties up to an aggregate principal amount of $5,000,000 outstanding at
any time in support of obligations of its Subsidiaries.
7.5 FINANCIAL COVENANTS.
A. MAXIMUM LEVERAGE RATIO. Company shall not permit the Leverage Ratio
at any time to exceed 2.00 to 1.00.
B. MINIMUM FIXED CHARGE COVERAGE RATIO. Company shall not permit, as of
the end of any fiscal quarter, the ratio of (i) Consolidated EBITDA, LESS cash
expenditures in connection with Capital Expenditures (excluding Capital
Expenditures comprising Permitted Acquisitions), LESS cash payments made in
respect of taxes based on income, LESS cash payments for stock repurchases, LESS
actual or declared (without duplication) cash payments for dividends, to (ii)
Consolidated Fixed Charges, for each four quarter fiscal period ending on such
date, to be less than 2.00 to 1.00.
C. MINIMUM CONSOLIDATED ADJUSTED NET INCOME. Company shall not permit,
as of the end of any fiscal quarter, Consolidated Adjusted Net Income for the
four quarter fiscal period ending on such date to be less than $18,000,000.
D. MINIMUM QUARTERLY CONSOLIDATED ADJUSTED NET INCOME. Company shall not
permit, as of the end of any fiscal quarter, Consolidated Adjusted Net Income
for such fiscal quarter to be less than $1.00, provided that with respect to
each fiscal quarter ended March 31, Consolidated Adjusted Net Income shall not
be less than ($2,000,000), i.e., a negative $2,000,000.
7.6 RESTRICTION ON FUNDAMENTAL CHANGES; ASSET SALES AND ACQUISITIONS.
Company shall not, and shall not permit any of its Subsidiaries to,
alter the corporate or legal structure of Company or any of its Subsidiaries, or
enter into any transaction of merger or consolidation, or liquidate, wind-up or
dissolve itself (or suffer any liquidation or
73
<PAGE>
dissolution), or convey, sell, lease, sub-lease, transfer or otherwise dispose
of, in one transaction or a series of transactions, all or any part of its
business, property or fixed assets, whether now owned or hereafter acquired, or
acquire by purchase or otherwise all or substantially all the business, property
or fixed assets of, or stock or other evidence of beneficial ownership of, any
Person or any division or line of business of any Person, except:
(i) Any Subsidiary of Company may be merged with or into Company or
any Wholly-Owned Subsidiary of Company or Barter (PROVIDED that the Company
owns at least 95% of all equity interests in Barter), or be liquidated,
wound up or dissolved, or all or any part of its business, property or
assets may be conveyed, sold, leased, transferred or otherwise disposed of,
in one transaction or a series of transactions, to Company or any
Wholly-Owned Subsidiary of Company or Barter (PROVIDED that the Company
owns at least 95% of all equity interests in Barter); PROVIDED that, in the
case of such a merger, Company, such Wholly-Owned Subsidiary or Barter
shall be the continuing or surviving corporation;
(ii) Company and its Subsidiaries may make Investments permitted
under subsection 7.3;
(iii) Company and its Wholly-Owned Subsidiaries may receive
contributions of assets and property from their respective shareholders;
(iv) Company and its Subsidiaries may make Capital Expenditures;
(v) Company and its Subsidiaries may sell or otherwise dispose of
assets in transactions that do not constitute Asset Sales, including,
without limitation, sales of inventory and obsolete equipment in the
ordinary course of business; PROVIDED that the consideration received for
such assets shall be in an amount at least equal to the fair market value
thereof;
(vi) Company and its Subsidiaries may sell, transfer or otherwise
dispose of assets in Asset Sales provided the fair market value of assets
so sold, transferred or otherwise disposed of by Company and its
Subsidiaries (exclusive of assets lost or damaged as the result of any
accidental event and any assets sold in a sale and lease-back transaction
permitted under subsection 7.7), determined without duplication, is not in
excess of $5,000,000 in any year; PROVIDED that (y) the consideration
received for such assets (excluding any lost or damaged assets) shall be in
an amount at least equal to the fair market value thereof; and (z) 75% of
the consideration received shall be cash; and
(vii) Company and its Subsidiaries may make Permitted Acquisitions.
7.7 SALES AND LEASE-BACKS.
Company shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, become or remain liable as lessee or as a guarantor or
other surety with respect to any lease, whether an Operating Lease or a Capital
Lease, of any property (whether real, personal or mixed), whether now owned or
hereafter acquired, (i) which Company or any of its Subsidiaries
74
<PAGE>
has sold or transferred or is to sell or transfer to any other Person (other
than Company or any of its Subsidiaries) or (ii) which Company or any of its
Subsidiaries intends to use for substantially the same purpose as any other
property which has been or is to be sold or transferred by Company or any of its
Subsidiaries to any Person (other than Company or any of its Subsidiaries) in
connection with such lease.
7.8 SALE OR DISCOUNT OF RECEIVABLES.
Company shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, sell with recourse, or discount or otherwise sell for
less than the face value thereof, any of its notes or accounts receivable,
except for past due accounts sold to collection agencies.
7.9 TRANSACTIONS WITH PRINCIPAL SHAREHOLDERS AND AFFILIATES.
Company shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, enter into or permit to exist any transaction
(including, without limitation, the purchase, sale, lease or exchange of any
property or the rendering of any service) with any holder of 5% or more of any
class of equity Securities of Company or with any Affiliate of Company, or of
any such holder, on terms that are less favorable to Company or that Subsidiary,
as the case may be, than those that would be obtained at the time from Persons
who are not such a holder or Affiliate; PROVIDED that the foregoing restriction
shall not apply to (i) any transaction between Company and any of its
Wholly-Owned Subsidiaries or Barter (PROVIDED that the Company owns at least 95%
of all equity interests in Barter) or between any of its Wholly-Owned
Subsidiaries and/or Barter (PROVIDED that the Company owns at least 95% of all
equity interests in Barter), (ii) any transaction between Company and any of
Company's Subsidiaries, (iii) salaries, bonuses and other executive compensation
to Company's management stockholders, (iv) any issuance of securities, or other
payments, awards or grants in cash, securities or otherwise pursuant to, or the
funding of, employment arrangements, stock options and stock ownership plans
approved by the board of directors of Company, (v) loans or advances to
employees and Principal Shareholders made in accordance with past practice and
permitted under subsection 7.3, (vi) the payment of reasonable fees to directors
of Company and its Subsidiaries; (vii) transactions pursuant to employment
agreements between Company or any of its Subsidiaries and any Executive Officer;
(viii) any transaction listed on SCHEDULE 7.9; or (ix) other immaterial
transactions involving payments or transfers of property or assets by Company or
any of its Subsidiaries to any such Affiliate provided the fair market value of
property or assets transferred to any such Affiliate pursuant to this clause (x)
shall not exceed $100,000 in any Fiscal Year and that the aggregate fair market
value of property and assets transferred pursuant to this clause (x) to all such
Affiliates does not exceed $250,000 in any Fiscal Year.
7.10 CONDUCT OF BUSINESS.
From and after the Closing Date, Company shall not, and shall not
permit any of its Subsidiaries to, engage in any business other than (i) the
businesses engaged in by Company and its Subsidiaries on the Closing Date and
similar or related businesses and (ii) such other lines of business as may be
consented to by Requisite Lenders.
75
<PAGE>
7.11 FISCAL YEAR
Company shall not and shall not permit its Subsidiaries to change
their respective Fiscal Year-ends from December 31.
SECTION 8. EVENTS OF DEFAULT
If any of the following conditions or events ("Events of Default")
shall occur and, except as set forth in subsection 8.2, be continuing:
8.1 FAILURE TO MAKE PAYMENTS WHEN DUE.
Failure by Company to pay any installment of principal of any Loan
when due, whether at stated maturity, by acceleration, by notice of voluntary
prepayment, by mandatory prepayment or otherwise; failure by Company to pay
when due any amount payable to Issuing Lender in reimbursement of any drawing
under a Letter of Credit; or failure by Company to pay any interest on any
Loan or any fee or any other amount due under this Agreement within five days
after the date due; or
8.2 DEFAULT IN OTHER AGREEMENTS.
(i) Failure of Company or any of its Subsidiaries to pay when due
(a) any principal of or interest on any Indebtedness with an aggregate
principal amount of $1,000,000 or more or (b) any Contingent Obligations with
an aggregate principal amount of $1,000,000 or more, in each case beyond the
end of any grace period provided therefor; or (ii) breach or default by
Company or any of its Subsidiaries with respect to any other material term of
any loan agreements, mortgages, indentures, notes or other agreement or
evidence of any such Indebtedness with an aggregate principal amount of
$1,000,000 or more or any such Contingent Obligations with an aggregate
principal amount of $1,000,000 or more if the effect of such breach or
default is to cause, or to permit the holder or holders of that Indebtedness
or Contingent Obligation(s) (or a trustee on behalf of such holder or
holders) to cause, that Indebtedness or Contingent Obligation(s) to become or
be declared due and payable prior to its stated maturity or the stated
maturity of any underlying obligation, as the case may be (upon the giving or
receiving of notice, lapse of time, both, or otherwise); it being agreed and
understood that any payment default described in clause (i) above or any
breach or default described in clause (ii) above shall be deemed to be a
continuing Event of Default hereunder unless, prior to any acceleration of
the Obligations pursuant to this Section 8, such non-payment, breach or
default is cured or waived by the holders of such Indebtedness or Contingent
Obligation without (a) any consent, waiver or other fee (excluding any fixed
amendment or waiver fee generally payable with respect to any waiver or
amendment under the terms of such Indebtedness or Contingent Obligations as
in effect prior to such payment default, breach or default) being paid to
such holders, (b) unscheduled prepayments of such Indebtedness or Contingent
Obligations, (c) any additional collateral (or if such Indebtedness or
Contingent Obligations were theretofore unsecured, any collateral) being
encumbered to secure such Indebtedness or Contingent Obligations or any
additional guaranties thereof (or if such Indebtedness or Contingent
Obligations were not theretofore guarantied, any guaranty thereof), (d) any
amendment to or modification of the terms of such Indebtedness or Contingent
Obligations, except any such amendment or modification as
76
<PAGE>
may be necessary to relax the provisions thereof to cure such non-payment,
breach or default, in which event such non-payment, breach or default shall
cease to constitute an Event of Default hereunder; or
8.3 BREACH OF CERTAIN COVENANTS.
Failure of Company to perform or comply with any term or condition
contained in subsection 2.5, 6.2 or 6.8 or Section 7 of this Agreement; or
8.4 BREACH OF WARRANTY.
Any representation, warranty, certification or other statement
made by Company or any of its Subsidiaries in any Loan Document or in any
statement or certificate at any time given by Company or any of its
Subsidiaries in writing pursuant hereto or thereto or in connection herewith
or therewith shall be false in any material respect on the date as of which
made; or
8.5 OTHER DEFAULTS UNDER LOAN DOCUMENTS.
Company or any of its Subsidiaries shall default in the
performance of or compliance with any term contained in this Agreement or any
of the other Loan Documents to which it is a party, other than any such term
referred to in any other subsection of this Section 8, and such default shall
not have been remedied or waived within 30 days after the earlier of (i) an
Executive Officer of Company becoming aware of such default or (ii) receipt
by Company of notice from Agent or any Lender of such default; or
8.6 INVOLUNTARY BANKRUPTCY; APPOINTMENT OF RECEIVER, ETC.
(i) A court having jurisdiction in the premises shall enter a
decree or order for relief in respect of Company or any of its Material
Subsidiaries in an involuntary case under the Bankruptcy Code or under any
other applicable bankruptcy, insolvency or similar law now or hereafter in
effect, which decree or order is not stayed; or any other similar relief
shall be granted under any applicable federal or state law; or (ii) an
involuntary case shall be commenced against Company or any of its Material
Subsidiaries under the Bankruptcy Code or under any other applicable
bankruptcy, insolvency or similar law now or hereafter in effect; or a decree
or order of a court having jurisdiction in the premises for the appointment
of a receiver, liquidator, sequestrator, trustee, custodian or other officer
having similar powers over Company or any of its Material Subsidiaries, or
over all or a substantial part of its property, shall have been entered; or
there shall have occurred the involuntary appointment of an interim receiver,
trustee or other custodian of Company or any of its Material Subsidiaries for
all or a substantial part of its property; or a warrant of attachment,
execution or similar process shall have been issued against any substantial
part of the property of Company or any of its Material Subsidiaries, and any
such event described in this clause (ii) shall continue for 60 days unless
dismissed, bonded or discharged; or
77
<PAGE>
8.7 VOLUNTARY BANKRUPTCY; APPOINTMENT OF RECEIVER, ETC.
(i) Company or any of its Material Subsidiaries shall have an
order for relief entered with respect to it or commence a voluntary case
under the Bankruptcy Code or under any other applicable bankruptcy,
insolvency or similar law now or hereafter in effect, or shall consent to the
entry of an order for relief in an involuntary case, or to the conversion of
an involuntary case to a voluntary case, under any such law, or shall consent
to the appointment of or taking possession by a receiver, trustee or other
custodian for all or a substantial part of its property; or Company or any of
its Material Subsidiaries shall make any assignment for the benefit of
creditors; or (ii) Company or any of its Material Subsidiaries shall be
unable, or shall fail generally, or shall admit in writing its inability, to
pay its debts as such debts become due; or the Board of Directors (or any
committee thereof) of Company or any of its Material Subsidiaries shall adopt
any resolution or otherwise authorize any action to approve any of the
actions referred to in clause (i) above or this clause (ii); or
8.8 JUDGMENTS AND ATTACHMENTS.
Any money judgments, writs or warrants of attachment or similar
process involving, in the aggregate at any time, an amount in excess of
$1,000,000 (not adequately covered by insurance as to which a solvent and
unaffiliated insurance company has acknowledged coverage) shall be entered or
filed against Company or any of its Material Subsidiaries or any of their
respective assets and shall remain undischarged, unvacated, unbonded or
unstayed for a period of 60 days (or in any event later than ten days prior
to the date of any proposed sale thereunder); or
8.9 DISSOLUTION.
Any order, judgment or decree shall be entered against Company or
any of its Material Subsidiaries decreeing the dissolution or split up of
Company or any such Material Subsidiary and such order shall remain
undischarged or unstayed for a period in excess of 45 days; or
8.10 INVALIDITY OF GUARANTY.
The Guaranty, for any reason other than satisfaction in full of all
Obligations, ceases to be in full force and effect or is declared null and
void; any Guarantor shall default in any material respect in the performance
or observation of any term, covenant, condition or agreement on its part to
be performed or observed under the Guaranty; any Guarantor shall contest in
any manner that the Guaranty constitutes its valid and enforceable agreement;
or any Guarantor denies that it has any further liability under the Guaranty
or gives notice to such effect; or
8.11 FAILURE OF SECURITY.
Any Collateral Document, for any reason other than the
satisfaction in full of all Obligations shall cease to be in full force and
effect or the protection or security afforded Agent and Lenders in any
substantial portion of the Collateral purported to be encumbered thereby is in
78
<PAGE>
any material respect impaired for any reason (other than the release thereof in
accordance with subsection 9.6 or the gross negligence of Agent); Company shall
default in any material respect in the performance or observation of any term,
covenant, condition or agreement on its part to be performed or observed under
the Collateral Documents; or for any reason (other than the release of
Collateral in accordance with subsection 9.6 or the gross negligence of Agent)
Agent shall fail to have a valid, perfected and enforceable first-priority Lien
on any Collateral; or Company shall contest in any manner that any Collateral
Document to which it is a party constitutes its valid and enforceable agreement;
or Company shall assert in any manner that it has no further obligation or
liability under any such Collateral Document which has not, theretofore, been
terminated in accordance with subsection 9.6; or
8.12 MATERIAL ADVERSE EFFECT.
Any event or change shall occur that has caused or evidences,
either in any case or in the aggregate, a Material Adverse Effect as
determined by Requisite Lenders; or
8.13 CHANGE IN CONTROL.
The Principal Shareholders, collectively, shall cease to
beneficially own and control (directly or indirectly) at least 25% of the
issued and outstanding shares of capital stock of Company entitled (without
regard to the occurrence of any contingency) to vote for the election of
members of the Board of Directors of Company, or any person (as such term is
used in Section 13(d) of the Exchange Act) or related persons constituting a
group (as such term is used in Rule 13d-5 under the Exchange Act) other than
a Principal Shareholder acquires a beneficial ownership (as defined in Rule
13d under the Exchange Act) of equal to or greater than 25% of the issued and
outstanding shares of capital stock of Company entitled (without regard to
the occurrence of any contingency) to vote for the election of members of the
Board of Directors of Company, it being agreed (a) that, for the purposes of
this subsection 8.13 only, the term "Principal Shareholders" shall include
any spouse or descendant of the Principal Shareholders, and any trust,
partnership or corporation of which the Principal Shareholders, their
spouses, or their descendants are the primary beneficiaries or hold a
majority of the interests therein, as the case may be and (b) that no Event
of Default shall be deemed to arise under this subsection 8.13 as the result
of the merger or liquidation of any of Company's Subsidiaries into Company or
any other Subsidiary of Company or the contribution of the stock of any
Subsidiary of Company to Company, in each case to the extent permitted under
subsection 7.6, provided that no Event of Default would arise under this
subsection 8.13 as the result of any changes in the ownership or control of
Company or the surviving Subsidiary caused by such merger or liquidation:
THEN (i) upon the occurrence of any Event of Default described in subsection 8.6
or 8.7 with respect to the Company or any Guarantor, each of (a) the unpaid
principal amount of and accrued interest on the Loans, (b) an amount equal to
the maximum amount that may at any time be drawn under all Letters of Credit
then outstanding (whether or not any beneficiary under any such Letter of Credit
shall have presented, or shall be entitled at such time to present, the drafts
or other documents or certificates required to draw under such Letter of
Credit), and (c) all other Obligations shall automatically become immediately
due and payable, without presentment, demand, protest or other requirements of
any kind, all of which are hereby expressly waived by Company, and the
obligation of each Lender to make any Loan, the obligation of Issuing Lender
79
<PAGE>
to issue any Letter of Credit and the right of any Lender to issue any Letter of
Credit hereunder shall thereupon terminate, and (ii) upon the occurrence and
during the continuation of any other Event of Default, Agent shall, upon the
written request or with the written consent of Requisite Lenders, by written
notice to Company, declare all or any portion of the amounts described in
clauses (a) through (c) above to be, and the same shall forthwith become,
immediately due and payable, and the obligation of each Lender to make any Loan,
the obligation of Issuing Lender to issue any Letter of Credit and the right of
any Lender to issue any Letter of Credit hereunder shall thereupon terminate;
PROVIDED that the foregoing shall not affect in any way the obligations of
Lenders under subsection 3.3C(i) or the obligations of Lenders to purchase
participations in any unpaid Swing Line Loans as provided in subsection
2.1A(ii).
Any amounts described in clause (b) above, when received by Agent,
shall be held by Agent pursuant to the terms of the Collateral Account
Agreement and shall be applied as therein provided.
Notwithstanding anything contained in the second preceding
paragraph, if at any time within 60 days after an acceleration of the Loans
pursuant to such paragraph Company shall pay all arrears of interest and all
payments on account of principal which shall have become due otherwise than
as a result of such acceleration (with interest on principal and, to the
extent permitted by law, on overdue interest, at the rates specified in this
Agreement) and all Events of Default and Potential Events of Default (other
than non-payment of the principal of and accrued interest on the Loans, in
each case which is due and payable solely by virtue of acceleration) shall be
remedied or waived pursuant to subsection 10.6, then Requisite Lenders, by
written notice to Company, may at their option rescind and annul such
acceleration and its consequences; but such action shall not affect any
subsequent Event of Default or Potential Event of Default or impair any right
consequent thereon. The provisions of this paragraph are intended merely to
bind Lenders to a decision which may be made at the election of Requisite
Lenders and are not intended to benefit Company and do not grant Company the
right to require Lenders to rescind or annul any acceleration hereunder, even
if the conditions set forth herein are met.
SECTION 9. AGENT
9.1 APPOINTMENT.
BofA is hereby appointed Agent hereunder and under the other Loan
Documents and each Lender hereby authorizes Agent to act as its agent in
accordance with the terms of this Agreement and the other Loan Documents.
Agent agrees to act upon the express conditions contained in this Agreement
and the other Loan Documents, as applicable. The provisions of this Section
9 are solely for the benefit of Agent and Lenders and Company shall have no
rights as a third party beneficiary of any of the provisions thereof. In
performing its functions and duties under this Agreement, Agent shall act
solely as an agent of Lenders and does not assume and shall not be deemed to
have assumed any obligation towards or relationship of agency or trust with
or for Company or any of its Subsidiaries.
80
<PAGE>
9.2 POWERS; GENERAL IMMUNITY.
A. DUTIES SPECIFIED. Each Lender irrevocably authorizes Agent to take
such action on such Lender's behalf and to exercise such powers hereunder and
under the other Loan Documents as are specifically delegated to Agent by the
terms hereof and thereof, together with such powers as are reasonably incidental
thereto. Agent shall have only those duties and responsibilities that are
expressly specified in this Agreement and the other Loan Documents and it may
perform such duties by or through its agents or employees. Agent shall not
have, by reason of this Agreement or any of the other Loan Documents, a
fiduciary relationship in respect of any Lender; and nothing in this Agreement
or any of the other Loan Documents, expressed or implied, is intended to or
shall be so construed as to impose upon Agent any obligations in respect of this
Agreement or any of the other Loan Documents except as expressly set forth
herein or therein.
B. NO RESPONSIBILITY FOR CERTAIN MATTERS. Agent shall not be
responsible to any Lender for the execution, effectiveness, genuineness,
validity, enforceability, collectibility or sufficiency of this Agreement or
any other Loan Document or for any representations, warranties, recitals or
statements made herein or therein or made in any written or oral statements
or in any financial or other statements, instruments, reports or certificates
or any other documents furnished or made by Agent to Lenders or by or on
behalf of Company to Agent or any Lender in connection with the Loan
Documents and the transactions contemplated thereby or for the financial
condition or business affairs of Company or any other Person liable for the
payment of any Obligations, nor shall Agent be required to ascertain or
inquire as to the performance or observance of any of the terms, conditions,
provisions, covenants or agreements contained in any of the Loan Documents or
as to the use of the proceeds of the Loans or the use of the Letters of
Credit or as to the existence or possible existence of any Event of Default
or Potential Event of Default. Anything contained in this Agreement to the
contrary notwithstanding, Agent shall not have any liability arising from
confirmations of the amount of outstanding Loans or the Letter of Credit
Usage or the component amounts thereof.
C. EXCULPATORY PROVISIONS. Neither Agent nor any of its officers,
directors, employees or agents shall be liable to Lenders for any action taken
or omitted by Agent under or in connection with any of the Loan Documents except
to the extent caused by Agent's gross negligence or willful misconduct. If
Agent shall request instructions from Lenders with respect to any act or action
(including the failure to take an action) in connection with this Agreement or
any of the other Loan Documents, Agent shall be entitled to refrain from such
act or taking such action unless and until Agent shall have received
instructions from Requisite Lenders. Without prejudice to the generality of the
foregoing, (i) Agent shall be entitled to rely, and shall be fully protected in
relying, upon any communication, instrument or document believed by it to be
genuine and correct and to have been signed or sent by the proper person or
persons, and shall be entitled to rely and shall be protected in relying on
opinions and judgments of attorneys (who may be attorneys for Company and its
Subsidiaries), accountants, experts and other professional advisors selected by
it; and (ii) no Lender shall have any right of action whatsoever against Agent
as a result of Agent acting or (where so instructed) refraining from acting
under this Agreement or any of the other Loan Documents in accordance with the
instructions of Requisite Lenders. Agent shall be entitled to refrain from
exercising any power, discretion or authority
81
<PAGE>
vested in it under this Agreement or any of the other Loan Documents unless and
until it has obtained the instructions of Requisite Lenders.
D. AGENT ENTITLED TO ACT AS LENDER. The agency hereby created shall in
no way impair or affect any of the rights and powers of, or impose any duties or
obligations upon, Agent in its individual capacity as a Lender hereunder. With
respect to its participation in the Loans and the Letters of Credit, Agent shall
have the same rights and powers hereunder as any other Lender and may exercise
the same as though it were not performing the duties and functions delegated to
it hereunder, and the term "Lender" or "Lenders" or any similar term shall,
unless the context clearly otherwise indicates, include Agent in its individual
capacity. Agent and its Affiliates may accept deposits from, lend money to and
generally engage in any kind of banking, trust, financial advisory or other
business with Company or any of its Affiliates as if it were not performing the
duties specified herein, and may accept fees and other consideration from
Company for services in connection with this Agreement and otherwise without
having to account for the same to Lenders. The Lenders acknowledge that,
pursuant to such activities, BofA or its affiliates may receive information
regarding the Company (including information that may be subject to
confidentiality obligations in favor of the Company) and acknowledge that the
Agent shall be under no obligation to provide such information to them.
9.3 REPRESENTATIONS AND WARRANTIES; NO RESPONSIBILITY FOR APPRAISAL OF
CREDITWORTHINESS.
Each Lender represents and warrants that it has made its own
independent investigation of the financial condition and affairs of Company
and its Subsidiaries in connection with the making of the Loans and the
issuance of Letters of Credit hereunder and that it has made and shall
continue to make its own appraisal of the creditworthiness of Company and its
Subsidiaries. Agent shall not have any duty or responsibility, either
initially or on a continuing basis, to make any such investigation or any
such appraisal on behalf of Lenders or to provide any Lender with any credit
or other information with respect thereto, whether coming into its possession
before the making of the Loans or at any time or times thereafter, and Agent
shall not have any responsibility with respect to the accuracy of or the
completeness of any information provided to Lenders.
9.4 RIGHT TO INDEMNITY.
Each Lender, in proportion to its Pro Rata Share, severally agrees
to indemnify Agent, to the extent that Agent shall not have been reimbursed
by Company, for and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses (including,
without limitation, counsel fees and disbursements) or disbursements of any
kind or nature whatsoever which may be imposed on, incurred by or asserted
against Agent in performing its duties hereunder or under the other Loan
Documents or otherwise in its capacity as Agent in any way relating to or
arising out of this Agreement or the other Loan Documents; PROVIDED that no
Lender shall be liable for any portion of such liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements resulting from Agent's gross negligence or willful misconduct.
If any indemnity furnished to Agent for any purpose shall, in the opinion of
Agent, be insufficient or become impaired, Agent may call for additional
indemnity and cease, or not commence, to do the acts indemnified against
until such
82
<PAGE>
additional indemnity is furnished. Should Agent receive reimbursement from
Company of any amount as to which Agent shall have theretofore received payment
from Lenders under this subsection 9.4, Agent shall, to the extent it receives
reimbursement from Company, remit to Lenders their ratable share of the amount
so reimbursed.
9.5 SUCCESSOR AGENT.
A. SUCCESSOR AGENT. Agent may resign at any time by giving 30 days'
prior written notice thereof to Lenders and Company, and Agent may be removed at
any time with or without cause by an instrument or concurrent instruments in
writing delivered to Company and Agent and signed by Requisite Lenders. Upon
any such notice of resignation or any such removal, Requisite Lenders and the
Company (unless an Event of Default has occurred and is continuing) shall have
the right to appoint a successor Agent. Upon the acceptance of any appointment
as Agent hereunder by a successor Agent, that successor Agent shall thereupon
succeed to and become vested with all the rights, powers, privileges and duties
of the retiring or removed Agent and the retiring or removed Agent shall be
discharged from its duties and obligations under this Agreement. After any
retiring or removed Agent's resignation or removal hereunder as Agent, the
provisions of this Section 9 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 is appointed prior to the effective date of the resignation of
the Agent, the Agent may appoint, after consulting with the Lenders and the
Company, a successor agent from among the Lenders. If no successor agent has
accepted appointment as Agent by the date which is 30 days following or retiring
Agent's notice of resignation, the retiring Agent's resignation shall
nevertheless thereupon become effective and the Lenders shall perform all of the
duties of the Agent hereunder until such time, if any, as the Requisite Lenders
appoint a successor agent as provided for above.
B. SUCCESSOR SWING LINE LENDER. Any resignation or removal of Agent
pursuant to subsection 9.5A shall also constitute the resignation or removal of
BofA or its successor as Swing Line Lender, and any successor Agent appointed
pursuant to subsection 9.5A shall, upon its acceptance of such appointment,
become the successor Swing Line Lender for all purposes hereunder. In such
event (i) Company shall prepay any outstanding Swing Line Loans made by the
retiring or removed Agent in its capacity as Swing Line Lender, (ii) upon such
prepayment, the retiring or removed Agent and Swing Line Lender shall surrender
any Swing Line Note held by it to Company for cancellation, and (iii) if so
requested by the successor Agent and Swing Line Lender in accordance with
subsection 2.1E, Company shall issue a new Swing Line Note to the successor
Agent and Swing Line Lender substantially in the form of EXHIBIT V annexed
hereto, in the principal amount of the Swing Line Loan Commitment then in effect
and with other appropriate insertions.
C. SUCCESSOR ISSUING LENDER. Any resignation or removal of Agent
pursuant to subsection 9.5A shall also constitute the resignation or removal of
BofA or its successor as Issuing Lender with respect to any Letter of Credit
that has not yet been issued as of the date of resignation or removal, and any
successor Agent appointed pursuant to subsection 9.5A shall, upon its
acceptance of such appointment, become the successor Issuing Lender for all
purposes hereunder with respect to Letters of Credit issued after the date of
such appointment.
83
<PAGE>
9.6 COLLATERAL DOCUMENTS.
Each Lender hereby further authorizes Agent to enter into the
Collateral Documents, as secured party on behalf of and for the benefit of each
Lender (as a Lender hereunder), and agrees to be bound by the terms of each such
Collateral Document; PROVIDED that, except as provided in the next paragraph of
this subsection, Agent shall not enter into or consent to any amendment,
modification, termination or waiver of any provision contained in the Collateral
Documents without the prior consent of Requisite Lenders; PROVIDED FURTHER that
Agent shall not, except as provided in the next paragraph of this subsection,
enter into any such amendment, modification, termination or waiver if the effect
thereof is to release any Collateral from the Lien purported to be granted
thereunder, to terminate any such agreement or to release any party from its
obligations thereunder. Anything contained in any of the Loan Documents to the
contrary notwithstanding, each Lender agrees that no Lender shall have any right
individually to realize upon any of the Collateral under any Collateral
Document, it being understood and agreed that all rights and remedies under the
Collateral Documents may be exercised solely by Agent for the benefit of all
Lenders in accordance with the terms thereof.
Notwithstanding any provisions of this Agreement to the contrary,
Agent is hereby authorized to and shall, upon the terms and conditions set forth
in the Collateral Documents, and provided no Event of Default has occurred and
is continuing or would result therefrom, release any Collateral encumbered
thereunder, in connection with any sale, transfer or other disposition of such
Collateral permitted under subsection 7.6.
SECTION 10. MISCELLANEOUS
10.1 ASSIGNMENTS AND PARTICIPATIONS IN LOANS AND LETTERS OF CREDIT.
A. GENERAL. Subject to the provisions of this Section 10, each Lender
shall have the right at any time to sell, assign or transfer to any Eligible
Assignee all or any part of its Commitments or any Loan or Loans made by it or
its Letters of Credit or participations therein or any other interest herein or
in any other Obligations owed to it; PROVIDED that no such sale, assignment or
transfer shall, without the consent of Company, require Company to file a
registration statement with the SEC or apply to qualify such sale, assignment or
transfer under the securities laws of any state; PROVIDED FURTHER that no such
sale, assignment or transfer of any Letter of Credit or any participation
therein may be made separately from a sale, assignment or transfer of a
corresponding interest in the Revolving Loan Commitment and the Revolving Loans
of the Lender effecting such sale, assignment or transfer; and PROVIDED, FURTHER
that, anything contained herein to the contrary notwithstanding, the Swing Line
Loan Commitment and the Swing Line Loans of Swing Line Lender may not be sold,
assigned or transferred as described above to any Person other than a successor
Agent and Swing Line Lender to the extent contemplated by subsection 9.5.
Except as otherwise provided in this subsection 10.1, no Lender shall, as
between Company and such Lender, be relieved of any of its obligations hereunder
as a result of any sale, assignment or transfer of all or any part of its
Commitments or the Loans, the Letters of Credit or participations therein, or
the other Obligations owed to such Lender.
84
<PAGE>
B. ASSIGNMENTS.
(i) AMOUNTS AND TERMS OF ASSIGNMENTS. Each Lender proposing to make
any assignment of its Commitment, Loans, Letters of Credits or
participations therein, or other Obligations shall provide Company with at
least ten (10) Business Day's prior written notice of such assignment and
the intended assignee. Each Commitment, Loan, Letter of Credit or
participation therein, or other Obligation may (a) be assigned in any
amount to another Lender, or to an Affiliate of the assigning Lender or
another Lender, with the giving of notice to Company and Agent or (b) be
assigned in an aggregate amount of not less than $10,000,000 to any other
Eligible Assignee with the consent of Company and Agent (which consent of
Agent shall not be unreasonably withheld); PROVIDED that any such
assignment in accordance with either clause (a) or (b) above shall effect
a pro rata assignment of the Revolving Loans (and participations in
Letters of Credit) and the Revolving Loan Commitment of the assigning
Lender, on the other hand. To the extent of any such assignment in
accordance with either clause (a) or (b) above, the assigning Lender shall
be relieved of its obligations with respect to its Commitments, Loans,
Letters of Credit or participations therein, or other Obligations or the
portion thereof so assigned. The parties to each such assignment shall
execute and deliver to Agent, for its acceptance, an Assignment Agreement,
together with a processing fee of $3,500 and such forms, certificates or
other evidence, if any, with respect to United States federal income tax
withholding matters as the assignee under such Assignment Agreement may be
required to deliver to Agent pursuant to subsection 2.7B(iii)(a). Upon
such execution, delivery , acceptance and recordation in the Register,
from and after the effective date specified in such Assignment Agreement,
(y) 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 Agreement, shall have the rights and obligations of a
Lender hereunder and (z) the assigning Lender thereunder shall, to the
extent that rights and obligations hereunder have been assigned by it
pursuant to such Assignment Agreement, relinquish its rights and be
released from its obligations under this Agreement (and, in the case of an
Assignment Agreement covering all or the remaining portion of an assigning
Lender's rights and obligations under this Agreement, such Lender shall
cease to be a party hereto). The Commitments hereunder shall be modified
to reflect the Commitment of such assignee and any remaining Commitment of
such assigning Lender and, if any such assignment occurs after the
issuance of any Notes hereunder, the assigning Lender shall, upon the
effectiveness of such assignment or as promptly thereafter as practicable,
surrender its applicable Notes, if any, to Agent for cancellation, and
thereupon new Notes shall, if so requested by the assignee and/or the
assigning Lender in accordance with subsection 2.1E, be issued to the
assignee and/or to the assigning Lender.
(ii) ACCEPTANCE BY AGENT; RECORDATION IN REGISTER. Upon its receipt
of an Assignment Agreement executed by an assigning Lender and an assignee
representing that it is an Eligible Assignee, together with the processing
fee referred to in subsection 10.1B(i) and any forms, certificates or
other evidence with respect to United States federal income tax
withholding matters that such assignee may be required to deliver to Agent
pursuant to subsection 2.7B(iii)(a), Agent shall, if such Assignment
Agreement has
85
<PAGE>
been completed and is in substantially the form of EXHIBIT VIII hereto and
if Agent and Company have consented to the assignment evidenced thereby
(in each case to the extent such consent is required pursuant to
subsection 10.1B(i)), (a) accept such Assignment Agreement by executing a
counterpart thereof as provided therein (which acceptance shall evidence
any required consent of Agent to such assignment), (b) record the
information contained therein in the Register, and (c) give prompt notice
thereof to Company. Agent shall maintain a copy of each Assignment
Agreement delivered to and accepted by it as provided in this subsection
10.1B(ii).
C. NO PARTICIPATIONS. No Lender shall sell or grant participations to
any Person in all or any part of its Commitments or any Loan or Loans made by
it or its Letters of Credit or participations therein or any other interest
herein or in any other Obligations owed to it except for participations
required to be sold or granted to, or required to be purchased by, other
Lenders pursuant to the express terms of this Agreement; PROVIDED that a
Lender may sell or grant a participation to its own Affiliate.
D. ASSIGNMENTS TO FEDERAL RESERVE BANKS. In addition to the assignments
permitted under the foregoing provisions of this subsection 10.1, any Lender may
assign and pledge all or any portion of its Loans, the other Obligations owed to
such Lender, and its Notes to any Federal Reserve Bank as collateral security
pursuant to Regulation A of the Board of Governors of the Federal Reserve System
and any operating circular issued by such Federal Reserve Bank; PROVIDED that
(i) no Lender shall, as between Company and such Lender, be relieved of any of
its obligations hereunder as a result of any such assignment and pledge and
(ii) in no event shall such Federal Reserve Bank be considered to be a "Lender"
or be entitled to require the assigning Lender to take or omit to take any
action hereunder.
E. INFORMATION. Each Lender, if it obtains prior written approval from
Company, may furnish any information concerning Company and its Subsidiaries in
the possession of that Lender from time to time to assignees and prospective
assignees, in each case subject to subsection 10.19.
10.2 EXPENSES.
Whether or not the transactions contemplated hereby shall be
consummated, Company agrees to pay promptly (i) all the actual and reasonable
costs and expenses of preparation of the Loan Documents; (ii) all the costs
of furnishing all opinions by counsel for Company (including without
limitation any opinions requested by Lenders as to any legal matters arising
hereunder) and of Company's performance of and compliance with all agreements
and conditions on its part to be performed or complied with under this
Agreement and the other Loan Documents including, without limitation, with
respect to confirming compliance with environmental and insurance
requirements; (iii) the reasonable fees, expenses and disbursements of
counsel to Agent (including allocated costs of internal counsel) in
connection with the negotiation, preparation, execution and administration of
the Loan Documents and the Loans and any consents, amendments, waivers or
other modifications hereto or thereto and any other documents or matters
requested by Company; (iv) all other actual and reasonable costs and expenses
incurred by Agent in connection with the syndication of the Commitments and
the negotiation, preparation and execution of the Loan Documents and the
transactions contemplated
86
<PAGE>
hereby and thereby; and (v) after the occurrence of an Event of Default, all
costs and expenses, including reasonable attorneys' fees (including allocated
costs of internal counsel) and costs of settlement, incurred by Agent and
Lenders in enforcing any Obligations of or in collecting any payments due from
Company hereunder or under the other Loan Documents by reason of such Event of
Default or in connection with any refinancing or restructuring of the credit
arrangements provided under this Agreement in the nature of a "work-out" or
pursuant to any insolvency or bankruptcy proceedings.
10.3 INDEMNITY.
In addition to the payment of expenses pursuant to subsection 10.2,
whether or not the transactions contemplated hereby shall be consummated,
Company agrees to defend, indemnify, pay and hold harmless Agent and Lenders,
and the officers, directors, employees, agents and affiliates of Agent and
Lenders (collectively called the "INDEMNITEES") from and against any and all
other liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, claims, reasonable costs, expenses and disbursements of any
kind or nature whatsoever (including without limitation the reasonable fees
and disbursements of counsel for such Indemnitees in connection with any
investigative, administrative or judicial proceeding commenced or threatened
by any Person, whether or not any such Indemnitee shall be designated as a
party or a potential party thereto), whether direct, indirect or
consequential and whether based on any federal, state or foreign laws,
statutes, rules or regulations (including without limitation securities and
commercial laws, statutes, rules or regulations and Environmental Laws), on
common law or equitable cause or on contract or otherwise, that may be
imposed on, incurred by, or asserted against any such Indemnitee, in any
manner relating to or arising out of this Agreement or the other Loan
Documents or the transactions contemplated hereby or thereby (including
without limitation Lenders' agreement to make the Loans hereunder or the use
or intended use of the proceeds of any of the Loans or the issuance of
Letters of Credit hereunder or the use or intended use of any of the Letters
of Credit) or the statements contained in the commitment letter delivered by
any Lender to Company with respect thereto (collectively called the
"INDEMNIFIED LIABILITIES"); PROVIDED that Company shall not have any
obligation to any Indemnitee hereunder with respect to any Indemnified
Liabilities to the extent such Indemnified Liabilities arise solely from the
gross negligence or willful misconduct of that Indemnitee as determined by a
court of competent jurisdiction. To the extent that the undertaking to
defend, indemnify, pay and hold harmless set forth in the preceding sentence
may be unenforceable because it is violative of any law or public policy,
Company shall contribute the maximum portion that it is permitted to pay and
satisfy under applicable law to the payment and satisfaction of all
Indemnified Liabilities incurred by the Indemnitees or any of them.
10.4 SET-OFF; SECURITY INTEREST IN DEPOSIT ACCOUNTS.
In addition to any rights now or hereafter granted under
applicable law and not by way of limitation of any such rights, upon the
occurrence and during the continuance of any Event of Default each Lender is
hereby authorized by Company at any time or from time to time, without notice
to Company or to any other Person, any such notice being hereby expressly
waived, to set off and to appropriate and to apply any and all deposits
(general or special, including, but not limited to, Indebtedness evidenced by
certificates of deposit, whether matured or unmatured, but not including
trust accounts) and any other Indebtedness at any time held or
87
<PAGE>
owing by that Lender to or for the credit or the account of Company against and
on account of the obligations and liabilities of Company to that Lender under
this Agreement, the Letters of Credit and participations therein and the other
Loan Documents, including, but not limited to, all claims of any nature or
description arising out of or connected with this Agreement, the Letters of
Credit and participations therein or any other Loan Document, irrespective of
whether or not (i) that Lender shall have made any demand hereunder or (ii) the
principal of or the interest on the Loans or any amounts in respect of the
Letters of Credit or any other amounts due hereunder shall have become due and
payable pursuant to Section 8.
10.5 RATABLE SHARING.
Lenders hereby agree among themselves that if any of them shall,
whether by voluntary payment, by realization upon security, through the
exercise of any right of set-off or banker's lien, by counterclaim or cross
action or by the enforcement of any right under the Loan Documents or
otherwise, or as adequate protection of a deposit treated as cash collateral
under the Bankruptcy Code, receive payment or reduction of a proportion of
the aggregate amount of principal, interest, amounts payable in respect of
Letters of Credit, fees and other amounts then due and owing to that Lender
hereunder or under the other Loan Documents (collectively, the "AGGREGATE
AMOUNTS DUE" to such Lender) which is greater than the proportion received by
any other Lender in respect of the Aggregate Amounts Due to such other
Lender, then the Lender receiving such proportionately greater payment shall
(i) notify Agent and each other Lender of the receipt of such payment and
(ii) apply a portion of such payment to purchase participations (which it
shall be deemed to have purchased from each seller of a participation
simultaneously upon the receipt by such seller of its portion of such
payment) in the Aggregate Amounts Due to the other Lenders so that all such
recoveries of Aggregate Amounts Due shall be shared by all Lenders in
proportion to the Aggregate Amounts Due to them; PROVIDED that if all or part
of such proportionately greater payment received by such purchasing Lender is
thereafter recovered from such Lender upon the bankruptcy or reorganization
of Company or otherwise, those purchases shall be rescinded and the purchase
prices paid for such participations shall be returned to such purchasing
Lender ratably to the extent of such recovery, but without interest. Company
expressly consents to the foregoing arrangement and agrees that any holder of
a participation so purchased may, subject to subsection 10.4, exercise any
and all rights of banker's lien, set-off or counterclaim with respect to any
and all monies owing by Company to that holder with respect thereto as fully
as if that holder were owed the amount of the participation held by that
holder.
10.6 AMENDMENTS AND WAIVERS.
No amendment, modification, termination or waiver of any provision
of this Agreement or of the Notes, or consent to any departure by Company
therefrom, shall in any event be effective without the written concurrence of
Requisite Lenders; PROVIDED that any such amendment, modification,
termination, waiver or consent which: increases the amount of any of the
Commitments or reduces the principal amount of any of the Loans; increases
the maximum amount of Letters of Credit; changes any Lender's Pro Rata Share;
changes in any manner the definition of "Requisite Lenders"; changes in any
manner any provision of this Agreement which, by its terms, expressly
requires the approval or concurrence of all Lenders; postpones the scheduled
final maturity date of any of the Loans; postpones the date on which any
interest or any fees are payable; decreases the interest rate borne by any of
the Loans (other than any waiver
88
<PAGE>
of any increase in the interest rate applicable to any of the Loans pursuant to
subsection 2.2E) or the amount of any commitment and letter of credit fees
payable hereunder; increases the maximum duration of Interest Periods permitted
hereunder; reduces the amount or postpones the due date of any amount payable in
respect of, or extends the required expiration date of, any Letter of Credit;
changes in any manner the obligations of Lenders relating to the purchase of
participations in Letters of Credit or the making of Refunded Swing Line Loans;
or changes in any manner the provisions contained in subsection 8.1 or this
subsection 10.6 shall be effective only if evidenced by a writing signed by or
on behalf of all Lenders. In addition, (i) no amendment, modification,
termination or waiver of any provision of any Note shall be effective without
the written concurrence of the Lender which is the holder of that Note, (ii) no
amendment, modification, termination or waiver of any provision of subsection
2.1A(ii) or of any other provision of this Agreement relating to the Swing Line
Loan Commitment or the Swing Line Loans shall be effective without the written
concurrence of Swing Line Lender, (iii) no amendment, modification, termination
or waiver of any provision of Section 3 or of any other provision of this
Agreement relating to the Letters of Credit shall be effective without the
written concurrence of the Issuing Lender and (iv) no amendment, modification,
termination or waiver of any provision of Section 9 or of any other provision of
this Agreement which, by its terms, expressly requires the approval or
concurrence of Agent shall be effective without the written concurrence of
Agent. Agent may, but shall have no obligation to, with the concurrence of any
Lender, execute amendments, modifications, waivers or consents on behalf of that
Lender. Any waiver or consent shall be effective only in the specific instance
and for the specific purpose for which it was given. No notice to or demand on
Company in any case shall entitle Company to any other or further notice or
demand in similar or other circumstances. Any amendment, modification,
termination, waiver or consent effected in accordance with this subsection 10.6
shall be binding upon each Lender at the time outstanding, each future Lender
and, if signed by Company, on Company.
10.7 INDEPENDENCE OF COVENANTS.
All covenants hereunder shall be given independent effect so that
if a particular action or condition is not permitted by any of such
covenants, the fact that it would be permitted by an exception to, or would
otherwise be within the limitations of, another covenant shall not avoid the
occurrence of an Event of Default or Potential Event of Default if such
action is taken or condition exists.
10.8 NOTICES.
Unless otherwise specifically provided herein, any notice or other
communication herein required or permitted to be given shall be in writing
and may be personally served, telexed or sent by telefacsimile or United
States mail or courier service and shall be deemed to have been given when
delivered in person or by courier service, upon receipt of telefacsimile or
telex, or three Business Days after depositing it in the United States mail
with postage prepaid and properly addressed; PROVIDED that notices to Agent
shall not be effective until received. For the purposes hereof, the address
of each party hereto shall be as set forth under such party's name on the
signature pages hereof or (i) as to Company and Agent, such other address as
shall be designated by such Person in a written notice delivered to the other
parties hereto and (ii) as to
89
<PAGE>
each other party, such other address as shall be designated by such party in a
written notice delivered to Agent.
10.9 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
A. All representations, warranties and agreements made herein shall
survive the execution and delivery of this Agreement and the making of the Loans
and the issuance of the Letters of Credit hereunder.
B. Notwithstanding anything in this Agreement or implied by law to the
contrary, the agreements of Company set forth in subsections 2.6C, 2.7, 3.5A,
3.6, 10.2 and 10.3 and the agreements of Lenders set forth in subsections 9.2C,
9.4 and 10.5 shall survive the payment of the Loans, the cancellation or
expiration of the Letters of Credit and the reimbursement of any amounts drawn
thereunder, and the termination of this Agreement.
10.10 FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE.
No failure or delay on the part of Agent or any Lender in the
exercise of any power, right or privilege hereunder or under any other Loan
Document shall impair such power, right or privilege or be construed to be a
waiver of any default or acquiescence therein, nor shall any single or
partial exercise of any such power, right or privilege preclude other or
further exercise thereof or of any other power, right or privilege. All
rights and remedies existing under this Agreement and the other Loan
Documents are cumulative to, and not exclusive of, any rights or remedies
otherwise available.
10.11 MARSHALLING; PAYMENTS SET ASIDE.
Neither Agent nor any Lender shall be under any obligation to
marshal any assets in favor of Company or any other party or against or in
payment of any or all of the Obligations. To the extent that Company makes a
payment or payments to Agent or Lenders (or to Agent for the benefit of
Lenders), or Agent or Lenders enforce any security interests or exercise
their rights of setoff, and such payment or payments or the proceeds of such
enforcement or setoff or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside and/or required to be
repaid to a trustee, receiver or any other party under any bankruptcy law,
any other state or federal law, common law or any equitable cause, then, to
the extent of such recovery, the obligation or part thereof originally
intended to be satisfied, and all Liens, rights and remedies therefor or
related thereto, shall be revived and continued in full force and effect as
if such payment or payments had not been made or such enforcement or setoff
had not occurred.
10.12 SEVERABILITY.
In case any provision in or obligation under this Agreement or the
Notes shall be invalid, illegal or unenforceable in any jurisdiction, the
validity, legality and enforceability of the remaining provisions or
obligations, or of such provision or obligation in any other jurisdiction,
shall not in any way be affected or impaired thereby.
90
<PAGE>
10.13 OBLIGATIONS SEVERAL; INDEPENDENT NATURE OF LENDERS' RIGHTS.
The obligations of Lenders hereunder are several and no Lender
shall be responsible for the obligations or Commitments of any other Lender
hereunder. Nothing contained herein or in any other Loan Document, and no
action taken by Lenders pursuant hereto or thereto, shall be deemed to
constitute Lenders as a partnership, an association, a joint venture or any
other kind of entity. The amounts payable at any time hereunder to each
Lender shall be a separate and independent debt, and each Lender shall be
entitled to protect and enforce its rights arising out of this Agreement and
it shall not be necessary for any other Lender to be joined as an additional
party in any proceeding for such purpose.
10.14 HEADINGS.
Section and subsection headings in this Agreement are included
herein for con venience of reference only and shall not constitute a part of
this Agreement for any other purpose or be given any substantive effect.
10.15 APPLICABLE LAW.
THIS AGREEMENT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF CALIFORNIA,
WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
10.16 SUCCESSORS AND ASSIGNS.
This Agreement shall be binding upon the parties hereto and their
respective successors and assigns and shall inure to the benefit of the parties
hereto and the successors and assigns of Lenders (it being understood that
Lenders' rights of assignment are subject to subsection 10.1). Neither
Company's rights or obligations hereunder nor any interest therein may be
assigned or delegated by Company without the prior written consent of all
Lenders.
10.17 CONSENT TO JURISDICTION AND SERVICE OF PROCESS.
ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST COMPANY ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR ANY OBLIGATION MAY
BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE
STATE OF CALIFORNIA, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT COMPANY
ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND
UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS AND
WAIVES ANY DEFENSE OF FORUM NON CONVENIENS AND IRREVOCABLY AGREES TO BE BOUND
BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT, SUCH
OTHER LOAN DOCUMENT OR SUCH OBLIGATION. Company hereby agrees that service
of all process in any such proceeding in any such court may be made by
registered or certified mail, return receipt requested, to Company at its
address provided in subsection 10.8,
91
<PAGE>
such service being hereby acknowledged by Company to be sufficient for personal
jurisdiction in any action against Company in any such court and to be otherwise
effective and binding service in every respect. Nothing herein shall affect the
right to serve process in any other manner permitted by law or shall limit the
right of any Lender to bring proceedings against Company in the courts of any
other jurisdiction.
10.18 WAIVER OF JURY TRIAL.
EACH OF THE PARTIES TO THIS AGREEMENT HEREBY AGREES TO WAIVE ITS
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR ANY DEALINGS
BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS LOAN TRANSACTION OR THE
LENDER/BORROWER RELATIONSHIP THAT IS BEING ESTABLISHED. The scope of this
waiver is intended to be all-encompassing of any and all disputes that may be
filed in any court and that relate to the subject matter of this transaction,
including without limitation contract claims, tort claims, breach of duty claims
and all other common law and statutory claims. Each party hereto acknowledges
that this waiver is a material inducement to enter into a business relationship,
that each has already relied on this waiver in entering into this Agreement, and
that each will continue to rely on this waiver in their related future dealings.
Each party hereto further warrants and represents that it has reviewed this
waiver with its legal counsel and that it knowingly and voluntarily waives its
jury trial rights following consultation with legal counsel. THIS WAIVER IS
IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING,
AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS
OR MODIFICATIONS TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR TO ANY
OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE LOANS MADE HEREUNDER. In the
event of litigation, this Agreement may be filed as a written consent to a trial
by the court.
10.19 CONFIDENTIALITY.
Each Lender shall hold all non-public information obtained
pursuant to the requirements of this Agreement which has been identified as
confidential by Company (it being agreed that information marked or bearing a
legend reading "Confidential" shall be so identified) in accordance with such
Lender's customary procedures for handling confidential information of this
nature and in accordance with safe and sound banking practices, it being
understood and agreed by Company that in any event a Lender may make
disclosures reasonably required by any bona fide assignee or transferee in
connection with the contemplated assignment or transfer by such Lender of any
Loans (with the prior written consent of Company) or as required or requested
by any governmental agency or representative thereof or pursuant to legal
process; PROVIDED that, unless specifically prohibited by applicable law or
court order, each Lender shall notify Company of any request by any
governmental agency or representative thereof (other than any such request in
connection with any examination of the financial condition of such Lender by
such governmental agency) for disclosure of any such non-public information
prior to disclosure of such information; and PROVIDED FURTHER that in no
event shall any Lender be obligated or required to return any materials
furnished by Company or any of its Subsidiaries.
92
<PAGE>
10.20 COUNTERPARTS; EFFECTIVENESS.
This Agreement and any amendments, waivers, consents or
supplements hereto or in connection herewith may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each
of which when so executed and delivered shall be deemed an original, but all
such counterparts together shall constitute but one and the same instrument;
signature pages may be detached from multiple separate counterparts and
attached to a single counterpart so that all signature pages are physically
attached to the same document. This Agreement shall become effective upon
the execution of a counterpart hereof by each of the parties hereto and
receipt by Company and Agent of written or telephonic notification of such
execution and authorization of delivery thereof.
10.21 EXISTING CREDIT AGREEMENT
Each of the Lenders agrees, for the benefit of the Company and each Person
Party to the Existing Credit Agreement or any Loan Documents (as defined in the
Existing Credit Agreement), that the Existing Credit Agreement and all Loan
Documents (as defined in the Existing Credit Agreement), except for the
Shareholder Pledge Agreement, are hereby superceded in their entirety by this
Agreement and terminated (notwithstanding any provisions relating to termination
contained in the Loan Documents (as defined in the Existing Credit Agreement))
and shall be of no further force and effect.
[Remainder of page intentionally left blank]
93
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed and delivered by their respective officers thereunto duly
authorized as of the date first written above.
COMPANY: OAKLEY, INC.
By: /s/ Thomas George
-----------------------------------------------
Name: Thomas A. George
Title: CFO
Notice Address:
Oakley, Inc.
One Icon
Foothill Ranch, California 92610
TELECOPY: (714) 454-0394
ATTENTION: Thomas George, Chief Financial Officer
S-1
<PAGE>
AGENT: BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION, AS AGENT
By: /s/ Patrick W. Zetzman
-----------------------------------------------
Name: Patrick W. Zetzman
Title: Vice President
Notice Address:
Bank of America National Trust and Savings
Association
Agency Management #10831
1455 Market Street, 12th Floor
San Francisco, CA 94103
Attention: Patrick Zetzman, Vice President
S-2
<PAGE>
LENDERS: BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
By: /s/ Elizabeth Amendt
-----------------------------------------------
Name: Elizabeth Amendt
Title: Vice President
Notice Address:
Bank of America
675 Anton Boulevard, 2nd Floor
Costa Mesa, California 92626
Telecopy: (714) 850-6586
Attention: Ms. Elizabeth M. Amendt
S-3
<PAGE>
UNION BANK OF CALIFORNIA, N.A.
By: /s/ Margaret Furbank
-----------------------------------------------
Name: Margaret Furbank
Title: Vice President
Notice Address:
Union Bank of California, N.A.
500 South Main Street, Suite 200
Orange, California 92868
Telecopy: (714) 565-5770
Attention: Ms. Margaret Yetter Furbank
S-4
<PAGE>
THE CHASE MANHATTAN BANK
By: /s/ Maureen Morgan
-----------------------------------------------
Name: Maureen Morgan
Title: Vice President
Notice Address:
The Chase Manhattan Bank
1375 Broadway, 8th Floor
New York, New York 10018
Telecopy: (212) 827-4497
Attention: Maureen Morgan, Vice President
S-5
<PAGE>
RECORDING REQUESTED BY AND )
WHEN RECORDED MAIL TO: )
Bank of America National )
Trust and Savings Association )
California Real Estate )
Specialty Unit No. #16617 )
50 California Street, 12th Floor )
San Francisco, CA 94111 )
Attn.: Pam Edwards )
Loan No. 1777-3029857 )
Space Above for Recorder's Use
MODIFICATION AGREEMENT
(SHORT FORM)
This Modification Agreement ("Agreement") is made as of August 10, 1998,
by OAKLEY, INC., a Washington corporation ("Borrower") and Bank of America
National Trust and Savings Association, a national banking association
("Bank").
FACTUAL BACKGROUND
A. Under a loan agreement dated August 7, 1997 (the "Loan Agreement"),
Bank agreed to make a standing loan (the "Loan") to Borrower. Capitalized
terms used here without definition have the meanings given to them in the
Loan Agreement.
B. The Loan is evidenced by a Note dated August 7, 1997, made payable
to Bank in the stated principal amount of $22,780,000.00. The Note is
secured by a Deed of Trust dated August 7, 1997, executed by Borrower, as
trustor, to Equitable Deed Company, a California corporation, as trustee, for
the benefit of Bank, as beneficiary. The Deed of Trust was recorded on
August 26, 1997 in the Official Records of Orange County, California as
Instrument No. 19970414714. The Deed of Trust encumbers certain Property
located in Orange County, California, as more particularly therein described.
C. As used here, the term "Loan Documents" means the Loan Agreement,
the Note, the Deed of Trust, and any other documents executed in connection
with the Loan, including those which evidence, guaranty, secure or modify the
Loan, as any or all of them may have been amended to date.
D. Bank and Borrower have agreed to modify the Loan as provided in a
long form Modification Agreement (the "Modification Agreement") of the same
date as this Agreement. This Agreement and the Modification Agreement are
Loan Documents.
-1-
<PAGE>
AGREEMENT
Therefore, Borrower and Bank agree as follows:
1. The Modification Agreement is incorporated in this Agreement by
this reference, the same as though set forth here in full.
2. The Loan is amended on the terms and subject to the conditions of
the Modification Agreement. The maturity date of the Loan is extended from
September 1, 2002 to September 1, 2007. All sums owing on the Loan shall be
due and payable no later than this extended maturity date.
3. The Spread as defined in Section 2.A. of the Promissory Note dated
August 7, 1997 by and between Bank and Borrower is hereby decreased from 1.15%
to 1.00.
4. The Deed of Trust is modified to secure payment and performance of
the Loan as amended to date, in addition to all other "Secured Obligations"
as therein defined. The foregoing notwithstanding, certain obligations
continue to be excluded from the Secured Obligations, as provided in the Deed
of Trust.
IN WITNESS WHEREOF, Bank and Borrower have executed this Agreement as of
the date first above written.
OAKLEY, INC.
a Washington corporation
By:
------------------------------------
Tom George
Its: Chief Financial Officer
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION,
a national banking association
By:
------------------------------------
Name:
------------------------------------
Title:
------------------------------------
(ALL SIGNATURES MUST BE ACKNOWLEDGED)
-2-
<PAGE>
[LOGO]
BANK OF AMERICA
- --------------------------------------------------------------------------------
MODIFICATION AGREEMENT
(LONG FORM)
This Modification Agreement ("Agreement") is made as of August 10, 1998,
by OAKLEY, INC., a Washington corporation ("Borrower") and Bank of America
National Trust and Savings Association, a national banking association
("Bank").
FACTUAL BACKGROUND
A. Under a loan agreement dated August 7, 1997 (the "Loan Agreement"),
Bank agreed to make a standing loan (the "Loan") to Borrower. Capitalized terms
used here without definition have the meanings given to them in the Loan
Agreement.
B. The Loan is evidenced by a Note dated August 7, 1997, made payable to
Bank in the stated principal amount of $22,780,000.00. The Note is secured by a
Deed of Trust dated August 7, 1997, executed by Borrower, as trustor to
Equitable Deed Company, a California corporation, as trustee, for the benefit of
Bank, as beneficiary. The Deed of Trust was recorded on August 26, 1997 in the
Official Records of Orange County, California as Instrument No. 19970414714.
The Deed of Trust encumbers certain Property located in Orange County,
California, as more particularly therein described.
C. As used here, the term "Loan Documents" means the Loan Agreement, the
Note, the Deed of Trust, and any other documents executed in connection with the
Loan, including those which evidence, guaranty, secure or modify the Loan, as
any or all of them may have been amended to date. This Agreement is a Loan
Document.
D. As of the date of this Agreement, the outstanding principal balance of
the Loan is $21,640,999.00.
E. Borrower and Bank now wish to modify the Loan as set forth below.
AGREEMENT
Therefore, Borrower and Bank agree as follows:
1. RECITALS. The recitals set forth above in the Factual Background are
true, accurate and correct.
2. REAFFIRMATION OF LOAN. Borrower reaffirms all of its obligations
under the Loan Documents and Borrower acknowledges that it has no claims,
offsets or defenses with respect to the payment of sums due under the Note or
any other Loan Document.
3. MODIFICATION OF LOAN DOCUMENTS. The Loan Documents are hereby amended
as follows:
(a) The maturity date of the Loan is extended from September 1, 2002 to
September 1, 2007. All sums owing on the Loan shall be due and payable no later
than this extended maturity date.
(b) The Spread as defined in Section 2.A. of the Promissory Note dated
August 7, 1997 by and between Bank and Borrower is hereby decreased from 1.15%
to 1.00.
(c) Section 2.13 (e) of the Standing Loan Agreement is hereby amended
and restated:
(e) ENTER INTO ANY CONSOLIDATION, MERGER, POOL, JOINT VENTURE, SYNDICATE
OR OTHER COMBINATION, NOTWITHSTANDING THE FOREGOING, BORROWER MAY ENTER INTO ANY
CONSOLIDATION, MERGER, POOL, JOINT VENTURE, SYNDICATE OR OTHER COMBINATION
PERMITTED UNDER THE SECOND AMENDED AND RESTATED CREDIT AGREEMENT DATED AS OF
AUGUST 25, 1998, AS AMENDED FROM TIME TO TIME, AMONG BORROWER, THE LENDERS
LISTED THEREIN AND BANK OF AMERICA AS AGENT.
(d) The Deed of Trust is modified to secure payment and performance of the
Loan as amended to date, in addition to all other "Secured Obligations" as
therein defined. The foregoing notwithstanding, certain obligations continue to
be excluded from the Secured Obligations, a provided in the Deed of Trust.
4. CONDITIONS PRECEDENT. Before this Agreement becomes effective and any
party becomes obligated under it, all of the following conditions shall have
been satisfied at Borrower's sole cost and expense in a manner acceptable to
Bank in the exercise of Bank's sole judgment:
(a) Bank shall have received such assurance as Bank may require that the
validity and priority of the Deed of Trust has not been and will not be impaired
by this Agreement or the transactions contemplated by it, including CLTA
Endorsement No. 110.5 to be attached to Title Policy No. 27-44-94-21057 dated
August 26, 1997, issued by Fidelity National Title Insurance Company.
(b) Bank shall have received fully executed and, where appropriate,
acknowledged originals of this Agreement, the attached consent and any other
documents which Bank may require or request in accordance with this Agreement or
the other Loan Documents.
(c) The short form of this Agreement shall have been recorded in the
Official Records of the County of Orange, California, in addition to all other
documents which Bank may require to be recorded.
-1-
<PAGE>
(d) Bank shall have received reimbursement, in immediately available
funds, of all costs and expenses incurred by Bank in connection with this
Agreement, including charges for title insurance (including endorsements),
recording, filing and escrow charges, fees for appraisal, architectural and
engineering review, construction services and environmental services, mortgage
taxes, and legal fees and expenses of Bank's counsel. Such costs and expenses
may include the allocated costs for services of Bank's in-house staffs, such as
legal, appraisal, construction services and environmental services.
5. BORROWER'S REPRESENTATIONS AND WARRANTIES. Borrower represents and
warrants to Bank as follows:
(a) LOAN DOCUMENTS. All representations and warranties made and given by
Borrower in the Loan Documents are true, accurate and correct.
(b) NO DEFAULT. No Event of Default has occurred and is continuing, and
no event has occurred and is continuing which, with notice or the passage of
time or both, would be an Event of Default.
(c) PROPERTY. Borrower lawfully possesses and holds fee simple title to
all of the Property which is real property, and the Deed of Trust is a first and
prior lien on that property. Borrower owns all of the Property which is
personal property free and clear of any reservations of title and conditional
sales contracts, and also of any security interests other than the Deed of
Trust, which is a first and prior lien on such property. There is no financing
statement affecting any Property on file in any public office except for
financing statements in favor of Bank.
6. INCORPORATION. This Agreement shall form a part of each Loan
Document, and all references to a given Loan Document shall mean that document
as hereby modified.
7. NO PREJUDICE; RESERVATION OF RIGHTS. This Agreement shall not
prejudice any rights or remedies of Bank under the Loan Documents. Bank
reserves, without limitation, all rights which it has against any indemnitor,
guarantor, or endorser of the Note.
8. NO IMPAIRMENT. Except as specifically hereby amended, the Loan
Documents shall each remain unaffected by this Agreement and all such documents
shall remain in full force and effect. Nothing in this Agreement shall impair
the lien of the Deed of Trust, which as hereby amended shall remain one deed of
trust with one power of sale, creating a first lien encumbering the Property.
9. PURPOSE AND EFFECT OF BANK'S APPROVAL. Bank's approval of any matter
in connection with the Loan shall be for the sole purpose of protecting Bank's
security and rights. No such approval shall result in a waiver of any default
of Borrower. In no event shall Bank's approval be a representation of any kind
with regard to the matter being approved.
10. DISCLOSURE TO TITLE COMPANY. Without notice to or the consent of
Borrower, Bank may disclose to any title insurance company which insures any
interest of Bank under the Deed of Trust (whether as primary insurer, coinsurer
or reinsurer) any information, data or material in Bank's possession relating to
Borrower, the Loan, the Improvements or the Property.
11. INTEGRATION. The Loan Documents, including this Agreement:
(a) integrate all the terms and conditions mentioned in or incidental to the
Loan Documents; (b) supersede all oral negotiations and prior and other writings
with respect to their subject matter; and (c) are intended by the parties as the
final expression of the agreement with respect to the terms and conditions set
forth in those documents and as the complete and exclusive statement of the
terms agreed to by the parties. If there is any conflict between the terms,
conditions and provisions of this Agreement and those of any other agreement or
instrument, including any of the other Loan Documents, the terms, conditions and
provisions of this Agreement shall prevail.
12. MISCELLANEOUS. This Agreement and any attached consents or exhibits
requiring signatures may be executed in counterparts, and all counterparts shall
constitute but one and the same document. If any court of competent
jurisdiction determines any provision of this Agreement or any of the other Loan
Documents to be invalid, illegal or unenforceable, that portion shall be deemed
severed from the rest, which shall remain in full force and effect as though the
invalid, illegal or unenforceable portion had never been a part of the Loan
Documents. This Agreement shall be governed by the laws of the State of
California, without regard to the choice of law rules of that State. As used
here, the word "include(s)" means "includes(s), without limitation," and the
word "including" means "including, but not limited to.".
IN WITNESS WHEREOF, Bank and Borrower have executed this Agreement as of
the date first above written.
OAKLEY, INC.,
a Washington corporation
By:
-----------------------------------
Name: Tom George
Its: Chief Financial Officer
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
a national banking association
By:
-----------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
-2-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 4,256
<SECURITIES> 0
<RECEIVABLES> 41,116
<ALLOWANCES> 503
<INVENTORY> 34,472
<CURRENT-ASSETS> 90,875
<PP&E> 116,963
<DEPRECIATION> 0
<TOTAL-ASSETS> 228,213
<CURRENT-LIABILITIES> 48,351
<BONDS> 0
0
0
<COMMON> 707
<OTHER-SE> 157,382
<TOTAL-LIABILITY-AND-EQUITY> 228,213
<SALES> 178,293
<TOTAL-REVENUES> 178,293
<CGS> 66,111
<TOTAL-COSTS> 66,111
<OTHER-EXPENSES> 77,180
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,376
<INCOME-PRETAX> 33,626
<INCOME-TAX> 12,912
<INCOME-CONTINUING> 20,714
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,714
<EPS-PRIMARY> 0.29
<EPS-DILUTED> 0.29
</TABLE>
