-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, T4a2074VXQPilfb+WmAEkQB5c+X7CFlE9hpDqeO/49iUro/VPsbwXun8lWy3YgC9 jjWE6R/SVEHIZhRYPVQBTw== 0000929624-99-000621.txt : 19990405 0000929624-99-000621.hdr.sgml : 19990405 ACCESSION NUMBER: 0000929624-99-000621 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19990102 FILED AS OF DATE: 19990402 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WEST MARINE INC CENTRAL INDEX KEY: 0000912833 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-AUTO DEALERS & GASOLINE STATIONS [5500] IRS NUMBER: 770355502 STATE OF INCORPORATION: DE FISCAL YEAR END: 1229 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-22512 FILM NUMBER: 99586263 BUSINESS ADDRESS: STREET 1: 500 WESTRIDGE DR CITY: WATSONVILLE STATE: CA ZIP: 95076-4100 BUSINESS PHONE: 4087282700 10-K405 1 FORM 10-K405 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the year ended January 2, 1999 Commission File Number 0-22512 WEST MARINE, INC. (Exact name of registrant as specified in its charter) Delaware 77-0355502 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification Number) 500 Westridge Drive, Watsonville, California 95076-4100 (Address of principal executive offices) (Zip Code) Telephone Number: (831) 728-2700 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered None None Securities registered pursuant to Section 12(g) of the Act: Common Stock (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X]. No [ ]. Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K ((S) 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] At February 28, 1999, the aggregate market value of the registrant's Common Stock held by non-affiliates of the registrant was approximately $85,160,500. At February 28, 1999, the number of shares outstanding of registrant's Common Stock was 16,999,888. DOCUMENTS INCORPORATED BY REFERENCE ----------------------------------- Portions of the definitive proxy statement for the Company's 1999 Annual Meeting of Stockholders are incorporated by reference in Part III of this Form 10-K. 1 PART I ITEM 1 - BUSINESS GENERAL West Marine, Inc. ("West Marine" or the "Company") is the largest specialty retailer of recreational and commercial boating supplies and apparel in the United States. At year end 1998, the Company offered its products through 212 stores in 34 states under the names West Marine and E&B Marine and through catalogs which it distributes several times each year. The Company's business strategy is to offer an extensive selection of high quality marine supplies and apparel to the recreational aftermarket for both sailboats and powerboats at competitive prices in a convenient, one-stop shopping environment emphasizing customer service and technical assistance. The Company also is engaged, through its Port Supply business line and its stores, in the wholesale distribution of products to commercial customers and other retailers. West Marine was incorporated in Delaware in September 1993 as the holding company for West Marine Products, Inc., which was incorporated in California in 1976. Unless the context otherwise requires, "West Marine" and the "Company" refer to West Marine, Inc. and its subsidiaries. The Company's principal executive offices are located at 500 Westridge Drive, Watsonville, California 95076-4100 and its telephone number is (831) 728-2700. RECENT DEVELOPMENTS During 1998, the Company expanded its operations -- opening 28 new stores and entering into new geographic markets in Colorado, Oklahoma and Minnesota. Additionally, 7 stores were remodeled in 1998. The Company closed the Edison, New Jersey distribution center in December of 1997 and closed the Charlotte, North Carolina distribution center in February of 1998; thereby consolidating its East Coast inventory and operations into one new distribution center located in Rock Hill, South Carolina. 2 EXPANSION STRATEGY Since opening its first store in 1975, the Company has grown through internal expansion and acquisitions, and operated 212 stores in 34 states at year end 1998. As shown in the table below, the Company has achieved increasing geographic diversification within the United States in recent years. The following table sets forth, by geographic region, the number of stores open at the end of each of the following years:
- ---------------------------------------------------------- 1994 1995 1996 1997 1998 ---- ---- ---- ---- ---- West 22 24 27 35 39 Great Lakes 2 6 18 24 29 Gulf Coast 4 4 7 11 20 Northeast 13 16 44 44 45 Mid-Atlantic 2 4 11 24 33 Southeast 11 18 44 46 46 ---- ---- ---- ---- ---- Total 54 72 151 184 212 ==== ==== ==== ==== ====
- ---------------------------------------------------------- The Company intends to continue to expand its store presence in 1999. The Company's ability to expand will depend on a number of factors, including the adequacy of the Company's capital resources, the Company's ability to further penetrate markets successfully, its ability to locate suitable store sites, to hire, train and integrate associates and to adapt its distribution and other operational systems. The Company will continue to pursue the acquisition of other companies' assets and product lines that either complement or expand its existing business. There is no assurance that the Company will be able to achieve its planned expansion or that such expansion will be accomplished on a profitable basis. Failure to achieve its planned expansion could have a material adverse effect on the Company. Although the Company expects that increases in net sales, if any, will be principally due to expansion of its store operations, the Company anticipates growth in its Port Supply and Catalog business lines. Port Supply is focusing on growth by adding sales personnel and increasing delivery routes in the United States. Catalog marketing in 1999 will focus on two areas. First, geographic areas not served by West Marine or E&B Marine stores, including Canada and certain other international locations. Second, internet customers that may or may not already be shopping at West Marine. The Company expects that sales from these lines, however, will continue to represent declining percentages of the Company's total net sales. 3 MERCHANDISING Merchandise sold by the Company can be divided into four general merchandise categories: Marine Supplies. These products range from maintenance products to galley supplies and include brand name offerings, as well as "West Marine" private label merchandise. Marine supplies represented a substantial majority of the Company's net sales in 1998. Electronics. The Company carries a broad selection of the most current electronics equipment. The selection includes global positioning navigational systems ("GPS"), as well as other electronic equipment such as ship-to-shore radios, marine stereos, autopilots, fish finders and radars. The Company also offers private label VHF radios and other electronic equipment. Softgoods. West Marine features a broad selection of high quality boating apparel and footwear including well-known brands. The Company also offers a selection of foul weather gear, shirts, shorts, jackets, hats, boots, and other apparel bearing the Company's private label. Lifestyle. West Marine continues to expand its selection of watersports and fishing categories. It is believed that this segment of the market represents a growth opportunity for the Company. The Company strives to maintain consistent in-stock availability of merchandise. An individual store's merchandise mix is tailored to respond to local market conditions and buying preferences. Any items stocked by the Company but not available in a particular store can be shipped to the customer from the distribution centers. In addition, the Company's special orders department can acquire products which the Company does not normally stock. The Company's policy is to offer its products at prices that are competitive with the prices charged by other national and regional marine supply specialty retailers and prices that are generally lower than prices charged by local independent operators. Replaceable price signage is clearly posted on shelving instead of directly on each item, enabling rapid price changes on items in the stores. The Company's commitment to offering competitive prices is supported by its price matching program where the Company will, for a period of 30 days, either match a competitor's price or refund the difference between the Company's price and the competitor's price. Most pricing decisions are made centrally by the Company's merchandising group. Store managers, however, are responsible for monitoring local competition and adjusting prices to remain competitive. The Company believes that its competitive pricing policy, together with its price matching program, are important factors in establishing and maintaining a favorable reputation among customers. SOURCING AND PURCHASING The Company purchased merchandise from more than 1,100 vendors during 1998 and achieved significant efficiencies through quantity purchases and direct orders. West Marine offers many of the brands best known to its target customers. In 1998, no vendor accounted for more than 8% of the Company's merchandise purchases and the Company's 20 largest vendors accounted for approximately 35% of the Company's merchandise purchases. The Company deals with its suppliers on an order-by-order basis and has minimal long-term purchase contracts or other contractual assurances of continued supply or pricing. 4 The Company strives to maintain strong relationships with its vendors. The Company's buyers meet regularly with major vendors to stay abreast of new products, new technology and new pricing. In addition, West Marine conducts a yearly program at which key vendors are encouraged to discuss their business and their relationship with the Company's key executives and buyers. The Company works closely with its vendors, frequently sharing information regarding market research and the Company's performance and goals. The Company also receives cooperative advertising allowances from certain vendors. The Company's private label merchandise is manufactured to the Company's specifications on a contract basis domestically, and to a lesser extent, in Europe and the Pacific Rim, and typically has higher gross margins than comparable brand name merchandise. The Company has no long-term contracts with its manufacturing sources and competes with other companies for production facilities and import quota capacity. The Company's Senior Vice President of Merchandising oversees the purchasing of the Company's merchandise. This person supervises merchandise managers, who supervise a group of buyers. Each buyer is responsible for specified product categories. The Company's buyers are also responsible for specifying private label merchandise and for contracting the manufacture of these goods and assuring their quality and delivery. The Company's Senior Vice President of Merchandise Planning and Allocation oversees a staff responsible for managing inventory levels in the distribution facilities and the stores, and for minimizing in-store out-of-stocks. Inventory managers are assisted by a sophisticated management information system which provides them with current inventory, price and volume information by SKU and recommended purchase quantities, allowing them to react quickly to market changes. CUSTOMER SERVICE The Company is committed to achieving "better than expected" customer satisfaction to encourage repeat business. To develop responsive, well-trained sales associates, the Company has devoted significant resources to developing and implementing extensive employee training programs aimed at increasing product knowledge and responsiveness to customer needs. In addition, the Company provides a price matching program, special order capabilities and a "no hassle" satisfaction guarantee that permits customers who are not completely satisfied to return any items for an exchange, credit or refund. To educate customers on the latest developments in boating and product offerings, the Company conducts classes and seminars. The Company's master catalog also provides technical information relating to various marine subjects. To provide customers easy access to factory authorized repair service, the Company maintains an in-house service center at its facility in Hollister, California. Based on information received from its customers, the Company believes it has established a reputation for excellent customer service. SITE SELECTION AND STORE DESIGN In selecting which markets to enter, the Company evaluates a number of criteria, including proximity to existing operations and the performance of catalog sales in that market, as well as the size and strength of potential competitors. In choosing specific sites within a market, the Company applies standardized site selection criteria which take into account numerous factors including the number of boat slips and boats within a certain radius, local demographics and overall retail activity. The Company's stores are conveniently located either near boat marinas or at central locations accessible to boaters. Most stores have large, readily identifiable signage, easy access from major roads and adequate customer parking. The stores currently range in size from approximately 3,000 to 15,100 square feet. Stores are generally open seven days a week, including most holidays. 5 The format of West Marine and E&B Marine stores depends on the size of the store and the buying patterns of the local markets. Merchandise is displayed in functional product groupings clearly identified by signs hanging in each aisle. The layout of the store is designed to expose each customer to a large proportion of the store's product offerings and to stimulate customer purchases. For example, frequently purchased items such as rope, varnish and other maintenance supplies are generally displayed at the rear of the store, whereas items that are higher margin and have a strong impulse purchasing orientation are displayed in the front of the store. Eye-catching end-cap displays feature new product offerings or promotional items or focus on a particular product category, such as safety equipment. The Company's brightly lit, well organized stores are designed to provide a convenient shopping environment. STORE OPERATIONS The Company's stores are organized into geographic regions with a regional manager responsible for each region. Regional managers report to the President of the Stores Division. Each region is organized into districts, each with a district manager responsible for the store operations within his or her district. The Company's district managers frequently visit the stores within their respective geographic areas to monitor financial performance and ensure adherence to the Company's operating standards. The typical staff for a West Marine store consists of one store manager, an assistant store manager and between four and twenty additional hourly sales associates, most of whom work part-time. Store managers make all hiring decisions, monitor and respond to local competitive forces and, in certain cases, supplement their stores' merchandise mix with products suited for their specific market. Customer service is a defining feature of the West Marine corporate culture. The Company believes that knowledgeable and enthusiastic sales associates have a direct impact on profitability. The Company places great emphasis on new hire training, associate training, on-the-job training, additional self-paced training and field tests to help ensure that sales associates are thoroughly familiar with the technical elements of the Company's product offerings. Store managers, most of whom are drawn from the Company's sales associates, also complete an intensive training program. Store and district managers participate in an incentive plan that ties compensation awards to the achievement of specified store profits, group performance goals and overall Company profits. Sales associates participate in an incentive plan that is based on various store level goals. In addition, the Company advocates broad-based participation in its stock option plans and all associates and managers are eligible to receive option grants. OTHER BUSINESS LINES The Company believes that its Catalog business line has served as an effective marketing and advertising tool for the Company's store operations. The Company mails several versions of a master merchandise catalog throughout the world. These versions are based on boat size and type and range from 320 to 892 pages. In addition, smaller seasonal full-color catalogs and flyers are mailed monthly. The catalogs also provide technical information regarding product offerings. The Company also rents mailing lists from boating magazines and other industry sources to better target its customers with its Catalog versions. 6 The Company designs and produces its catalogs at its executive offices in Watsonville, California, utilizing a desktop publishing system. This enables the Company to make both pricing and product changes until shortly before the catalogs are printed. The Company receives all catalog orders by mail, fax, internet or telephone at its Watsonville, California call center. Merchandise is then distributed to customers from one of the Company's distribution facilities. The Hollister, California distribution facility services primarily the West Coast while the Rock Hill, South Carolina distribution facility services customers east of the Rockies. Port Supply was created to address a broader customer base and to take advantage of its purchasing and distribution efficiencies. The Company distributed marine supplies at wholesale prices to approximately 25,000 customers in 1998, including customers involved in boat sales, boat building, boat repair, yacht chartering and marine supply retailers who resell the items. In addition, Port Supply sells to industrial and government customers who use marine related products. DISTRIBUTION The Company has two distribution centers, one located on the West Coast and the other located on the East Coast. The West Coast distribution center is approximately 162,000 square feet and is located in Hollister, California. The East Coast distribution center is approximately 457,000 square feet and is located in Rock Hill, South Carolina. Vendors ship products to one of the distribution centers where the merchandise is inspected, verified against the original purchase order, ticketed and repackaged for shipment to stores and customers. Both distribution centers use radio frequency devices for managing a majority of the distribution centers procedures. Various methods of transportation are used to ship products, including truck and air freight, as well as the Company's owned trucks and vans. The inventory purchasing system maintains stock levels for each SKU in each distribution center. Normally, merchandise is sent to stores once a week, however, during certain seasonal periods, certain stores may receive more than one shipment per week. INFORMATION SYSTEMS West Marine has invested significant resources in management information systems that provide store managers and Company management with daily information on sales, gross margins and inventory levels. The Company utilizes an integrated software system which runs on multiple IBM AS/400 computers. This third party system has been designed to integrate all major aspects of the Company's business including sales, warehousing, distribution, purchasing and inventory management, as well as various financial systems. All purchasing functions are processed through a secondary software application which is fully integrated with the core system. Each of the Company's stores is linked to the Company's headquarters through a system that provides inventory look up and sales history and permits electronic mail. The point-of-sale system keeps a record, updated daily, of each merchandise item from receipt to sale. The system permits "price look-up", on- line credit card approval and product UPC scanning. The Company believes that the systems it has developed will enable it to continue to improve customer service, operational efficiency and management's ability to monitor critical performance factors. 7 MARKETING The Company's overall marketing objective is to communicate a compelling "value equation" that highlights its superior selection, friendly and knowledgeable service, competitive prices and shopping convenience in order to create and maintain a strong brand identity. The Company markets its products and services through an extensive direct mail program of catalogs and flyers, along with space advertisements in several regional boating specialty publications across the nation. Additionally, the Company will be increasing and broadening advertising, which for the first time, will include cable television, newspapers and targeted boating magazines. The Company also sponsors a number of regional and national boating-related events, ranging from sailing regattas and fishing derbies, to waterway clean- up campaigns. These events are designed to encourage participation in boating and to increase the number of people getting out and enjoying the water. COMPETITION The retail market for marine supplies is highly competitive and the Company expects the level of competition to increase. The Company's stores compete with other national specialty marine supply stores such as Boat/U.S. and Boater's World. Many of these competitors have stores in the markets in which the Company now operates and in which it plans to expand. The Company also competes with a wide variety of local and regional specialty stores and, to a lesser extent, sporting good stores and mass merchants. The Company also has a number of competitors in the Catalog and wholesale distribution of marine products. Certain of the Company's competitors have greater financial, marketing and other resources than the Company. The principal factors of competition in the Company's marketplace are quality, availability and variety of merchandise, price, customer service and convenience. The Company believes that it competes successfully on the basis of all such factors. TRADEMARKS AND SERVICE MARKS The Company is the owner in the United States of the trademarks and service marks "West Marine" and "E&B Marine", among others. These marks are registered with the United States Patent and Trademark Office. Each federal registration is renewable indefinitely if the mark is still in use at the time of renewal. ASSOCIATES As of January 2, 1999, the Company had 3,510 associates, of whom approximately 2,060 were full-time and approximately 1,450 were part-time and temporary. In addition, a significant number of seasonal associates were hired during the Company's peak selling seasons. 8 EXECUTIVE OFFICERS The following table sets forth information regarding the executive officers of the Company:
Name Age Position Randolph K. Repass 55 Chairman of the Board John Edmondson 52 President, Chief Executive Officer Richard E Everett 46 President of Stores Division, Chief Operating Officer Joe DiRocco 49 Senior Vice President, Marketing Robert Hebeler 41 Senior Vice President, Merchandise Planning and Allocation Patrick Murphy 50 Senior Vice President, Distribution and Logistics John Zott 40 Senior Vice President, Finance, Chief Financial Officer and Secretary
Randolph K. Repass has been Chairman of the Board of the Company since founding the Company in 1968 and was the Company's Chief Executive Officer from 1968 until April 1995 and August 1998 to November 1998. He served as President from 1968 to 1990 and from August 1993 to March 1994. Mr. Repass began his career in engineering and marketing with Fairchild Semiconductor in 1966. He is President of Sail America, a sailing industry association. Mr. Repass is also Chairman of New England Ropes. He received a B.S. degree in electrical engineering from Duke University. John Edmondson joined West Marine as President and Chief Executive Officer and a director effective November 13, 1998. Since 1992, Mr. Edmondson held the roles of Corporate Chief Operating Officer as well as President and Chief Executive Officer of Duty Free International Inc. Mr. Edmondson began his career with Allied Store's Maas Bros./Jordan Marsh division and has held various senior management positions with several retailers. Prior to joining Duty Free International, Inc., Mr. Edmondson was General Manager of Marriott's Host Airport Merchandise and their Sports and Entertainment divisions. Richard E Everett joined West Marine in 1980 and became President of Stores Division in August 1998. Mr. Everett has been Chief Operating Officer and has served as a director since 1994. Prior to his current position in West Marine, Mr. Everett was Executive Vice President of Store Operations. He currently oversees the Company's store operations, real estate, store planning and construction. During his career with West Marine, Mr. Everett has held various positions since joining the Company in 1983. He founded and operated a sailboat rigging company prior to joining West Marine. Mr. Everett received a B.S. degree from the University of California, Berkeley. Joe DiRocco joined the Company in July 1998, as Senior Vice President of Marketing. Prior to that, Mr. DiRocco was Vice President of Marketing and Advertising at Orchard Supply Hardware, a specialty retailer, from 1983 to 1998. Mr. DiRocco holds a B.A degree in English from Villanova University and attended Charles Morris Price School of Advertising in Philadelphia, PA. Robert Hebeler joined the Company in January 1996, as Senior Vice President of Merchandising. He currently is the Senior Vice President of Merchandise Planning and Allocation. Prior to that, Mr. Hebeler was the Vice President of Merchandising and Marketing for Gander Mountain Inc., a specialty retailer and cataloger, from 1993 to 1996. Mr. Hebeler holds a B.A. degree from Michigan State University and an M.M.A. from Aquinas College. Patrick Murphy joined the Company in March 1999 as Senior Vice President, Distribution and Logistics. Prior to that, Mr. Murphy was Vice President of Logistics for Borders Group, Inc., a specialty retailer, from 1993 to 1999. Mr. Murphy holds a B.S. degree in Marketing and Economics from the University of Missouri-Kansas City. John Zott joined the Company in 1990 as Chief Financial Officer. Mr. Zott became Senior Vice President, Finance in 1995. Prior to that, Mr. Zott was the Controller for The Nature Company, a specialty retailer, from 1988 to 1990. Mr. Zott holds a B.S. degree in accounting and an M.B.A from the University of Detroit. 9 ITEM 2 - PROPERTIES The Company's corporate offices are located in a 90,000 square foot facility in Watsonville, California, which the Company occupies under a lease expiring in 2006. The Company operates a 162,000 square foot distribution center located in Hollister, California with a lease that expires in 2011. The Company operates a 457,000 square foot distribution center located in Rock Hill, South Carolina with a lease that expires in 2007. At January 2, 1999, the Company's 212 stores included an aggregate of approximately 1.6 million square feet of space. The Company's stores are all leased, typically for a ten year term, with options to renew for additional terms. In most cases, the Company pays a fixed rent. Substantially all of the leases require the Company to pay insurance, utilities, real estate taxes and repair and maintenance expenses. ITEM 3 - LEGAL PROCEEDINGS Litigation The Company is not a party to any material litigation. ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS West Marine, Inc. common stock trades on the Nasdaq National Market tier of The Nasdaq Stock Market under the symbol WMAR. The following table sets forth for the period indicated, the high and low closing sales prices for the Company's common stock, as reported by the Nasdaq Stock Market.
- ---------------------------------------------------------- FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER -------- -------- ------- ------- 1998 - ------------ Stock trade price: High $30 1/8 $28 5/16 $18 7/8 $12 Low $21 1/16 $16 $ 7 3/8 $ 6 7/16 1997 - ------------ Stock trade price: High $36 $34 3/4 $26 3/4 $25 3/4 Low $26 3/4 $22 3/4 $17 $18 5/8 - ----------------------------------------------------------
10 As of February 28, 1999, there were approximately 1,500 holders of record of the Company's common stock. ITEM 6 - SELECTED FINANCIAL DATA (in thousands, except per share and operating data)
1994 1995 1996 1997 1998 - ------------------------------------------------------------------------------------------------------------- Consolidated Income Statement Data: Net sales $169,923 $224,204 $323,300 $415,208 $448,832 Income from operations 10,935 16,198 21,156 29,116 8,665 Income before income taxes 9,740 14,819 19,490(1) 25,487 2,594(2) Net income 5,985 8,975 11,566(1) 15,173 1,098(2) Net income per common and common equivalent share: Basis $ 0.47 $ 0.64 $ 0.73(1) $ 0.91 $ .06(2) Diluted $ 0.45 $ 0.61 $ 0.68(1) $ 0.86 $ .06(2) Consolidated Balance Sheet Data (at period end): Working capital $ 30,757 $ 58,619 $ 92,948 $149,242 $143,974 Total assets 70,385 95,845 211,514 275,888 279,545 Long-term debt 12,297 8,284 37,997 92,960 94,367 Operating Data: Store open at year end 54 72 151 184 212 Comparable stores net sales increase 15.8% 9.0% 5.4% 5.0% 1.2%
(1) Includes a $3.0 million pre-tax charge for expenses related to the integration of E&B Marine, Inc. in 1996. Basic and diluted net income per share without this one-time charge would have been $0.85 and $0.79, respectively. (2) Includes a $3.3 million pre-tax charge for expenses related to the distribution center move in 1998. Basic and diluted net income per share without this one-time charge would have been $0.26 and $0.25, respectively. ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Company Overview West Marine distributes its merchandise through three divisions, Stores (retail and wholesale) and Catalog (retail) under the names of West Marine and E&B Marine as well as Port Supply (wholesale). West Marine operated 212 Stores in 34 states as of January 2, 1999, compared to 184 Stores in 30 states as of January 3, 1998. All references to 1998, 1997 and 1996 refer to the Company's fiscal years ended on January 2, 1999, January 3, 1998 and December 28, 1996, respectively. 1998 and 1996 were 52 week years. 1997 was a 53 week year. On June 17, 1996, West Marine acquired E&B Marine, Inc., a specialty retailer of marine supplies with 64 Stores and a mail order catalog operation (see Note 2 to consolidated financial statements). The acquisition was accounted for under the purchase method of accounting. Accordingly, E&B Marine, Inc.'s results of operations for the periods subsequent to the acquisition are included with West Marine's results of operations. 11 Results of Operations The following table sets forth certain income statement components expressed as a percent of sales:
1996 1997 1998 - ------------------------------------------------------------------------------------------------------- Net sales 100.0% 100.0% 100.0% Cost of goods sold including buying and occupancy 70.8 70.4 74.9 - ------------------------------------------------------------------------------------------------------- Gross profit 29.2 29.6 25.1 Selling, general and administrative expenses 21.7 22.3 22.5 Expenses related to integrating E&B Marine, Inc. 0.9 Expenses related to distribution center move 0.7 - ------------------------------------------------------------------------------------------------------- Income from operations 6.6 7.0 1.9 Interest expense 0.5 0.8 1.4 - ------------------------------------------------------------------------------------------------------- Income before income taxes 6.1 6.2 0.5 Provision for income taxes 2.5 2.5 0.3 Net income 3.6% 3.7% 0.2% - -------------------------------------------------------------------------------------------------------
1998 Compared to 1997 Net sales for 1998 increased 8.1% to $448.8 million compared to $415.2 million in 1997. This increase was primarily attributable to the increase in net sales from the Company's Stores offset in part by a decrease in Catalog net sales. Stores net sales increased 10.5% to $369.8 million. The increase in Stores net sales was primarily due to 28 additional West Marine Stores opened in 1998. Net sales from comparable West Marine Stores increased 1.2% and contributed $3.8 million, or 10.9% of the increase. The E&B Marine locations entered the Company's comparable Stores net sales base in August 1997. Catalog net sales decreased 7.8% to $41.7 million. The Company believes that the decrease in Catalog net sales was attributable to new Store openings by the Company and its competitors, in addition to service problems related to the distribution center. Port Supply net sales increased 5.6% to $37.3 million, resulting primarily from the Company's continued territory expansion and additional van delivery routes. Gross profit decreased 8.1% in 1998 compared to 1997. Gross profit as a percentage of net sales decreased to 25.1% in 1998 from 29.6% in 1997, primarily reflecting increased payroll, equipment rental and supply expenses at the Rock Hill distribution center as well as increased inventory shrink. Selling, general and administrative expenses increased $7.2 million, or 7.7%, in 1998, primarily due to increases in direct expenses related to the growth in stores. Stores direct expense represented approximately 72.1% of the $7.2 million increase. As a percentage of net sales, selling, general and administrative expenses remained relatively flat due to the Company's advertising and promotional cost reduction efforts. In the first quarter of 1998, the Company incurred $3.3 million of expenses for the relocation and consolidation of West Marine's two East Coast distribution facilities into a single facility located in Rock Hill, South Carolina. Income from operations decreased $20.5 million, or 70.2%, from 1997 to 1998. As a percentage of net sales, income from operations decreased to 1.9% in 1998 from 7.0% in 1997. Interest expense increased $2.4 million or 67.3%, in 1998 compared to 1997, primarily as a result of higher average borrowings under the Company's line of credit during 1998. 12 1997 Compared to 1996 Net sales for 1997 increased 28.4% to $415.2 million compared to $323.3 million in 1996. This increase was attributable to increases in net sales from each of the Company's three divisions. Stores net sales increased 33.7% to $334.6 million. The increase in Stores net sales was primarily due to 33 additional Stores opened in 1997 and the 64 E&B Marine Stores acquired on June 17, 1996. Net sales from comparable Stores increased 5.0% and contributed $11.6 million, or 13.8% of the increase. The E&B Marine locations entered the Company's comparable Stores net sales base in August 1997. Catalog net sales increased 10.8% to $45.2 million. The Company believes that the Catalog net sales increases were attributable to the acquisition of the E&B Marine, Inc. Catalog business and the growth of the international Catalog business. Port Supply net sales increased 9.8% to $35.3 million, resulting primarily from the Company's continued territory expansion and additional van delivery routes. Gross profit increased 30.1% in 1997 compared to 1996 primarily due to the increase in net sales. Gross profit as a percentage of net sales increased to 29.6% in 1997 from 29.2% in 1996, primarily reflecting improved buying and distribution leverage which offset an increase in freight and occupancy costs that resulted from the E&B Marine, Inc. acquisition. Selling, general and administrative expenses increased $23.4 million, or 33.4%, in 1997, of which 85.8% of the increase related to additional direct expenses related to the growth in Stores. As a percentage of net sales, selling, general and administrative expenses increased from 21.7% in 1996 to 22.6% in 1997 primarily due to the growth in Stores. Income from operations increased $8.0 million, or 37.6%, from 1996 to 1997. As a percentage of net sales, income from operations increased to 7.0% in 1997 from 6.6% in 1996, primarily due to a $3.0 million pre-tax charge for expenses related to the integration of E&B Marine, Inc. in 1996. Interest expense increased $2.0 million, in 1997 compared to 1996, primarily as a result of higher weighted average interest rates, as well as higher average borrowings under the Company's line of credit during 1997, principally to fund increased levels of inventory, due to the increase in the number of Stores. Liquidity and Capital Resources During 1998, the Company's primary sources of capital have been income from operations and bank borrowings. Net cash provided by operations during 1998 was $17.0 million, consisting primarily of earnings after tax of $13.0 million excluding depreciation and amortization and a $6.2 million decrease in inventory offset in part by a $2.9 million decrease in accounts payable. The inventory decrease was primarily attributable to management's increased focus to reduce inventory levels both at the Stores level and the distribution center. Net cash used in investing activities was $17.5 million primarily for the purchase of property and equipment. Net cash provided by financing activities was $.5 million, consisting of $1.7 million received from the exercise of stock options and the net sales of common stock pursuant to the associate stock purchase plan, and $1.0 million from the Company's line of credit offset in part by $2.2 million for the net repayment of long-term debt. 13 Cash remained consistent from 1997 to 1998. West Marine's primary cash requirements are related to capital expenditures for new Stores, including leasehold improvement costs and fixtures, and merchandise inventory for Stores. The Company expects to spend approximately $14.0 million on capital expenditures during 1999. The Company intends to pay for its expansion through cash generated from operations and bank borrowings. The Company believes that cash from operations together with the current credit line will be sufficient to fund the Company throughout 1999. At the end of 1998, the Company had outstanding a $40.0 million senior guarantee note which matures on December 23, 2004, with the first principal payment due on December 23, 2000. Subsequent to year end 1998, the note was amended to bear interest at the rate of 7.6%. This note is unsecured and contains certain amended restrictive covenants including required fixed charge coverage and debt to capitalization ratios, and minimum net worth. Upon meeting certain investment grade ratings, the note will bear interest at the rate of 6.85%. At the end of 1998, the Company had available a $90.0 million revolving line of credit with two banks which expires on October 4, 2000. Subsequent to year end 1998, the revolving line of credit was amended to reduce the revolving line of credit to $75.0 million, effective April 5, 1999. Additionally, on July 5, 1999, the revolving line of credit will be further reduced to $50.0 million. Depending on the Company's election at the time of borrowing, the line bears interest, as amended, at either the bank's reference rate or LIBOR plus a factor ranging from 1.0% to 2.0%. At the end of 1998, borrowings from the credit line were $53.0 million bearing interest at rates ranging from 6.1% to 7.4%. At the end of 1997, borrowings under the credit line were $51.6 million bearing interest at rates ranging from 6.45% to 8.5%. In addition, the Company had available a $2.0 million revolving line of credit with a bank, which expires on October 4, 2000. The line bears interest at the bank's reference rate (7.75% at year end 1998) and has a ten day paydown requirement. At the end of 1998, no amounts were outstanding under this line of credit. At the end of 1997, borrowings under the credit line were $450,000 bearing interest at 8.5%. Both of the aforementioned credit lines are unsecured and contain certain amended restrictive covenants including maximum leverage, minimum cash flow coverage and maximum funded debt ratios. These covenants also restrict the repurchase or redemption of stock and the paying of dividends, investments in subsidiaries and annual capital expenditures. The Company plans to extend its revolving line of credit by renegotiating, amending or replacing the current bank agreements within the next 12 months. At the end of 1998 and 1997, the Company had $100,000 of outstanding stand-by letters of credit. At the end of 1998 and 1997, the Company had $613,000 and $432,000, respectively, of outstanding commercial letters of credit. During 1998 and 1997, the weighted average interest rates in effect were 6.4% and 6.7%, respectively. 14 Year 2000 The Company has developed a plan to deal with the Year 2000 (Y2K) issue. The plan covers systems and vendor issues that will be generated by the change of the year from 1999 to 2000. The portion of the plan relating to the Company's systems includes a detailed survey of the current systems and associated upgrades, as well as options relating to the replacement or reprogramming of current systems that will be required to bring the Company's systems into compliance with the Y2K issue. The Company expects the majority of the system changes, with final system and vendor issues to be resolved by the third quarter of 1999. All necessary systems modifications have been defined and modification developments are substantially underway. Systems programming and testing of the modifications will be completed by the end of the first quarter of 1999 with final integration testing to occur during the second quarter of 1999. Implementation is expected in the third quarter of 1999. There can be no guarantee that the Company's systems will be timely converted or that the failure of such systems to be Y2K compliant will not have a material adverse effect on the Company's results of operations, financial condition or liquidity. In addition, as a normal part of investing in systems, the Company is upgrading certain systems to improve operational efficiencies, improve services to customers and provide information to management. As a result of such upgrades, these systems will be Y2K compliant. Systems that have been upgraded prior to year end 1998 include the Point Of Sale (POS) system, the wholesale system, the warehouse management system and the basic operating systems for the network on the AS400. The remaining systems that are being upgraded include the merchandising and finance systems which are expected to be implemented by September 1999. Due to the Y2K issue, certain other systems enhancement projects have been deferred until late 1999 and 2000. Deferring these projects should not have a material adverse effect on the Company's results of operations, financial condition or liquidity. The plan developed to address vendor issues covers product and systems issues and includes product certification, systems integration, testing and communication strategies. The Company is in the process of reviewing vendor compliance with regards to the Y2K issue. As of year end 1998, the Company has received responses from 70% of its vendors, of which 70% have stated that they are in compliance with the Y2K issue. Information about the status of the remaining merchandise vendors is expected to be known by the end of the first quarter of 1999. There can be no guarantee that the products and systems of other companies on which the Company relies on will be timely converted or that the failure of such products and systems to be Y2K compliant will not have a material adverse effect on the Company's results of operations, financial condition or liquidity. The Company has incurred costs of less than $100,000 as of January 2, 1999 related to the Y2K issue. The total cost of the Company's Y2K compliance efforts is expected to be approximately $250,000. The Company has funded and will continue to fund these expenditures through operating income and borrowings. The Company is confident that it will meet the deadlines related to the Y2K issue, however, the Company's contingency plans include the reallocation of information systems resources to address areas of concerns. Additionally, the Company will work with vendors to consider the need for forward purchases of inventory in the remote case that the Y2K deadlines are not met. Seasonality Historically, the Company's business has been highly seasonal. As a result of the acquisition of E&B Marine, Inc. in June 1996 and the continued expansion through new Stores openings, the Company is even more susceptible to seasonality as a larger percentage of Stores net sales occur in the second and third quarters of the year. During 1998, over 60% of the Company's net sales and all of its net income occurred during the second and third quarters, principally during the period from April through July which represents the peak boating months in most of the Company's markets. The Company expects net sales will become more susceptible to seasonality and weather as it continues to expand its operations. Business Trends West Marine's growth in net sales has been principally fueled by geographic expansion through acquisition, the opening of new Stores and, to a lesser extent, by comparable Stores net sales increases. Although the Company believes that the Catalog and Port Supply divisions will continue to grow, future Company net sales and profit growth, if any, will be increasingly dependent on the opening and profitability of new Stores. The Company's Catalog division has also faced market share erosion in markets where Stores have been opened by either the company or competitors. Management expects this trend will continue. In most of the Company's product categories, prices have remained stable or have declined over the last three years, a trend which management expects is likely to continue. As a result, net sales increases during such periods have generally not been attributable to increases in prices. In recent years, competition has increased which has adversely affected the Company's gross profits. These competitive and pricing pressures are likely to continue. 15 "Safe Harbor" Statement Under the Private Securities Litigation Reform Act of 1995 The statements in this filing that relate to future plans, events, expectations, objectives or performance (or assumptions underlying such matters) including statements regarding growth in the Company's Port Supply and Catalog business lines, enhancement of the Company's Stores presence, the growth opportunity of lifestyle categories, the adequacy of the Company's information systems and the Company's web site are forward-looking statements that involve a number of risks and uncertainties. Set forth below are certain important factors that could cause the Company's actual results to differ materially from those expressed in any forward-looking statements. The Company's Catalog division has faced market share erosion in areas where stores have been opened by either the Company or its competitors. Management expects this trend to continue. The consolidation of the Company's East Coast distribution facilities has resulted in costs and inefficiencies which have adversely affected gross profit during 1998, and are expected to continue. The Company's growth has been fueled principally by the E&B Marine, Inc. acquisition and the Company's Stores operations. The Company's continued growth depends to a significant degree on its ability to continue to expand its operations through the opening of new Stores and to operate these Stores profitably, as well as increasing net sales at its existing Stores. The Company's planned expansion is subject to a number of factors, including the adequacy of the Company's capital resources and the Company's ability to locate suitable Stores sites and negotiate acceptable lease terms, to hire, train and integrate employees and to adapt its distribution and other operations systems. In addition, acquisitions involve a number of risks, including the diversion of management's attention to the assimilation of the operations and personnel of the acquired business, potential adverse short-term effects on the Company's operating results and amortization of acquired intangible assets. The market for recreational boating supplies is highly competitive. Competitive pressures resulting from competitors' pricing policies have adversely affected the Company's gross profit and such pressures are expected to continue. In addition, the Company's operations could be adversely affected if unseasonably cold weather, prolonged winter conditions or extraordinary amounts of rainfall were to occur during the peak boating season in the second and third quarters. Additional factors which may affect the Company's financial results include consumer spending on recreational boating supplies, environmental regulations, demand for and acceptance of the Company's products and other risk factors disclosed from time to time in the Company's SEC filings. ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company does not undertake any specific actions to cover its exposure to interest rate risk and the Company is not a party to any interest rate risk management transactions. The Company does not purchase or hold any derivative financial instruments. A 64 basis point move in interest rate (10% of the Company's weighted average interest rate) effecting the Company's floating financial instruments would have approximately a $350,000 effect on the Company's pretax income and cash flow over the next year. The 64 basis point move in interest rates would have an immaterial effect on the fair value of the Company's fixed rate financial instruments. (See Note 4.) 16 ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA [Deloitte & Touche Letterhead] INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders West Marine, Inc., We have audited the accompanying consolidated balance sheets of West Marine, Inc. and subsidiaries (the "Company") as of January 2, 1999 and January 3, 1998 and the related consolidated statements of income, stockholders' equity and cash flows for each of the three fiscal years in the period ended January 2, 1999. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company at January 2, 1999 and January 3, 1998 and the results of its operations and its cash flows for each of the three fiscal years in the period ended January 2, 1999 in conformity with generally accepted accounting principles. /s/ Deloitte & Touche LLP February 24, 1999 17 CONSOLIDATED BALANCE SHEETS (in thousands, except share data)
Year End Year End 1997 1998 - -------------------------------------------------------------------------------------------------------- ASSETS Current assets: Cash $ 1,010 $ 1,024 Accounts receivable, net 5,003 4,660 Merchandise inventories 166,290 160,069 Prepaid expenses and other current assets 11,660 11,574 - -------------------------------------------------------------------------------------------------------- Total current assets 183,963 177,327 Property and equipment, net 50,815 60,219 Intangibles and other assets, net 41,110 41,999 - -------------------------------------------------------------------------------------------------------- Total assets $275,888 $279,545 - -------------------------------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 26,629 $ 23,759 Accrued expenses 5,456 4,548 Deferred current liabilities 788 3,263 Current portion of long-term debt 1,848 1,783 - -------------------------------------------------------------------------------------------------------- Total current liabilities 34,721 33,353 Long-term debt 92,960 94,367 Deferred items and other non-current obligations 1,889 2,055 Stockholders' equity: Preferred stock, $.001 par value: 1,000,000 shares authorized; no shares outstanding Common stock, $.001 par value: 50,000,000 shares authorized; issued and outstanding 16,786,068 and 16,984,528 at year end 1997 and 1998, respectively 17 17 Additional paid-in capital 103,245 105,599 Retained earnings 43,056 44,154 - -------------------------------------------------------------------------------------------------------- Total stockholders' equity 146,318 149,770 - -------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $275,888 $279,545 - --------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements. 18 CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share amounts and Stores data)
1996 1997 1998 - ------------------------------------------------------------------------------------------------------- Net sales $323,300 $415,208 $448,832 Cost of goods sold, including buying and occupancy 228,888 292,395 335,956 - ------------------------------------------------------------------------------------------------------- Gross profit 94,412 122,813 112,876 Selling, general and administrative expenses 70,261 93,697 100,927 Expenses related to integrating E&B Marine, Inc. 2,995 Expenses related to distribution center move 3,284 - ------------------------------------------------------------------------------------------------------- Income from operations 21,156 29,116 8,665 Interest expense 1,666 3,629 6,071 - ------------------------------------------------------------------------------------------------------- Income before income taxes 19,490 25,487 2,594 Provision for income taxes 7,924 10,314 1,496 - ------------------------------------------------------------------------------------------------------- Net income $ 11,566 $ 15,173 $ 1,098 - ------------------------------------------------------------------------------------------------------- Net income per common and common equivalent share: Basic $ 0.73 $ 0.91 $ 0.06 - ------------------------------------------------------------------------------------------------------- Diluted $ 0.68 $0.86 $ 0.06 - ------------------------------------------------------------------------------------------------------- Weighted average common and common equivalent shares outstanding: Basic 15,748 16,648 16,893 - ------------------------------------------------------------------------------------------------------- Diluted 16,948 17,583 17,520 - ------------------------------------------------------------------------------------------------------- Stores open at end of year 151 184 212 - -------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements. 19 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (in thousands, except share data)
COMMON STOCK ADDITIONAL TOTAL --------------------- PAID-IN RETAINED STOCKHOLDERS' SHARES AMOUNT CAPITAL EARNINGS EQUITY - --------------------------------------------------------------------------------------------------------------------------------- Balance at year end, 1995 14,938,412 $15 $ 50,947 $ 16,317 $ 67,279 Net income 11,566 11,566 Issuance of common stock in acquisition of E&B Marine, Inc. 1,195,486 1 39,192 39,193 Value of stock options converted in acquisition of E&B Marine, Inc. 2,382 2,382 Exercise of stock options 313,275 2,791 2,791 Tax benefit from exercise of non-qualified stock options 2,660 2,660 Sale of common stock pursuant to associate stock purchase plan 47,032 660 660 - ------------------------------------------------------------------------------------------------------------------------------- Balance at year end, 1996 16,494,205 16 98,632 27,883 126,531 Net income 15,173 15,173 Exercise of stock options 245,838 1 1,789 1,790 Tax benefit from exercise of non-qualified stock options 1,916 1,916 Sale of common stock pursuant to associate stock purchase plan 46,025 908 908 - ------------------------------------------------------------------------------------------------------------------------------- Balance at year end, 1997 16,786,068 17 103,245 43,056 146,318 Net income 1,098 1,098 Exercise of stock options 122,821 933 933 Tax benefit from exercise of non-qualified stock options 677 677 Sale of common stock pursuant to associate stock purchase plan 75,639 744 744 - ------------------------------------------------------------------------------------------------------------------------------- Balance at year end, 1998 16,984,528 $17 $105,599 $ 44,154 $149,770 ================================================================
See notes to consolidated financial statements. 20 CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands, except share data)
1996 1997 1998 - ------------------------------------------------------------------------------------------------------------------------------ Cash flows from operating activities: Net income $ 11,566 $ 15,173 $ 1,098 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 5,651 8,604 11,926 Provision for deferred income taxes 2,115 4,704 298 Provision for doubtful accounts 278 315 586 Accounts receivable (986) (1,576) (243) Merchandise inventories (13,738) (43,559) 6,221 Prepaid expenses and other current assets (1,899) (3,808) 86 Other assets (683) 195 (10) Accounts payable 6,295 (6,998) (2,870) Accrued expenses 2,341) (3,529) (231) Deferred items 21 125 166 - ------------------------------------------------------------------------------------------------------------------------------ Net cash provided by (used in) operating activities 6,279 (30,354) 17,027 Cash flows from investing activities: Purchases of property and equipment (13,913) (24,470) (17,487) Acquisitions (2,336) - ------------------------------------------------------------------------------------------------------------------------------ Net cash used in investing activities (16,249) (24,470) (17,487) Cash flows from financing activities: Net proceeds from line of credit 7,319 15,050 950 Net proceeds from (repayments of) long-term debt (305) 37,192 (2,153) Sale of common stock pursuant to associate stock purchase plan 660 908 744 Exercise of stock options 2,791 1,790 933 - ------------------------------------------------------------------------------------------------------------------------------ Net cash provided by financing activities 10,465 54,940 474 - ------------------------------------------------------------------------------------------------------------------------------ Net increase in cash 495 116 14 Cash: Beginning of year 399 894 1,010 - ------------------------------------------------------------------------------------------------------------------------------ End of year $ 894 $ 1,010 $ 1,024 - ------------------------------------------------------------------------------------------------------------------------------ Other cash flow information: Cash paid for interest $ 1,448 $ 4,096 $ 6,480 Cash paid for income taxes $ 5,348 $ 8,338 $ 4,918 Equipment acquired through non-cash capital lease transactions $ 1,432 $ 2,996 $ 2,545 Tax benefit from exercise of non-qualified stock options $ 2,660 $ 1,916 $ 677 Acquisition of E&B Marine, Inc. for 1,195,000 shares of common stock (see Note 2) $ 41,575
See notes to consolidated financial statements. 21 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - -------------------------------------------------------------------------------- BUSINESS - West Marine, Inc. (the "Company"), a Delaware corporation, is a specialty retailer and wholesaler of boating supplies and apparel, which it markets through 212 retail Stores in the United States and mail order catalogs. PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the accounts of West Marine, Inc. and its subsidiaries. Intercompany balances and transactions are eliminated in consolidation. FISCAL YEAR - The Company's fiscal year ends on the Saturday closest to December 31 based on a 52/53 week year. The years 1998, 1997 and 1996 ended on January 2, 1999, January 3, 1998 and December 28, 1996, respectively. 1998 and 1996 were 52 week years. 1997 was a 53 week year. ACCOUNTING ESTIMATES - The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. MERCHANDISE INVENTORIES are stated at the lower of cost (first-in, first-out method) or market. Cost includes acquisition and distribution costs which have been capitalized in merchandise inventories in order to better match net sales with these related costs. DEFERRED CATALOG AND ADVERTISING COSTS - The Company capitalizes the direct cost of producing and distributing its catalogs. Capitalized catalog costs are amortized, once the catalog is mailed, over the expected net sales period which is generally six months. Deferred catalog costs amounted to $1,893,000 and $679,000, at year end 1998 and 1997, respectively. Advertising costs are expensed as incurred and amounted to $12.6 million, $13.8 million and $9.7 million in 1998, 1997 and 1996, respectively. PROPERTY AND EQUIPMENT is stated at cost. Furniture and equipment is depreciated using the straight-line method over the estimated useful lives of the various assets which range from three to five years. Leasehold improvements are amortized over the lesser of the lease term or the estimated useful lives of the improvements. Whenever events or changes in circumstances have indicated that the carrying amount of its assets might not be recoverable, the Company, using its best estimates based on reasonable and supportable assumptions and projections, has reviewed for impairment the carrying value of long-lived assets. PRE-OPENING COSTS are expensed as incurred. INTANGIBLES AND OTHER ASSETS - The excess of cost over tangible net assets acquired is amortized over periods ranging from 5 to 40 years. Debt issuance costs are amortized over the terms of the related credit agreements. The Company periodically assesses the recoverability of the carrying value of its goodwill based on a review of projected undiscounted cash flows of the related operations. Accumulated amortization at the end of 1998 and 1997 was $3.7 million and $2.3 million, respectively. DEFERRED RENT - Certain of the Company's operating leases contain predetermined fixed increases of the minimum rental rate during the initial term. For these leases, the Company recognizes the related rental expense on a straight-line basis over the life of the lease and records the difference between the amount charged to rent expense and the rent paid as deferred rent. 22 INCOME TAXES - The Company's income taxes are accounted for under the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes", which requires the liability method of accounting. FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying value of cash, accounts receivable, accounts payable and long-term debt approximates the estimated fair values. STOCK-BASED COMPENSATION - The Company accounts for stock-based awards to employees using the intrinsic value method in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees". Accordingly, no compensation cost has been recognized for its fixed cost stock option plans or its associate stock purchase plan. RECLASSIFICATIONS - Certain 1997 and 1996 amounts have been reclassified to conform with the 1998 presentation. CAPITALIZED INTEREST - The Company's policy is to capitalize interest on debt incurred that is directly related to major construction projects. During 1998 and 1997, the Company incurred approximately $6.7 million and $4.2 million of interest, respectively, of which approximately $576,000 and $587,000 respectively, was capitalized. Due to immateriality, interest incurred on capital projects during 1996 was not capitalized. NET INCOME PER SHARE - Basic net income per share excludes dilution and is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted net income per share reflects the potential dilution that could occur if options to issue common stock were exercised into common stock. The following is a reconciliation of the Company's basic and diluted net income per share computations (shares in thousands):
1996 1997 1998 - --------------------------------------------------------------------------------------------------- PER SHARE PER SHARE PER SHARE SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT - --------------------------------------------------------------------------------------------------- Basic 15,748 $ 0.73 16,648 $ 0.91 16,893 $ 0.06 Effect of dilutive stock options 1,200 (0.05) 935 (0.05) 627 (0.00) - --------------------------------------------------------------------------------------------------- Diluted 16,948 $ 0.68 17,583 $ 0.86 17,520 $ 0.06 - ---------------------------------------------------------------------------------------------------
The following options were not included in the computation of diluted EPS because such options' exercise price was greater than the average market price of the common shares (shares in thousands):
1996 1997 1998 - -------------------------------------------------------------------------------- Options to purchase shares of common stock 98 563 1,895 - -------------------------------------------------------------------------------- Exercise prices $31.13 - $34.50 $24.74 - $34.50 $11.13 - $34.50 - -------------------------------------------------------------------------------- Expiration dates February 2004 - February 2004 - March 2003 - November 2006 May 2007 August 2008 - --------------------------------------------------------------------------------
23 NEW ACCOUNTING PRONOUNCEMENTS - In 1998, the Company implemented Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income." Comprehensive income consists of net income or loss for the current period and other comprehensive income (incomes, expenses, gains and losses that currently bypass the income statement and are reported directly as a separate component of equity). The Company's comprehensive income equals net income for all periods presented. In June 1998, the FASB issued Statement of Financial Account Standards No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities." SFAS 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. The statement requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. This statement is effective for years beginning after June 15, 1999 and is not to be applied retroactively to financial statements for prior periods. The Company believes that this statement will not have a material effect on its financial statements. NOTE 2: ACQUISITION - -------------------------------------------------------------------------------- On June 17, 1996, the Company completed its acquisition of E&B Marine, Inc., a specialty retailer of marine supplies with 64 Stores and a mail order catalog operation. Under the terms of the acquisition, all of the outstanding shares of E&B Marine, Inc. were exchanged for approximately 1.2 million shares of West Marine, Inc. common stock. The value of the shares, including the value of stock options converted, was $41.6 million. The acquisition was accounted for as a purchase, and accordingly, the acquired assets and liabilities were recorded at their estimated fair values as of the date of the acquisition. The principal assets acquired and liabilities assumed were inventory ($37.6 million), deferred income taxes ($7.1 million), property ($3.7 million), other assets ($3.8 million), accounts payable and accrued expenses ($23.6 million), debt ($21.6 million) and other liabilities ($1.3 million). The excess of the purchase price over the net identifiable assets acquired ($38.4 million) was included in intangible assets and is being amortized over a forty-year period on a straight- line basis. The following unaudited pro forma income statement summary combines the results of operations of the Company and E&B Marine, Inc. as if the acquisition had occurred at the beginning of 1996. The pro forma income statement summary does not necessarily reflect the results of operations as they would have been if these combined companies had constituted a single entity during this period.
Pro Forma Income Statement Summary (in thousands, except per share data): (unaudited) 1996 - -------------------------------------------------------------------------------- Net sales $387,783 - -------------------------------------------------------------------------------- Net income $ 12,618 - -------------------------------------------------------------------------------- Net income per share Basic $ 0.77 Diluted $ 0.72 - --------------------------------------------------------------------------------
Included in the pro forma income statement summary above is an actual $3.0 million pre-tax charge for expenses related to integrating E&B Marine, Inc. in 1996. 24 NOTE 3: PROPERTY AND EQUIPMENT - -------------------------------------------------------------------------------- Property and equipment consisted of the following (in thousands):
YEAR END YEAR END 1997 1998 - -------------------------------------------------------------------------------- Furniture & equipment $ 27,274 $ 32,245 Computer equipment 26,122 34,233 Leasehold improvements 20,672 27,141 Land & building 651 728 - -------------------------------------------------------------------------------- Subtotal 74,719 94,347 Accumulated depreciation and amortization (23,904) (34,128) - -------------------------------------------------------------------------------- Total property and equipment, net $ 50,815 $ 60,219 - --------------------------------------------------------------------------------
NOTE 4: LINE OF CREDIT AND LONG-TERM DEBT - -------------------------------------------------------------------------------- At the end of 1998, the Company had outstanding a $40.0 million senior guarantee note which matures on December 23, 2004, with the first principal payment due on December 23, 2000. Subsequent to year end 1998, the note was amended to bear interest at the rate of 7.6%. This note is unsecured and contains certain amended restrictive covenants including required fixed charge coverage and debt to capitalization ratios and minimum net worth. Upon meeting certain investment grade ratings, the note will bear interest at the rate of 6.85%. At the end of 1998, the Company had available a $90.0 million revolving line of credit with two banks which expires on October 4, 2000. Subsequent to year end 1998, the revolving line of credit was amended to reduce the revolving line of credit to $75.0 million, effective April 5, 1999. Additionally, on July 5, 1999, the revolving line of credit will be further reduced to $50.0 million. Depending on the Company's election at the time of borrowing, the line bears interest, as amended, at either the bank's reference rate or LIBOR plus a factor ranging from 1.0% to 2.0%. At the end of 1998, borrowings from the credit line were $53.0 million bearing interest at rates ranging from 6.1% to 7.4%. At the end of 1997, borrowings under the credit line were $51.6 million bearing interest at rates ranging from 6.45% to 8.5%. In addition, the Company had available a $2.0 million revolving line of credit with a bank, which expires on October 4, 2000. The line bears interest at the bank's reference rate (7.75% at year end 1998) and has a ten day paydown requirement. At the end of 1998, no amounts were outstanding under this line of credit. At the end of 1997, borrowings under the credit line were $450,000 bearing interest at 8.5%. Both of the aforementioned credit lines are unsecured and contain certain amended restrictive covenants including maximum leverage, minimum cash flow coverage and maximum funded debt ratios. These covenants also restrict the repurchase or redemption of stock and the paying of dividends, investments in subsidiaries and annual capital expenditures. 25 At the end of 1998 and 1997, the Company had $100,000 of outstanding stand-by letters of credit. At the end of 1998 and 1997, the Company had $613,000 and $432,000, respectively, of outstanding commercial letters of credit. During 1998 and 1997, the weighted average interest rates in effect were 6.4% and 6.7%, respectively. Long-term debt consisted of the following (in thousands):
YEAR END YEAR END 1997 1998 - -------------------------------------------------------------------------------- Lines of credit $52,050 $53,000 Note payable 40,000 40,000 Capital lease obligations, interest at 3.6% to 8.7% 2,758 3,150 - -------------------------------------------------------------------------------- Subtotal 94,808 96,150 Less current portion 1,848 1,783 - -------------------------------------------------------------------------------- Total $92,960 $94,367 - --------------------------------------------------------------------------------
At year end 1998, future minimum principal payments on long-term debt were as follows (in thousands): 1999 $ 1,783 2000 61,675 2001 8,366 2002 8,326 2003 8,000 Thereafter 8,000 ------- Total $96,150 ======= NOTE 5: RELATED PARTY TRANSACTIONS - -------------------------------------------------------------------------------- The Company purchases merchandise from a supplier in which the Company's Principal Stockholder owns stock and is a member of the board of directors. Additionally, the Principal Stockholder's brother is the president and his father is a member of the board of directors and a major stockholder of the supplier. Cost of net sales during 1998, 1997 and 1996 includes $6.4 million, $5.2 million and $4.3 million, respectively, related to purchases from such related party. Accounts payable to the supplier at year end 1998 and 1997 were $384,000 and $435,000, respectively. The Company leases its corporate headquarters and two retail Stores from three partnerships in which the Company's Principal Stockholder is the general partner (See Note 6.) In addition, one retail Store is leased directly from the Principal Stockholder. NOTE 6: LEASES - -------------------------------------------------------------------------------- The Company leases certain equipment, retail Stores, its distribution centers and its corporate headquarters. The Company also sublets space at various locations with both month-to-month and noncancelable sublease agreements. Certain Stores operating leases provide for rent adjustments based on the consumer price index and planned rent increases. 26 The aggregate minimum annual rental payments and sublease income under noncancelable leases in effect at year end 1998, were as follows (in thousands):
CAPITAL OPERATING SUBLEASE NET LEASE LEASES LEASES INCOME COMMITMENTS - -------------------------------------------------------------------------------- 1999 $ 1,988 $ 20,780 $ 74 $ 22,694 2000 726 18,296 20 19,002 2001 381 16,591 14 16,958 2002 329 14,735 15,064 2003 13,691 13,691 Thereafter 39,584 39,584 - -------------------------------------------------------------------------------- Total minimum lease commitment 3,424 $ 123,677 $ 108 $ 126,993 - -------------------------------------------------------------------------------- Less amount representing interest 274 - -------------------------------------------------------------------------------- Present value of obligations under capital leases 3,150 - -------------------------------------------------------------------------------- Less current portion 1,783 - -------------------------------------------------------------------------------- Long-term obligations under capital leases $ 1,367 - --------------------------------------------------------------------------------
The cost and the related accumulated amortization of assets under capital leases aggregated $5.5 million and $1.1 million, respectively, at year end 1998 and $5.4 million and $1.3 million, respectively, at year end 1997. The components of rent expense for 1996, 1997 and 1998 were as follows (in thousands):
1996 1997 1998 - -------------------------------------------------------------------------------- Minimum rent $10,726 $15,942 $19,219 - -------------------------------------------------------------------------------- Percent rent $ 154 $ 182 $ 178 - -------------------------------------------------------------------------------- Sublease income $ 164 $ 202 $ 159 - -------------------------------------------------------------------------------- Rents paid to related parties $ 1,011 $ 1,065 $ 1,161 - --------------------------------------------------------------------------------
27 NOTE 7: STOCK OPTION PLANS - -------------------------------------------------------------------------------- Fixed Stock Option Plans The Company's 1990 Stock Option Plan ("the 1990 Plan") provides for options to be granted for the purchase of an aggregate of 2.1 million shares of common stock to employees and directors at prices not less than 100% of the fair market value at the date of grant. Options under this plan are generally exercisable equally over five years from the date of the grant, unless otherwise provided. The Company's 1993 Omnibus Equity Incentive Plan as amended, ("the 1993 Plan"), provides for options to be granted for the purchase of an aggregate of 3.8 million shares of common stock at prices not less than 85% of fair market value at the date of the grant. Options under this plan are generally exercisable equally over five years from the date of the grant, unless otherwise provided. The Company's Non-employee Director Stock Option Plan ("the Director Plan") has 100,000 shares of common stock reserved for issuance to non-employee directors of the Company. Options are granted at 100% of fair market value at the date of the grant, and are generally exercisable six months after the grant date. Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation", ("SFAS 123") requires the disclosure of pro forma net income and earnings per share had the Company adopted the fair value method as of the beginning of 1995. Under SFAS 123, the fair value of stock-based awards is calculated through the use of option pricing models, even though such models were developed to estimate the fair value of freely tradable, fully transferable options without vesting restrictions, which significantly differ from the Company's stock option awards. These models also require subjective assumptions, including future stock price volatility and expected time to exercise, which greatly affect the calculated values. The Company's calculations were made using the Black-Scholes option pricing model with the following weighted average assumptions: four to eight year expected life from date of grant; stock volatility of 70% in 1998, 60% in 1997 and 55% in 1996; risk-free interest rates of 4.97% to 5.27% in 1998, 5.60% to 6.41% in 1997 and 5.47% to 6.44% in 1996; and no dividends during the expected term. The Company's calculations are based on a single option valuation approach and forfeitures are recognized as they occur. If the computed fair values of the 1998, 1997 and 1996 awards had been amortized to expense over the vesting period of the awards, pro forma net loss and basic and diluted net loss per share would have been $1.1 million ($0.07 per share) in 1998, and pro forma net income and net income per share would have been $13.0 million ($0.78 and $0.74 per share, respectively) in 1997 and $9.0 million ($0.58 and $0.54 per share, respectively) in 1996. The impact of outstanding non-vested stock options granted prior to 1995 has been excluded from the pro forma calculation; accordingly, the 1998, 1997 and 1996 pro forma adjustments are not indicative of future period pro forma adjustments, when the calculation will apply to all future applicable stock options. Associate Stock Purchase Plan The Company has a stock buying plan covering all eligible associates. Participants in the plan may purchase West Marine stock through regular payroll deductions. The stock is purchased on the last business day of April and October at 85% of the fair market value. Shares issued under the plan were 75,639, 46,025 and 47,032 shares in 1998, 1997 and 1996 at weighted average prices of $9.85, $17.74 and $14.03, respectively. The weighted average fair value of the 1998, 1997 and 1996 awards was $13.12, $22.95 and $15.74, respectively. At the end of 1998, 160 shares were reserved for future issuances under the stock buying plan. 28 Option activity under the plans is as follows:
NUMBER OF WEIGHTED AVERAGE SHARES EXERCISE PRICE - ------------------------------------------------------------------------------------------------------------------- Outstanding, year end 1995 (845,664 exercisable at a weighted average price of $5.72) 2,268,470 $ 7.89 Options converted under E&B Marine, Inc. acquisition 139,384 14.42 Granted (weighted average grant date fair value - $13.29) 653,158 20.65 Exercised (313,275) 8.10 Canceled (50,358) 13.32 - ------------------------------------------------------------------------------------------------------------------- Outstanding, year end 1996 (1,084,741 exercisable at a weighted average price of $7.37) 2,697,379 11.09 Granted (weighted average grant date fair value - $18.29) 543,929 25.31 Exercised (245,838) 7.33 Canceled (242,089) 16.87 - ------------------------------------------------------------------------------------------------------------------- Outstanding, year end 1997 (1,384,874 exercisable at a weighted average price of $9.89) 2,753,381 13.72 Granted (weighted average grant date fair value - $ 9.16) 1,452,906 13.71 Exercised (122,821) 7.49 Canceled (563,357) 18.68 - ------------------------------------------------------------------------------------------------------------------- Outstanding, year end 1998 (1,563,633 exercisable at a weighted average price of $10.90) 3,520,109 $13.14 - -------------------------------------------------------------------------------------------------------------------
Additional information regarding options outstanding at year end 1998 is as follows:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE - ------------------------------------------------------------------------------------------------------------------- WEIGHTED AVG. REMAINING RANGE OF NUMBER CONTRACTUAL WEIGHTED AVG. NUMBER WEIGHTED AVG. EXERCISE PRICES OUTSTANDING LIFE (YRS) EXERCISE PRICE EXERCISABLE EXERCISE PRICE - ------------------------------------------------------------------------------------------------------------------- $ 0.00- $ 7.81 1,271,450 7.22 $ 5.65 513,343 $ 2.48 $ 8.25- $16.50 1,233,244 6.57 $12.00 816,532 $12.00 $ 17.50- $34.50 1,015,415 8.56 $23.90 233,758 $25.53 - ------------------------------------------------------------------------------------------------------------------- $ 0.00- $34.50 3,520,109 7.38 $13.14 1,563,633 $10.90 - -------------------------------------------------------------------------------------------------------------------
At year end 1998, 453,476 and 10,510 shares were available for future grants under the 1993 Plan and the Director Plan, respectively. The Company does not intend to grant any additional options under the 1990 Plan. 29 NOTE 8: INCOME TAXES - -------------------------------------------------------------------------------- The provision for income taxes consisted of the following (in thousands):
1996 1997 1998 - ---------------------------------------------------------------------------------- Currently Payable: Federal $4,545 $ 4,827 $ 998 State 1,264 783 200 - ---------------------------------------------------------------------------------- Total 5,809 5,610 1,198 Deferred: Federal 1,823 3,944 633 State 292 760 (335) - ---------------------------------------------------------------------------------- Total 2,115 4,704 298 - ---------------------------------------------------------------------------------- Total $7,924 $10,314 $1,496 - ----------------------------------------------------------------------------------
A reconciliation of the Company's statutory income tax rate with its effective income tax rate is as follows:
1996 1997 1998 - ---------------------------------------------------------------------------------- Statutory federal rate 35.0% 35.0% 35.0% Non-deductible permanent items 1.2 1.8 18.1 State income taxes, net of federal tax benefit 4.9 4.6 4.6 Settlement of prior year taxes 7.1 Other (0.4) (0.9) (7.1) - ---------------------------------------------------------------------------------- Effective tax rate 40.7% 40.5% 57.7% - ----------------------------------------------------------------------------------
30 Deferred income taxes reflect the impact of "temporary differences" between amounts of assets and liabilities for financial reporting purposes and such amounts measured by tax laws. Temporary differences which give rise to deferred tax assets (liabilities) are as follows (in thousands):
1997 1998 - ---------------------------------------------------------------------------------- Current: Reserves $ 896 $ 449 Net operating loss carryforwards 3,894 923 Paid time off 407 362 State tax benefit (42) (272) Change of tax accounting method 42 21 Deferred catalog costs (1,697) (1,194) Capitalized inventory costs (3,064) (2,938) Cash discounts (777) (818) Valuation allowance (504) Other 57 204 - -------------------------------------------------------------------------------- Subtotal (788) (3,263) Noncurrent: Deferred rent 447 488 Net operating loss carryforwards 3,320 Valuation allowance (504) Fixed assets 753 14 Reserves 195 195 Other (15) 44 - -------------------------------------------------------------------------------- Total $ 592 $ 294 - --------------------------------------------------------------------------------
As part of the E&B Marine, Inc. acquisition the Company provided deferred taxes on various temporary differences, including additional reserves and write down of fixed assets. At year end 1998, the Company had unused federal tax net operating loss carryforwards, attributable to E&B Marine, of approximately $6.2 million which expire in the years 2002 through 2010. The utilization of the tax loss carryforwards may be limited in subsequent years as a result of prior ownership changes as required under sections 381 and 382 of the Internal Revenue Code. 31 NOTE 9: EMPLOYEE BENEFIT PLANS - -------------------------------------------------------------------------------- The Company has a defined contribution savings plan covering all eligible full- time employees. The Company matches 33% of an employee's contribution up to 5% of the employee's annual compensation. The Company's contributions to the Plan for 1998, 1997 and 1996 were $366,000, $330,000 and $278,000, respectively. In February 1998, the FASB issued Statement of Financial Account Standards No. 132 ("SFAS 132"), "Employer's Disclosures about Pensions and Other Post- retirement Benefits." SFAS 132 standardizes the disclosure requirements for pensions and other post-retirement benefits to the extent practicable. The Company adopted this statement in 1998. As a result of the acquisition of E&B Marine, Inc., the Company has a suspended defined benefit plan ("the Defined Benefit Plan"), under which the minimum benefit contribution is calculated by the plan actuaries. The Defined Benefit Plan provides an existing participant with the excess, if any, of amounts required under the Company's pension formula over the value of the retiree's account balance as of the date the Defined Benefit Plan was suspended (January 28, 1994). A discount rate of 5.25% and 5.75% and a rate of return on assets of 8% were used by the actuary in determining the Defined Benefit Plan status at year end 1998 and 1997, respectively. The Defined Benefit Plan invests primarily in publicly traded stocks and bonds. The actuarial present value of the benefit obligations for 1997 and 1998 was (in thousands):
1997 1998 - -------------------------------------------------------------------------------- Changes in Benefit Obligation Benefit obligation at beginning of year $3,012 $3,409 Interest cost 186 198 Actuarial loss 297 326 Benefits paid (86) (41) - -------------------------------------------------------------------------------- Benefit obligation at end of year $3,409 $3,892 - -------------------------------------------------------------------------------- Change in Plan Assets Fair value of plan assets at beginning of year $2,145 $2,710 Actual return on plan assets 471 469 Employer contribution 180 Benefits paid (86) (41) - -------------------------------------------------------------------------------- Fair value of plan assets at end of year $2,710 $3,138 - -------------------------------------------------------------------------------- Funded status $ (699) $ (754) Unrecognized net actuarial gain (132) (61) - -------------------------------------------------------------------------------- Accrued pension liability $ (831) $ (815) - -------------------------------------------------------------------------------- Components of Net Periodic Pension Cost Interest cost $ 186 $ 198 Expected return on plan assets (179) (214) - ------------------------------------------------------------------------------- Net periodic benefit cost (income) $ 7 ($16) - --------------------------------------------------------------------------------
32 NOTE 10: SEGMENT INFORMATION - -------------------------------------------------------------------------------- The Company has three divisions (Stores, Catalog and Wholesale ("Port Supply")), which all sell after-market recreational boating supplies directly to customers. The customer base overlaps between Stores and Port Supply and between Catalog and Stores. All processes for all divisions within the supply chain are commingled; including purchases from merchandise vendors, distribution center activity and customer delivery. In June 1997, the FASB issued Statement of Financial Accounting Standard No. 131 ("SFAS 131") "Disclosures about Segments of an Enterprise and Related Information." SFAS 131 requires public business enterprises to report certain information about operating segments in annual financial statements. The adoption of SFAS 131 in 1998 did not affect the Company's results of operations or financial position. The Stores qualify as a reportable segment under SFAS 131 because it is the only division that is 10% or more of the combined revenue of all operating segments. Segment assets are not presented as all assets of the Company are commingled and are not available by segment. Contribution is defined as net sales less product costs and direct expenses. Financial information for the Company's business segments are as follows (in thousands):
1996 1997 1998 - ------------------------------------------------------------------------------------------------- Net Sales: Stores $250,301 $334,623 $369,781 Other 72,999 80,585 79,051 - ------------------------------------------------------------------------------------------------- Consolidated Net Sales $323,300 $415,208 $448,832 - ------------------------------------------------------------------------------------------------- Contribution: Stores $ 37,162 $ 49,557 $ 45,754 Other 10,905 10,337 9,479 - ------------------------------------------------------------------------------------------------- Consolidated Contribution $ 48,067 $ 59,894 $ 55,233 - -------------------------------------------------------------------------------------------------
RECONCILIATION OF CONTRIBUTION TO NET INCOME Consolidated Contribution $ 48,067 $ 59,894 $ 55,233 Less: Cost of goods sold not included in consolidated contribution (12,866) (18,014) (28,431) General and administrative expenses (11,050) (12,764) (14,853) Expenses related to integrating E&B Marine, Inc. (2,995) Expenses related to distribution center move (3,284) Interest expense (1,666) (3,629) (6,071) Provision for income taxes (7,924) (10,314) (1,496) - ------------------------------------------------------------------------------------------------- Net Income $ 11,566 $ 15,173 $ 1,098 - -------------------------------------------------------------------------------------------------
33 QUARTERLY FINANCIAL DATA (in thousands, except per share data)
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER - ----------------------------------------------------------------------------------------------------------- 1998 Net sales $ 84,173 $ 159,368 $ 121,449 $ 83,842 Gross Profit 21,846 47,030 31,792 12,208 Income (loss) from operations (4,318) (1) 16,825 6,354 (10,196) Net income (loss) (3,567) (1) 9,133 2,929 (7,397) Net income (loss) per common and common equivalent share: Basic $ (0.21) $ 0.54 $ 0.17 $ (0.44) Diluted $ (0.21) $ 0.52 $ 0.17 $ (0.44) Stock trade price: High $ 30 1/8 $ 28 5/16 $ 18 7/8 $ 12 Low $ 21 1/16 $ 16 $ 7 3/8 $ 6 7/16 1997 Net sales $ 75,025 $ 141,499 $ 115,471 $ 83,213 Gross profit 19,735 47,046 33,224 22,808 Income (loss) from operations (1,027) 19,702 8,776 1,665 Net income (loss) (1,158) 11,158 4,872 301 Net income (loss) per common and common equivalent share: Basic $ (0.07) $ 0.67 $ 0.29 $ 0.02 Diluted $ (0.07) $ 0.63 $ 0.28 $ 0.02 Stock trade price: High $ 36 $ 34 3/4 $ 26 3/4 $ 25 3/4 Low $ 26 3/4 $ 22 3/4 $ 17 $ 18 5/8 - -----------------------------------------------------------------------------------------------------------
(1) Income from operations and net income for the first quarter of 1998 is net of $3.3 million pre-tax charge for expenses related to the distribution center move in 1998. West Marine, Inc. common stock trades on the NASDAQ National Market System under the symbol WMAR. ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 34 PART III ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this item is incorporated by reference from the Company's Definitive Proxy Statement for the 1999 Annual Meeting of Stockholders under the captions "Election of Directors" and "Section 16(a) Information." see also Item I above. ITEM 11 - EXECUTIVE COMPENSATION The information required by this item is incorporated by reference from the Company's Definitive Proxy Statement for the 1999 Annual Meeting of Stockholders under the captions "Further Information Concerning the Board of Directors" and "Executive Compensation". ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is incorporated by reference from the Company's Definitive Proxy Statement for the 1999 Annual Meeting of Stockholders under the captions "Election of Directors" and "Ownership of Management and Principal Stockholders." ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item is incorporated by reference from the Company's Definitive Proxy Statement for the 1999 Annual Meeting of Stockholders under the caption "Executive Compensation". PART IV ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this report: 1 & 2. Independent Auditor's Report Consolidated Balance Sheets as of year end 1997 and 1998 Consolidated Statements of Income for years 1996, 1997 and 1998 Consolidated Statements of Stockholders' Equity for years 1996, 1997, and 1998 Consolidated Statements of Cash Flows for years 1996, 1997 and 1998 Notes to Consolidated Financial Statements Quarterly Financial Data 3. Exhibits: See attached Exhibit Index on pages 37-39 of this Form 10-K. 35 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: April 2, 1999 WEST MARINE, INC. By: /s/ John Edmondson ------------------ John Edmondson President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on April 2, 1999. Signature Capacity /s/ Randolph K. Repass - ------------------------------- (Randolph K. Repass) Chairman of the Board /s/ John Edmondson - ------------------------------- (John Edmondson) President and Chief Executive Officer /s/ Richard E. Everett - ------------------------------- (Richard E. Everett) President of Stores Division and Chief Operating Officer /s/ John Zott - ------------------------------- (John Zott) Senior Vice President, Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) /s/ James P. Curley - ------------------------------- (James P. Curley) Director /s/ Geoff Eisenberg - ------------------------------- (Geoff Eisenberg) Director /s/ Jeanne Jackson - ------------------------------- (Jeanne Jackson) Director /s/ David McComas - ------------------------------- (David McComas) Director /s/ Walter Scott - ------------------------------- (Walter Scott) Director /s/ Henry Wendt - ------------------------------- (Henry Wendt) Director 36 EXHIBIT INDEX
Exhibit Number Exhibit Page - ------- ------- ---- 2.1 Agreement and plan of merger dated as of April 2, 1996 among then Registrant, WM Merger Sub, Inc. and E&B Marine Inc. ("E&B Marine") (incorporated by reference to Exhibit 2.1 to Registrant's Current Report on Form 8-K dated April 2, 1996). 2.2 Stockholders Agreement, dated as of April 2, 1996 by and between the Registrant and certain stockholders of E&B Marine (incorporated by reference to Exhibit 2.2 to Registrant's Current Report of Form 8-K dated April 2, 1996). 2.3 Letter Amendment of Stockholders Agreement, dated May 10, 1996, between the Registrant and certain stockholders of E&B Marine (incorporated by reference to Exhibit 2.3 to the Company's Registration Statement on Form S-4 (Registration No. 333-02903)). 3.1 Certificate of Incorporation (incorporated by reference to exhibit 3.1 to the Company's registration statement on Form S-1 (Registration No. 33-69604)). 3.2 Registrant's Bylaws (incorporated by reference to exhibit 3.2 to the Company's registration statement on Form S-1 (Registration No. 33- 69604)). 4.1 Specimen Common Stock Certificate (incorporated by reference to exhibit 4.1 to the Company's registration statement on Form S-1 (Registration No. 33-69604)). 10.1 Credit Agreement dated as of November 2, 1995 among WMP, Bank of America National Trust and Savings Association, Nations Bank of Texas, National Association and the other financial institutions party thereto (incorporated by reference to exhibit 10.1 to the Company's Annual Report on Form 10K for the fiscal year ended December 30, 1995). 10.1.1 Amendment to credit agreement dated February 20, 1997 among WMP, Bank of America National Trust and Savings Association and other financial institutions party thereto. (incorporated by reference to exhibit 10.1.1 to the Company's Annual Report on Form 10-K for the fiscal year ended December 28, 1996.) 10.1.2 Second amendment to credit agreement dated March 28, 1997 among WMP, Bank of America National Trust and Savings Association, and other financial institutions party thereto. (incorporated by reference to exhibit 10.1.2 in the Company's Quarterly Report on Form 10-Q for the quarter ended March 29, 1997.) 10.1.3 Third amendment to credit agreement dated June 27, 1997 among WMP, Bank of America National Trust and Savings Association, and other financial institutions party thereto. (incorporated by reference to exhibit 10.1.3 in the Company's Quarterly Report on Form 10-Q for the quarter ended June 28, 1997.) 10.1.4 Fourth amendment to credit agreement dated September 24, 1997 among WMP, Bank of America National Trust and Savings Association, and other financial institutions party thereto. (incorporated by reference to exhibit 10.14 in the Company's Quarterly Report on Form 10-Q for the quarter ended September 27, 1997.) 10.2 Guaranty entered into as of November 2, 1995 by Registrant in favor of Bank of America National Trust and Savings Association (incorporated by reference to exhibit 10.2 to the Company's Annual Report on Form 10-K for the fiscal year ended December 30, 1995).
37 Exhibit Number Exhibit Page - ------- ------- ---- 10.3* 1990 Stock Option Plan and form of incentive stock option agreement (incorporated by reference to exhibits 4.2 and 4.4, respectively, to the Company's registration statement on Form S-8 (Registration No. 33- 72956)). 10.4 Form of Indemnification Agreement between the Registrant and its directors and officers (incorporated by reference to exhibit 10.4 to the Company's registration statement on Form S-1 (Registration No. 33- 69604)). 10.5* 1993 Omnibus Equity Incentive Plan including form of Stock Option Agreement (incorporated by reference to exhibits 4.1 and 4.3, respectively, to the Company's registration statement on Form S-8 (Registration No. 33-72956)). 10.6* 401(k) Plan (incorporated by reference to exhibit 10.6 to the Company's registration statement on Form S-1 (Registration No. 33-69604)). 10.7 Sublease Agreement dated August 31, 1992 between Holtzman's Little Folk Shop, Inc. and WMP for the Charlotte, North Carolina distribution facilities (incorporated by reference to exhibit 10.8 to the Company's registration statement on Form S-1 (Registration No. 33-69604)). 10.8 Lease dated June 15, 1995 between John E. Van Valkenburgh and Carl D. Panattoni and WMP for the Hollister, California distribution facility (incorporated by reference to Exhibit 10.9 to the Company's Annual Report on Form 10-K for the fiscal year ended December 30, 1995). 10.9 Lease dated December 20, 1985 between Randolph K. Repass and West Marine Products, Inc. for the Palo Alto, Ca store (incorporated by reference to exhibit 10.11 to the Company's registration statement on Form S-1 (Registration No. 33-69604)). 10.10 Lease dated December 30, 1992 between Braintree Freeholders and WMP for the Braintree, MA store (incorporated by reference to exhibit 10.12 to the Company's registration statement on Form S-1 (Registration No. 33- 69604)). 10.11 Lease dated July 28, 1982 between Santa Cruz Freeholders and WMP for the Santa Cruz, CA store (incorporated by reference to exhibit 10.13 to the Company's registration statement on Form S-1 (Registration No. 33- 69604)). 10.12* Nonemployee Director Stock Option Plan and form of option agreement thereunder (incorporated by reference to exhibit 10.18 in the Company's Quarterly Report on Form 10-Q for the quarter ended April 2, 1994). 38 Exhibit Number Exhibit Page - ------- ------- ---- 10.14 Lease dated March 11, 1997 between W/H No. 31 L.L.C. and West Marine Inc. for Rock Hill, South Carolina Distribution facility and other agreements thereto (incorporated by reference to exhibit 10.14 in the Company's Quarterly Report on Form 10-Q for the quarter ended March 29, 1997.) 10.15 Lease dated June 26, 1997 between Watsonville Freeholders and West Marine Products Inc. for the Watsonville, California offices and other agreements thereto (incorporated by reference to exhibit 10.14 in the Company's Quarterly Report on Form 10-Q for the quarter ended June 28, 1997.) 10.16 Note purchase agreement, dated December 23, 1997 by and between the Registrant's wholly owned subsidiary, West Marine Finance Company, Inc. and five insurance investors for Forty Million Dollars ($40,000,000) of an unsecured 6.85% Senior Guaranteed Note due December 23, 2004 (incorporated by reference to Exhibit A to Registrant's Current Report on Form 8-K dated December 23, 1997.) 10.16.1 First Amendment to the Guaranty Agreement dated December 29, 1998 among West Marine, Inc. and other financial institutions thereto. 10.16.2 First Amendment to the Note Purchase Agreements and Second Amendment to the Guaranty Agreement, both dated February 15, 1999 among West Marine Finance Company, Inc., West Marine, Inc., and other financial institutions party thereto. 10.17 Credit Agreement dated as of November 24, 1997 among West Marine Finance Company, Inc., Bank of America National Trust and Savings Association, NationsBank of Texas, National Association and Fleet National Bank. 10.17.1 First Amendment to credit agreement dated April 10, 1998 among West Marine Finance Company, Inc., Bank of America National Trust and Savings Association, and other financial institutions party thereto. 10.17.2 Second Amendment to credit agreement dated September 30, 1998 among West Marine Finance Company, Inc., Bank of America National Trust and Savings Association, and other financial institutions party thereto. 10.17.3 Third Amendment to credit agreement dated February 23, 1999 among West Marine Finance Company, Inc., Bank of America National Trust and Savings Association, and other financial institutions party thereto. 21.1 List of Subsidiaries. 23.1 Consent of Deloitte & Touche LLP. 27.1 Financial Data Schedule for 1998. ________________________ * Indicates, as required by Item 14(a)(3), a management contract or compensatory plan required to be filed as an exhibit to this Form 10-K. 39 EX-10.16.1 2 FIRST AMENDMENT TO THE GUARANTY AGREEMENT Execution Copy 10.16.1 ================================================================================ West Marine, Inc. ___________________________________ First Amendment Dated as of December 29, 1998 to Guaranty Agreement Dated as of December 22, 1997 ___________________________________ Re: $40,000,000 6.85% Senior Guaranteed Notes Due December 23, 2004 of West Marine Finance Company, Inc. ================================================================================ FIRST AMENDMENT TO GUARANTY AGREEMENT This First Amendment dated as of December 29, 1998 (the or this "First Amendment") to the Guaranty Agreement dated as of December 22, 1997 is between West Marine, Inc., a Delaware corporation (the "Parent Guarantor"), and each of the institutions which is a signatory to this First Amendment (collectively, the "Noteholders"). RECITALS: A. West Marine Finance Company, Inc., a California corporation (the "Company"), and each of the Noteholders have heretofore entered into separate and several Note Purchase Agreements, each dated as of December 22, 1997 (collectively, the "Note Purchase Agreements"). The Company has heretofore issued the $40,000,000 6.85% Senior Guaranteed Notes Due December 23, 2004 (the "Notes") pursuant to the Note Purchase Agreements. B. The payment by the Company of all amounts due with respect to the Notes and the performance by the Company of its obligations under the Note Purchase Agreements has been guaranteed by the Parent Guarantor pursuant to the Guaranty Agreement dated as of December 22, 1997 (the "Guaranty Agreement") from the Parent Guarantor to the Noteholders. C. The Parent Guarantor and the Noteholders now desire to amend the Guaranty Agreement in the respects, but only in the respects, hereinafter set forth. D. Capitalized terms used herein shall have the respective meanings ascribed thereto in the Note Purchase Agreements unless herein defined or the context shall otherwise require. E. All requirements of law have been fully complied with and all other acts and things necessary to make this First Amendment a valid, legal and binding instrument according to its terms for the purposes herein expressed have been done or performed. Now, therefore, upon the full and complete satisfaction of the conditions precedent to the effectiveness of this First Amendment set forth in (S)3.1 hereof, and in consideration of good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, the Parent Guarantor and the Noteholders do hereby agree as follows: Section 1. Amendments. Section 1.1. Section 5.2 of the Guaranty Agreement shall be and is hereby amended and restated in its entirety to read as follows: "Section 5.2. Fixed Charges Coverage Ratio. The Parent Guarantor will as of the end of each fiscal quarter set forth below keep and maintain the ratio of Consolidated Net Income Available for Fixed Charges to Consolidated Fixed Charges for each period of four consecutive fiscal quarters at not less than the ratio indicated below: Fiscal Quarter Minimum Ratio Level Fourth Quarter 1998 1.30 to 1.0 First Quarter 1999 and thereafter 1.50 to 1.0" Section 2. Representations and Warranties of the Parent Guarantor. Section 2.1. To induce the Noteholders to execute and deliver this First Amendment (which representations shall survive the execution and delivery of this First Amendment), the Parent Guarantor represents and warrants to the Noteholders that: (a) this First Amendment has been duly authorized, executed and delivered by it and this First Amendment constitutes the legal, valid and binding obligation, contract and agreement of the Parent Guarantor enforceable against it in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles relating to or limiting creditors' rights generally; (b) the Guaranty Agreement, as amended by this First Amendment, constitutes the legal, valid and binding obligation, contract and agreement of the Parent Guarantor enforceable against it in accordance with its respective terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles relating to or limiting creditors' rights generally; (c) the execution, delivery and performance by the Parent Guarantor of this First Amendment (i) has been duly authorized by all requisite corporate action and, if required, shareholder action, (ii) does not require the consent or approval of any governmental or regulatory body or agency, and (iii) will not (A) violate (1) any provision of law, statute, rule or regulation or its certificate of incorporation or bylaws, (2) any order of any court or any rule, regulation or order of any other agency or government binding upon it, or (3) any provision of any material indenture, agreement or other instrument to which it is a party or by which its properties or assets are or may be bound, including, without limitation, the Bank Credit Agreement, or (B) result in a breach or constitute (alone or with due notice or lapse of time or both) a default under any indenture, agreement or other instrument referred to in clause (iii)(A)(3) of this (S)2.1(C); (d) as of the date hereof and after giving effect to this First Amendment, no Default or Event of Default has occurred which is continuing; and (e) all the representations and warranties contained in Section 2 of the Guaranty Agreement are true and correct in all material respects with the same force and effect as if made by the Parent Guarantor on and as of the date hereof. -2- Section 3. Conditions to Effectiveness of This First Amendment. This First Amendment shall not become effective until, and shall become effective when, each and every one of the following conditions shall have been satisfied: (a) executed counterparts of this First Amendment, duly executed by the Parent Guarantor and the holders of at least 51% of the outstanding principal of the Notes, shall have been delivered to the Noteholders; (b) the Noteholders shall have received a copy of the resolutions of the Board of Directors of the Parent Guarantor authorizing the execution, delivery and performance by the Parent Guarantor of this First Amendment, certified by its Secretary or an Assistant Secretary; and (c) the representations and warranties of the Parent Guarantor set forth in (S) 2 hereof are true and correct on and with respect to the date hereof. Upon receipt of all of the foregoing, this First Amendment shall become effective. Section 4. Payment of Noteholders' Counsel Fees and Expenses. The Parent Guarantor agrees to pay upon demand, the reasonable fees and expenses of Chapman and Cutler, counsel to the Noteholders, in connection with the negotiation, preparation, approval, execution and delivery of this First Amendment. Section 5. Miscellaneous. Section 5.1. This First Amendment shall be construed in connection with and as part of the Guaranty Agreement, and except as modified and expressly amended by this First Amendment, all terms, conditions and covenants contained in the Guaranty Agreement are hereby ratified and shall be and remain in full force and effect. Section 5.2. Any and all notices, requests, certificates and other instruments executed and delivered after the execution and delivery of this First Amendment may refer to the Guaranty Agreement without making specific reference to this First Amendment but nevertheless all such references shall include this First Amendment unless the context otherwise requires. Section 5.3. The descriptive headings of the various Sections or parts of this First Amendment are for convenience only and shall not affect the meaning or construction of any of the provisions hereof. Section 5.4. This First Amendment shall be governed by and construed in accordance with California law. -3- Section 5.5. The execution hereof by you shall constitute a contract between us for the uses and purposes hereinabove set forth, and this First Amendment may be executed in any number of counterparts, each executed counterpart constituting an original, but all together only one agreement. West Marine, Inc. By Its______________________________ The foregoing is hereby agreed to as of the date thereof. Connecticut General Life Insurance Company By: CIGNA Investments, Inc. By Its Connecticut General Life Insurance Company, on behalf of one or more separate accounts By: CIGNA Investments, Inc. By Its RGA Reinsurance Company By: Conning Asset Management Company By Its -4- COVA Financial Life Insurance Company By: Conning Asset Management Company By Its The Travelers Insurance Company By Its Hartford Life and Accident Insurance Company By: Hartford Investment Services, Inc., Its agent and attorney-in-fact By Its -5- The undersigned hereby acknowledge and agree to the foregoing Amendment. West Marine Finance Company, Inc. By Its Central Marine Supply (Florida), Inc. Central Marine Supply, Inc. E & B Marine IHC I, Inc. E & B Marine IHC II, Inc. E & B Marine LBC, Inc. E & B Marine Supply (Florida), Inc. E & B Marine Supply, Inc., a Maryland corporation E & B Marine Supply, Inc., a New Jersey corporation E & B Marine, Inc. Goldbergs' Marine Distributors, Inc. James Bliss & Company, Inc. Krista Corporation Sea Ranger Marine, Inc. W. Marine Management Company, Inc. West Marine FSC, Inc. West Marine IHC I, Inc. West Marine IHC II, Inc. West Marine LBC, Inc. By Its -6- EX-10.16.2 3 FIRST AMENDMENT TO THE NOTE PURCHASE AGREEMENT Execution Copy 10.16.2 ================================================================================ West Marine Finance Company, Inc. West Marine, Inc. ___________________________________ First Amendment to Note Purchase Agreements Dated as of December 22, 1997 and Second Amendment to Guaranty Agreement Dated as of December 22, 1997 Dated as of February 15, 1999 ___________________________________ Re: $40,000,000 6.85% Senior Guaranteed Notes Due December 23, 2004 of West Marine Finance Company, Inc. ================================================================================ AMENDMENT This First Amendment dated as of February 15, 1999 to the Note Purchase Agreements, each dated as of December 22, 1997 and Second Amendment dated as of February 15, 1999 to the Guaranty Agreement dated as of December 22, 1997 (the or this "Amendment") is among West Marine Finance Company, Inc., a California corporation (the "Company"), West Marine, Inc., a Delaware corporation (the "Parent Guarantor"; the Parent Guarantor and the Company are hereafter collectively referred to as the "Companies"), and each of the institutions which is a signatory to this Amendment (collectively, the "Noteholders"). RECITALS: A. The Company and each of the Noteholders have heretofore entered into separate and several Note Purchase Agreements, each dated as of December 22, 1997 (collectively, the "Note Purchase Agreements"). The Company has heretofore issued the $40,000,000 6.85% Senior Guaranteed Notes Due December 23, 2004 (the "Notes") pursuant to the Note Purchase Agreements. B. The payment by the Company of all amounts due with respect to the Notes and the performance by the Company of its obligations under the Note Purchase Agreements has been guaranteed by the Parent Guarantor pursuant to the Guaranty Agreement dated as of December 22, 1997, as amended by the First Amendment to Guaranty Agreement dated as of December 29, 1998 (as amended, the "Guaranty Agreement"), from the Parent Guarantor to the Noteholders. C. The Companies and the Noteholders now desire to amend the Note Purchase Agreements, the Notes and the Guaranty Agreement in the respects, but only in the respects, hereinafter set forth. D. Capitalized terms used herein shall have the respective meanings ascribed thereto in the Note Purchase Agreements unless herein defined or the context shall otherwise require. E. All requirements of law have been fully complied with and all other acts and things necessary to make this Amendment a valid, legal and binding instrument according to its terms for the purposes herein expressed have been done or performed. Now, therefore, upon the full and complete satisfaction of the conditions precedent to the effectiveness of this Amendment set forth in (S)3 hereof, and in consideration of good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, the Companies and the Noteholders do hereby agree as follows: Section 1. Amendments. Section 1.1. The Note Purchase Agreements shall be and are hereby amended as follows: (a) From and after the Effective Date through and including the date of payment in full of the Notes, interest on the outstanding principal balance of the Notes shall accrue at the Applicable Rate and, on any overdue payment of interest, principal or premium, at 2% over the then Applicable Rate. (b) Schedule B to the Note Purchase Agreements shall be and is hereby amended by adding in alphabetical order the following definition: ""Applicable Rate" shall mean (a) interest (computed on the basis of a 360-day year of twelve 30-day months) at the rate of 7.60% per annum for each day on which the Parent Guarantor or the Parent Guarantor's senior long term unsecured debt either (i) is not rated (A) "BBB-" or better by Standard & Poor's Ratings Group, a division of McGraw-Hill, Inc., or (B) "Baa3" or better by Moody's Investors Service, Inc. or (ii) is not rated by either of such rating agencies and (b) interest (computed on the basis of a 360-day year of twelve 30-day months) at the rate of 6.85% per annum for each day other than a day described in section (a) of this definition." Section 1.2. Exhibit 1 to the Note Purchase Agreements shall be and is hereby amended in its entirety to read as Exhibit 1 attached hereto. Section 1.3. Section 5.2 of the Guaranty Agreement shall be and is hereby amended and restated in its entirety to read as follows: "Section 5.2. Fixed Charges Coverage Ratio. The Parent Guarantor will as of the end of each fiscal quarter set forth below keep and maintain the ratio of Consolidated Net Income Available for Fixed Charges to Consolidated Fixed Charges for each period of four consecutive fiscal quarters at not less than the ratio indicated below:
Fiscal Quarter Minimum Ratio Level Fourth Quarter 1998 1.00 to 1.0 First Quarter 1999 1.00 to 1.0 Second Quarter 1999 1.08 to 1.0 Third Quarter 1999 1.08 to 1.0 Fourth Quarter 1999 1.33 to 1.0 First Quarter 2000 and thereafter 1.50 to 1.0"
-2- Section 2. Representations and Warranties of the Companies. Section 2.1. To induce the Noteholders to execute and deliver this Amendment (which representations shall survive the execution and delivery of this Amendment), the Company represents and warrants to the Noteholders that: (a) this Amendment has been duly authorized, executed and delivered by it and this Amendment constitutes the legal, valid and binding obligation, contract and agreement of the Company enforceable against it in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles relating to or limiting creditors' rights generally; (b) the Note Purchase Agreements and the Notes, as amended by this Amendment, constitute the legal, valid and binding obligation, contract and agreement of the Company enforceable against it in accordance with its respective terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles relating to or limiting creditors' rights generally; (c) the execution, delivery and performance by the Company of this Amendment (i) has been duly authorized by all requisite corporate action and, if required, shareholder action, (ii) does not require the consent or approval of any governmental or regulatory body or agency, and (iii) will not (A) violate (1) any provision of law, statute, rule or regulation or its certificate of incorporation or bylaws, (2) any order of any court or any rule, regulation or order of any other agency or government binding upon it, or (3) any provision of any material indenture, agreement or other instrument to which it is a party or by which its properties or assets are or may be bound, including, without limitation, the Bank Credit Agreement, or (B) result in a breach or constitute (alone or with due notice or lapse of time or both) a default under any indenture, agreement or other instrument referred to in clause (iii)(A)(3) of this (S)2.1(C); (d) as of the Effective Date (as hereinafter defined) and after giving effect to this Amendment, no Default or Event of Default has occurred which is continuing; and (e) all the representations and warranties contained in Section 5 of the Note Purchase Agreements are true and correct in all material respects with the same force and effect as if made by the Company on and as of the date hereof. Section 2.2. To induce the Noteholders to execute and deliver this Amendment (which representations shall survive the execution and delivery of this Amendment), the Parent Guarantor represents and warrants to the Noteholders that: (a) this Amendment has been duly authorized, executed and delivered by it and this Amendment constitutes the legal, valid and binding obligation, contract and agreement of the Parent Guarantor enforceable against it in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, -3- moratorium or similar laws or equitable principles relating to or limiting creditors' rights generally; (b) the Guaranty Agreement, as amended by this Amendment, constitutes the legal, valid and binding obligation, contract and agreement of the Parent Guarantor enforceable against it in accordance with its respective terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles relating to or limiting creditors' rights generally; (c) the execution, delivery and performance by the Parent Guarantor of this Amendment (i) has been duly authorized by all requisite corporate action and, if required, shareholder action, (ii) does not require the consent or approval of any governmental or regulatory body or agency, and (iii) will not (A) violate (1) any provision of law, statute, rule or regulation or its certificate of incorporation or bylaws, (2) any order of any court or any rule, regulation or order of any other agency or government binding upon it, or (3) any provision of any material indenture, agreement or other instrument to which it is a party or by which its properties or assets are or may be bound, including, without limitation, the Bank Credit Agreement, or (B) result in a breach or constitute (alone or with due notice or lapse of time or both) a default under any indenture, agreement or other instrument referred to in clause (iii)(A)(3) of this (S)2.2(C); (d) as of the Effective Date and after giving effect to this Amendment, no Default or Event of Default has occurred which is continuing; and (e) all the representations and warranties contained in Section 2 of the Guaranty Agreement are true and correct in all material respects with the same force and effect as if made by the Parent Guarantor on and as of the date hereof. Section 3. Conditions to Effectiveness of This Amendment. Section 3.1. This Amendment shall become effective on February 24, 1999 (the "Effective Date"). On or prior to the Effective Date, the following conditions shall have been satisfied: (a) executed counterparts of this Amendment, duly executed by the Company, the Parent Guarantor and the holders of 100% of the outstanding principal of the Notes, shall have been delivered to the Noteholders; (b) the representations and warranties of the Companies set forth in (S)2 hereof are true and correct on and with respect to the Effective Date; (c) the Company shall have entered into the Third Amendment to the Bank Credit Agreement; and (d) each Noteholder shall have received payment of a fee in consideration for the execution and delivery of this Amendment from the Companies in an amount equal to -4- 0.10% of the principal amount of the Notes outstanding on and as of the Effective Date held by such Noteholder, such payment to constitute a fee only, and not a prepayment of any portion of the outstanding principal amount of the Notes. Section 3.2. On or prior to March 11, 1999, the following conditions shall have been satisfied: (a) the Noteholders shall have received (i) a copy of the resolutions of the Board of Directors of the Company authorizing the execution, delivery and performance by the Company of this Amendment, certified by its Secretary or an Assistant Secretary and (ii) a copy of the resolutions of the Board of Directors of the Parent Guarantor authorizing the execution, delivery and performance by the Parent Guarantor of this Amendment, certified by its Secretary or an Assistant Secretary; and (b) the Noteholders shall have received the favorable opinion of counsel to the Companies substantially in the form delivered on the Closing Date under the Note Purchase Agreement, but with respect to the matters contemplated by this Amendment; Section 3.3. The failure of the Companies to satisfy either of the conditions specified in (S)3.2 hereof shall constitute an Event of Default under the Note Purchase Agreements. Section 4. Payment of Noteholders' Counsel Fees and Expenses. The Companies agree to pay upon demand, the reasonable fees and expenses of Chapman and Cutler, counsel to the Noteholders, in connection with the negotiation, preparation, approval, execution and delivery of this Amendment. Section 5. Exchange of Notes. No later than thirty (30) days after the Effective Date, each Noteholder shall surrender the Notes then held by it or its nominee to the Company and shall receive in exchange therefor a new Note in the form of Exhibit 1, it being understood and agreed that whether or not such exchange is fully completed, this Amendment shall remain in full force and effect on and as of the Effective Date. Section 6. Miscellaneous. Section 6.1. This Amendment shall be construed in connection with and as part of the Note Purchase Agreements, the Notes and the Guaranty Agreement, and except as modified and expressly amended by this Amendment, all terms, conditions and covenants contained in the Note Purchase Agreements, the Notes and the Guaranty Agreement are hereby ratified and shall be and remain in full force and effect. Section 6.2. Any and all notices, requests, certificates and other instruments executed and delivered after the execution and delivery of this Amendment may refer to the Note Purchase Agreements and the Guaranty Agreement without making specific reference to this Amendment but nevertheless all such references shall include this Amendment unless the context otherwise requires. Section 6.3. The descriptive headings of the various Sections or parts of this Amendment are for convenience only and shall not affect the meaning or construction of any of the provisions hereof. Section 6.4. This Amendment shall be governed by and construed in accordance with California law. Section 6.5. The execution hereof by you shall constitute a contract between us for the uses and purposes hereinabove set forth, and this Amendment may be executed in any number of counterparts, each executed counterpart constituting an original, but all together only one agreement. West Marine, Inc. By Its______________________________ West Marine Finance Company, Inc. By Its______________________________ -6- The foregoing is hereby agreed to as of the date thereof. Connecticut General Life Insurance Company By: CIGNA Investments, Inc. By Its Connecticut General Life Insurance Company, on behalf of one or more separate accounts By: CIGNA Investments, Inc. By Its RGA Reinsurance Company By: Conning Asset Management Company By Its COVA Financial Life Insurance Company By: Conning Asset Management Company By Its The Travelers Insurance Company By Its -7- Hartford Life and Accident Insurance Company By: Hartford Investment Services, Inc., Its agent and attorney-in-fact By Its -8- The undersigned hereby acknowledge and agree to the foregoing Amendment. West Marine Finance Company, Inc. By Its Central Marine Supply (Florida), Inc. Central Marine Supply, Inc. E & B Marine IHC I, Inc. E & B Marine IHC II, Inc. E & B Marine LBC, Inc. E & B Marine Supply (Florida), Inc. E & B Marine Supply, Inc., a Maryland corporation E & B Marine Supply, Inc., a New Jersey corporation E & B Marine, Inc. Goldbergs' Marine Distributors, Inc. James Bliss & Company, Inc. Krista Corporation Sea Ranger Marine, Inc. W. Marine Management Company, Inc. West Marine FSC, Inc. West Marine IHC I, Inc. West Marine IHC II, Inc. West Marine LBC, Inc. By Its -9- [FORM OF NOTE] West Marine Finance Company, Inc. Senior Guaranteed Note due December 23, 2004 No. _________ Date $____________ PPN 95423* AA7 For Value Received, the undersigned, West Marine Finance Co, Inc. (herein called the "Company"), a corporation organized and existing under the laws of the State of California, hereby promises to pay to ________________, or registered assigns, the principal sum of ________________ Dollars on December 23, 2004, with interest (computed on the basis of a 360-day year of twelve 30- day months) (a) on the unpaid balance thereof (i) at the rate of 6.85% per annum from and including December 23, 1997, payable semiannually, on the twenty-third day of June and December in each year, commencing with the June 23 or December 23 next succeeding the date hereof, to and including February 23, 1999 and (ii) at the Applicable Rate (as hereinafter defined) from and including February 24, 1999 to and including the date on which the principal hereof shall become due and payable, payable semi-annually on the twenty-third day of June and December in each year, commencing on June 23, 1999, and (b) to the extent permitted by law on any overdue payment (including any overdue prepayment) of principal, any overdue payment of interest and any overdue payment of any Make-Whole Amount (as defined in the Note Purchase Agreements referred to below), payable semiannually as aforesaid (or, at the option of the registered holder hereof, on demand), at a rate per annum from time to time equal to 2% over the then Applicable Rate. Schedule B to the Note Purchase Agreements shall be and is hereby amended by adding in alphabetical order the following definition: ""Applicable Rate" shall mean (a) interest (computed on the basis of a 360-day year of twelve 30-day months) at the rate of 7.60% per annum for each day on which the Parent Guarantor or the Parent Guarantor's senior long term unsecured debt either (i) is not rated (A) "BBB-" or better by Standard & Poor's Ratings Group, a division of McGraw-Hill, Inc., or (B) "Baa3" or better by Moody's Investors Service, Inc. or (ii) is not rated by either of such rating agencies and (b) interest (computed on the basis of a 360-day year of twelve 30-day months) at the rate of 6.85% per annum for each day other than a day described in section (a) of this definition." Payments of principal of, interest on and any Make-Whole Amount with respect to this Note are to be made in lawful money of the United States of America at Watsonville, California Exhibit 1 or at such other place as the Company shall have designated by written notice to the holder of this Note as provided in the Note Purchase Agreements referred to below. This Note is one of a series of Senior Guaranteed Notes (herein called the "Notes") issued pursuant to separate Note Purchase Agreements, each dated as of December 22, 1997, as amended by the First Amendment dated as of February 15, 1999 (as amended, the "Note Purchase Agreements"), between the Company and the respective Purchasers named therein and is entitled to the benefits thereof. Each holder of this Note will be deemed, by its acceptance hereof, (i) to have agreed to the confidentiality provisions set forth in Section 10 of the Parent Guaranty (hereinafter referred to) and (ii) to have made the representation set forth in Section 6.2 of the Note Purchase Agreements. This Note is a registered Note and, as provided in the Note Purchase Agreements, upon surrender of this Note for registration of transfer, duly endorsed, or accompanied by a written instrument of transfer duly executed, by the registered holder hereof or such holder's attorney duly authorized in writing, a new Note for a like principal amount will be issued to, and registered in the name of, the transferee. Prior to due presentment for registration of transfer, the Company may treat the person in whose name this Note is registered as the owner hereof for the purpose of receiving payment and for all other purposes, and the Company will not be affected by any notice to the contrary. This Note and the holder hereof are entitled equally and ratably with the holders of all of the Notes to the rights and benefits provided pursuant to the terms and provisions of the Parent Guaranty and the Subsidiary Guaranty (as each such term is defined in the Note Purchase Agreements). Reference is hereby made to each of the foregoing for a statement of the nature and extent of the benefits and security for the Notes afforded thereby and the rights of the holders of the Notes, the Company and the Parent Guarantor (as defined in the Note Purchase Agreements) in respect thereof. The Company will make required prepayments of principal on the dates and in the amounts specified in the Note Purchase Agreements. This Note is also subject to optional prepayment, in whole or from time to time in part, at the times and on the terms specified in the Note Purchase Agreements, but not otherwise. If an Event of Default, as defined in the Note Purchase Agreements, occurs and is continuing, the principal of this Note may be declared or otherwise become due and payable in the manner, at the price (including any applicable Make-Whole Amount) and with the effect provided in the Note Purchase Agreements. -2- THIS NOTE SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS AND PARTIES SHALL BE GOVERNED BY, THE LAW OF THE STATE OF CALIFORNIA, EXCLUDING CHOICE-OF-LAW PRINCIPLES OF THE LAW OF SUCH STATE WHICH WOULD REQUIRE APPLICATION OF THE LAWS OF THE JURISDICTION OTHER THAN SUCH STATE. West Marine Finance Company, Inc. By [Title] -3- EX-10.17 4 CREDIT AGREEMENT DATED 11/24/1997 EXHIBIT 10.17 CREDIT AGREEMENT ---------------- This CREDIT AGREEMENT is entered into as of November 24, 1997, among WEST MARINE FINANCE COMPANY, INC., a California corporation (the "Company"), the ------- several financial institutions from time to time party to this Agreement (collectively, the "Banks"; individually, a "Bank"), BANK OF AMERICA NATIONAL ----- ---- TRUST AND SAVINGS ASSOCIATION, as a letter of credit issuing bank (in such capacity, an "Issuing Bank"), and as agent for the Banks (in such capacity, the ------------ "Agent"), NATIONSBANK OF TEXAS, NATIONAL ASSOCIATION, as a letter of credit ----- issuing bank (in such capacity, an "Issuing Bank"), and FLEET NATIONAL BANK, as ------------ a letter of credit issuing bank (in such capacity, an "Issuing Bank"). ------------ RECITALS -------- WHEREAS, The Banks have agreed to make available to the Company a revolving credit facility with letter of credit subfacility upon the terms and conditions set forth in this Agreement; NOW, THEREFORE, in consideration of the mutual agreements, provisions and covenants contained herein, the parties agree as follows: ARTICLE I DEFINITIONS ----------- 1.01 Certain Defined Terms. The following terms have the following --------------------- meanings: "Acquisition" means any transaction or series of related transactions ----------- for the purpose of or resulting, directly or indirectly, in (a) the acquisition of all or substantially all of the assets of a Person, or of any business or division of a Person, (b) the acquisition of in excess of 50% of the capital stock, partnership interests, membership interests or equity of any Person, or otherwise causing any Person to become a Subsidiary, or (c) a merger or consolidation or any other combination with another Person (other than a Person that is a Subsidiary) provided that the Parent or the Subsidiary is the surviving entity. "Affiliate" means, as to any Person, any other Person which, directly --------- or indirectly, is in control of, is controlled by, or is under common control with, such Person. A Person shall be deemed to control another Person if the controlling Person possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of the other Person, whether through the ownership of voting securities, membership interests, by contract, or otherwise. "Agent" means BofA in its capacity as agent for the Banks ----- hereunder, and any successor agent arising under Section 10.09. "Agent-Related Persons" means BofA and any successor agent --------------------- -1- arising under Section 10.09, together with their respective Affiliates, and the officers, directors, employees, agents and attorneys-in-fact of such Persons and Affiliates. "Agent's Payment Office" means the address for payments set forth on ---------------------- Schedule 11.02 or such other address as the Agent may from time to time specify. "Agreed Alternative Currency" has the meaning specified in Section --------------------------- 3.11(a). "Agreement" means this Credit Agreement. --------- "Applicable Margin" means ----------------- (i) with respect to Base Rate Loans, zero (ii) with respect to Offshore Rate Loans, the Applicable Offshore Rate Margin. "Applicable Offshore Rate Margin" means ------------------------------- (i) on and after the date the Parent receives a rating on the Parent or on the Parent's senior long term unsecured debt of "BBB-" or better from S&P or "Baa3" or better from Moody's, and so long as the Parent's senior long term unsecured debt continues to be rated by either S&P or Moody's and such rating does not fall below "BBB-", in the case of S&P, or "Baa3", in the case of Moody's, .40%; and (ii) at all times that clause (i) is not applicable, commencing on the fifteenth day following the day the Company is first required to deliver financial statements to Banks and Agent under Section 7.01(a) or (b), the percentage determined as set forth below: (A) on and after the fifteenth day following receipt by Banks and Agent of the financial statements required under Section 7.01(a) and (b), which financial statements reflect a Fixed Charge Coverage Ratio which is higher than 2.70:1 for the most recently concluded fiscal quarter, .45%; (B) on and after the fifteenth day following receipt by Banks and Agent of the financial statements required under Section 7.01(a) and (b), which financial statements reflect a Fixed Charge Coverage Ratio which is higher than 2.35:1, but not higher than 2.70:1, for the most recently concluded fiscal quarter, .55%; (C) on and after the fifteenth day following receipt by Banks and Agent of the financial statements required under Section 7.01(a) and (b), which financial statements reflect a Fixed Charge Coverage Ratio which is higher than 2.10:1, but not higher than 2.35:1, for the most recently concluded -2- fiscal quarter, .75%; (D) on and after the fifteenth day following receipt by Banks and Agent of the financial statements required under Section 7.01(a) and (b), which financial statements reflect a Fixed Charge Coverage Ratio which is 2.10:1 or lower for the most recently concluded fiscal quarter, .875%; (E) on and after the fifteenth day following the Company's failure to deliver to Banks and Agent the financial statements required under Section 7.01(a) and (b) within the time periods set forth therein, and until the fifteenth day following receipt by Bank and Agent of such financial statements (at which time subpart (A) (B), (C) or (D) above shall become applicable), .875%. "Assignee" has the meaning specified in Section 11.08(a). -------- "Attorney Costs" means and includes all fees and disbursements of any -------------- law firm or other external counsel, the allocated cost of internal legal services and all disbursements of internal counsel. "Bank" has the meaning specified in the introductory clause hereto. ---- References to the "Banks" shall include BofA, Fleet, and NationsBank in their respective capacities as Issuing Banks; for purposes of clarification only, to the extent that any of BofA, NationsBank or Fleet may have any rights or obligations in addition to those of the Banks due to its status as Issuing Bank, its status as such will be specifically referenced. "Bankruptcy Code" means the Federal Bankruptcy Reform Act of 1978 (11 --------------- U.S.C. (S)101, et seq.). ------- "Base Rate" means, for any day, the higher of: (a) 0.50% per annum --------- above the latest Federal Funds Rate; and (b) the rate of interest in effect for such day as publicly announced from time to time by BofA in San Francisco, California, as its "reference rate." (The "reference rate" is a rate set by BofA based upon various factors including BofA's costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above, or below such announced rate. Any change in the reference rate announced by BofA shall take effect at the opening of business on the day specified in the public announcement of such change.) "Base Rate Loan" means a Revolving Loan, or an L/C Advance, that bears -------------- interest based on the Base Rate. "BofA" means Bank of America National Trust and Savings Association, a ---- national banking association. "Borrowing" means a borrowing hereunder consisting of Revolving Loans --------- of the same Type made to the Company on the same -3- day by the Banks under Article II, and, other than in the case of Base Rate Loans, having the same Interest Period. "Borrowing Date" means any date on which a Borrowing occurs under -------------- Section 2.03. "Business Day" means any day other than a Saturday, Sunday or other ------------ day on which commercial banks in New York City or San Francisco are authorized or required by law to close and, if the applicable Business Day relates to any Offshore Rate Loan, means such a day on which dealings are carried on in the applicable offshore dollar interbank market. "Capital Adequacy Regulation" means any guideline, request or --------------------------- directive of any central bank or other Governmental Authority, or any other law, rule or regulation, whether or not having the force of law, in each case, regarding capital adequacy of any bank or of any corporation controlling a bank. "Cash Collateralize" means to pledge and deposit with or deliver to ------------------ the Agent, for the benefit of the Agent, the Issuing Banks and the Banks, as collateral for the L/C Obligations, cash or deposit account balances pursuant to documentation in form and substance satisfactory to the Agent and the Issuing Banks (which documents are hereby consented to by the Banks). Derivatives of such term shall have corresponding meaning. The Company hereby grants the Agent, for the benefit of the Agent, the Issuing Banks and the Banks, a security interest in all such cash and deposit account balances. Cash collateral shall be maintained in blocked, interest bearing deposit accounts at BofA. "Cash Flow for Debt Service" has the meaning specified in Section -------------------------- 7.13(b). "Closing Date" means the date on which all conditions precedent set ------------ forth in Section 5.01 are satisfied or waived by all Banks (or, in the case of Section 5.01(f), waived by the Person entitled to receive such payment). "Code" means the Internal Revenue Code of 1986, and regulations ---- promulgated thereunder. "Commercial Letter of Credit Fee" means ------------------------------- (i) on and after the date the Parent receives a rating on the Parent or on the Parent's senior long term unsecured debt of "BBB-" or better from S&P or "Baa3" or better from Moody's, and so long as the Company's senior long term unsecured debt continues to be rated by either S&P or Moody's and such rating does not fall below "BBB-", in the case of S&P, or "Baa3", in the case of Moody's, .125%; and (ii) at all times that clause (i) is not applicable, commencing on the fifteenth day following the day the Company is first required to deliver financial statements to Banks and Agent under Section 7.01(a) or (b), the -4- percentage determined as set forth below: (A) on and after the fifteenth day following receipt by Banks and Agent of the financial statements required under Section 7.01(a) and (b), which financial statements reflect a Fixed Charge Coverage Ratio which is higher than 2.70:1 for the most recently concluded fiscal quarter, .15%; (B) on and after the fifteenth day following receipt by Banks and Agent of the financial statements required under Section 7.01(a) and (b), which financial statements reflect a Fixed Charge Coverage Ratio which is higher than 2.35:1, but not higher than 2.70:1, for the most recently concluded fiscal quarter, .1875%; (C) on and after the fifteenth day following receipt by Banks and Agent of the financial statements required under Section 7.01(a) and (b), which financial statements reflect a Fixed Charge Coverage Ratio which is higher than 2.10:1, but not higher than 2.35:1, for the most recently concluded fiscal quarter, .20%; (D) on and after the fifteenth day following receipt by Banks and Agent of the financial statements required under Section 7.01(a) and (b), which financial statements reflect a Fixed Charge Coverage Ratio which is 2.10:1 or lower for the most recently concluded fiscal quarter, .25%; (E) on and after the fifteenth day following the Company's failure to deliver to Banks and Agent the financial statements required under Section 7.01(a) and (b) within the time periods set forth therein, and until the fifteenth day following receipt by Bank and Agent of such financial statements (at which time subpart (A) (B), (C) or (D) above shall become applicable), .25%. "Commitment", as to each Bank, has the meaning specified in ---------- Section 2.01. "Compliance Certificate" means a certificate substantially in the form ---------------------- of Exhibit C. --------- "Computation Date" has the meaning specified in Section 3.11(b). ---------------- "Contingent Obligation" means, without duplication as to any Person, --------------------- any direct or indirect liability of that Person, with or without recourse, (a) with respect to any Indebtedness, lease, dividend, letter of credit or other obligation (the "primary obligations") of another Person (the "primary obligor"), including any obligation of that Person (i) to purchase, repurchase or otherwise acquire such primary obligations or any security therefor, (ii) to advance or provide -5- funds for the payment or discharge of any such primary obligation, or to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency or any balance sheet item, level of income or financial condition of the primary obligor, (iii) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation, or (iv) otherwise to assure or hold harmless the holder of any such primary obligation against loss in respect thereof (each, a "Guaranty Obligation"); ------------------- (b) with respect to any Surety Instrument issued for the account of that Person or as to which that Person is otherwise liable for reimbursement of drawings or payments; (c) to purchase any materials, supplies or other property from, or to obtain the services of, another Person if the relevant contract or other related document or obligation requires that payment for such materials, supplies or other property, or for such services, shall be made regardless of whether delivery of such materials, supplies or other property is ever made or tendered, or such services are ever performed or tendered, or (d) in respect of any Swap Contract. The amount of any Contingent Obligation shall, in the case of Guaranty Obligations, be deemed equal to the stated or determinable amount of the primary obligation in respect of which such Guaranty Obligation is made or, if not stated or if indeterminable, the reasonably anticipated liability in respect thereof, and in the case of other Contingent Obligations other than in respect of Swap Contracts, shall be equal to the reasonably anticipated liability in respect thereof and, in the case of Contingent Obligations in respect of Swap Contracts, shall be equal to the Swap Termination Value. "Contractual Obligation" means, as to any Person, any provision of any ---------------------- security issued by such Person or of any agreement, undertaking, contract, indenture, mortgage, deed of trust or other instrument, document or agreement to which such Person is a party or by which it or any of its property is bound. "Conversion/Continuation Date" means any date on which, under Section ---------------------------- 2.04, the Company (a) converts Loans of one Type to another Type, or (b) continues as Loans of the same Type, but with a new Interest Period, Loans having Interest Periods expiring on such date. "Credit Extension" means and includes (a) the making of any Revolving ---------------- Loans hereunder (including the Existing Offshore Rate Loans), and (b) the Issuance of any Letters of Credit hereunder (including the Existing Letters of Credit). "Default" means any event or circumstance which, with the giving of ------- notice, the lapse of time, or both, would (if not cured or otherwise remedied during such time) constitute an Event of Default. "Dollars", "dollars" and "$" each mean lawful money of the United -------- ------- - States. -6- "Effective Amount" means (i) with respect to any Revolving Loans on ---------------- any date, the aggregate outstanding principal amount thereof after giving effect to any Borrowings and prepayments or repayments of Revolving Loans occurring on such date; and (ii) with respect to any outstanding L/C Obligations on any date, the Equivalent Amount of such L/C Obligations on such date after giving effect to any Issuances of Letters of Credit occurring on such date and any other changes in the aggregate Equivalent Amount of the L/C Obligations as of such date, including as a result of any reimbursements of outstanding unpaid drawings under any Letters of Credit or any reductions in the maximum amount available for drawing under Letters of Credit taking effect on such date. "Eligible Assignee" means (a) a commercial bank organized under the ----------------- laws of the United States, or any state thereof, and having a combined capital and surplus of at least $100,000,000; (b) a commercial bank organized under the laws of any other country which is a member of the Organization for Economic Cooperation and Development (the "OECD"), or a political subdivision of any such country, and having a combined capital and surplus of at least $100,000,000, provided that such bank is acting through a branch or agency located in the United States; and (c) a Person that is primarily engaged in the business of commercial banking and that is (i) a Subsidiary of a Bank, (ii) a Subsidiary of a Person of which a Bank is a Subsidiary, or (iii) a Person of which a Bank is a Subsidiary. "Environmental Claims" means all claims, however asserted, by any -------------------- Governmental Authority or other Person alleging potential liability or responsibility for violation of any Environmental Law, or for release or injury to the environment. "Environmental Laws" means all federal, state or local laws, statutes, ------------------ common law duties, rules, regulations, ordinances and codes, together with all administrative orders, directed duties, requests, licenses, authorizations and permits of, and agreements with, any Governmental Authorities, in each case relating to environmental, health, safety and land use matters. "Equivalent Amount" means (a) whenever this Agreement requires or ----------------- permits a determination on any date of the equivalent in Dollars of an amount expressed in an Offshore Currency, the equivalent amount in Dollars of an amount expressed in an Offshore Currency as determined by the Agent on such date on the basis of the Spot Rate for the purchase of Dollars with such Offshore Currency on the relevant Computation Date provided for hereunder; or (b) whenever this Agreement requires or permits a determination on any date of the equivalent in an Offshore Currency of an amount expressed in Dollars, the equivalent amount in an Offshore Currency of an amount expressed in Dollars as determined by the Agent on such date on the basis of the Spot Rate for the purchase of such Offshore Currency with Dollars on the relevant Computation Date provided for hereunder. "ERISA" means the Employee Retirement Income Security Act ----- -7- of 1974, and regulations promulgated thereunder. "ERISA Affiliate" means any trade or business (whether or not --------------- incorporated) under common control with the Company within the meaning of Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code for purposes of provisions relating to Section 412 of the Code). "ERISA Event" means (a) a Reportable Event with respect to a Pension ----------- Plan; (b) a withdrawal by the Company or any ERISA Affiliate from a Pension Plan subject to Section 4063 of ERISA during a plan year in which it was a substantial employer (as defined in Section 4001(a)(2) of ERISA) or a cessation of operations which is treated as such a withdrawal under Section 4062(e) of ERISA; (c) a complete or partial withdrawal by the Company or any ERISA Affiliate from a Multiemployer Plan or notification that a Multiemployer Plan is in reorganization; (d) the filing of a notice of intent to terminate, the treatment of a Plan amendment as a termination under Section 4041 or 4041A of ERISA, or the commencement of proceedings by the PBGC to terminate a Pension Plan or Multiemployer Plan; (e) an event or condition which might reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan or Multiemployer Plan; or (f) the imposition of any liability under Title IV of ERISA, other than PBGC premiums due but not delinquent under Section 4007 of ERISA, upon the Company or any ERISA Affiliate. "Eurodollar Reserve Percentage" has the meaning specified in the ----------------------------- definition of "Offshore Rate". "Event of Default" means any of the events or circumstances specified ---------------- in Section 9.01. "Exchange Act" means the Securities Exchange Act of 1934, and ------------ regulations promulgated thereunder. "Existing Credit Agreement" means that certain Credit Agreement dated ------------------------- June 14, 1996, as amended to date, among the Parent, BofA, as a bank and issuing bank thereunder, NationsBank, as a bank and issuing bank thereunder, and BofA, as agent for such banks. "Existing Letters of Credit" means the letters of credit issued -------------------------- pursuant to the Existing Credit Agreement and more particularly described in Schedule 3.03. ------------- "Existing Offshore Rate Loans" means the Offshore Rate Loans ---------------------------- outstanding under (and as defined in) the Existing Credit Agreement. "FDIC" means the Federal Deposit Insurance Corporation, and any ---- Governmental Authority succeeding to any of its principal functions. "Federal Funds Rate" means, for any day, the rate set forth in the ------------------ weekly statistical release designated as H.15(519), -8- or any successor publication, published by the Federal Reserve Bank of New York (including any such successor, "H.15(519)") on the preceding Business Day opposite the caption "Federal Funds (Effective)"; or, if for any relevant day such rate is not so published on any such preceding Business Day, the rate for such day will be the arithmetic mean as determined by the Agent of the rates for the last transaction in overnight Federal funds arranged prior to 9:00 a.m. (San Francisco time) on that day by each of three leading brokers of Federal funds transactions in New York City selected by the Agent. "Fee Letter" has the meaning specified in Section 2.10(a). ---------- "Fixed Charge Coverage Ratio" has the meaning specified in Section --------------------------- 7.13(b). "Fleet" means Fleet National Bank, a national banking association. ----- "FRB" means the Board of Governors of the Federal Reserve System, and --- any Governmental Authority succeeding to any of its principal functions. "Further Taxes" means any and all present or future taxes, levies, ------------- assessments, imposts, duties, deductions, fees, withholdings or similar charges (including, without limitation, net income taxes and franchise taxes), and all liabilities with respect thereto, imposed by any jurisdiction on account of amounts payable or paid pursuant to Section 4.01. "GAAP" means generally accepted accounting principles set forth from ---- time to time in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board (or agencies with similar functions of comparable stature and authority within the U.S. accounting profession), which are applicable to the circumstances as of the date of determination. "Governmental Authority" means any nation or government, any state or ---------------------- other political subdivision thereof, any central bank (or similar monetary or regulatory authority) thereof, any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, and any corporation or other entity owned or controlled, through stock or capital ownership or otherwise, by any of the foregoing. "Guarantors" means the Parent, West Marine Products, Inc., a ---------- California corporation, E&B Marine Inc., a Delaware corporation, E&B Marine Supply, Inc., a Maryland corporation, E&B Marine Supply, Inc., a New Jersey corporation, E&B Marine Supply (Florida), Inc., a Delaware corporation, Goldbergs' Marine Distributors, Inc., a Delaware corporation, James Bliss & Co., Inc., a Massachusetts corporation, Sea Ranger Marine Inc., a Delaware corporation, Krista Corporation, a Delaware corporation, Central Marine Supply, Inc., a New Jersey corporation, Central Marine Supply (Florida), Inc., a Delaware -9- corporation, West Marine LBC, Inc., a California corporation, West Marine IHC I, Inc., a California corporation, West Marine IHC II, Inc., a California corporation, E&B Marine LBC, Inc., a California corporation, E&B Marine IHC I, Inc., a California corporation, E&B Marine IHC II, Inc., a California corporation, W Marine Management Company, Inc., a California corporation, and any other Person who becomes a Guarantor from time to time in accordance with Section 7.14 (individually, a "Guarantors"). "Guaranty" means a guaranty in the form of Exhibit F executed by -------- Guarantors in support of the Obligations. "Guaranty Obligation" has the meaning specified in the definition of ------------------- "Contingent Obligation." "Honor Date" has the meaning specified in Section 3.03(c). ---------- "Indebtedness" of any Person means, without duplication, (a) all ------------ indebtedness for borrowed money; (b) all obligations issued, undertaken or assumed as the deferred purchase price of property or services (other than trade payables and accrued expenses entered into in the ordinary course of business on ordinary terms); (c) all non-contingent reimbursement or payment obligations with respect to Surety Instruments; (d) all obligations evidenced by notes, bonds, debentures or similar instruments, including obligations so evidenced incurred in connection with the acquisition of property, assets or businesses; (e) all indebtedness created or arising under any conditional sale or other title retention agreement, or incurred as financing, in either case with respect to property acquired by the Person (even though the rights and remedies of the seller or bank under such agreement in the event of default are limited to repossession or sale of such property); (f) all obligations with respect to capital leases; (g) all indebtedness referred to in clauses (a) through (f) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien upon or in property (including accounts and contracts rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness; and (h) all Guaranty Obligations in respect of indebtedness or obligations of others of the kinds referred to in clauses (a) through (g) above. For all purposes of this Agreement, the Indebtedness of any Person shall include all recourse Indebtedness of any partnership or joint venture or limited liability company in which such Person is a general partner or a joint venturer or a member, provided such Person is liable for such recourse Indebtedness. "Indemnified Liabilities" has the meaning specified in Section 11.05. ----------------------- "Indemnified Person" has the meaning specified in Section 11.05. ------------------ "Independent Auditor" has the meaning specified in Section 7.01(a). ------------------- "Insolvency Proceeding" means, with respect to any Person, --------------------- -10- (a) any case, action or proceeding with respect to such Person before any court or other Governmental Authority relating to bankruptcy, reorganization, insolvency, liquidation, receivership, dissolution, winding-up or relief of debtors, or (b) any general assignment for the benefit of creditors, composition, marshalling of assets for creditors, or other, similar arrangement in respect of its creditors generally or any substantial portion of, its creditors; undertaken under U.S. Federal, state or foreign law, including the Bankruptcy Code. "Interest Payment Date" means, as to any Loan other than a Base Rate --------------------- Loan, the last day of each Interest Period applicable to such Loan and, as to any Base Rate Loan, the last Business Day of each calendar quarter, provided, however, that if any Interest Period for an Offshore Rate Loan -------- ------- exceeds three months, the date that falls three months after the beginning of such Interest Period and after each Interest Payment Date thereafter is also an Interest Payment Date. "Interest Period" means, as to any Offshore Rate Loan, the period --------------- commencing on the Borrowing Date of such Loan or on the Conversion/Continuation Date on which the Loan is converted into or continued as an Offshore Rate Loan, and ending on the date 7, 14 or 21 days or one, two, three or six months thereafter (and any other period that is 12 months or less and is consented to by all Banks in the given instance) as selected by the Company in its Notice of Borrowing or Notice of Conversion/Continuation; provided that: -------- (i) if any Interest Period would otherwise end on a day that is not a Business Day, that Interest Period shall be extended to the following Business Day unless, in the case of an Offshore Rate Loan, the result of such extension would be to carry such Interest Period into another calendar month, in which event such Interest Period shall end on the preceding Business Day; (ii) any Interest Period pertaining to an Offshore Rate Loan that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the calendar month at the end of such Interest Period; and (iii) no Interest Period for any Loan shall extend beyond the Revolving Termination Date. "IRS" means the Internal Revenue Service, and any Governmental --- Authority succeeding to any of its principal functions under the Code. "Issuance Date" has the meaning specified in Section 3.01(a). ------------- "Issue" means, with respect to any Letter of Credit, to incorporate ----- the Existing Letters of Credit into this Agreement, or to issue or to extend the expiry of, or to renew or increase -11- the amount of, such Letter of Credit; and the terms "Issued," if "Issuing" ------ ------- and "Issuance" have corresponding meanings. -------- "Issuing Bank" means BofA , NationsBank, or Fleet, each in its ------------ respective capacity as issuer of one or more Letters of Credit hereunder, together with any replacement letter of credit issuer arising under Section 10.01(b) or Section 10.09. The Issuing Bank with respect to any Letter of Credit shall be selected by the Company at the time the Company requests Issuance of such Letter of Credit. "Joint Venture" means a partnership, limited liability company, joint ------------- venture or other similar legal arrangement (whether created by contract or conducted through a separate legal entity) now or hereafter formed by the Company, the Parent or any Subsidiary with another Person in order to conduct a common venture or enterprise with such Person. "L/C Advance" means each Bank's participation in any L/C Borrowing in ----------- accordance with its Pro Rata Share. "L/C Amendment Application" means an application form for amendment of ------------------------- outstanding standby or commercial documentary letters of credit as shall at any time be in use at the Issuing Bank, as the Issuing Bank shall request. "L/C Application" means an application form for issuances of standby --------------- or commercial documentary letters of credit as shall at any time be in use at the Issuing Bank, as the Issuing Bank shall request. "L/C Borrowing" means an extension of credit resulting from a drawing ------------- under any Letter of Credit which shall not have been reimbursed on the date when made nor converted into a Borrowing of Revolving Loans under Section 3.03(c). "L/C Commitment" means the commitment of the Issuing Banks to Issue, -------------- and the commitment of the Banks severally to participate in, Letters of Credit (including the Existing Letters of Credit) from time to time Issued or outstanding under Article III, in an aggregate amount not to exceed on any date the amount of $20,000,000 (of which up to $15,000,000 shall be available for the issuance of commercial documentary Letters of Credit and up to $5,000,000 shall be available for the issuance of standby Letters of Credit), as the same shall be reduced as a result of a reduction in the L/C Commitment pursuant to Section 2.05; provided that the L/C Commitment is a -------- part of the combined Commitments, rather than a separate, independent commitment. "L/C Obligations" means at any time the sum of (a) the aggregate --------------- undrawn amount of all Letters of Credit then outstanding, plus (b) the amount of all unreimbursed drawings under all Letters of Credit, including all outstanding L/C Borrowings. "L/C-Related Documents" means the Letters of Credit, the L/C --------------------- Applications, the L/C Amendment Applications and any other document relating to any Letter of Credit, including any of the -12- Issuing Bank's standard form documents for letter of credit issuances. "Lending Office" means, as to any Bank, the office or offices of such -------------- Bank specified as its "Lending Office" or "Domestic Lending Office" or "Offshore Lending Office", as the case may be, on Schedule 11.02, or such -------------- other office or offices as such Bank may from time to time notify the Company and the Agent. "Letters of Credit" means the Existing Letters of Credit and any ----------------- letters of credit (whether standby letters of credit or commercial documentary letters of credit) Issued by any Issuing Bank pursuant to Article III. "Lien" means any security interest, mortgage, deed of trust, pledge, ---- hypothecation, assignment, charge or deposit arrangement, encumbrance, lien (statutory or other) or preferential arrangement of any kind or nature whatsoever in respect of any property (including those created by, arising under or evidenced by any conditional sale or other title retention agreement, the interest of a lessor under a capital lease, any financing lease having substantially the same economic effect as any of the foregoing, or the filing of any financing statement naming the owner of the asset to which such lien relates as debtor, under the Uniform Commercial Code or any comparable law), but not including the interest of a lessor under an operating lease. "Loan" means an extension of credit by a Bank to the Company under ---- Article II or Article III in the form of a Revolving Loan or L/C Advance. "Loan Documents" means this Agreement, the Fee Letter, the L/C-Related -------------- Documents, and all other documents delivered to the Agent or any Bank in connection herewith. "Majority Banks" means (a) as of any date of determination if the -------------- Commitments are then in effect, at least two Banks having in the aggregate 66-2/3% or more of the combined Commitments then in effect and (b) as of any date of determination if the Commitments have then been terminated and there are Loans or Letters of Credit outstanding, Banks holding Loans and L/C Obligations aggregating 66-2/3% or more of the aggregate outstanding amount of such Loans and L/C Obligations. "Margin Stock" means "margin stock" as such term is defined in ------------ Regulation G, T, U or X of the FRB. "Material Adverse Effect" means (a) a material adverse change in, or a ----------------------- material adverse effect upon, the operations, business, properties, condition (financial or otherwise) or prospects of the Company or the Parent or the Parent and its Subsidiaries taken as a whole; (b) a material impairment of the ability of the Company or any Guarantor to perform under any Loan Document and to avoid any Event of Default; or (c) a material adverse effect upon the legality, validity, binding effect or enforceability against the Company or any Guarantor of -13- any Loan Document. "Moody's" means Moody's Investors Service, Inc. ------- "Multiemployer Plan" means a "multiemployer plan", within the meaning ------------------ of Section 4001(a)(3) of ERISA, to which the Company or any ERISA Affiliate makes, is making, or is obligated to make contributions or, during the preceding three calendar years, has made, or been obligated to make, contributions. "NationsBank" means NationsBank of Texas, National Association, a ----------- national banking association. "Net Interest Expense" means, for any period of determination, -------------------- interest expense less interest income; provided, that in no event shall Net -------- Interest Expense be less than zero. "Notice of Borrowing" means a notice in substantially the form of ------------------- Exhibit A. --------- "Notice of Conversion/Continuation" means a notice in substantially --------------------------------- the form of Exhibit B. --------- "Obligations" means all advances, debts, liabilities, obligations, ----------- covenants and duties arising under any Loan Document owing by the Company to any Bank, any Issuing Bank, the Agent, or any Indemnified Person, whether direct or indirect (including those acquired by assignment), absolute or contingent, due or to become due, now existing or hereafter arising. "Offshore Business Day" means a day on which dealings in deposits --------------------- denominated in Dollars or the applicable Offshore Currency are carried out by BofA's Grand Cayman branch (or such other office as may be designated for such purpose by BofA or the Agent), and which is also a Business Day. "Offshore Currency" means any Agreed Alternative Currency. ----------------- "Offshore Rate" means, for any Interest Period, with respect to ------------- Offshore Rate Loans comprising part of the same Borrowing, the rate of interest per annum (rounded upward to the next 1/32th of 1%) determined by the Agent as follows: Offshore Rate = LIBOR ------------------------------------- 1.00 - Eurodollar Reserve Percentage Where, "Eurodollar Reserve Percentage" means for any day for any ----------------------------- Interest Period the maximum reserve percentage (expressed as a decimal, rounded upward to the next 1/100th of 1%) in effect on such day (whether or not applicable to any Bank) under regulations issued from time to time by the FRB for determining the maximum reserve requirement (including any emergency, supplemental or other marginal reserve requirement) with respect to Eurocurrency funding (currently referred to as -14- "Eurocurrency liabilities"); and "LIBOR" means (i) the rate of interest per annum that appears on ----- page 3750 of the Dow Jones Telerate Screen (or any successor page) for U.S. dollar deposits with a maturity comparable to the Interest Period of the applicable Offshore Rate Loan, determined as of 11:00 a.m. (London time) on the date which is two Business Days prior to the commencement of such Interest Period; or (ii) if such rate does not appear on page 3750 of the Dow Jones Telerate Screen (or any successor page), the rate of interest per annum determined by the Agent in good faith as the rate at which U.S. dollar deposits in the approximate amount of the Offshore Rate Loan, and having a maturity comparable to such Interest Period, would be offered by BofA to major banks in the London eurocurrency market at approximately 11:00 a.m. (London time) two Business Days prior to the commencement of such Interest Period. The Offshore Rate shall be adjusted automatically as to all Offshore Rate Loans then outstanding as of the effective date of any change in the Eurodollar Reserve Percentage. "Offshore Rate Loan" means a Loan that bears interest based on the ------------------ Offshore Rate. "Organization Documents" means, for any corporation, the certificate ---------------------- or articles of incorporation, the bylaws, any certificate of determination or instrument relating to the rights of preferred shareholders of such corporation, any shareholder rights agreement, and all applicable resolutions of the board of directors (or any committee thereof) of such corporation. "Other Taxes" means any present or future stamp, court or documentary ----------- taxes or any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or from the execution, delivery, performance, enforcement or registration of, or otherwise with respect to, this Agreement or any other Loan Documents. "Parent" means West Marine, Inc., a Delaware corporation. ------ "Participant" has the meaning specified in Section 11.08(d). ----------- "PBGC" means the Pension Benefit Guaranty Corporation, or any ---- Governmental Authority succeeding to any of its principal functions under ERISA. "Pension Plan" means a pension plan (as defined in Section 3(2) of ------------ ERISA) subject to Title IV of ERISA which the Company or the Parent or any Subsidiary sponsors, maintains, or to which it makes, is making, or is obligated to make contributions, or in the case of a multiple employer plan (as described in Section 4064(a) of ERISA) has made contributions at any time during the immediately preceding five (5) plan years. -15- "Permitted Liens" has the meaning specified in Section 8.01. --------------- "Permitted Swap Obligations" means all obligations (contingent or -------------------------- otherwise) of the Company , the Parent or any Subsidiary existing or arising under Swap Contracts, provided that each of the following criteria is satisfied: (a) such obligations are (or were) entered into by such Person in the ordinary course of business for the purpose of directly mitigating risks associated with liabilities, commitments or assets held by such Person, or changes in the value of securities issued by such Person in conjunction with a securities repurchase program not otherwise prohibited hereunder, and not for purposes of speculation or taking a "market view;" and (b) such Swap Contracts do not contain any provision ("walk-away" provision) exonerating the non-defaulting party from its obligation to make payments on outstanding transactions to the defaulting party. "Person" means an individual, partnership, corporation, limited ------ liability company, business trust, joint stock company, trust, unincorporated association, joint venture or Governmental Authority. "Plan" means an employee benefit plan (as defined in Section 3(3) of ---- ERISA) which the Company or the Parent or any Subsidiary sponsors or maintains or to which the Company or the Parent or any Subsidiary makes, is making, or is obligated to make contributions and includes any Pension Plan. "Pro Rata Share" means, as to any Bank at any time, the percentage -------------- equivalent (expressed as a decimal, rounded to the ninth decimal place) at such time of such Bank's Commitment divided by the combined Commitments of all Banks. "Reportable Event" means, any of the events set forth in Section ---------------- 4043(c) of ERISA or the regulations thereunder, other than any such event for which the 30-day notice requirement under ERISA has been waived in regulations issued by the PBGC. "Requirement of Law" means, as to any Person, any law (statutory or ------------------ common), treaty, rule or regulation or determination of an arbitrator or of a Governmental Authority, in each case applicable to or binding upon the Person or any of its property or to which the Person or any of its property is subject. "Responsible Officer" means the chief executive officer or the ------------------- president of the Company or the Parent, or any other officer having substantially the same authority and responsibility; or, with respect to compliance with financial covenants, the chief financial officer or the treasurer of the Company or the Parent, or any other officer having substantially the same authority and responsibility. "Revolving Loan" has the meaning specified in Section 2.01, and may be -------------- a Base Rate Loan or an Offshore Rate Loan -16- (each, a "Type" of Revolving Loan). "Revolving Termination Date" means the earlier to occur of: -------------------------- (a) October 4, 2000; and (b) the date on which the Commitments terminate in accordance with the provisions of this Agreement. "S&P" means Standard & Poor's Ratings Services. --- "SEC" means the Securities and Exchange Commission, or any --- Governmental Authority succeeding to any of its principal functions. "Spot Rate" for a currency means the rate quoted by BofA as the spot --------- rate for the purchase by BofA of such currency with another currency through its FX Trading Office at approximately 9:00 a.m. (San Francisco time) on the date two Offshore Business Days prior to the date as of which the foreign exchange computation is made. "Standby Letter of Credit Fee" means ---------------------------- (i) on and after the date the Parent receives a rating on the Parent or on the Parent's senior long term unsecured debt of "BBB-" or better from S&P or "Baa3" or better from Moody's, and so long as the Company's senior long term unsecured debt continues to be rated by either S&P or Moody's and such rating does not fall below "BBB-", in the case of S&P, or "Baa3", in the case of Moody's, .40%; and (ii) at all times that clause (i) is not applicable, commencing on the fifteenth day following the day the Company is first required to deliver financial statements to Banks and Agent under Section 7.01(a) or (b), the percentage determined as set forth below: (A) on and after the fifteenth day following receipt by Banks and Agent of the financial statements required under Section 7.01(a) and (b), which financial statements reflect a Fixed Charge Coverage Ratio which is higher than 2.70:1 for the most recently concluded fiscal quarter, .45; (B) on and after the fifteenth day following receipt by Banks and Agent of the financial statements required under Section 7.01(a) and (b), which financial statements reflect a Fixed Charge Coverage Ratio which is higher than 2.35:1, but not higher than 2.70:1, for the most recently concluded fiscal quarter, .55%; (C) on and after the fifteenth day following receipt by Banks and Agent of the financial statements required under Section 7.01(a) and (b), -17- which financial statements reflect a Fixed Charge Coverage Ratio which is higher than 2.10:1, but not higher than 2.35:1, for the most recently concluded fiscal quarter, .75%; (D) on and after the fifteenth day following receipt by Banks and Agent of the financial statements required under Section 7.01(a) and (b), which financial statements reflect a Fixed Charge Coverage Ratio which is 2.10:1 or lower for the most recently concluded fiscal quarter, .875%; (E) on and after the fifteenth day following the Company's failure to deliver to Banks and Agent the financial statements required under Section 7.01(a) and (b) within the time periods set forth therein, and until the fifteenth day following receipt by Bank and Agent of such financial statements (at which time subpart (A) (B), (C) or (D) above shall become applicable), .875%. "Subsidiary" of a Person means any corporation, association, ---------- partnership, limited liability company, joint venture or other business entity of which more than 50% of the voting stock, membership interests or other equity interests (in the case of Persons other than corporations), is owned or controlled directly or indirectly by the Person, or one or more of the Subsidiaries of the Person, or a combination thereof. Unless the context otherwise clearly requires, references herein to a "Subsidiary" refer to a Subsidiary of the Parent (including the Company). "Surety Instruments" means all letters of credit (including standby ------------------ and commercial), banker's acceptances, bank guaranties, shipside bonds, surety bonds and similar instruments. "Swap Contract" means any agreement, whether or not in writing, ------------- relating to any transaction that is a rate swap, basis swap, forward rate transaction, commodity swap, commodity option, equity or equity index swap or option, bond, note or bill option, interest rate option, forward foreign exchange transaction, cap, collar or floor transaction, currency swap, cross-currency rate swap, swaption, currency option or any other, similar transaction (including any option to enter into any of the foregoing) or any combination of the foregoing, and, unless the context otherwise clearly requires, any master agreement relating to or governing any or all of the foregoing. "Swap Termination Value" means, in respect of any one or more Swap ---------------------- Contracts, after taking into account the effect of any legally enforceable netting agreement relating to such Swap Contracts, (a) for any date on or after the date such Swap Contracts have been closed out and termination value(s) determined in accordance therewith, such termination value(s), and (b) for any date prior to the date referenced in clause (a) the amount(s) determined as the mark-to-market value(s) for such Swap Contracts, as determined based upon one or more mid-market -18- or other readily available quotations provided by any recognized dealer in such Swap Contracts (which may include any Bank). "Tangible Net Worth" has the meaning specified in Section 7.13(d). ------------------ "Taxes" means any and all present or future taxes, levies, ----- assessments, imposts, duties, deductions, fees, withholdings or similar charges, and all liabilities with respect thereto, excluding, in the case of each Bank and the Agent, respectively, taxes imposed on or measured by its net income by the jurisdiction (or any political subdivision thereof) under the laws of which such Bank or the Agent, as the case may be, is organized or maintains a lending office. "Type" has the meaning specified in the definition of "Revolving ---- Loan." "Unfunded Pension Liability" means the excess of a Plan's benefit -------------------------- liabilities under Section 4001(a)(16) of ERISA, over the current value of that Plan's assets, determined in accordance with the assumptions used for funding the Pension Plan pursuant to Section 412 of the Code for the applicable plan year. "United States" and "U.S." each means the United States of America. ------------- ---- "Wholly-Owned Subsidiary" means any corporation in which (other than ----------------------- directors' qualifying shares required by law) 100% of the capital stock of each class having ordinary voting power, and 100% of the capital stock of every other class, in each case, at the time as of which any determination is being made, is owned, beneficially and of record, by the Parent, or by one or more of the other Wholly-Owned Subsidiaries of the Parent, or both. "Year 2000 Problem" has the meaning specified in Section 6.19. ----------------- 1.02 Other Interpretive Provisions. ----------------------------- (a) The meanings of defined terms are equally applicable to the singular and plural forms of the defined terms. (b) The words "hereof", "herein", "hereunder" and similar words refer to this Agreement as a whole and not to any particular provision of this Agreement; and Section, Section, Schedule and Exhibit references are to this Agreement unless otherwise specified. (c) (i) The term "documents" includes any and all instruments, documents, agreements, certificates, indentures, notices and other writings, however evidenced. (ii) The term "including" is not limiting and means "including without limitation." (iii) In the computation of periods of time from a specified date to a later specified date, the word "from" means -19- "from and including"; the words "to" and "until" each mean "to but excluding", and the word "through" means "to and including." (d) Unless otherwise expressly provided herein, (i) references to agreements (including this Agreement) and other contractual instruments shall be deemed to include all subsequent amendments and other modifications thereto, but only to the extent such amendments and other modifications are not prohibited by the terms of any Loan Document, and (ii) references to any statute or regulation are to be construed as including all statutory and regulatory provisions consolidating, amending, replacing, supplementing or interpreting the statute or regulation. (e) The captions and headings of this Agreement are for convenience of reference only and shall not affect the interpretation of this Agreement. (f) This Agreement and other Loan Documents may use several different limitations, tests or measurements to regulate the same or similar matters. All such limitations, tests and measurements are cumulative and shall each be performed in accordance with their terms. Unless otherwise expressly provided, any reference to any action of the Agent or the Banks by way of consent, approval or waiver shall be deemed modified by the phrase "in its/their sole discretion." (g) This Agreement and the other Loan Documents are the result of negotiations among and have been reviewed by counsel to the Agent, the Company and the other parties, and are the products of all parties. Accordingly, they shall not be construed against the Banks or the Agent merely because of the Agent's or Banks' involvement in their preparation. 1.03 Accounting Principles. --------------------- (a) Unless the context otherwise clearly requires, all accounting terms not expressly defined herein shall be construed, and all financial computations required under this Agreement shall be made, in accordance with GAAP, consistently applied. (b) References herein to "fiscal year" and "fiscal quarter" refer to such fiscal periods of the Company or the Parent, as applicable. 1.04 Currency Equivalents Generally. For all purposes of this Agreement ------------------------------ (but not for purposes of the preparation of any financial statements delivered pursuant hereto), the equivalent in any Offshore Currency or other currency of an amount in Dollars, and the equivalent in Dollars of an amount in any Offshore Currency or other currency, shall be determined at the Spot Rate. ARTICLE II THE CREDITS ----------- 2.01 Amounts and Terms of Commitments. Each Bank severally agrees, on the -------------------------------- terms and conditions set forth herein, to make loans -20- to the Company (each such loan, a "Revolving Loan") from time to time on any -------------- Business Day during the period from the Closing Date to the Revolving Termination Date, in an aggregate amount not to exceed at any time outstanding the amount set forth on Schedule 2.01 (such amount as the same may be reduced ------------- under Section 2.05 or as a result of one or more assignments under Section 11.08, the Bank's "Commitment"); provided, however, that, after giving effect to ---------- -------- ------- any Borrowing of Revolving Loans, the Effective Amount of all outstanding Revolving Loans and the Effective Amount of all L/C Obligations, shall not at any time exceed the combined Commitments; and provided further, that the --- -------- ------- Effective Amount of the Revolving Loans of any Bank plus the participation of such Bank in the Effective Amount of all L/C Obligations shall not at any time exceed such Bank's Commitment. Within the limits of each Bank's Commitment, and subject to the other terms and conditions hereof, the Company may borrow under this section 2.01, prepay under Section 2.06 and reborrow under this section 2.01. 2.02 Loan Accounts. The Loans made by each Bank and the Letters of Credit ------------- Issued by the Issuing Bank shall be evidenced by one or more accounts or records maintained by such Bank or Issuing Bank, as the case may be, in the ordinary course of business. The accounts or records maintained by the Agent, the Issuing Bank and each Bank shall be rebuttably presumptive evidence of the amount of the Loans made by the Banks to the Company and the Letters of Credit Issued for the account of the Company, and the interest and payments thereon. Any failure so to record or any error in doing so shall not, however, limit or otherwise affect the obligation of the Company hereunder to pay any amount owing with respect to the Loans or any Letter of Credit. 2.03 Procedure for Borrowing. ----------------------- (a) Each Borrowing of Revolving Loans shall be made upon the Company's irrevocable written notice delivered to the Agent in the manner provided in Section 11.02 and in the form of a Notice of Borrowing (which notice must be received by the Agent prior to 10:00 a.m. (San Francisco time) (i) at least three Business Days prior to the requested Borrowing Date, in the case of Offshore Rate Loans; and (ii) on or before the requested Borrowing Date, in the case of Base Rate Loans, specifying: (A) the amount of the Borrowing, which shall be in an aggregate minimum amount of (1) $1,000,000, in the case of Base Rate Loans, or (2) $1,000,000 or any multiple of $100,000 in excess thereof, in the case of Offshore Rate Loans; (B) the requested Borrowing Date, which shall be a Business Day; (C) the Type of Loans comprising the Borrowing; and (D) the duration of the Interest Period applicable to such Loans included in such notice. If the Notice of Borrowing fails to specify the duration of the Interest Period for any Borrowing comprised of Offshore -21- Rate Loans, such Interest Period shall be one month. (b) The Agent will promptly notify each Bank of its receipt of any Notice of Borrowing and of the amount of such Bank's Pro Rata Share of that Borrowing. (c) Each Bank will make the amount of its Pro Rata Share of each Borrowing available to the Agent for the account of the Company at the Agent's Payment Office by 12:00 noon (San Francisco time) on the Borrowing Date requested by the Company in funds immediately available to the Agent. The proceeds of all such Loans will then be made available to the Company by the Agent at such office by crediting the account of the Company on the books of BofA with the aggregate of the amounts made available to the Agent by the Banks and in like funds as received by the Agent. (d) After giving effect to any Borrowing, unless the Agent shall otherwise consent, there may not be more than twelve different Interest Periods in effect. 2.04 Conversion and Continuation Elections. ------------------------------------- (a) The Company may, upon irrevocable written notice to the Agent in accordance with Section 2.04(b): (i) elect, as of any Business Day, in the case of Base Rate Loans, or as of the last day of the applicable Interest Period, in the case of any other Type of Revolving Loans, to convert any such Loans (or any part thereof in an amount not less than (1) $1,000,000, in the case of Base Rate Loans, or (2) $1,000,000 or any multiple of $100,000 in excess thereof, in the case of Offshore Rate Loans into Loans of any other Type; or (ii) elect as of the last day of the applicable Interest Period, to continue any Revolving Loans having Interest Periods expiring on such day (or any part thereof in an amount not less than $1,000,000, or that is in an integral multiple of $100,000 in excess thereof); provided, that if at any time the aggregate amount of Offshore Rate Loans in - -------- respect of any Borrowing is reduced, by payment, prepayment, or conversion of part thereof to be less than $1,000,000, such Offshore Rate Loans shall automatically convert into Base Rate Loans, and on and after such date the right of the Company to continue such Loans as, and convert such Loans into, Offshore Rate Loans shall terminate. The Company may aggregate Base Rate Loans to be converted into Offshore Rate Loans. (b) The Company shall deliver a Notice of Conversion/ Continuation to be received by the Agent not later than 10:00 a.m. (San Francisco time) (i) at least three Business Days in advance of the Conversion/Continuation Date, if the Loans are to be converted into or continued as Offshore Rate Loans; and (ii) on or before the Conversion/ Continuation Date, if the Loans are to be converted into Base Rate Loans, specifying: (A) the proposed Conversion/Continuation Date; -22- (B) the aggregate amount of Loans to be converted or continued; (C) the Type of Loans resulting from the proposed conversion or continuation; and (D) other than in the case of conversions into Base Rate Loans, the duration of the requested Interest Period. (c) If upon the expiration of any Interest Period applicable to Offshore Rate Loans, the Company has failed to select timely a new Interest Period to be applicable to such Offshore Rate Loans, or if any Default or Event of Default then exists, the Company shall be deemed to have elected to convert such Offshore Rate Loans into Base Rate Loans effective as of the expiration date of such Interest Period. (d) The Agent will promptly notify each Bank of its receipt of a Notice of Conversion/Continuation, or, if no timely notice is provided by the Company, the Agent will promptly notify each Bank of the details of any automatic conversion. All conversions and continuations shall be made ratably according to the respective outstanding principal amounts of the Loans with respect to which the notice was given held by each Bank. (e) Unless the Majority Banks otherwise consent, during the existence of a Default or Event of Default, the Company may not elect to have a Loan converted into or continued as an Offshore Rate Loan. (f) After giving effect to any conversion or continuation of Loans, unless the Agent shall otherwise consent, there may not be more than twelve different Interest Periods in effect. 2.05 Voluntary Termination or Reduction of Commitments. The Company may, ------------------------------------------------- upon not less than five Business Days' prior notice to the Agent, terminate the Commitments, or permanently reduce the Commitments by an aggregate minimum amount of $1,000,000 or any multiple of $1,000,000 in excess thereof; unless, ------ after giving effect thereto and to any prepayments of Loans made on the effective date thereof, (a) the Effective Amount of all Revolving Loans, and L/C Obligations together would exceed the amount of the combined Commitments then in effect, or (b) the Effective Amount of all L/C Obligations then outstanding would exceed the L/C Commitment. A voluntary reduction in the Commitments shall not reduce the L/C Commitment to the extent the remaining Commitments, as so reduced, equal or exceed the L/C Commitment. Once reduced in accordance with this Section, the Commitments may not be increased. Any reduction of the Commitments shall be applied to each Bank according to its Pro Rata Share. If and to the extent specified by the Company in the notice to the Agent, some or all of the reduction in the combined Commitments shall be applied to reduce the L/C Commitment. All accrued commitment and letter of credit fees to, but not including, the effective date of any reduction or termination of Commitments, shall be paid on the effective date of such reduction or termination. -23- 2.06 Optional Prepayments. Subject to Section 4.04, the Company may, at -------------------- any time or from time to time, upon not less than 4 Business Days' irrevocable notice to the Agent, ratably prepay Loans in minimum amounts of $100,000 or multiples thereof. Such notice of prepayment shall specify the date and amount of such prepayment and the Type(s) of Loans to be prepaid. The Agent will promptly notify each Bank of its receipt of any such notice, and of such Bank's Pro Rata Share of such prepayment. If such notice is given by the Company, the Company shall make such prepayment and the payment amount specified in such notice shall be due and payable on the date specified therein, together with accrued interest to each such date on the amount of each Offshore Rate Loan prepaid and any amounts required pursuant to Section 4.04. 2.07 Cash Collateralization of L/Cs; Mandatory Prepayments of Loans. If on -------------------------------------------------------------- any date (including any Computation Date) the Effective Amount of L/C Obligations exceeds the L/C Commitment, upon notice from the Agent the Company shall Cash Collateralize on such date the outstanding Letters of Credit denominated in Dollars in an amount equal to the excess of the maximum amount then available to be drawn under the Letters of Credit over the L/C Commitment. Subject to Section 4.04, if on any date after giving effect to any Cash Collateralization made on such date pursuant to the preceding sentence, the Effective Amount of all Revolving Loans then outstanding plus the Effective Amount of all L/C Obligations exceeds the combined Commitments, the Company shall immediately, and without notice or demand, prepay the outstanding principal amount of the Revolving Loans and L/C Advances by an amount equal to the applicable excess. At such time as the L/C Obligations no longer exceeds the L/C Commitment, any excess Cash Collateral required to be provided under this Section 2.07 shall be released to the Company. 2.08 Repayment. The Company shall repay to the Banks on the Revolving --------- Termination Date the aggregate principal amount of Loans outstanding on such date. 2.09 Interest. -------- (a) Each Revolving Loan shall bear interest on the outstanding principal amount thereof from the Borrowing Date or Conversion/Continuation Date, as applicable, at a rate per annum equal to the Offshore Rate or the Base Rate, as the case may be (and subject to the Company's right to convert to other Types of Loans under Section 2.04), plus the Applicable Margin in effect from ---- time to time. (b) Interest on each Revolving Loan shall be paid in arrears on each Interest Payment Date. Interest shall also be paid on the date of any prepayment of Loans under Section 2.06 or 2.07 for the portion of the Loans so prepaid and upon payment (including prepayment) in full thereof and, during the existence of any Event of Default, interest shall be paid on demand of the Agent at the request or with the consent of the Majority Banks. (c) Notwithstanding Section (a) of this Section, while any Event of Default exists or after acceleration, the Company shall pay interest (after as well as before entry of judgment thereon to the extent permitted by law) on the principal amount of all -24- outstanding Loans, at a rate per annum which is determined by adding 2% per annum to the Applicable Margin then in effect for such Loans; provided, however, -------- ------- that, on and after the expiration of any Interest Period applicable to any Offshore Rate Loan outstanding on the date of occurrence of such Event of Default or acceleration, the principal amount of such Loan shall, during the continuation of such Event of Default or after acceleration, bear interest at a rate per annum equal to the Base Rate plus 2%. (d) Notwithstanding Section (a) of this Section, if any amount of principal of or interest on any Loan, or any other amount payable hereunder or under any other Loan Document is not paid in full when due (whether at stated maturity, by acceleration, demand or otherwise), and after giving effect to any grace period applicable thereto, the Company agrees to pay interest on such unpaid principal or other amount, from the date such amount becomes due or the expiration of any grace period applicable thereto, whichever is later, until the date such amount is paid in full, and after as well as before any entry of judgment thereon to the extent permitted by law, payable on demand, at a fluctuating rate per annum equal to the Base Rate plus 2%. (e) Anything herein to the contrary notwithstanding, the obligations of the Company to any Bank hereunder shall be subject to the limitation that payments of interest shall not be required for any period for which interest is computed hereunder, to the extent (but only to the extent) that contracting for or receiving such payment by such Bank would be contrary to the provisions of any law applicable to such Bank limiting the highest rate of interest that may be lawfully contracted for, charged or received by such Bank, and in such event the Company shall pay such Bank interest at the highest rate permitted by applicable law. 2.10 Fees. In addition to certain fees described in Section 3.08: ---- (a) Agency Fees. The Company shall pay an agency fee to the Agent for ----------- the Agent's own account, as required by the letter agreement ("Fee Letter") ---------- between the Company and the Agent dated November 20, 1997. (b) Commitment Fees. The Company shall pay to the Agent for the --------------- ratable account of each Bank a commitment fee on the average daily unused portion of such Bank's Commitment, computed on a quarterly basis in arrears on the last Business Day of each calendar quarter based upon the daily utilization for that quarter as calculated by the Agent. The commitment fee shall be calculated at the rate of .25% unless, as of the last Business Day of each calendar quarter for which the commitment fee is calculated: (i) the Parent has received a rating on the Parent or on the Parent's senior long term unsecured debt of "BBB-" or better from S&P or "Baa3" or better from Moody's, in which case the commitment fee shall be calculated at the rate of .125% per annum; and (ii) at all times that clause (i) is not applicable, the Company's Fixed Charge Coverage Ratio as of the most recent -25- fiscal quarter for which the financial statements required under Section 7.01(a) and (b) have been delivered to Agent and Banks (and provided such financial statements have been delivered to Agent and Banks within the time periods set forth in Section 7.01(a) and (b)) is: (A) greater than 2.70:1, in which case the commitment fee shall be calculated at the rate of .15% per annum; (B) greater than 2.35:1, but not exceeding than 2.70:1, in which case the commitment fee shall be calculated at the rate of .1875 % per annum; or (C) greater than 2.10:1, but not exceeding 2.35:1, in which case the commitment fee shall be calculated at the rate of .20% per annum; For purposes of calculating utilization under this Section, the Commitments shall be deemed used to the extent of the Effective Amount of Revolving Loans then outstanding, plus the Effective Amount of L/C Obligations then outstanding. Such commitment fee shall accrue from the Closing Date to the Revolving Termination Date and shall be due and payable quarterly in arrears on the last Business Day of each fiscal quarter commencing on December 31, 1997, through the Revolving Termination Date, with the final payment to be made on the Revolving Termination Date; provided that, in connection with any reduction or termination -------- of Commitments under Section 2.05, the accrued commitment fee calculated for the period ending on such date shall also be paid on the date of such reduction or termination, with the following quarterly payment being calculated on the basis of the period from such reduction or termination date to such quarterly payment date. The commitment fees provided in this Section shall accrue at all times after the above-mentioned commencement date, including at any time during which one or more conditions in Article V are not met. 2.11 Computation of Fees and Interest. -------------------------------- (a) All computations of interest for Offshore Rate Loans shall be made on the basis of a 360-day year and actual days elapsed (which results in more interest being paid than if computed on the basis of a 365-day year). All other computations of interest and fees shall be made on the basis of a year of 365 or 366 days, as the case may be, and actual days elapsed. Interest and fees shall accrue during each period during which interest or such fees are computed from the first day thereof to the last day thereof. (b) Each determination of an interest rate by the Agent shall be rebuttably presumptive evidence of such interest rate. 2.12 Payments by the Company. ----------------------- (a) All payments to be made by the Company shall be made without set- off, recoupment or counterclaim. Except as otherwise expressly provided herein, all payments by the Company shall be made to the Agent for the account of the Banks at the Agent's Payment Office, and shall be made in dollars and in immediately available -26- funds, no later than 11:00 a.m. (San Francisco time) on the date specified herein. The Agent will promptly distribute to each Bank its Pro Rata Share (or other applicable share as expressly provided herein) of such payment in like funds as received. Any payment received by the Agent later than 11:00 a.m. (San Francisco time) shall be deemed to have been received on the following Business Day and any applicable interest or fee shall continue to accrue. (b) Subject to the provisions set forth in the definition of "Interest Period" herein, whenever any payment is due on a day other than a Business Day, such payment shall be made on the following Business Day, and such extension of time shall in such case be included in the computation of interest or fees, as the case may be. (c) Unless the Agent receives notice from the Company prior to the date on which any payment is due to the Banks that the Company will not make such payment in full as and when required, the Agent may assume that the Company has made such payment in full to the Agent on such date in immediately available funds and the Agent may (but shall not be so required), in reliance upon such assumption, distribute to each Bank on such due date an amount equal to the amount then due such Bank. If and to the extent the Company has not made such payment in full to the Agent, each Bank shall repay to the Agent on demand such amount distributed to such Bank, together with interest thereon at the Federal Funds Rate for each day from the date such amount is distributed to such Bank until the date repaid. 2.13 Payments by the Banks to the Agent. ---------------------------------- (a) Unless the Agent receives notice from a Bank on or prior to the Closing Date or, with respect to any Borrowing after the Closing Date, at least one Business Day prior to the date of such Borrowing, that such Bank will not make available as and when required hereunder to the Agent for the account of the Company the amount of that Bank's Pro Rata Share of the Borrowing, the Agent may assume that each Bank has made such amount available to the Agent in immediately available funds on the Borrowing Date and the Agent may (but shall not be so required), in reliance upon such assumption, make available to the Company on such date a corresponding amount. If and to the extent any Bank shall not have made its full amount available to the Agent in immediately available funds and the Agent in such circumstances has made available to the Company such amount, that Bank shall on the Business Day following such Borrowing Date make such amount available to the Agent, together with interest at the Federal Funds Rate for each day during such period. A notice of the Agent submitted to any Bank with respect to amounts owing under this Section (a) shall be conclusive, absent manifest error. If such amount is so made available, such payment to the Agent shall constitute such Bank's Loan on the date of Borrowing for all purposes of this Agreement. If such amount is not made available to the Agent on the Business Day following the Borrowing Date, the Agent will notify the Company of such failure to fund and, upon demand by the Agent, the Company shall pay such amount to the Agent for the Agent's account, together with interest thereon for each day elapsed since the date of such Borrowing, at a rate per annum equal to the interest rate applicable at the time to the Loans comprising such Borrowing. -27- (b) The failure of any Bank to make any Loan on any Borrowing Date shall not relieve any other Bank of any obligation hereunder to make a Loan on such Borrowing Date, but no Bank shall be responsible for the failure of any other Bank to make the Loan to be made by such other Bank on any Borrowing Date. 2.14 Sharing of Payments, Etc. If, other than as expressly provided ------------------------- elsewhere herein, any Bank shall obtain on account of the Loans made by it any payment (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise) in excess of its ratable share (or other share contemplated hereunder), such Bank shall immediately (a) notify the Agent of such fact, and (b) purchase from the other Banks such participations in the Loans made by them as shall be necessary to cause such purchasing Bank to share the excess payment pro rata with each of them; provided, however, that if all or -------- ------- any portion of such excess payment is thereafter recovered from the purchasing Bank, such purchase shall to that extent be rescinded and each other Bank shall repay to the purchasing Bank the purchase price paid therefor, together with an amount equal to such paying Bank's ratable share (according to the proportion of (i) the amount of such paying Bank's required repayment to (ii) the total amount so recovered from the purchasing Bank) of any interest or other amount paid or payable by the purchasing Bank in respect of the total amount so recovered. The Company agrees that any Bank so purchasing a participation from another Bank may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of set-off, but subject to Section 11.11) with respect to such participation as fully as if such Bank were the direct creditor of the Company in the amount of such participation. The Agent will keep records (which shall be conclusive and binding in the absence of manifest error) of participations purchased under this Section and will in each case notify the Banks following any such purchases or repayments. 2.15 Existing Offshore Rate Loans; Risk Participations. ------------------------------------------------- (a) On and after the Closing Date, the Existing Offshore Rate Loans shall be deemed Offshore Rate Loans outstanding under this Agreement with the same Offshore Rates and Interest Periods applicable under the Existing Credit Agreement, but with the Applicable Offshore Rate Margin determined pursuant to this Agreement, and all interest, fees, expenses and other amounts owing under the Existing Agreement with respect to such Existing Offshore Rate Loans shall be deemed continued as owing hereunder. On the Closing Date, Fleet shall be deemed to, and hereby irrevocably and unconditionally agrees to, purchase from BofA and NationsBank, as lending banks under the Existing Credit Agreement ("Existing Lenders"), for Fleet's own account and risk an undivided interest - ------------------ equal to Fleet's Pro Rata Share in such Existing Offshore Rate Loans. Fleet unconditionally and irrevocably agrees with each Existing Lender that, if any amount in respect of the principal, interest or fees owing to such Existing Lender is not paid on its due date, Fleet shall promptly pay to the Agent for the account of each Existing Lender an amount equal to Fleet's Pro Rata Share of such unpaid amount. Fleet's obligation to make the payment referred to in the immediately preceding sentence shall be absolute and unconditional and shall not be affected by any circumstance, including, without limitation, (i) any set-off, counterclaim, recoupment, defense or -28- other right which Fleet or the Company or the Parent may have against any Existing Lender or any other Person for any reason whatsoever, (ii) the occurrence or continuance of a Default or an Event of Default, (iii) the occurrence of any Material Adverse Effect, or (iv) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing. For purposes of Section 2.01 and Section 2.10(b), the Existing Offshore Rate Loans shall be deemed to utilize pro rata the Commitment of each Bank. (b) If any amount required to be paid to the Existing Lenders by Fleet pursuant to Section 2.15(a) is not paid by 12:00 noon (San Francisco time) on the date such payment is due, then interest shall accrue on Fleet's obligation to make such payment, from the date due until Fleet makes such payment, at a rate per annum equal to the Federal Funds Rate in effect from time to time during such period. The Agent shall promptly give notice of the Company's failure to pay principal or interest of an Existing Offshore Rate Loan on its due date, but failure of the Agent to give any such notice on the due date or in sufficient time to enable Fleet to effect such payment on such due date shall not relieve Fleet from its obligations under this Section 2.15(b). (c) Each Existing Lender shall pay to Fleet a risk participation fee with respect to Fleet's Pro Rata Share of the Existing Offshore Rate Loans for the period from the Closing Date until the date of repayment of each such Existing Offshore Rate Loan. The risk participation fee shall be equal to 80% of the Applicable Offshore Rate Margin applicable to Fleet's Pro Rata Share of each such Existing Offshore Rate Loan. Such risk participation fee shall be paid to Fleet in arrears on the date the Agent receives payment of interest from the Company on the Existing Offshore Rate Loans. The Existing Lenders hereby authorize the Agent to deduct from each interest payment made by the Company to the Agent with respect to the Existing Offshore Rate Loans an amount equal to the risk participation fee payable to Fleet pursuant to this Section 2.15(b) and to remit said fee to Fleet promptly following the Agent's receipt thereof. (d) Whenever, at any time after any Existing Lender has received from Fleet the full amount owing by Fleet pursuant to and in accordance with Section 2.15(a) in respect of any Existing Offshore Rate Loan, such Existing Lender receives any payment related to such Existing Offshore Rate Loan (whether directly from the Company or otherwise), or any payment of interest on account thereof, such Existing Lender will distribute to Fleet its Pro Rata Share thereof. (e) If any payment received by any Existing Lender pursuant to Section 2.15(d) with respect to any Existing Offshore Rate Loan made by it shall be required to be returned by such Existing Lender, Fleet shall pay to such Existing Lender its Pro Rata Share thereof. ARTICLE III THE LETTERS OF CREDIT --------------------- 3.01 The Letter of Credit Subfacility. -------------------------------- -29- (a) On the terms and conditions set forth herein (i) each Issuing Bank agrees, (A) from time to time on any Business Day during the period from the Closing Date to the Revolving Termination Date to issue Letters of Credit for the account of the Company, the Parent, or any Subsidiary (provided such Subsidiary is also a Guarantor), and to amend or renew Letters of Credit previously issued by it, in accordance with Sections 3.02(c) and 3.02(d), and (B) to honor drafts under the Letters of Credit previously issued by it; and (ii) the Banks severally agree to participate in Letters of Credit Issued for the account of the Company, the Parent, and its Subsidiaries; provided, that no -------- Issuing Bank shall be obligated to Issue, and no Bank shall be obligated to participate in, any Letter of Credit if as of the date of Issuance of such Letter of Credit (the "Issuance Date") (1) the Effective Amount of all L/C ------------- Obligations plus the Effective Amount of all Revolving Loans exceeds the combined Commitments, (2) the participation of any Bank in the Effective Amount of all L/C Obligations plus the Effective Amount of the Revolving Loans of such Bank exceeds such Bank's Commitment, or (3) the Effective Amount of L/C Obligations exceeds the L/C Commitment. Within the foregoing limits, and subject to the other terms and conditions hereof, the Company's ability to obtain Letters of Credit shall be fully revolving, and, accordingly, the Company may, during the foregoing period, obtain Letters of Credit to replace Letters of Credit which have expired or which have been drawn upon and reimbursed. (b) No Issuing Bank is under any obligation to Issue, and no Bank shall be obligated to participate in, any Letter of Credit if: (i) any order, judgment or decree of any Governmental Authority or arbitrator shall by its terms purport to enjoin or restrain the Issuing Bank from Issuing such Letter of Credit, or any Requirement of Law applicable to the Issuing Bank or any request or directive (whether or not having the force of law) from any Governmental Authority with jurisdiction over the Issuing Bank shall prohibit, or request that the Issuing Bank refrain from, the Issuance of letters of credit generally or such Letter of Credit in particular or shall impose upon the Issuing Bank with respect to such Letter of Credit any restriction, reserve or capital requirement (for which the Issuing Bank is not otherwise compensated hereunder) not in effect on the Closing Date, or shall impose upon the Issuing Bank any unreimbursed loss, cost or expense which was not applicable on the Closing Date and which the Issuing Bank in good faith deems material to it; (ii) the Issuing Bank has received written notice from any Bank, the Agent or the Company, on or prior to the Business Day prior to the requested date of Issuance of such Letter of Credit, that one or more of the applicable conditions contained in Article V is not then satisfied; (iii) the expiry date of any requested commercial documentary Letter of Credit is (A) more than 364 days after the date of Issuance, unless the Majority Banks have approved such expiry date in writing, or (B) more than 90 days after the -30- Revolving Termination Date, unless all of the Banks have approved such expiry date in writing; (iv) the expiry date of any requested standby Letter of Credit is (A) more than 364 days after the date of Issuance, unless the Majority Banks have approved such expiry date in writing, or (B) more than 90 days after the Revolving Termination Date, unless all of the Banks have approved such expiry date in writing; (v) any requested Letter of Credit does not provide for drafts, or is not otherwise in form and substance acceptable to the Issuing Bank, or the Issuance of a Letter of Credit shall violate any applicable policies of the Issuing Bank; (vi) any standby Letter of Credit is for the purpose of supporting the issuance of any letter of credit by any other Person; (vii) any such Letter of Credit (other than standby Letters of Credit supporting the Company's, the Parent's, or any Subsidiary's obligations under space leases) is in a face amount less than the Equivalent Amount of $10,000; (viii) the Effective Amount of all commercial documentary Letters of Credit exceeds $15,000,000 or the Effective Amount of all standby Letters of Credit exceeds $5,000,000; or (ix) in the case of Letters of Credit denominated in an Offshore Currency, the Company has not effectively hedged its exposure thereunder by means of a Swap Contract. If Issuing Bank declines to issue a Letter of Credit for the reasons specified in Section (i), (ii) or (v) above, Issuing Bank shall provide written notice to Company. 3.02 Issuance, Amendment and Renewal of Letters of Credit. ---------------------------------------------------- (a) Each Letter of Credit shall be issued upon the irrevocable written request of the Company received by the Issuing Bank (with a copy sent by the Issuing Bank to the Agent) at least three Business Days (or such shorter time as the Issuing Bank may agree in a particular instance in its sole discretion) prior to the proposed date of issuance. Each such request for issuance of a Letter of Credit shall be by facsimile, confirmed immediately in an original writing, in the form of an L/C Application, and shall specify in form and detail satisfactory to the Issuing Bank: (i) the proposed date of issuance of the Letter of Credit (which shall be a Business Day); (ii) the face amount and currency (which shall be Dollars or an Agreed Alternative Currency) of the Letter of Credit; (iii) the expiry date of the Letter of Credit; (iv) the name and address of the beneficiary thereof; (v) the documents to be presented by the beneficiary of the Letter of Credit in case of any drawing thereunder; (vi) the full text of any certificate to be presented by the beneficiary in case of any drawing thereunder; (vii) the Person for whose account the Letter of Credit is to be Issued (which shall -31- be the Company, the Parent, or any of its Subsidiaries); and (viii) such other matters as the Issuing Bank may require. (b) At least two Business Days prior to the Issuance of any Letter of Credit, the Issuing Bank will confirm with the Agent (by telephone or in writing) that the Agent has received a copy of the L/C Application or L/C Amendment Application from the Company and, if not, the Issuing Bank will provide the Agent with a copy thereof. Unless the Issuing Bank has received notice on or before the Business Day immediately preceding the date the Issuing Bank is to issue a requested Letter of Credit from the Agent (A) directing the Issuing Bank not to issue such Letter of Credit because such issuance is not then permitted under Section 3.01(a) as a result of the limitations set forth in clauses (1) through (3) thereof or Section 3.01(b)(ii); or (B) that one or more conditions specified in Article V are not then satisfied; then, subject to the terms and conditions hereof, the Issuing Bank shall, on the requested date, issue a Letter of Credit for the account of the Company, the Parent, or a Subsidiary, as applicable, in accordance with the Issuing Bank's usual and customary business practices. (c) From time to time while a Letter of Credit is outstanding and prior to the Revolving Termination Date, the Issuing Bank will, upon the written request of the Company received by the Issuing Bank (with a copy sent by the Company to the Agent) at least five Business Days (or such shorter time as the Issuing Bank may agree in a particular instance in its sole discretion) prior to the proposed date of amendment, amend any Letter of Credit issued by it. Each such request for amendment of a Letter of Credit shall be made by facsimile, confirmed immediately in an original writing, made in the form of an L/C Amendment Application and shall specify in form and detail satisfactory to the Issuing Bank: (i) the Letter of Credit to be amended; (ii) the proposed date of amendment of the Letter of Credit (which shall be a Business Day); (iii) the nature of the proposed amendment; and (iv) such other matters as the Issuing Bank may require. The Issuing Bank shall be under no obligation to amend any Letter of Credit, and no Bank shall be obligated to participate in any Letter of Credit in its amended form, if: (A) the Issuing Bank would have no obligation at such time to issue such Letter of Credit in its amended form under the terms of this Agreement; or (B) the beneficiary of any such letter of Credit does not accept the proposed amendment to the Letter of Credit. The Agent will promptly notify the Banks of the receipt by it of any L/C Application or L/C Amendment Application. (d) The Issuing Bank and the Banks agree that, while a Letter of Credit is outstanding and prior to the Revolving Termination Date, at the option of the Company and upon the written request of the Company received by the Issuing Bank (with a copy sent by the Company to the Agent) at least five Business Days (or such shorter time as the Issuing Bank may agree in a particular instance in its sole discretion) prior to the proposed date of notification of renewal, the Issuing Bank shall be entitled to authorize the automatic renewal of any Letter of Credit issued by it. Each such request for renewal of a Letter of Credit shall be made by facsimile, confirmed immediately in an original writing, in the form of an L/C Amendment Application, and shall specify in form and detail satisfactory to the Issuing Bank: (i) the Letter of Credit to be -32- renewed; (ii) the proposed date of notification of renewal of the Letter of Credit (which shall be a Business Day); (iii) the revised expiry date of the Letter of Credit; and (iv) such other matters as the Issuing Bank may require. The Issuing Bank shall be under no obligation to so renew any Letter of Credit, and no Bank shall be obligated to participate in any Letter of Credit in its renewed form, if: (A) the Issuing Bank would have no obligation at such time to issue or amend such Letter of Credit in its renewed form under the terms of this Agreement; or (B) the beneficiary of any such Letter of Credit does not accept the proposed renewal of the Letter of Credit. If any outstanding Letter of Credit shall provide that it shall be automatically renewed unless the beneficiary thereof receives notice from the Issuing Bank that such Letter of Credit shall not be renewed, and if at the time of renewal the Issuing Bank would be entitled to authorize the automatic renewal of such Letter of Credit in accordance with this Section 3.02(d) upon the request of the Company but the Issuing Bank shall not have received any L/C Amendment Application from the Company with respect to such renewal or other written direction by the Company with respect thereto, the Issuing Bank shall nonetheless be permitted to allow such Letter of Credit to renew, and the Company and the Banks hereby authorize such renewal, and, accordingly, the Issuing Bank shall be deemed to have received an L/C Amendment Application from the Company requesting such renewal. (e) The Issuing Bank may, at its election (or as required by the Agent at the direction of the Majority Banks), deliver any notices of termination or other communications to any Letter of Credit beneficiary or transferee, and take any other action as necessary or appropriate, at any time and from time to time, in order to cause the expiry date of such Letter of Credit to be a date not later than 90 days after the Revolving Termination Date. (f) This Agreement shall control in the event of any conflict with any L/C-Related Document (other than any Letter of Credit). (g) The Issuing Bank will also deliver to the Agent, concurrently or promptly following its delivery of a Letter of Credit, or amendment to or renewal of a Letter of Credit, to an advising bank or a beneficiary, a true and complete copy of each such Letter of Credit or amendment to or renewal of a Letter of Credit. 3.03 Existing Letters of Credit; Risk Participations, Drawings and ----------------------------------------------- ------------ Reimbursements. - -------------- (a) On and after the Closing Date, the Existing Letters of Credit shall be deemed for all purposes, including for purposes of the fees to be collected pursuant to Sections 3.08(a)(i) and 3.08(a)(ii) (without duplication), and reimbursement of costs and expenses to the extent provided herein, Letters of Credit outstanding under this Agreement and entitled to the benefits of this Agreement and the other Loan Documents, and shall be governed by the applications and agreements pertaining thereto and by this Agreement. Each Bank shall be deemed to, and hereby irrevocably and unconditionally agrees to, purchase from the Issuing Bank on the Closing Date a participation in each such Letter of Credit and each drawing thereunder in an amount equal to the product of (i) such -33- Bank's Pro Rata Share times (ii) the maximum amount available to be drawn under such Letter of Credit and the amount of such drawing, respectively. For purposes of Section 2.01 and Section 2.10(b), the Existing Letters of Credit shall be deemed to utilize pro rata the Commitment of each Bank. (b) Immediately upon the Issuance of each Letter of Credit in addition to those described in Section 3.03(a), each Bank shall be deemed to, and hereby irrevocably and unconditionally agrees to, purchase from the Issuing Bank a participation in such Letter of Credit and each drawing thereunder in an amount equal to the product of (i) the Pro Rata Share of such Bank, times (ii) the maximum amount available to be drawn under such Letter of Credit and the amount of such drawing, respectively. For purposes of Section 2.01 and Section 2.10(b), each Issuance of a Letter of Credit shall be deemed to utilize the Commitment of each Bank by an amount equal to the Equivalent Amount of such participation. (c) In the event of any request for a drawing under a Letter of Credit by the beneficiary or transferee thereof, the Issuing Bank will promptly notify the Company. The Company shall reimburse the Issuing Bank prior to 10:00 a.m. (San Francisco time), on each date that any amount is paid by the Issuing Bank under any Letter of Credit (each such date, an "Honor Date"), in the currency ---------- thereof and in an amount equal to the amount so paid by the Issuing Bank. In the event the Company fails to reimburse the Issuing Bank for the full amount of any drawing under any Letter of Credit by 10:00 a.m. (San Francisco time) on the Honor Date, the Issuing Bank will promptly notify the Agent and the Agent will promptly notify each Bank thereof, and the Company shall be deemed to have requested that Base Rate Loans in Dollars be made by the Banks to be disbursed on the Honor Date under such Letter of Credit in an amount equal to the Equivalent Amount of such drawing, subject to the amount of the unutilized portion of the Revolving Commitment and subject to the conditions set forth in Section 5.02. Any notice given by the Issuing Bank or the Agent pursuant to this Section 3.03(c) may be oral if immediately confirmed in writing (including by facsimile); provided that the lack of such an immediate confirmation shall not affect the conclusiveness or binding effect of such notice. If the Banks have made Base Rate Loans pursuant to this subsection, any subsequent reimbursement by the Company for such unreimbursed drawing in respect of which such Base Rate Loans were made shall be deemed a payment on such Base Rate Loans and shall be made in Dollars only in an amount equal to such Base Rate Loans. (d) Each Bank shall upon any notice pursuant to Section 3.03(c) make available to the Agent for the account of the relevant Issuing Bank an amount in Dollars and in immediately available funds equal to its Pro Rata Share of the Equivalent Amount of the drawing, whereupon the participating Banks shall (subject to Section 3.03(e)) each be deemed to have made a Revolving Loan consisting of a Base Rate Loan in Dollars to the Company in that amount. If any Bank so notified fails to make available to the Agent for the account of the Issuing Bank the amount of such Bank's Pro Rata Share of the Equivalent Amount of the drawing by no later than 12:00 noon (San Francisco time) on the Honor Date, then interest shall accrue on such Bank's obligation to make such payment, from the Honor Date to the date such Bank makes such payment, at a rate per annum equal to the -34- Federal Funds Rate in effect from time to time during such period. The Agent will promptly give notice of the occurrence of the Honor Date, but failure of the Agent to give any such notice on the Honor Date or in sufficient time to enable any Bank to effect such payment on such date shall not relieve such Bank from its obligations under this Section 3.03. (e) With respect to any unreimbursed drawing that is not converted into Revolving Loans consisting of Base Rate Loans to the Company in whole or in part, because of the Company's failure to satisfy the conditions set forth in Section 5.02 or for any other reason, the Company shall be deemed to have incurred from the Issuing Bank an L/C Borrowing in the Equivalent Amount of such drawing, which L/C Borrowing shall be due and payable on demand (together with interest) and shall bear interest at a rate per annum equal to the Base Rate plus 2% per annum, and each Bank's payment to the Issuing Bank pursuant to Section 3.03(d) shall be deemed payment in respect of its participation in such L/C Borrowing and shall constitute an L/C Advance from such Bank in satisfaction of its participation obligation under this Section 3.03. If the Company has incurred an L/C Borrowing pursuant to this subsection, any subsequent reimbursement by the Company for such unreimbursed drawing in respect of which such L/C Borrowing was incurred shall be deemed a payment on such Base Rate Loans and shall be made in Dollars only in an amount equal to such L/C Borrowing. (f) Each Bank's obligation in accordance with this Agreement to make the Revolving Loans or L/C Advances, as contemplated by this Section 3.03, as a result of a drawing under a Letter of Credit, shall be absolute and unconditional and without recourse to the Issuing Bank and shall not be affected by any circumstance, including (i) any set-off, counterclaim, recoupment, defense or other right which such Bank may have against the Issuing Bank, the Company or any other Person for any reason whatsoever; (ii) the occurrence or continuance of a Default, an Event of Default or a Material Adverse Effect; or (iii) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing; provided, however, that each Bank's obligation -------- ------- to make Revolving Loans under this Section 3.03 is subject to the conditions set forth in Section 5.02. 3.04 Repayment of Participations. --------------------------- (a) Upon (and only upon) receipt by the Agent for the account of the Issuing Bank of immediately available funds from the Company (i) in reimbursement of any payment made by the Issuing Bank under the Letter of Credit with respect to which any Bank has paid the Agent for the account of the Issuing Bank for such Bank's participation in the Letter of Credit pursuant to Section 3.03 or (ii) in payment of interest thereon, the Agent will pay to each Bank, in the same funds as those received by the Agent for the account of the Issuing Bank, the amount of such Bank's Pro Rata Share of such funds, and the Issuing Bank shall receive the amount of the Pro Rata Share of such funds of any Bank that did not so pay the Agent for the account of the Issuing Bank. (b) If the Agent or the Issuing Bank is required at any time to return to the Company, or to a trustee, receiver, liquidator, -35- custodian, or any official in any Insolvency Proceeding, any portion of the payments made by the Company to the Agent for the account of the Issuing Bank pursuant to Section 3.04(a) in reimbursement of a payment made under the Letter of Credit or interest or fee thereon, each Bank shall, on demand of the Agent, forthwith return to the Agent or the Issuing Bank the amount of its Pro Rata Share of any amounts so returned by the Agent or the Issuing Bank plus interest thereon from the date such demand is made to the date such amounts are returned by such Bank to the Agent or the Issuing Bank, at a rate per annum equal to the Federal Funds Rate in effect from time to time. 3.05 Role of the Issuing Bank. ------------------------ (a) Except as otherwise provided in this Agreement and in any Letter of Credit, each Bank and the Company agree that, in paying any drawing under a Letter of Credit, the Issuing Bank shall not have any responsibility to obtain any document (other than any sight draft, certificates, and/or other documents expressly required by the Letter of Credit) or to ascertain or inquire as to the validity or accuracy of any such document or the authority of the Person executing or delivering any such document. (b) No Agent-Related Person nor the Issuing Bank or any of the respective correspondents, participants or assignees of the Issuing Bank shall be liable to any Bank for: (i) any action taken or omitted in connection herewith at the request or with the approval of the Banks (including the Majority Banks, as applicable); (ii) any action taken or omitted in the absence of gross negligence or willful misconduct; or (iii) the due execution, effectiveness, validity or enforceability of any L/C-Related Document. (c) Except as otherwise provided in this Agreement and in any Letter of Credit, the Company hereby assumes all risks of the acts or omissions of any beneficiary or transferee with respect to its use of any Letter of Credit; provided, however, that this assumption is not intended to, and shall not, - -------- ------- preclude the Company's pursuing such rights and remedies as it may have against the beneficiary or transferee at law or under any other agreement. No Agent- Related Person, nor the Issuing Bank or any of the respective correspondents, participants or assignees of the Issuing Bank, shall be liable or responsible for any of the matters described in clauses (i) through (vii) of Section 3.06; provided, however, anything in such clauses to the contrary notwithstanding, - -------- ------- that the Company may have a claim against the Issuing Bank, and the Issuing Bank may be liable to the Company, to the extent, but only to the extent, of any direct, as opposed to consequential or exemplary, damages suffered by the Company which the Company proves were caused by the Issuing Bank's willful misconduct or gross negligence or the Issuing Bank's willful failure to pay under any Letter of Credit after the presentation to it by the beneficiary of a sight draft and certificate(s) strictly complying with the terms and conditions of a Letter of Credit. In furtherance and not in limitation of the foregoing: (i) the Issuing Bank may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary; and (ii) the Issuing Bank shall not be responsible for the validity or sufficiency of any instrument transferring or assigning -36- or purporting to transfer or assign a Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason. 3.06 Obligations Absolute. The obligations of the Company under this -------------------- Agreement and any L/C-Related Document to reimburse the Issuing Bank for a drawing under a Letter of Credit, and to repay any L/C Borrowing and any drawing under a Letter of Credit converted into Revolving Loans, shall be unconditional and irrevocable, and shall be paid strictly in accordance with the terms of this Agreement and each such other L/C-Related Document under all circumstances, including the following: (i) any lack of validity or enforceability of this Agreement or any L/C-Related Document; (ii) any change in the time, manner or place of payment of, or in any other term of, all or any of the obligations of the Company in respect of any Letter of Credit or any other amendment or waiver of or any consent to departure from all or any of the L/C-Related Documents; (iii) the existence of any claim, set-off, defense or other right that the Company may have at any time against any beneficiary or any transferee of any Letter of Credit (or any Person for whom any such beneficiary or any such transferee may be acting), the Issuing Bank or any other Person, whether in connection with this Agreement, the transactions contemplated hereby or by the L/C-Related Documents or any unrelated transaction; (iv) subject to the provisions of this Agreement, any draft, demand, certificate or other document presented under any Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; or any loss or delay in the transmission or otherwise of any document required in order to make a drawing under any Letter of Credit; (v) subject to the provisions of this Agreement, any payment by the Issuing Bank under any Letter of Credit against presentation of a draft or certificate that does not strictly or substantially comply with the terms of any Letter of Credit; or any payment made by the Issuing Bank under any Letter of Credit to any Person purporting to be a trustee in bankruptcy, debtor-in-possession, assignee for the benefit of creditors, liquidator, receiver or other representative of or successor to any beneficiary or any transferee of any Letter of Credit, including any arising in connection with any Insolvency Proceeding; (vi) any exchange, release or non-perfection of any collateral, or any release or amendment or waiver of or consent to departure from any other guarantee, for all or any of the obligations of the Company in respect of any Letter of Credit; or (vii) any other circumstance or happening whatsoever, -37- whether or not similar to any of the foregoing, including any other circumstance that might otherwise constitute a defense available to, or a discharge of, the Company or a guarantor. 3.07 Cash Collateral Pledge. Upon the request of the Agent, if, as of the ---------------------- Revolving Termination Date, any Letters of Credit for any reason remain outstanding and partially or wholly undrawn, then the Company shall immediately Cash Collateralize the L/C Obligations in an amount and in the currency equal to such L/C Obligations in the currency of the Letter of Credit and the Company hereby grants to the Agent for the ratable benefit of the Banks and the Issuing Banks a security interest in such cash collateral for the purpose of securing the Company's obligations under this Agreement. 3.08 Letter of Credit Fees. --------------------- (a) The Company shall pay to the Agent for the ratable account of each of the Banks the following fees for Letters of Credit issued by each Issuing Bank: (i) For each standby Letter of Credit issued by an Issuing Bank, the Company shall pay a fee at a rate per annum equal to the Standby Letter of Credit Fee in effect on the date of Issuance of the standby Letter of Credit. Such Standby Letter of Credit Fee shall be computed on a quarterly basis in arrears on the last Business Day of each calendar quarter based upon the average daily maximum Equivalent Amount available to be drawn under the standby Letter of Credit during that quarter as calculated by the Agent. The Standby Letter of Credit Fee shall be due and payable quarterly in arrears on the last Business Day of each calendar quarter during which standby Letters of Credit are outstanding, commencing on the first such quarterly date to occur after the Closing Date, through the Revolving Termination Date (or such later date upon which the outstanding Letters of Credit shall expire), with the final payment to be made on the Revolving Termination Date (or such later expiration date). Notwithstanding the foregoing, while any Event of Default exists, the Company shall pay a Standby Letter of Credit Fee at a rate per annum which is determined by adding 2% per annum to the applicable Standby Letter of Credit Fee then in effect for each such standby Letter of Credit. (ii) For each commercial documentary Letter of Credit issued by an Issuing Bank, the Company shall pay an issuance fee at a rate per annum equal to the Commercial documentary Letter of Credit Fee in effect on the date of Issuance of the commercial documentary Letter of Credit. Such Commercial Letter of Credit Fee shall be computed on the maximum Equivalent Amount available to be drawn under the commercial documentary Letter of Credit. Such issuance fee shall be due and payable on each date of Issuance of a commercial documentary Letter of Credit, or, in the case of an additional issuance fee payable as a result of an amendment to increase the amount or extend the maturity of a commercial documentary Letter of Credit, on the date of such amendment. The Company shall not be entitled to any refund of the issuance fee if the amount of a commercial documentary Letter of Credit is reduced by amendment, or the commercial documentary Letter of Credit is cancelled. Notwithstanding the -38- foregoing, while any Event of Default exists, the Company shall pay an issuance fee for each commercial documentary Letter of Credit issued by an Issuing Bank after the occurrence of such Event of Default, or amended by the Issuing Bank after the occurrence of such Event of Default to increase the amount or extend the maturity date of such commercial documentary Letter of Credit, at a rate per annum which is determined by adding 1/2% per annum to the applicable Commercial Letter of Credit Fee in effect on the date of such Issuance or amendment. (b) The Company shall pay to the Agent for the account of each Issuing Bank a Letter of Credit fronting fee for each standby Letter of Credit Issued by the Issuing Bank equal to .125% (or such lesser amount as may be agreed upon between the Company and such Issuing Bank at the time any standby Letter of Credit is Issued by such Issuing Bank) of the face amount (or increased face amount, as the case may be) of such standby Letter of Credit. Such Letter of Credit fronting fee shall be due and payable on each date of Issuance of a standby Letter of Credit and shall be calculated on the Equivalent Amount of the face amount of such Letter of Credit. (c) The Company shall pay to the Issuing Bank from time to time on demand the normal issuance, presentation, amendment and other processing fees, and other standard costs and charges, of the Issuing Bank relating to letters of credit as from time to time in effect. 3.09 Uniform Customs and Practice. The Uniform Customs and Practice for ---------------------------- Documentary Credits as published by the International Chamber of Commerce most recently at the time of issuance of any Letter of Credit shall (unless otherwise expressly provided in the Letters of Credit) apply to the Letters of Credit. 3.10 Reports to Agent. Each Issuing Bank shall deliver to Agent, no later ---------------- than 10 days after the end of each calendar month, a summary of all outstanding Letters of Credit issued by the Issuing Bank. Said summary shall include the date of issuance, the expiry date and the amount (in the applicable currency and the Equivalent Amount thereof) available to be drawn under each Letter of Credit. Upon receipt of said summary by Agent from the Issuing Banks, Agent shall provide a copy to the Company. 3.11 Issuance of Letters of Credit in Offshore Currencies. ---------------------------------------------------- (a) The Company shall be entitled to request that Letters of Credit hereunder be Issued in any other lawful currency (other than Dollars) that in the opinion of the Majority Banks is at such time freely traded in the offshore interbank foreign exchange markets and is freely transferable and freely convertible into Dollars (an "Agreed Alternative Currency"). The Company --------------------------- shall deliver to the Issuing Bank and the Agent a written request for designation of an Agreed Alternate Currency to be received by the Agent not later than 10:00 a.m. (San Francisco time) at least six Business Days in advance of the date of any Letter of Credit proposed to be Issued in such Agreed Alternate Currency. The Issuing Bank will promptly notify the Company and the Agent of the acceptance or rejection of any such request. The Issuing Bank shall be under no obligation to Issue any Letter of Credit denominated in an Offshore Currency if the Issuing -39- Bank has determined in its sole discretion that it cannot, for whatever reason, Issue such Letter of Credit in the requested Offshore Currency, in which event the Issuing Bank will give notice to the Company no later than 9:00 a.m. (San Francisco time) on the fourth Business Day prior to the requested date of such Issuance that the Issuance in the requested Offshore Currency is not then available. If the Issuing Bank shall have so notified the Company, the request for such Letter of Credit shall be deemed withdrawn. (b) The Agent will determine the Equivalent Amount with respect to any (i) Letter of Credit denominated in an Offshore Currency as of the Issuance Date and any date any drawing is made thereunder, (ii) drawing under any Letter of Credit denominated in an Offshore Currency as of the date any Base Rate Loan or L/C Borrowing is made to reimburse such drawing in accordance with Section 3.03(c) or (e), and (iii) outstanding L/C Obligations as of the last Offshore Business Day of each month (each such date under clauses (i) through (iii) a "Computation Date"). - ----------------- (c) The Company shall not be entitled to request that Revolving Loans hereunder also be permitted to be made in any currency other than Dollars. ARTICLE IV TAXES, YIELD PROTECTION AND ILLEGALITY -------------------------------------- 4.01 Taxes. ----- (a) Any and all payments by the Company to each Bank or the Agent under this Agreement and any other Loan Document shall be made free and clear of, and without deduction or withholding for, any Taxes. In addition, the Company shall pay all Other Taxes. (b) If the Company shall be required by law to deduct or withhold any Taxes, Other Taxes or Further Taxes from or in respect of any sum payable hereunder to any Bank or the Agent, then: (i) the sum payable shall be increased as necessary so that, after making all required deductions and withholdings (including deductions and withholdings applicable to additional sums payable under this Section), such Bank or the Agent, as the case may be, receives and retains an amount equal to the sum it would have received and retained had no such deductions or withholdings been made; (ii) the Company shall make such deductions and withholdings; (iii) the Company shall pay the full amount deducted or withheld to the relevant taxing authority or other authority in accordance with applicable law; and (iv) the Company shall also pay to each Bank or the Agent for the account of such Bank, at the time interest is paid, Further Taxes in the amount that the respective Bank specifies as necessary to preserve the after-tax yield the Bank -40- would have received if such Taxes, Other Taxes or Further Taxes had not been imposed. (c) The Company agrees to indemnify and hold harmless each Bank and the Agent for the full amount of i) Taxes, ii) Other Taxes, and iii) Further Taxes in the amount that the respective Bank specifies as necessary to preserve the after-tax yield the Bank would have received if such Taxes, Other Taxes or Further Taxes had not been imposed, and any liability (including penalties, interest, additions to tax and expenses) arising therefrom or with respect thereto, whether or not such Taxes, Other Taxes or Further Taxes were correctly or legally asserted. Payment under this indemnification shall be made within 30 days after the date the Bank or the Agent makes written demand therefor. (d) Within 30 days after the date of any payment by the Company of Taxes, Other Taxes or Further Taxes, the Company shall furnish to each Bank or the Agent the original or a certified copy of a receipt evidencing payment thereof, or other evidence of payment satisfactory to such Bank or the Agent. (e) If the Company is required to pay any amount to any Bank or the Agent pursuant to Section (b) or (c) of this Section, then such Bank shall use reasonable efforts (consistent with legal and regulatory restrictions) to change the jurisdiction of its Lending Office so as to eliminate any such additional payment by the Company which may thereafter accrue, if such change in the sole judgment of such Bank is not otherwise disadvantageous to such Bank. 4.02 Illegality. ---------- (a) If any Bank determines that the introduction of any Requirement of Law, or any change in any Requirement of Law, or in the interpretation or administration of any Requirement of Law, has made it unlawful, or that any central bank or other Governmental Authority has asserted that it is unlawful, for any Bank or its applicable Lending Office to make Offshore Rate Loans, then, on notice thereof by the Bank to the Company through the Agent, any obligation of that Bank to make Offshore Rate Loans shall be suspended until the Bank notifies the Agent and the Company that the circumstances giving rise to such determination no longer exist. (b) If a Bank determines that it is unlawful to maintain any Offshore Rate Loan, the Company shall, upon its receipt of notice of such fact and demand from such Bank (with a copy to the Agent), prepay in full such Offshore Rate Loans of that Bank then outstanding, together with interest accrued thereon and amounts required under Section 4.04, either on the last day of the Interest Period thereof, if the Bank may lawfully continue to maintain such Offshore Rate Loans to such day, or immediately, if the Bank may not lawfully continue to maintain such Offshore Rate Loan. If the Company is required to so prepay any Offshore Rate Loan, then concurrently with such prepayment, the Company shall borrow from the affected Bank, in the amount of such repayment, a Base Rate Loan. 4.03 Increased Costs and Reduction of Return. --------------------------------------- (a) If any Bank determines that, due to either (i) the -41- introduction of or any change (other than any change by way of imposition of or increase in reserve requirements included in the calculation of the Offshore Rate) in or in the interpretation of any law or regulation or (ii) the compliance by that Bank with any guideline or request from any central bank or other Governmental Authority (whether or not having the force of law), there shall be any increase in the cost to such Bank of agreeing to make or making, funding or maintaining any Offshore Rate Loans or participating in Letters of Credit, or, in the case of an Issuing Bank, any increase in the cost to the Issuing Bank of agreeing to issue, issuing or maintaining any Letter of Credit or of agreeing to make or making, funding or maintaining any unpaid drawing under any Letter of Credit, then the Company shall be liable for, and shall from time to time, upon demand (with a copy of such demand to be sent to the Agent), pay to the Agent for the account of such Bank, additional amounts as are sufficient to compensate such Bank for such increased costs. (b) If any Bank shall have determined that (i) the introduction of any Capital Adequacy Regulation, (ii) any change in any Capital Adequacy Regulation, (iii) any change in the interpretation or administration of any Capital Adequacy Regulation by any central bank or other Governmental Authority charged with the interpretation or administration thereof, or (iv) compliance by the Bank (or its Lending Office) or any corporation controlling the Bank with any Capital Adequacy Regulation, affects or would affect the amount of capital required or expected to be maintained by the Bank or any corporation controlling the Bank and (taking into consideration such Bank's or such corporation's policies with respect to capital adequacy and such Bank's desired return on capital) determines that the amount of such capital is increased as a consequence of its Commitment, loans, credits or obligations under this Agreement, then, upon demand of such Bank to the Company through the Agent, the Company shall pay to the Bank, from time to time as specified by the Bank, additional amounts sufficient to compensate the Bank for such increase. 4.04 Funding Losses. The Company shall reimburse each Bank and hold each -------------- Bank harmless from any loss or expense which the Bank may sustain or incur as a result of: (a) the failure of the Company to make on a timely basis any payment of principal of any Offshore Rate Loan; (b) the failure of the Company to borrow, continue or convert a Loan after the Company has given (or is deemed to have given) a Notice of Borrowing or a Notice of Conversion/ Continuation; (c) the failure of the Company to make any prepayment in accordance with any notice delivered under Section 2.06; (d) the prepayment or other payment of an Offshore Rate Loan on a day that is not the last day of the relevant Interest Period (including mandatory prepayments required pursuant to Section 2.07 and payments after acceleration thereof); or (e) the automatic conversion under Section 2.04 of any Offshore Rate Loan to a Base Rate Loan on a day that is not the last day of the relevant Interest Period; -42- including any such loss or expense arising from the liquidation or reemployment of funds obtained by it to maintain its Offshore Rate Loans or from fees payable to terminate the deposits from which such funds were obtained, but excluding any consequential or exemplary damages. For purposes of calculating amounts payable by the Company to the Banks under this Section and under Section 4.03(a), each Offshore Rate Loan made by a Bank (and each related reserve, special deposit or similar requirement) shall be conclusively deemed to have been funded at the LIBOR used in determining the Offshore Rate for such Offshore Rate Loan by a matching deposit or other borrowing in the interbank eurodollar market for a comparable amount and for a comparable period, whether or not such Offshore Rate Loan is in fact so funded. 4.05 Inability to Determine Rates. If any Bank determines that for any ---------------------------- reason adequate and reasonable means do not exist for determining the Offshore Rate for any requested Interest Period with respect to a proposed Offshore Rate Loan, or that the Offshore Rate applicable pursuant to Section 2.09(a) for any requested Interest Period with respect to a proposed Offshore Rate Loan does not adequately and fairly reflect the cost to such Bank of funding such Loan, the Agent will promptly so notify the Company and each Bank. Thereafter, the obligation of the Banks to make or maintain Offshore Rate Loans hereunder shall be suspended until the Agent revokes such notice in writing. Upon receipt of such notice, the Company may revoke any Notice of Borrowing or Notice of Conversion/Continuation then submitted by it. If the Company does not revoke such Notice, the Banks shall make, convert or continue the Loans, as proposed by the Company, in the amount specified in the applicable notice submitted by the Company, but such Loans shall be made, converted or continued as Base Rate Loans instead of Offshore Rate Loans. 4.06 Certificates of Banks. Any Bank claiming reimbursement or --------------------- compensation under this Article IV shall deliver to the Company (with a copy to the Agent) a certificate setting forth in reasonable detail the calculation of the amount payable to the Bank hereunder and such certificate shall be conclusive and binding on the Company in the absence of manifest error. 4.07 Substitution of Banks. If any Bank makes a claim for compensation --------------------- under Section 4.02 or 4.03 (an "Affected Bank"), the Company may: (a) request one more of the other Banks to acquire and assume all or part of such Affected Bank's Loans and Commitments, or (b) designate a new Bank acceptable to the Agent and the other Banks (except the Affected Bank) to acquire and assume all or part of such Affected Bank's Loans and Commitments. 4.08 Survival. The agreements and obligations of the Company in this -------- Article IV shall survive the payment of all other Obligations. -43- ARTICLE V CONDITIONS PRECEDENT -------------------- 5.01 Conditions of Initial Credit Extensions. The obligation of each Bank --------------------------------------- to make its initial Credit Extension hereunder is subject to the condition that the Agent shall have received on or before the date of the initial Credit Extension all of the following, in form and substance satisfactory to the Agent and each Bank, and in sufficient copies for each Bank: (a) Credit Agreement. This Agreement executed by each party thereto; ---------------- (b) Resolutions; Incumbency. ----------------------- (i) Copies of the resolutions of the board of directors of the Company authorizing the transactions contemplated hereby, certified as of the Closing Date by the Secretary or an Assistant Secretary of the Company; and (ii) A certificate of the Secretary or Assistant Secretary of the Company certifying the names and true signatures of the officers of the Company authorized to execute, deliver and perform, as applicable, this Agreement, and all other Loan Documents to be delivered by it hereunder; (c) Organization Documents; Good Standing. Each of the following ------------------------------------- documents: (i) the articles or certificate of incorporation and the bylaws of the Company and the Guarantors as in effect on the Closing Date, certified by the Secretary or Assistant Secretary of the Company and each Guarantor, as applicable, as of the Closing Date; and (ii) a good standing and tax good standing certificate for the Company and the Guarantors from the Secretary of State (or similar, applicable Governmental Authority) of its state of incorporation; provided, -------- however, that such certificates as they relate to Guarantors incorporated ------- in Delaware, New Jersey, Maryland and Massachusetts may be delivered within 45 days of the Closing Date (and the failure to deliver such certificates by such time shall constitute an immediate Event of Default hereunder). (d) Guaranty. The Guaranty executed by the Guarantors, together with -------- a copy of the resolution of the board of directors of the Guarantors authorizing the Guaranty, certified as of the Closing Date by the Secretary or an Assistant Secretary of the Guarantors and a certificate of the Secretary or Assistant Secretary of the Guarantors certifying the names and true signatures of the officers of the Guarantors authorized to execute the Guaranty; (e) Legal Opinion. One or more opinions of counsel to the Company and ------------- the Guarantors and addressed to the Agent and the Banks, substantially in the form of Exhibit D; provided, however, that such opinions as they relate to --------- -------- ------- Guarantors incorporated in -44- Delaware, New Jersey, Maryland and Massachusetts may be delivered within 45 days of the Closing Date (and the failure to deliver such opinions by such time shall constitute an immediate Event of Default hereunder). (f) Payment of Fees. Evidence of payment by the Company of all --------------- accrued and unpaid fees, costs and expenses to the extent then due and payable to Agent or any Bank, as the case may be, on the Closing Date, together with Attorney Costs of BofA to the extent invoiced prior to or on the Closing Date, plus such additional amounts of Attorney Costs as shall constitute BofA's reasonable estimate of Attorney Costs incurred or to be incurred by it through the closing proceedings (provided that such estimate shall not thereafter preclude final settling of accounts between the Company and BofA); including any such costs, fees and expenses arising under or referenced in Sections 2.10 and 11.04; (g) Payment of Existing Indebtedness. Payment by the Parent of (i) -------------------------------- all Indebtedness owing under the Existing Credit Agreement on the Closing Date, other than the Existing Offshore Rate Loans and the Existing Letters of Credit, and (ii) all Indebtedness owing to BofA on the Closing Date under a promissory note dated November 7, 1997, in the original principal amount of $5,000,000. (h) Officer's Certificate. A certificate signed by a Responsible --------------------- Officer of the Company, dated as of the Closing Date, certifying that: (i) the representations and warranties contained in Article VI are true and correct on and as of the Closing Date; and (ii) no Default or Event of Default exists or would result from the execution and delivery of this Agreement; (i) Compliance Certificate. A Compliance Certificate signed by a ---------------------- Responsible Officer of the Company and the Parent dated as of the Closing Date and based on the Parent's financial statements dated as of September 27, 1997, for the purpose of determining pricing hereunder; and (j) Other Documents. Such other approvals, opinions, documents or --------------- materials as the Agent or any Bank may request. 5.02 Conditions to All Credit Extensions. The obligation of each Bank to ----------------------------------- make any Revolving Loan to be made by it (including its initial Revolving Loan) or to continue or convert any Revolving Loan under Section 2.04, the obligation of the Issuing Bank to Issue any Letter of Credit (including the initial Letter of Credit), and the obligation of any Bank to participate in any Letter of Credit is subject to the satisfaction of the following conditions precedent on the relevant Borrowing Date, Conversion/Continuation Date or Issuance Date: (a) Notice, Application. The Agent shall have received (with, in the ------------------- case of the initial Revolving Loan only, a copy for each Bank) a Notice of Borrowing or a Notice of Conversion/Continuation, as applicable or in the case of any Issuance -45- of any Letter of Credit, the Issuing Bank and the Agent shall have received an L/C Application or L/C Amendment Application, as required under Section 3.02; (b) Continuation of Representations and Warranties. The ---------------------------------------------- representations and warranties in Article VI shall be true and correct on and as of such Borrowing Date or Conversion/Continuation Date or Issuance Date with the same effect as if made on and as of such Borrowing Date or Conversion/Continuation Date or Issuance Date (except to the extent such representations and warranties expressly refer to an earlier date, in which case they shall be true and correct as of such earlier date); and (c) No Existing Default. No Default or Event of Default shall exist ------------------- or shall result from such Borrowing or continuation or conversion or Issuance. Each Notice of Borrowing, Notice of Conversion/Continuation and L/C Application or L/C Amendment Application submitted by the Company hereunder shall constitute a representation and warranty by the Company hereunder, as of the date of each such notice and as of each Borrowing Date, Conversion/Continuation Date, or Issuance Date, as applicable, that the conditions in this Section 5.02 are satisfied. 5.03 Condition Subsequent. Within 45 days after the Closing Date, the -------------------- Company shall deliver to the Agent, in sufficient copies for each Bank, a revised Schedule 8.01 setting forth all Liens existing on property of the Parent ------------- and each Subsidiary as of the Closing Date and evidencing that, as of the Closing Date, there were no Liens existing on the accounts receivable or inventory of the Parent or any Subsidiary. The failure to deliver such revised Schedule 8.01 by such time shall constitute an immediate Event of Default hereunder. ARTICLE VI REPRESENTATIONS AND WARRANTIES ------------------------------ The Company represents and warrants to the Agent and each Bank that: 6.01 Corporate Existence and Power. The Company: ----------------------------- (a) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation; (b) has the power and authority and all governmental licenses, authorizations, consents and approvals to own its assets, carry on its business and to execute, deliver, and perform its obligations under the Loan Documents; (c) is duly qualified as a foreign corporation and is licensed and in good standing under the laws of each jurisdiction where its ownership, lease or operation of property or the conduct of its business requires such qualification or license; and (d) is in compliance with all Requirements of Law; except, in each case referred to in clause (c) or clause (d), to the extent that the failure to do so could not reasonably be expected to -46- have a Material Adverse Effect. 6.02 Corporate Authorization; No Contravention. The execution, delivery ----------------------------------------- and performance by the Company of this Agreement and each other Loan Document to which the Company is party, have been duly authorized by all necessary corporate action, and do not and will not: (a) contravene the terms of any of the Company's Organization Documents; (b) conflict with or result in any breach or contravention of, or the creation of any Lien under, any document evidencing any Contractual Obligation to which the Company is a party or any order, injunction, writ or decree of any Governmental Authority to which the Company or its property is subject; or (c) violate any Requirement of Law. 6.03 Governmental Authorization. No approval, consent, exemption, -------------------------- authorization, or other action by, or notice to, or filing with, any Governmental Authority is necessary or required in connection with the execution, delivery or performance by, or enforcement against, the Company or any of its Subsidiaries of the Agreement or any other Loan Document. 6.04 Binding Effect. This Agreement and each other Loan Document to which -------------- the Company is a party constitute the legal, valid and binding obligations of the Company, enforceable against the Company in accordance with their respective terms, except as enforceability may be limited by applicable bankruptcy, insolvency, or similar laws affecting the enforcement of creditors' rights generally or by equitable principles relating to enforceability. 6.05 Litigation. There are no actions, suits, proceedings, claims or ---------- disputes pending, or to the best knowledge of the Company, threatened or contemplated, at law, in equity, in arbitration or before any Governmental Authority, against the Company or any of its properties which: (a) purport to affect or pertain to this Agreement or any other Loan Document, or any of the transactions contemplated hereby or thereby; or (b) if determined adversely to the Company, would reasonably be expected to have a Material Adverse Effect. No injunction, writ, temporary restraining order or any order of any nature has been issued by any court or other Governmental Authority purporting to enjoin or restrain the execution, delivery or performance of this Agreement or any other Loan Document, or directing that the transactions provided for herein or therein not be consummated as herein or therein provided. 6.06 No Default. No Default or Event of Default exists or would result ---------- from the incurring of any Obligations by the Company. As of the Closing Date, neither the Company nor any Subsidiary is in default under or with respect to any Contractual Obligation in any respect which, individually or together with all such defaults, could -47- reasonably be expected to have a Material Adverse Effect, or that would, if such default had occurred after the Closing Date, create an Event of Default under Section 9.01(e). 6.07 ERISA Compliance. ---------------- (a) Each Plan is in compliance in all material respects with the applicable provisions of ERISA, the Code and other federal or state law. Each Plan which is intended to qualify under Section 401(a) of the Code has received a favorable determination letter from the IRS and to the best knowledge of the Company, nothing has occurred which would cause the loss of such qualification. The Company and each ERISA Affiliate has made all required contributions to any Plan subject to Section 412 of the Code, and no application for a funding waiver or an extension of any amortization period pursuant to Section 412 of the Code has been made with respect to any Plan. (b) There are no pending or, to the best knowledge of Company, threatened claims, actions or lawsuits, or action by any Governmental Authority, with respect to any Plan which has resulted or could reasonably be expected to result in a Material Adverse Effect. There has been no prohibited transaction or violation of the fiduciary responsibility rules with respect to any Plan which has resulted or could reasonably be expected to result in a Material Adverse Effect. (c) (i) No ERISA Event has occurred or is reasonably expected to occur; (ii) no Pension Plan has any Unfunded Pension Liability in excess of $3,000,000; (iii) neither the Company nor any ERISA Affiliate has incurred, or reasonably expects to incur, any liability under Title IV of ERISA with respect to any Pension Plan (other than premiums due and not delinquent under Section 4007 of ERISA); (iv) neither the Company nor any ERISA Affiliate has incurred, or reasonably expects to incur, any liability (and no event has occurred which, with the giving of notice under Section 4219 of ERISA, would result in such liability) under Section 4201 or 4243 of ERISA with respect to a Multiemployer Plan; and (v) neither the Company nor any ERISA Affiliate has engaged in a transaction that could be subject to Section 4069 or 4212(c) of ERISA. 6.08 Use of Proceeds; Margin Regulations. The proceeds of the Loans are to ----------------------------------- be used solely for the purposes set forth in and permitted by Section 7.12 and Section 8.07. The Company is not generally engaged in the business of purchasing or selling Margin Stock or extending credit for the purpose of purchasing or carrying Margin Stock. 6.09 Title to Properties. The Company has good record and marketable title ------------------- in fee simple to, or valid leasehold interests in, all real property necessary or used in the ordinary conduct of its business, except for such defects in title as could not, individually or in the aggregate, have a Material Adverse Effect. As of the Closing Date, the property of the Company is subject to no Liens, other than Permitted Liens. 6.10 Taxes. The Company has filed all Federal and other material tax ----- returns and reports required to be filed, and has paid -48- all Federal and other material taxes, assessments, fees and other governmental charges levied or imposed upon it or its properties, income or assets otherwise due and payable, except those which are being contested in good faith by appropriate proceedings and for which adequate reserves have been provided in accordance with GAAP. There is no proposed tax assessment against the Company that would, if made, have a Material Adverse Effect. 6.11 Environmental Matters. The Company conducts in the ordinary course of --------------------- business a review of the effect of existing Environmental Laws and existing Environmental Claims on its business, operations and properties, and as a result thereof the Company has reasonably concluded that such Environmental Laws and Environmental Claims could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. 6.12 Regulated Entities. Neither the Company nor any Person controlling ------------------ the Company is an "Investment Company" within the meaning of the Investment Company Act of 1940. The Company is not subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act, the Interstate Commerce Act, any state public utilities code, or any other Federal or state statute or regulation limiting its ability to incur Indebtedness. 6.13 No Burdensome Restrictions. The Company is not a party to or bound by -------------------------- any Contractual Obligation, or subject to any restriction in any Organization Document, or any Requirement of Law, which could reasonably be expected to have a Material Adverse Effect. 6.14 Copyrights, Patents, Trademarks and Licenses, etc. The Company owns -------------------------------------------------- or is licensed or otherwise has the right to use all of the patents, trademarks, service marks, trade names, copyrights, contractual franchises, authorizations and other rights that are reasonably necessary for the operation of its business, without conflict with the rights of any other Person. To the best knowledge of the Company, no slogan or other advertising device, product, process, method, substance, part or other material now employed, or now contemplated to be employed, by the Company infringes upon any rights held by any other Person. No claim or litigation regarding any of the foregoing is pending or threatened, and no patent, invention, device, application, principle or any statute, law, rule, regulation, standard or code is pending or, to the knowledge of the Company, proposed, which, in either case, could reasonably be expected to have a Material Adverse Effect. 6.15 Subsidiaries. The Company has no Subsidiaries and has no equity ------------ investments in any other corporation or entity. The Parent has no Subsidiaries and has no equity investments in any other corporation or entity other than the Subsidiaries listed on Schedule 6.15. ------------- 6.16 Insurance. The properties of the Company are insured with financially --------- sound and reputable insurance companies not Affiliates of the Company, in such amounts, with such deductibles and covering such risks as are customarily carried by companies engaged in similar businesses and owning similar properties in localities where the Company operates. -49- 6.17 Swap Obligations. The Company has not incurred any outstanding ---------------- obligations under any Swap Contracts, other than Permitted Swap Obligations. The Company has undertaken its own independent assessment of its consolidated assets, liabilities and commitments and has considered appropriate means of mitigating and managing risks associated with such matters and has not relied on any swap counterparty or any Affiliate of any swap counterparty in determining whether to enter into any Swap Contract. 6.18 Full Disclosure. None of the representations or warranties made by --------------- the Company in the Loan Documents as of the date such representations and warranties are made or deemed made, and none of the statements contained in any exhibit, report, statement or certificate furnished by or on behalf of the Company in connection with the Loan Documents (including the offering and disclosure materials delivered by or on behalf of the Company to the Banks prior to the Closing Date), contains any untrue statement of a material fact or omits any material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances under which they are made, not misleading as of the time when made or delivered. 6.19 Year 2000 Compliance. The Company has undertaken a detailed review -------------------- and assessment of all areas within its business and operations that could be adversely affected by the "Year 2000 Problem" (that is, the risk that computer ----------------- applications used by the Company may be unable to recognize and perform properly date-sensitive functions involving certain dates prior to and any date after December 31, 1999) and reasonably anticipates that all computer applications that are material to its business and operations will on a timely basis be able to perform properly date-sensitive functions for all dates before and after January 1, 2000. ARTICLE VII AFFIRMATIVE COVENANTS --------------------- So long as any Bank shall have any Commitment hereunder, or any Loan or other Obligation shall remain unpaid or unsatisfied, or any Letter of Credit shall remain outstanding, unless the Majority Banks (and all Banks in the case of Section 7.13) waive compliance in writing: 7.01 Financial Statements. The Company and the Parent, as applicable, -------------------- shall deliver to the Agent and each Bank, in form and detail satisfactory to the Agent and the Majority Banks: (a) as soon as available, but not later than 90 days after the end of each fiscal year, a copy of the audited consolidated balance sheet of the Parent and its Subsidiaries as at the end of such year and the related consolidated statement of income or operations, shareholders' equity and cash flows for such year, setting forth in each case in comparative form the figures for the previous fiscal year, and accompanied by the opinion of Deloitte & Touche LLP or another nationally-recognized independent public accounting firm ("Independent ----------- Auditor") which report shall state that such consolidated financial statements - ------- present fairly the financial position for the periods indicated in conformity with GAAP applied on -50- a basis consistent with prior years; (b) as soon as available, but not later than 45 days after the end of each of the first three fiscal quarters of each fiscal year, a copy of the unaudited consolidated balance sheet of the Parent and its Subsidiaries as of the end of such quarter and the related consolidated statement of income, shareholders' equity and cash flows for the period commencing on the first day and ending on the last day of such quarter, certified by a Responsible Officer of the Company and the Parent as fairly presenting, in accordance with GAAP (subject to ordinary, good faith year-end audit adjustments), the financial position and the results of operations of the Parent and the Subsidiaries; (c) as soon as available, but not later than 90 days after the end of each fiscal year, a copy of the unaudited consolidating schedules for the Subsidiaries which, in the aggregate, hold 90% of the assets and generate 90% of the cash flow of the Parent and its Subsidiaries, and including, at a minimum, the consolidating schedules for West Marine Products, Inc., E&B Marine Inc., and the Company; and (d) as soon as available, but not later than 30 days after the end of each fiscal year, the Parent's projected consolidated balance sheet, income statement, and cash flow statement for the next fiscal year. Such projections shall be prepared on a monthly basis. 7.02 Certificates; Other Information. The Company and the Parent, as ------------------------------- applicable, shall furnish to the Agent and each Bank: (a) concurrently with the delivery of the financial statements referred to in Sections 7.01(a) and (b), a Compliance Certificate executed by a Responsible Officer of the Company and the Parent; (b) concurrently with the delivery of the financial statements referred to in Sections 7.01(a) and (b), store operating data of the Parent and its Subsidiaries on a year-to-date basis in form and substance satisfactory to the Agent and the Banks; (c) promptly, copies of all financial statements and reports that the Parent sends to its shareholders, and, within five days of filing, copies of all financial statements and regular, periodical or special reports (including Forms 10K, 10Q and 8K) that the Parent or any Subsidiary may make to, or file with, the SEC; (d) promptly, any notification from Moody's or S&P regarding the establishment of, or any change in, the rating for the Parent or the Parent's long term senior unsecured debt; (e) promptly upon receipt, copies of any and all final management letters received by the Parent or any Subsidiary from the Independent Auditor; and (f) promptly, such additional information regarding the business, financial or corporate affairs of the Company, the Parent, or any Subsidiary as the Agent, at the request of any Bank, may from -51- time to time request. 7.03 Notices. The Company and the Parent, as applicable, shall promptly ------- notify the Agent and each Bank: (a) of the occurrence of any Default or Event of Default, and of the occurrence or existence of any event or circumstance that foreseeably will become a Default or Event of Default; (b) of any matter that has resulted or could reasonably be expected to result in a Material Adverse Effect, including (i) breach or non-performance of, or any default under, a Contractual Obligation of the Company, the Parent, or any Subsidiary; (ii) any dispute, litigation, investigation, proceeding or suspension between the Company, the Parent, or any Subsidiary and any Governmental Authority; or (iii) the commencement of, or any material development in, any litigation or proceeding affecting the Company, the Parent, or any Subsidiary; including pursuant to any applicable Environmental Laws; (c) of the occurrence of any of the following events affecting the Company, the Parent, or any ERISA Affiliate (but in no event more than 10 days after such event), and deliver to the Agent and each Bank a copy of any notice with respect to such event that is filed with a Governmental Authority and any notice delivered by a Governmental Authority to the Company, the Parent, or any ERISA Affiliate with respect to such event: (i) an ERISA Event; (ii) a material increase in the Unfunded Pension Liability of any Pension Plan; (iii) the adoption of, or the commencement of contributions to, any Plan subject to Section 412 of the Code by the Company, the Parent, or any ERISA Affiliate; or (iv) the adoption of any amendment to a Plan subject to Section 412 of the Code, if such amendment results in a material increase in contributions or Unfunded Pension Liability. (d) of any material change in accounting policies or financial reporting practices by the Parent or any of its consolidated Subsidiaries. Each notice under this Section shall be accompanied by a written statement by a Responsible Officer setting forth details of the occurrence referred to therein, and stating what action the Company, the Parent, or any affected Subsidiary proposes to take with respect thereto and at what time. Each notice under Section 7.03(a) shall describe with particularity any and all clauses or provisions of this Agreement or other Loan Document that have been (or foreseeably will be) breached or violated. 7.04 Preservation of Corporate Existence, Etc. The Company and the Parent ----------------------------------------- shall, and the Parent shall cause each Subsidiary to: -52- (a) preserve and maintain in full force and effect its corporate existence and good standing under the laws of its state or jurisdiction of incorporation; (b) preserve and maintain in full force and effect all governmental rights, privileges, qualifications, permits, licenses and franchises necessary or desirable in the normal conduct of its business except in connection with transactions permitted by Section 8.03 and sales of assets permitted by Section 8.02; (c) use reasonable efforts, in the ordinary course of business, to preserve its business organization and goodwill; and (d) preserve or renew all of its registered patents, trademarks, trade names and service marks, the non-preservation of which could reasonably be expected to have a Material Adverse Effect. 7.05 Maintenance of Property. The Company and the Parent shall maintain, ----------------------- and the Parent shall cause each Subsidiary to maintain, and preserve all its property which is used or useful in its business in good working order and condition, ordinary wear and tear excepted and make all necessary repairs thereto and renewals and replacements thereof except where the failure to do so could not reasonably be expected to have a Material Adverse Effect. The Company, the Parent, and each Subsidiary shall use the standard of care typical in the industry in the operation and maintenance of its facilities. 7.06 Insurance. The Company and the Parent shall maintain, and the Parent --------- shall cause each Subsidiary to maintain, with financially sound and reputable independent insurers, insurance with respect to its properties and business against loss or damage of the kinds customarily insured against by Persons engaged in the same or similar business, of such types and in such amounts as are customarily carried under similar circumstances by such other Persons. 7.07 Payment of Obligations. The Company and the Parent shall, and the ---------------------- Parent shall cause each Subsidiary to, pay and discharge as the same shall become due and payable, all their respective obligations and liabilities, including: (a) all tax liabilities, assessments and governmental charges or levies upon it or its properties or assets, unless the same are being contested in good faith by appropriate proceedings and adequate reserves in accordance with GAAP are being maintained by the Company or such Subsidiary; (b) all lawful claims which, if unpaid, would by law become a Lien upon its property (other than Permitted Liens), unless the same are being contested in good faith by appropriate proceedings and adequate reserves in accordance with GAAP are being maintained by the Company or such Subsidiary; and (c) all Indebtedness, as and when due and payable, but subject to any subordination provisions contained in any instrument or agreement evidencing such Indebtedness. 7.08 Compliance with Laws. The Company and the Parent shall comply, and -------------------- the Parent shall cause each Subsidiary to comply, in all -53- material respects with all Requirements of Law of any Governmental Authority having jurisdiction over it or its business (including the Federal Fair Labor Standards Act) to the extent that failure to comply would have a Material Adverse Effect, except such as may be contested in good faith or as to which a bona fide dispute may exist. 7.09 Compliance with ERISA. The Company and the Parent shall, and shall --------------------- cause each ERISA Affiliate to: (a) maintain each Plan in compliance in all material respects with the applicable provisions of ERISA, the Code and other federal or state law; (b) cause each Plan which is qualified under Section 401(a) of the Code to maintain such qualification; and (c) make all required contributions to any Plan subject to Section 412 of the Code. 7.10 Inspection of Property and Books and Records. The Company and the -------------------------------------------- Parent shall maintain, and the Parent shall cause each Subsidiary which maintains books and records to maintain, proper books of record and account, in which full, true and correct entries in conformity with GAAP consistently applied shall be made of all financial transactions and matters involving the assets and business of the Company, the Parent, and such Subsidiary. The Company and the Parent shall permit, and the Parent shall cause each Subsidiary to permit, representatives and independent contractors of the Agent or any Bank to visit and inspect any of their respective properties, to examine their respective corporate, financial and operating records, and make copies thereof or abstracts therefrom, and to discuss their respective affairs, finances and accounts with their respective officers, and independent public accountants, all at such reasonable times during normal business hours and as often as may be reasonably desired, upon reasonable advance notice to the Company or the Parent, as applicable; provided, however, that the Agent or any Bank may inspect and -------- ------- examine the books and records of the Company, the Parent, and each Subsidiary not more than once every 12 months, unless an Event of Default exists, in which case the Agent and any Bank may do any of the foregoing any number of times at the expense of the Company. 7.11 Environmental Laws. The Company and the Parent shall, and the Parent ------------------ shall cause each Subsidiary to, conduct its operations and keep and maintain its property in compliance with all Environmental Laws to the extent that failure to comply would have a Material Adverse Effect. 7.12 Use of Proceeds. The Company shall use the proceeds of the Loans to --------------- provide financing to the Guarantors for working capital purposes, refinancing of existing funded debt, Acquisitions, Joint Ventures, and other general corporate purposes not in contravention of any Requirement of Law or of any Loan Document. The Company shall not use the proceeds of the Loans to provide financing to any Person which is not a Guarantor. 7.13 Financial Covenants. The Parent shall, on a consolidated basis: ------------------- (a) not permit the ratio of Adjusted Debt to Total Capitalization to exceed the ratio indicated below as of the end of each fiscal quarter set forth below: -54-
Fiscal Quarters Ratio --------------- ------ 3rd Qtr 1997 - 1st Qtr 1999 .65 to 1.0 2nd Qtr 1999 - 1st Qtr 2000 .60 to 1.0 2nd Qtr 2000 and thereafter .55 to 1.0
"Adjusted Debt" means, without duplication, all Indebtedness permitted under ------------- subsections (f), (g), (i), (j), (k), and (m) of Section 8.05 outstanding as of the date of calculation, all Loans outstanding hereunder as of the date of calculation, a multiple of six times the sum of Adjusted Operating Lease Expense incurred in the most recently concluded fiscal quarter and each of the three immediately preceding fiscal quarters, the undrawn amount of all standby letters of credit issued for the benefit of the Company, the Parent and its Subsidiaries and outstanding as of the date of calculation, and the amount of all outstanding guaranties as of the date of calculation (excluding guaranties of the Parent or any of its Subsidiaries of the obligations of any Subsidiary or the Parent under operating leases). "Adjusted Operating Lease Expense" means total operating lease expense exclusive -------------------------------- of the following: (i) all common area maintenance payments required under store leases, (ii) all supplemental payments required under store leases based on a percentage of sales generated from the leased premises, (iii) all payments under operating leases with an original term of three years or less, and (iv) all sublease revenue. "Total Capitalization" means the gross book value of the assets of the Parent -------------------- and its Subsidiaries, less all liabilities (including accrued and deferred income taxes), plus Adjusted Debt. (b) achieve a Fixed Charge Coverage Ratio of at least the ratio indicated below as of the end of each fiscal quarter set forth below:
Fiscal Quarters Ratio --------------- ------ 3rd Qtr 1997 - 4th Qtr 1998 1.9 to 1.0 1st Qtr 1999 and thereafter 2.0 to 1.0
This ratio shall be calculated quarterly using the results of the most recently concluded fiscal quarter and each of the three immediately preceding fiscal quarters. "Fixed Charge Coverage Ratio" means the ratio obtained by dividing Cash Flow for --------------------------- Debt Service by the sum of Net Interest Expense and operating lease expense (net of all sublease revenue). "Cash Flow for Debt Service" means the sum of net income before taxes, Net -------------------------- Interest Expense, operating lease expense (net of all sublease revenue), depreciation, amortization, other non-cash extraordinary charges, and losses on asset sales, minus gains on asset sales. ----- -55- (c) maintain current assets in excess of current liabilities by at least the amount indicated as of the end of each fiscal quarter set forth below:
Fiscal Quarter Amount - -------------- ------ 3rd Qtr 1997 - 4th Qtr 1997 $45,000,000 1st Qtr 1998 $70,000,000 2nd Qtr 1998 - 1st Qtr 1999 $85,000,000 2nd Qtr 1999 and thereafter $90,000,000
For purposes of the foregoing calculation, all Loans outstanding under this Agreement and all Indebtedness under any other line of credit obtained by the Company with a termination date which is the same as, or later than, the Revolving Termination Date shall be deemed to be a current liability. (d) maintain Tangible Net Worth at least equal to the sum of the following: (i) 80% of Tangible Net Worth as of June 28, 1997; plus (ii) the sum of 75% of net income after taxes (without subtracting losses) earned in each fiscal quarter commencing after June 28, 1997; plus (iii) the net proceeds from any equity securities issued after the date of this Agreement. "Tangible Net Worth" means the gross book value of the assets of the Parent ------------------ (exclusive of goodwill, patents, trademarks, trade names, organization expense, treasury stock, unamortized debt discount and expense, deferred charges and other like intangibles) less (a) reserves applicable thereto, and (b) all liabilities (including accrued and deferred income taxes). 7.14 New Guarantors. Upon any Person becoming a direct or indirect -------------- domestic Subsidiary of the Parent, the Parent shall cause such Person to become a Guarantor by executing and delivering to the Agent an amendment or supplement to the Guaranty in the form of Exhibit B thereto adding such Person as a guarantor thereunder, executed by all Guarantors party thereto. In connection therewith, the Company shall deliver, or cause to be delivered, documents of the type described in Section 5.01(b) and (c) relating to such Person. ARTICLE VIII NEGATIVE COVENANTS ------------------ So long as any Bank shall have any Commitment hereunder, or any Loan or other Obligation shall remain unpaid or unsatisfied, or any Letter of Credit shall remain outstanding, unless the Majority Banks waive compliance in writing: 8.01 Limitation on Liens. The Company and the Parent shall not, and the ------------------- Parent shall not suffer or permit any Subsidiary to, directly or indirectly, make, create, incur, assume or suffer to exist any Lien upon or with respect to any part of its property, whether now owned or hereafter acquired, other than the following -56- ("Permitted Liens"): --------------- (a) any Lien existing on property of the Parent or any Subsidiary set forth in Schedule 8.01 securing Indebtedness outstanding on the date of such ------------- Schedule; (b) any Lien created under any Loan Document; (c) Liens for taxes, fees, assessments or other governmental charges which are not delinquent or remain payable without penalty, or to the extent that non-payment thereof is permitted by Section 7.07, provided that no notice of lien has been filed or recorded under the Code; (d) carriers', warehousemen's, mechanics', landlords', materialmen's, repairmen's or other similar Liens arising in the ordinary course of business which are not delinquent or remain payable without penalty or which are being contested in good faith and by appropriate proceedings, which proceedings have the effect of preventing the forfeiture or sale of the property subject thereto; (e) Liens (other than any Lien imposed by ERISA) consisting of pledges or deposits required in the ordinary course of business in connection with workers' compensation, unemployment insurance and other social security legislation; (f) Liens on the property of the Parent or its Subsidiaries securing (i) the non-delinquent performance of bids, trade contracts (other than for borrowed money), leases, statutory obligations, (ii) contingent obligations on surety and appeal bonds, and (iii) other non-delinquent obligations of a like nature; in each case, incurred in the ordinary course of business, provided all such Liens in the aggregate would not (even if enforced) cause a Material Adverse Effect; (g) Liens consisting of judgment or judicial attachment liens, provided that the enforcement of such Liens is effectively stayed and all such liens in the aggregate at any time outstanding for the Parent and its Subsidiaries do not exceed $10,000,000; (h) easements, rights-of-way, restrictions and other similar encumbrances incurred in the ordinary course of business which, in the aggregate, are not substantial in amount, and which do not in any case materially detract from the value of the property subject thereto or interfere with the ordinary conduct of the businesses of the Parent and its Subsidiaries; (i) Liens on assets of corporations which become Subsidiaries after the date of this Agreement, provided that (i) such Liens existed at the time the -------- respective corporations became Subsidiaries and were not created in anticipation thereof, and (ii) any such Liens attach only to assets other than accounts receivable or inventory; (j) purchase money security interests on any property acquired or held by the Parent or its Subsidiaries in the ordinary course of business, securing Indebtedness incurred or assumed for the purpose of financing all or any part of the cost of acquiring such -57- property; provided that (i) any such Lien attaches to such property -------- concurrently with or within 20 days after the acquisition thereof, (ii) such Lien attaches solely to the property so acquired in such transaction, and (iii) the principal amount of the debt secured thereby does not exceed 100% of the cost of such property; (k) Liens securing obligations in respect of capital leases on assets subject to such leases, provided that such capital leases are otherwise permitted hereunder; (l) Liens arising solely by virtue of any statutory or common law provision relating to banker's liens, rights of set-off or similar rights and remedies as to deposit accounts or other funds maintained with a creditor depository institution; provided that (i) such deposit account is not a -------- dedicated cash collateral account and is not subject to restrictions against access by the Parent or any Subsidiary in excess of those set forth by regulations promulgated by the FRB, and (ii) such deposit account is not intended by the Parent or any Subsidiary to provide collateral to the depository institution; (m) Liens consisting of pledges of cash collateral or government securities to secure on a mark-to-market basis Permitted Swap Obligations only, provided that (i) the counterparty to any Swap Contract relating to such Permitted Swap Obligation is under a similar requirement to deliver similar collateral from time to time to the Parent or the Subsidiary party thereto on a mark-to-market basis; and (ii) the aggregate value of such collateral so pledged by the Parent and the Subsidiaries together in favor of any counterparty does not at any time exceed $1,000,000; (n) Liens securing Indebtedness payable to the seller in connection with permitted Acquisitions after the date of this Agreement, provided that any -------- such Liens attach only to assets (other than accounts receivable or inventory) acquired in such Acquisition; and (o) Liens arising from security deposits and prepaid obligations in connection with operating leases. 8.02 Disposition of Assets. The Company and the Parent shall not, and the --------------------- Parent shall not suffer or permit any Subsidiary to, directly or indirectly, sell, assign, lease, convey, transfer or otherwise dispose of (whether in one or a series of transactions) any property (including accounts and notes receivable, with or without recourse) or enter into any agreement to do any of the foregoing, except: (a) dispositions of inventory, or used, worn-out or surplus equipment, all in the ordinary course of business; (b) the sale of equipment to the extent that such equipment is exchanged for credit against the purchase price of similar replacement equipment, or the proceeds of such sale are reasonably promptly applied to the purchase price of such replacement equipment; (c) dispositions of inventory, equipment, trademarks, -58- accounts receivable, operating space leases, and other assets by the Parent or any Subsidiary to the Parent or any Subsidiary (provided such Subsidiary is also a Guarantor) pursuant to reasonable business requirements; (d) dispositions of assets acquired in a permitted Acquisition which are made for fair market value; provided, that (i) the aggregate sales price -------- from such disposition shall be paid in cash or pursuant to a note receivable with a maturity date not exceeding one year, and (ii) the disposition shall occur within one year from the date of the permitted Acquisition (it being understood that the term of any leases or subleases of such assets, and any renewals of such leases or subleases, may be for a period longer than one year so long as such leases or subleases were originally entered into within one year from the date of the permitted Acquisition); (e) dispositions (including in connection with a sale-leaseback) not otherwise permitted hereunder which are made for fair market value; provided, -------- that (i) at the time of any disposition, no Event of Default shall exist or shall result from such disposition, (ii) the aggregate sales price from such disposition shall be paid in cash or pursuant to a note receivable with a maturity date not exceeding one year, and (iii) the aggregate value of all assets so sold by the Parent and its Subsidiaries, together, pursuant to this Section 8.02(e) shall not exceed in any fiscal year $5,000,000; and (f) assignments of accounts receivable for collection purposes, but not for financing, provided that the aggregate amount of all such accounts -------- receivable assigned at any one time does not exceed $1,000,000. 8.03 Consolidations and Mergers. The Company and the Parent shall not, and -------------------------- the Parent shall not suffer or permit any Subsidiary to, merge, consolidate with or into, or convey, transfer, lease or otherwise dispose of (whether in one transaction or in a series of transactions) all or substantially all of its assets (whether now owned or hereafter acquired) to or in favor of any Person, except: (a) any Subsidiary may merge with the Parent, provided that the Parent shall be the continuing or surviving corporation, or with any one or more Subsidiaries, provided that the continuing or surviving corporation shall also -------- be a Guarantor, and further provided that if any transaction shall be between a ---------------- Subsidiary and a Wholly-Owned Subsidiary, the Wholly-Owned Subsidiary shall be the continuing or surviving corporation; and (b) any Subsidiary may sell all or substantially all of its assets (upon voluntary liquidation or otherwise), to the Parent or another Wholly-Owned Subsidiary, provided that such Wholly-Owned Subsidiary is also a Guarantor. -------- 8.04 Loans, Investments and Acquisitions. The Company and the Parent shall ----------------------------------- not purchase or acquire, and the Parent shall not suffer or permit any Subsidiary to purchase or acquire, or make any commitment therefor, any capital stock, equity interest, or any obligations or other securities of, or any interest in, any Person, or make or commit to make any Acquisitions, or make or commit to make any advance, loan, extension of credit or capital contribution to or -59- any other investment in, any Person including any Affiliate of the Company (together, "Investments"), except for: ----------- (a) Investments held by the Parent or any Subsidiary in the form of cash equivalents or short term marketable securities; (b) extensions of credit in the nature of accounts receivable or notes receivable arising from the sale or lease of goods or services in the ordinary course of business; provided that no such extensions of credit shall be made by -------- the Company to any Person which is not a Guarantor; (c) extensions of credit by the Parent to any Subsidiary or by any Subsidiary to any other Subsidiary or to the Parent, provided that no such -------- extensions of credit shall be made by the Company to any Person which is not a Guarantor; (d) Investments incurred in order to consummate Acquisitions otherwise permitted herein, provided that (i) the aggregate consideration paid for each -------- such Acquisition, including assumption of existing obligations but excluding consideration in the form of capital stock of the Parent, and less cash received as a result of the Acquisition, (A) does not exceed $10,000,000 with respect to any single Acquisition, and (B) when added to the aggregate consideration paid for all prior Acquisitions undertaken by the Parent and its Subsidiaries after the Closing Date, does not exceed $25,000,000, (ii) such Acquisitions are undertaken in accordance with all applicable Requirements of Law; (iii) the prior, effective written consent or approval to such Acquisition of the board of directors or equivalent governing body of the acquiree is obtained; (iv) the acquiree is in a line of business related to or substantially similar to the lines of business carried on by the Parent and its Subsidiaries on the date hereof; (v) such Acquisition will not cause the Parent, on a projected basis, to violate any of the financial covenants set forth in this Agreement; and (vi) such Acquisition is not made by the Company; (e) Investments in Subsidiaries operating substantially in the Parent's line of business (or businesses supportive thereof) outside the United States in an aggregate amount not exceeding the amount indicated below in each fiscal year set forth below, provided that no such investments shall be made by -------- the Company:
Fiscal Year Amount - ----------- ------ 1998 $ 8,000,000 1999 $10,000,000 2000 $15,000,000
(f) Investments constituting Permitted Swap Obligations or payments or advances under Swap Contracts relating to Permitted Swap Obligations; and (g) extensions of credit by the Parent or any Subsidiary to its executives, officers, directors or shareholders, provided that the aggregate -------- outstanding amount of such extensions of credit does not exceed $1,000,000 at any one time. -60- 8.05 Limitation on Indebtedness. The Company and the Parent shall not, and -------------------------- the Parent shall not suffer or permit any Subsidiary to, create, incur, assume, suffer to exist, or otherwise become or remain directly or indirectly liable with respect to, any Indebtedness, except: (a) Indebtedness incurred pursuant to this Agreement; (b) Indebtedness consisting of Contingent Obligations permitted pursuant to Section 8.08; (c) Indebtedness existing on the Closing Date and set forth in Schedule 8.05, including any refinancing of such existing Indebtedness on terms - ------------- substantially similar to the terms in effect as of the Closing Date; (d) Indebtedness incurred in connection with the acquisition of goods, supplies or merchandise on normal trade credit; (e) Indebtedness secured by Liens permitted by Section 8.01(m); (f) Indebtedness assumed in connection with permitted Acquisitions after the date of this Agreement and which is unsecured or secured by Liens permitted by Section 8.01(i), including any refinancing of such Indebtedness on terms substantially similar to the terms in effect as of the date of the Acquisition; provided that (i) such Indebtedness existed at the time of such -------- Acquisition and was not created in anticipation thereof, and (ii) the aggregate outstanding amount of such Indebtedness does not exceed $10,000,000 at any one time; (g) unsecured Indebtedness for business purposes, provided that the -------- aggregate outstanding amount of such Indebtedness does not exceed $5,000,000 at any one time; (h) Indebtedness incurred in connection with financing the acquisition of fixed or capital assets by the Parent and its Subsidiaries, including all such Indebtedness secured by Liens permitted by Section 8.01(j), and further including any refinancing of such Indebtedness on terms substantially similar to the terms in effect as of the date of the Indebtedness was initially incurred, provided that the aggregate outstanding amount of such Indebtedness does not - -------- exceed $15,000,000 at any one time; (i) Indebtedness incurred in connection with capital leases; (j) unsecured Indebtedness incurred in connection with permitted Acquisitions after the date of this Agreement which is represented by a note payable to the seller, including any refinancing of such Indebtedness on terms substantially similar to the terms in effect as of the date of the Acquisition; provided that (i) such Indebtedness is not subject to terms, covenants and - -------- conditions more restrictive than those contained in this Agreement and (ii) the aggregate outstanding amount of such Indebtedness does not exceed $10,000,000 at any one time; -61- (k) Indebtedness incurred in connection with permitted Acquisitions after the date of this Agreement which is represented by a note payable to the seller and secured by Liens permitted by Section 8.01(n), including any refinancing of such Indebtedness on terms substantially similar to the terms in effect as of the date of the Acquisition; provided that (i) such Indebtedness is -------- not subject to terms, covenants and conditions more restrictive than those contained in this Agreement, and (ii) the aggregate outstanding amount of such Indebtedness does not exceed $10,000,000 at any one time; (l) Indebtedness permitted under Section 8.04(c); (m) Indebtedness incurred pursuant to a private placement of the Company's debt obligations, provided that (i) such Indebtedness is subject to -------- terms, covenants, and conditions which are reasonably acceptable to the Banks, and (ii) the aggregate outstanding principal amount of all such Indebtedness does not exceed $40,000,000 at any one time; provided that, without duplication, (1) the aggregate outstanding amount of all - -------- additional Indebtedness permitted under subsections (f), (g), (h), (i), (j), and (k) above does not exceed $25,000,000 at any one time, and (2) the aggregate outstanding amount of all additional Indebtedness permitted under subsections (f), (j), and (k) above does not exceed $10,000,000 at any one time. 8.06 Transactions with Non-Guarantor Subsidiaries. The Company and the -------------------------------------------- Parent shall not, and the Parent shall not suffer or permit any Subsidiary to, enter into any transaction with any other Subsidiary which is not a Guarantor except upon fair and reasonable terms no less favorable than would obtain in a comparable arm's-length transaction with a Person not a Subsidiary. 8.07 Use of Proceeds. The Company shall not use any portion of the Loan --------------- proceeds or any Letter of Credit, directly or indirectly, (i) to purchase or carry Margin Stock, (ii) to repay or otherwise refinance indebtedness of the Company or others incurred to purchase or carry Margin Stock, (iii) to extend credit for the purpose of purchasing or carrying any Margin Stock, (iv) to acquire any security in any transaction that is subject to Section 13 or 14 of the Exchange Act, or (v) to purchase, redeem or otherwise acquire from the Parent's shareholders any of the Parent's outstanding capital stock. 8.08 Contingent Obligations. The Company and the Parent shall not, and the ---------------------- Parent shall not suffer or permit any Subsidiary to, create, incur, assume or suffer to exist any Contingent Obligations except: (a) endorsements for collection or deposit in the ordinary course of business; (b) Permitted Swap Obligations; (c) Contingent Obligations of the Parent and its Subsidiaries existing as of the Closing Date and listed in Schedule 8.08; ------------- -62- (d) Contingent Obligations with respect to Surety Instruments or leases incurred in the ordinary course of business; and (e) guaranties by the Parent or any of its Subsidiaries of the obligations of any Subsidiary or the Parent under space leases for stores or capitalized or equipment leases. 8.09 Joint Ventures. The Company and the Parent shall not, and the Parent -------------- shall not suffer or permit any Subsidiary to, enter into any Joint Venture, except for marketing agreements and other joint ventures where the financial risk to, and capital contributions by, the Parent and its Subsidiaries are less than $3,000,000 in the aggregate. 8.10 [Intentionally Omitted] 8.11 Restricted Payments. The Company and the Parent shall not, and the ------------------- Parent shall not suffer or permit any Subsidiary to, declare or make any dividend payment or other distribution of assets, properties, cash, rights, obligations or securities on account of any shares of any class of its capital stock, or purchase, redeem or otherwise acquire for value any shares of its capital stock or any warrants, rights or options to acquire such shares, now or hereafter outstanding; except that: (a) the Parent or any Subsidiary may declare and make dividend payments or other distributions payable solely in its common or preferred stock; (b) the Parent or any Subsidiary may purchase, redeem or otherwise acquire shares of its common stock or warrants or options to acquire any such shares with the proceeds received from the substantially concurrent issue of new shares of its common stock; (c) any Wholly-Owned Subsidiary may declare and make dividend payments to any other Wholly-Owned Subsidiary; and (d) the Parent may cause its Subsidiaries to dividend money to the Parent to enable the Parent to make payments not otherwise prohibited hereunder. 8.12 ERISA. The Company and the Parent shall not, and the Parent shall not ----- suffer or permit any of its ERISA Affiliates to: (a) engage in a prohibited transaction or violation of the fiduciary responsibility rules with respect to any Plan which has resulted or could reasonably be expected to result in liability of the Parent in an aggregate amount in excess of $1,000,000; or (b) engage in a transaction that could be subject to Section 4069 or 4212(c) of ERISA. 8.13 Change in Business. The Company and the Parent shall not, and the ------------------ Parent shall not suffer or permit any Subsidiary to, engage in any material line of business substantially different from those lines of business carried on by the Parent and its Subsidiaries on the date hereof. -63- 8.14 Accounting Changes. The Company and the Parent shall not, and the ------------------ Parent shall not suffer or permit any Subsidiary to, make any significant change in accounting treatment or reporting practices, except as permitted by GAAP, or change the fiscal year of the Parent or of any Subsidiary. 8.15 Capital Expenditures. The Company and the Parent shall not, and the -------------------- Parent shall not suffer or permit any Subsidiary to, make expenditures for the acquisition of fixed or capital assets in excess of the amount indicated below (on an aggregate basis for the Company and its Subsidiaries) for each fiscal year set forth below: -64-
Fiscal Year Amount ----------- ------ 1997 $27,500,000 1998 $30,000,000 1999 $35,000,000 2000 (1st and 2nd Qtr) $18,000,000
ARTICLE IX EVENTS OF DEFAULT ----------------- 9.01 Event of Default. Any of the following shall constitute an "Event of ---------------- -------- Default": - ------- (a) Non-Payment. The Company fails to pay, (i) when and as required ----------- to be paid herein, any amount of principal of any Loan or of any L/C Obligation, or (ii) within five days after the same becomes due, any interest, fee or any other amount payable hereunder or under any other Loan Document; or (b) Representation or Warranty. Any representation or warranty by the -------------------------- Company, the Parent, or any Subsidiary made or deemed made herein, in any other Loan Document, or which is contained in any certificate, document or financial or other statement by the Company, the Parent, any Subsidiary, or any Responsible Officer, furnished at any time under this Agreement, or in or under any other Loan Document, is incorrect in any material respect on or as of the date made or deemed made; or (c) Specific Defaults. The Company or the Parent fails to perform or ----------------- observe any term, covenant or agreement contained in any of Section 7.03 or 7.13 or in Article VIII; or (d) Other Defaults. The Company or the Parent (i) fails to deliver to -------------- Agent and Banks the financial statements and other information required under Sections 7.01 and 7.02 within 15 days after same are required to be delivered, or (ii) fails to perform or observe any other term or covenant contained in this Agreement or any other Loan Document, and such default shall continue unremedied for a period of 30 days after the earlier of (A) the date upon which a Responsible Officer knew or reasonably should have known of such failure or (B) the date upon which written notice thereof is given to the Company by the Agent or any Bank; or (e) Cross-Default. (i) The Company, the Parent, or any Subsidiary ------------- fails to make any payment when due (whether by scheduled maturity, required prepayment, acceleration, demand, or otherwise) in respect of any Indebtedness (other than the Indebtedness described in Section 9.01(a)) or any Contingent Obligation if the aggregate outstanding principal amount of such Indebtedness or Contingent Obligation is owed to any Bank or exceeds $5,000,000 and such failure continues after the applicable grace or notice period, if any, specified in the relevant document on the date of such failure; or (ii) fails to perform or observe any other condition or covenant, or any other event shall occur or condition exist, under any agreement or instrument relating to any Indebtedness or Contingent Obligation owing to any Bank or exceeding $5,000,000, and such failure continues -65- after the applicable grace or notice period, if any, specified in the relevant document on the date of such failure if the effect of such failure, event or condition is to cause, or to permit the holder or holders of such Indebtedness or beneficiary or beneficiaries of such Indebtedness (or a trustee or agent on behalf of such holder or holders or beneficiary or beneficiaries) to cause such Indebtedness to be declared to be due and payable prior to its stated maturity, or such Contingent Obligation to become payable or cash collateral in respect thereof to be demanded; or (f) Insolvency; Voluntary Proceedings. The Company, the Parent, or --------------------------------- any Subsidiary (i) ceases or fails to be solvent, or generally fails to pay, or admits in writing its inability to pay, its debts as they become due, subject to applicable grace periods, if any, whether at stated maturity or otherwise; (ii) voluntarily ceases to conduct its business in the ordinary course; (iii) commences any Insolvency Proceeding with respect to itself; or (iv) takes any action to effectuate or authorize any of the foregoing; or (g) Involuntary Proceedings. (i) Any involuntary Insolvency ----------------------- Proceeding is commenced or filed against the Company, the Parent, or any Subsidiary, or any writ, judgment, warrant of attachment, execution or similar process, is issued or levied against a substantial part of the Company's or the Parent's or any Subsidiary's properties, and any such proceeding or petition shall not be dismissed, or such writ, judgment, warrant of attachment, execution or similar process shall not be released, vacated or fully bonded within 60 days after commencement, filing or levy; (ii) the Company or the Parent or any Subsidiary admits the material allegations of a petition against it in any Insolvency Proceeding, or an order for relief (or similar order under non-U.S. law) is ordered in any Insolvency Proceeding; or (iii) the Company or the Parent or any Subsidiary acquiesces in the appointment of a receiver, trustee, custodian, conservator, liquidator, mortgagee in possession (or agent therefor), or other similar Person for itself or a substantial portion of its property or business; or (h) ERISA. (i) An ERISA Event shall occur with respect to a Pension ----- Plan or Multiemployer Plan which has resulted or could reasonably be expected to result in liability of the Company or the Parent under Title IV of ERISA to the Pension Plan, Multiemployer Plan or the PBGC in an aggregate amount in excess of $5,000,000; or (ii) the aggregate amount of Unfunded Pension Liability among all Pension Plans at any time exceeds $5,000,000; or (i) Monetary Judgments. One or more non-interlocutory judgments, non- ------------------ interlocutory orders, decrees or arbitration awards is entered against the Company or the Parent or any Subsidiary involving in the aggregate a liability (to the extent not covered by independent third-party insurance as to which the insurer does not dispute coverage) as to any single or related series of transactions, incidents or conditions, of $5,000,000 or more, and the same shall remain unsatisfied, unvacated and unstayed pending appeal for a period of 10 days after the entry thereof; or (j) Non-Monetary Judgments. Any non-monetary judgment, order or ---------------------- decree is entered against the Company or the Parent or any Subsidiary which does or would reasonably be expected to have a -66- Material Adverse Effect, and there shall be any period of 10 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or (k) Adverse Change. There occurs a Material Adverse Effect; or -------------- (l) Change of Control. The Parent ceases to own directly or ----------------- indirectly 100% of the outstanding capital stock of the Company or any Guarantor; or (m) Guarantor Defaults. Any Guarantor fails in any material respect ------------------ to perform or observe any term, covenant or agreement in the Guaranty; or the Guaranty is for any reason partially (including with respect to future advances) or wholly revoked or invalidated, or otherwise ceases to be in full force and effect, or any Guarantor or any other Person contests in any manner the validity or enforceability thereof or denies that it has any further liability or obligation thereunder; or any event described at Sections (f) or (g) of this Section occurs with respect to the Guarantor. 9.02 Remedies. If any Event of Default occurs, the Agent shall, at the -------- request of, or may, with the consent of, the Majority Banks, (a) declare the commitment of each Bank to make Loans and any obligation of each Issuing Bank to Issue Letters of Credit to be terminated, whereupon such commitments and obligation shall be terminated; (b) declare an amount equal to the maximum aggregate amount that is or at any time thereafter may become available for drawing under any outstanding Letters of Credit (whether or not any beneficiary shall have presented, or shall be entitled at such time to present, the drafts or other documents required to draw under such Letters of Credit) to be immediately due and payable, and declare the unpaid principal amount of all outstanding Loans, all interest accrued and unpaid thereon, and all other amounts owing or payable hereunder or under any other Loan Document to be immediately due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by the Company; and (c) exercise on behalf of itself and the Banks all rights and remedies available to it and the Banks under the Loan Documents or applicable law; provided, however, that upon the occurrence of any event specified in Section - -------- ------- (f) or (g) of Section 9.01 (in the case of clause (i) of Section (g) upon the expiration of the 60-day period mentioned therein), the obligation of each Bank to make Loans and any obligation of the Issuing Bank to Issue Letters of Credit shall automatically terminate and the unpaid principal amount of all outstanding Loans and all interest and other amounts as aforesaid shall automatically become due and payable without further act of the Agent, the Issuing Bank or any Bank. -67- 9.03 Rights Not Exclusive. The rights provided for in this Agreement and -------------------- the other Loan Documents are cumulative and are not exclusive of any other rights, powers, privileges or remedies provided by law or in equity, or under any other instrument, document or agreement now existing or hereafter arising. ARTICLE X THE AGENT --------- 10.01 Appointment and Authorization; "Agent". -------------------------------------- (a) Each Bank hereby irrevocably (subject to Section 10.09) appoints, designates and authorizes the Agent to take such action on its behalf under the provisions of this Agreement and each other Loan Document and to exercise such powers and perform such duties as are expressly delegated to it by the terms of this Agreement or any other Loan Document, together with such powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary contained elsewhere in this Agreement or in any other Loan Document, the Agent shall not have any duties or responsibilities, except those expressly set forth herein, nor shall the Agent have or be deemed to have any fiduciary relationship with any Bank, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against the Agent. Without limiting the generality of the foregoing sentence, the use of the term "agent" in this Agreement with reference to the Agent is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any applicable law. Instead, such term is used merely as a matter of market custom, and is intended to create or reflect only an administrative relationship between independent contracting parties. (b) Each Issuing Bank shall act on behalf of the Banks with respect to any Letters of Credit Issued by it and the documents associated therewith until such time and except for so long as the Agent may agree at the request of the Majority Lenders to act for such Issuing Bank with respect thereto; provided, -------- however, that the Issuing Bank shall have all of the benefits and immunities (i) - ------- provided to the Agent in this Article X with respect to any acts taken or omissions suffered by the Issuing Bank in connection with Letters of Credit Issued by it or proposed to be Issued by it and the application and agreements for letters of credit pertaining to the Letters of Credit as fully as if the term "Agent", as used in this Article X, included the Issuing Bank with respect to such acts or omissions, and (ii) as additionally provided in this Agreement with respect to the Issuing Bank. 10.02 Delegation of Duties. The Agent may execute any of its duties under -------------------- this Agreement or any other Loan Document by or through agents, employees or attorneys-in-fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Agent shall not be responsible for the negligence or misconduct of any agent or attorney-in-fact that it selects with reasonable care. -68- 10.03 Liability of Agent. None of the Agent-Related Persons shall (i) be ------------------ liable for any action taken or omitted to be taken by any of them under or in connection with this Agreement or any other Loan Document or the transactions contemplated hereby (except for its own gross negligence or willful misconduct), or (ii) be responsible in any manner to any of the Banks for any recital, statement, representation or warranty made by the Company or any Subsidiary or Affiliate of the Company, or any officer thereof, contained in this Agreement or in any other Loan Document, or in any certificate, report, statement or other document referred to or provided for in, or received by the Agent under or in connection with, this Agreement or any other Loan Document, or the validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document, or for any failure of the Company or any other party to any Loan Document to perform its obligations hereunder or thereunder. No Agent- Related Person shall be under any obligation to any Bank to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document, or to inspect the properties, books or records of the Company or any of the Company's Subsidiaries or Affiliates. 10.04 Reliance by Agent. (a) The Agent shall be entitled to rely, and ----------------- shall be fully protected in relying, upon any writing, resolution, notice, consent, certificate, affidavit, letter, telegram, facsimile, telex or telephone message, statement or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons, and upon advice and statements of legal counsel (including counsel to the Company), independent accountants and other experts selected by the Agent. The Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document unless it shall first receive such advice or concurrence of the Majority Banks as it deems appropriate and, if it so requests, it shall first be indemnified to its satisfaction by the Banks against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement or any other Loan Document in accordance with a request or consent of the Majority Banks (or with the unanimous consent of all Banks when required under Section 11.01) and such request and any action taken or failure to act pursuant thereto shall be binding upon all of the Banks. (b) For purposes of determining compliance with the conditions specified in Section 5.01, each Bank that has executed this Agreement shall be deemed to have consented to, approved or accepted or to be satisfied with, each document or other matter either sent by the Agent to such Bank for consent, approval, acceptance or satisfaction, or required thereunder to be consented to or approved by or acceptable or satisfactory to the Bank. 10.05 Notice of Default. The Agent shall not be deemed to have knowledge ----------------- or notice of the occurrence of any Default or Event of Default, except with respect to defaults in the payment of principal, interest and fees required to be paid to the Agent for the account of the Banks, unless the Agent shall have received written notice from a Bank or the Company referring to this Agreement, describing such -69- Default or Event of Default and stating that such notice is a "notice of default". The Agent will notify the Banks of its receipt of any such notice. The Agent shall take such action with respect to such Default or Event of Default as may be requested by the Majority Banks in accordance with Article IX; provided, -------- however, that unless and until the Agent has received any such request, the - ------- Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem advisable or in the best interest of the Banks. 10.06 Credit Decision. Each Bank acknowledges that none of the Agent- --------------- Related Persons has made any representation or warranty to it, and that no act by the Agent hereinafter taken, including any review of the affairs of the Company and its Subsidiaries, shall be deemed to constitute any representation or warranty by any Agent-Related Person to any Bank. Each Bank represents to the Agent that it has, independently and without reliance upon any Agent-Related Person and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, prospects, operations, property, financial and other condition and creditworthiness of the Company and its Subsidiaries, and all applicable bank regulatory laws relating to the transactions contemplated hereby, and made its own decision to enter into this Agreement and to extend credit to the Company hereunder. Each Bank also represents that it will, independently and without reliance upon any Agent- Related Person and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigations as it deems necessary to inform itself as to the business, prospects, operations, property, financial and other condition and creditworthiness of the Company. Except for notices, reports and other documents expressly herein required to be furnished to the Banks by the Agent, the Agent shall not have any duty or responsibility to provide any Bank with any credit or other information concerning the business, prospects, operations, property, financial and other condition or creditworthiness of the Company which may come into the possession of any of the Agent-Related Persons. 10.07 Indemnification of Agent. Whether or not the transactions ------------------------ contemplated hereby are consummated, the Banks shall indemnify upon demand the Agent-Related Persons (to the extent not reimbursed by or on behalf of the Company and without limiting the obligation of the Company to do so), pro rata, from and against any and all Indemnified Liabilities; provided, however, that no -------- ------- Bank shall be liable for the payment to the Agent-Related Persons of any portion of such Indemnified Liabilities resulting solely from such Person's gross negligence or willful misconduct. Without limitation of the foregoing, each Bank shall reimburse the Agent upon demand for its ratable share of any costs or out-of-pocket expenses (including Attorney Costs) incurred by the Agent in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement, any other Loan Document, or any document contemplated by or referred to herein, to the extent that the Agent is not reimbursed for such expenses by or on behalf of -70- the Company. The undertaking in this Section shall survive the payment of all Obligations hereunder and the resignation or replacement of the Agent. 10.08 Agent in Individual Capacity. BofA and its Affiliates may make ---------------------------- loans to, issue letters of credit for the account of, accept deposits from, acquire equity interests in and generally engage in any kind of banking, trust, financial advisory, underwriting or other business with the Company and its Subsidiaries and Affiliates as though BofA were not the Agent or the Issuing Bank hereunder and without notice to or consent of the Banks. The Banks acknowledge that, pursuant to such activities, BofA or its Affiliates may receive information regarding the Company or its Affiliates (including information that may be subject to confidentiality obligations in favor of the Company or such Subsidiary) and acknowledge that the Agent shall be under no obligation to provide such information to them. With respect to its Loans, BofA shall have the same rights and powers under this Agreement as any other Bank and may exercise the same as though it were not the Agent or the Issuing Bank. 10.09 Successor Agent. The Agent may, and at the request of the Majority --------------- Banks shall, resign as Agent upon 30 days' notice to the Banks. If the Agent resigns under this Agreement, the Majority Banks shall appoint from among the Banks a successor agent for the Banks, which successor agent shall be subject to approval by the Company. If no successor agent is appointed prior to the effective date of the resignation of the Agent, the Agent may appoint, after consulting with the Banks and the Company, a successor agent from among the Banks. Upon the acceptance of its appointment as successor agent hereunder, such successor agent shall succeed to all the rights, powers and duties of the retiring Agent and the term "Agent" shall mean such successor agent and the retiring Agent's appointment, powers and duties as Agent shall be terminated. After any retiring Agent's resignation hereunder as Agent, the provisions of this Article X and Sections 11.04 and 11.05 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. If no successor agent has accepted appointment as Agent by the date which is 30 days following a retiring Agent's notice of resignation, the retiring Agent's resignation shall nevertheless thereupon become effective and the Banks shall perform all of the duties of the Agent hereunder until such time, if any, as the Majority Banks appoint a successor agent as provided for above. 10.10 Withholding Tax. --------------- (a) If any Bank is a "foreign corporation, partnership or trust" within the meaning of the Code and such Bank claims exemption from, or a reduction of, U.S. withholding tax under Sections 1441 or 1442 of the Code, such Bank agrees with and in favor of the Agent, to deliver to the Agent: (i) if such Bank claims an exemption from, or a reduction of, withholding tax under a United States tax treaty, two properly completed and executed copies of IRS Form 1001 before the payment of any interest in the first calendar year and before the payment of any interest in each third succeeding calendar year during which interest may be paid under this Agreement; -71- (ii) if such Bank claims that interest paid under this Agreement is exempt from United States withholding tax because it is effectively connected with a United States trade or business of such Bank, two properly completed and executed copies of IRS Form 4224 before the payment of any interest is due in the first taxable year of such Bank and in each succeeding taxable year of such Bank during which interest may be paid under this Agreement; and (iii) such other form or forms as may be required under the Code or other laws of the United States as a condition to exemption from, or reduction of, United States withholding tax. Such Bank agrees to promptly notify the Agent of any change in circumstances which would modify or render invalid any claimed exemption or reduction. (b) If any Bank claims exemption from, or reduction of, withholding tax under a United States tax treaty by providing IRS Form 1001 and such Bank sells, assigns, grants a participation in, or otherwise transfers all or part of the Obligations of the Company to such Bank, such Bank agrees to notify the Agent of the percentage amount in which it is no longer the beneficial owner of Obligations of the Company to such Bank. To the extent of such percentage amount, the Agent will treat such Bank's IRS Form 1001 as no longer valid. (c) If any Bank claiming exemption from United States withholding tax by filing IRS Form 4224 with the Agent sells, assigns, grants a participation in, or otherwise transfers all or part of the Obligations of the Company to such Bank, such Bank agrees to undertake sole responsibility for complying with the withholding tax requirements imposed by Sections 1441 and 1442 of the Code. (d) If any Bank is entitled to a reduction in the applicable withholding tax, the Agent may withhold from any interest payment to such Bank an amount equivalent to the applicable withholding tax after taking into account such reduction. However, if the forms or other documentation required by Section (a) of this Section are not delivered to the Agent, then the Agent may withhold from any interest payment to such Bank not providing such forms or other documentation an amount equivalent to the applicable withholding tax imposed by Sections 1441 and 1442 of the Code, without reduction. (e) If the IRS or any other Governmental Authority of the United States or other jurisdiction asserts a claim that the Agent did not properly withhold tax from amounts paid to or for the account of any Bank (because the appropriate form was not delivered or was not properly executed, or because such Bank failed to notify the Agent of a change in circumstances which rendered the exemption from, or reduction of, withholding tax ineffective, or for any other reason) such Bank shall indemnify the Agent fully for all amounts paid, directly or indirectly, by the Agent as tax or otherwise, including penalties and interest, and including any taxes imposed by any jurisdiction on the amounts payable to the Agent under this -72- Section, together with all costs and expenses (including Attorney Costs). The obligation of the Banks under this Section shall survive the payment of all Obligations and the resignation or replacement of the Agent. ARTICLE XI MISCELLANEOUS ------------- 11.01 Amendments and Waivers. No amendment or waiver of any provision of ---------------------- this Agreement or any other Loan Document, and no consent with respect to any departure by the Company therefrom, shall be effective unless the same shall be in writing and signed by the Majority Banks (or by the Agent at the written request of the Majority Banks) and the Company and acknowledged by the Agent, and then any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that -------- ------- no such waiver, amendment, or consent shall, unless in writing and signed by all the Banks and the Company and acknowledged by the Agent, do any of the following: (a) increase or extend the Commitment of any Bank (or reinstate any Commitment terminated pursuant to Section 9.02); (b) postpone or delay any date fixed by this Agreement or any other Loan Document for any payment of principal, interest, fees or other amounts due to the Banks (or any of them) hereunder or under any other Loan Document; (c) reduce the principal of, or the rate of interest specified herein on any Loan, or (subject to clause (iii) below) any fees or other amounts payable hereunder or under any other Loan Document; (d) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Loans which is required for the Banks or any of them to take any action hereunder; or (e) release any Guarantor; (f) amend this Section, or Section 2.14, or any provision herein providing for consent or other action by all Banks; (g) amend or waive Section 7.13; and, provided further, that (i) no amendment, waiver or consent shall, unless in -------- ------- writing and signed by all Issuing Banks in addition to the Majority Banks or all the Banks, as the case may be, affect the rights or duties of the Issuing Banks under this Agreement or any L/C-Related Document relating to any Letter of Credit Issued or to be Issued by any Issuing Bank, (ii) no amendment, waiver or consent shall, unless in writing and signed by the Agent in addition to the Majority Banks or all the Banks, as the case may be, affect the rights or duties of the Agent under this Agreement or any other Loan Document, and (iii) the Fee Letter may be amended, or rights or privileges thereunder waived, in a writing executed by the parties thereto. -73- 11.02 Notices. ------- (a) All notices, requests, consents, approvals, waivers and other communications shall be in writing (including, unless the context expressly otherwise provides, by facsimile transmission, provided that any matter transmitted by the Company by facsimile (i) shall be immediately confirmed by a telephone call to the recipient at the number specified on Schedule 11.02, and -------------- (ii) shall be followed promptly by delivery of a hard copy original thereof) and mailed, faxed or delivered, to the address or facsimile number specified for notices on Schedule 11.02; or, as directed to the Company or the Agent, to such -------------- other address as shall be designated by such party in a written notice to the other parties, and as directed to any other party, at such other address as shall be designated by such party in a written notice to the Company and the Agent. (b) All such notices, requests and communications shall, when transmitted by overnight delivery, or faxed, be effective when delivered for overnight (next-day) delivery, or transmitted in legible form by facsimile machine, respectively, or if mailed, upon the third Business Day after the date deposited into the U.S. mail, or if delivered, upon delivery; except that notices pursuant to Article II, III or X to the Agent shall not be effective until actually received by the Agent, and notices pursuant to Article III to the Issuing Bank shall not be effective until actually received by the Issuing Bank at the address specified for the "Issuing Bank" on the applicable signature page hereof. (c) Any agreement of the Agent and the Banks herein to receive certain notices by telephone or facsimile is solely for the convenience and at the request of the Company. The Agent and the Banks shall be entitled to rely on the authority of any Person purporting to be a Person authorized by the Company to give such notice and the Agent and the Banks shall not have any liability to the Company or other Person on account of any action taken or not taken by the Agent or the Banks in reliance upon such telephonic or facsimile notice. The obligation of the Company to repay the Loans and L/C Obligations shall not be affected in any way or to any extent by any failure by the Agent and the Banks to receive written confirmation of any telephonic or facsimile notice or the receipt by the Agent and the Banks of a confirmation which is at variance with the terms understood by the Agent and the Banks to be contained in the telephonic or facsimile notice. 11.03 No Waiver; Cumulative Remedies. No failure to exercise and no delay ------------------------------ in exercising, on the part of any party hereto, any right, remedy, power or privilege hereunder, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. 11.04 Costs and Expenses. The Company shall: ------------------ (a) whether or not the transactions contemplated hereby are consummated, pay or reimburse BofA (including in its capacity as Agent and Issuing Bank) within 30 Business Days after demand (subject -74- to Section 5.01(e)) for all costs and expenses incurred by BofA (including in its capacity as Agent and Issuing Bank) in connection with the development, preparation, delivery and execution of, and any amendment, supplement, waiver or modification to (in each case, whether or not consummated), this Agreement, any Loan Document and any other documents prepared in connection herewith or therewith, and the consummation of the transactions contemplated hereby and thereby, including reasonable Attorney Costs incurred by BofA (including in its capacity as Agent and Issuing Bank) with respect thereto; provided, however, -------- ------- that the maximum amount the Company will be required to pay or reimburse BofA in connection with the preparation of this Agreement and the related Loan Documents shall be limited to $25,000; and (b) pay or reimburse the Agent and each Bank within five Business Days after demand (subject to Section 5.01(e)) for all costs and expenses (including Attorney Costs) incurred by them in connection with the enforcement, or preservation of any rights or remedies under this Agreement or any other Loan Document during the existence of an Event of Default or after acceleration of the Loans (including in connection with any "workout" or restructuring regarding the Loans, and including in any Insolvency Proceeding or appellate proceeding). 11.05 Company Indemnification. Whether or not the transactions ----------------------- contemplated hereby are consummated, the Company shall indemnify, defend and hold the Agent-Related Persons, and each Bank and each of its respective officers, directors, employees, counsel, agents and attorneys-in-fact (each, an "Indemnified Person") harmless from and against any and all liabilities, ------------------ obligations, losses, damages, penalties, actions, judgments, suits, costs, charges, expenses and disbursements (including Attorney Costs) of any kind or nature whatsoever which may at any time (including at any time following repayment of the Loans, the termination of the Letters of Credit and the termination, resignation or replacement of the Agent or replacement of any Bank) be imposed on, incurred by or asserted against any such Person in any way relating to or arising out of this Agreement or any document contemplated by or referred to herein, or the transactions contemplated hereby, or any action taken or omitted by any such Person under or in connection with any of the foregoing, including with respect to any investigation, litigation or proceeding (including any Insolvency Proceeding or appellate proceeding) related to or arising out of this Agreement or the Loans or Letters of Credit or the use of the proceeds thereof, whether or not any Indemnified Person is a party thereto (all the foregoing, collectively, the "Indemnified Liabilities"); provided, that the ----------------------- -------- Company shall have no obligation hereunder to any Indemnified Person with respect to Indemnified Liabilities resulting solely from the gross negligence or willful misconduct of such Indemnified Person. The agreements in this Section shall survive payment of all other Obligations. 11.06 Payments Set Aside. To the extent that the Company makes a payment ------------------ to the Agent or the Banks, or the Agent or the Banks exercise their right of set-off, and such payment or the proceeds of such set-off or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside or required (including pursuant to any settlement entered into by the Agent or such Bank in its discretion) to be repaid to a trustee, receiver or -75- any other party, in connection with any Insolvency Proceeding or otherwise, then (a) to the extent of such recovery the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such set-off had not occurred, and (b) each Bank severally agrees to pay to the Agent upon demand its Pro Rata Share of any amount so recovered from or repaid by the Agent. 11.07 Successors and Assigns. The provisions of this Agreement shall be ---------------------- binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that the Company may not assign or transfer any of its rights or obligations under this Agreement without the prior written consent of the Agent and each Bank. 11.08 Assignments, Participations, etc. --------------------------------- (a) Any Bank may, with the written consent of the Company at all times other than during the existence of an Event of Default and the Agent and the Issuing Bank, which consents shall not be unreasonably withheld, at any time assign and delegate to one or more Eligible Assignees (provided that no written consent of the Company, the Agent or the Issuing Bank shall be required in connection with any assignment and delegation by a Bank to an Eligible Assignee that is an Affiliate of such Bank) (each an "Assignee") all, or any ratable part -------- of all, of the Loans, the Commitments, the L/C Obligations and the other rights and obligations of such Bank hereunder, in a minimum amount of $10,000,000; provided, however, that the Company and the Agent may continue to deal solely - -------- ------- and directly with such Bank in connection with the interest so assigned to an Assignee until (i) written notice of such assignment, together with payment instructions, addresses and related information with respect to the Assignee, shall have been given to the Company and the Agent by such Bank and the Assignee; (ii) such Bank and its Assignee shall have delivered to the Company and the Agent an Assignment and Acceptance in the form of Exhibit E ("Assignment --------- ---------- and Acceptance") and (iii) the assignor Bank or Assignee has paid to the Agent a - -------------- processing fee in the amount of $3,500. (b) From and after the date that the Agent notifies the assignor Bank that it has received (and provided its consent with respect to) an executed Assignment and Acceptance and payment of the above-referenced processing fee, (i) the Assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, shall have the rights and obligations of a Bank under the Loan Documents, and (ii) the assignor Bank shall, to the extent that rights and obligations hereunder and under the other Loan Documents have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights and be released from its obligations under the Loan Documents. (c) Immediately upon each Assignee's making its processing fee payment under the Assignment and Acceptance, this Agreement shall be deemed to be amended to the extent, but only to the extent, necessary to reflect the addition of the Assignee and the resulting adjustment of the Commitments arising therefrom. The Commitment allocated to each Assignee shall reduce such Commitments -76- of the assigning Bank pro tanto. --- ----- (d) Any Bank may at any time sell to one or more commercial banks or other Persons not Affiliates of the Company (a "Participant") participating ----------- interests in any Loans, the Commitment of that Bank and the other interests of that Bank (the "originating Bank") hereunder and under the other Loan Documents; provided, however, that (i) the originating Bank's obligations under this - -------- ------- Agreement shall remain unchanged, (ii) the originating Bank shall remain solely responsible for the performance of such obligations, (iii) the Company, the Issuing Bank and the Agent shall continue to deal solely and directly with the originating Bank in connection with the originating Bank's rights and obligations under this Agreement and the other Loan Documents, and (iv) no Bank shall transfer or grant any participating interest under which the Participant has rights to approve any amendment to, or any consent or waiver with respect to, this Agreement or any other Loan Document, except to the extent such amendment, consent or waiver would require unanimous consent of the Banks as described in the first proviso to Section 11.01. In the case of any such ------- participation, the Participant shall not have any rights under this Agreement, or any of the other Loan Documents, and all amounts payable by the Company hereunder shall be determined as if such Bank had not sold such participation; except that, if amounts outstanding under this Agreement are due and unpaid, or shall have been declared or shall have become due and payable upon the occurrence of an Event of Default, each Participant shall be deemed to have the right of set-off in respect of its participating interest in amounts owing under this Agreement to the same extent as if the amount of its participating interest were owing directly to it as a Bank under this Agreement. (e) Notwithstanding any other provision in this Agreement, any Bank may at any time create a security interest in, or pledge, all or any portion of its rights under and interest in this Agreement in favor of any Federal Reserve Bank in accordance with Regulation A of the FRB or U.S. Treasury Regulation 31 CFR (S)203.14, and such Federal Reserve Bank may enforce such pledge or security interest in any manner permitted under applicable law. 11.09 Reallocation of Commitments in Event of Merger, Etc. If after the ---------------------------------------------------- Closing Date any Bank merges or consolidates with or into one or more other Banks, the surviving entity of such merger or consolidation (the "Surviving --------- Bank") shall at the request of the Company, if no Default or Event of Default - ---- then exists, assign all or a portion of its Resulting Increased Commitment (as defined below) to one or more entities selected by the Company that are Eligible Assignees (each an "Acquiring Entity"); provided that (i) each Acquiring Entity ---------------- shall unconditionally offer in writing (with a copy to the Agent) to purchase a portion of such Surviving Bank's Resulting Increased Commitment and the portion of the Revolving Loans and L/C Borrowings owing to such Surviving Bank and the Surviving Bank's obligation to participate in Letters of Credit allocable to the Resulting Increased Commitment to be acquired; (ii) the portion of the Resulting Increased Commitment of the Surviving Bank acquired by each Acquiring Entity shall be in integral multiples of $1,000,000; (iii) the purchase price to be paid by the Acquiring Entity shall be the outstanding principal amount of the Revolving Loans and L/C Borrowings owing to such Surviving Bank on the date of -77- purchase (plus interest and fees accrued thereon) that are allocable to the amount of the Resulting Increased Commitment being acquired; and (iv) each Acquiring Entity, if it is not already a Bank, shall be reasonably acceptable to the Agent. Each Assignment hereunder shall be accomplished in accordance with clauses (i), (ii) and (iii) of Section 11.08(a), and to the extent of any such assignment, the Surviving Bank shall be relieved of its obligations hereunder with respect to its assigned Commitment. The amounts owed by the Company to the Surviving Bank under the Agreement that are allocable to the amount of the Resulting Increased Commitment being acquired pursuant to this Section 11.09 shall be the product of (a) all amounts owed by the Company to the Surviving Bank hereunder on the date of acquisition (including the outstanding principal amount of the Revolving Loans and L/C Borrowings owed to the Surviving Bank and interest and fees accrued thereon), and (b) a fraction having as it numerator the amount of the Resulting Increased Commitment being acquired and having as its denominator the total amount of the Surviving Bank's Commitment without giving effect to such acquisition. For the purposes of this Section 11.09, "Resulting Increased Commitment" shall mean (a) the total combined Commitment ------------------------------ of the Surviving Bank immediately following a merger or consolidation contemplated by this Section 11.09, minus (b) the amount of the largest Commitment (immediately prior to such merger or consolidation) of any Bank that was a party to such merger or consolidation. 11.10 Confidentiality. Each Bank agrees to take and to cause its --------------- Affiliates to take normal and reasonable precautions and exercise due care to maintain the confidentiality of all information identified as "confidential" or "secret" by the Company and provided to it by the Company or any Subsidiary, or by the Agent on the Company's or such Subsidiary's behalf, under this Agreement or any other Loan Document, and neither it nor any of its Affiliates shall use any such information other than in connection with or in enforcement of this Agreement and the other Loan Documents or in connection with other business now or hereafter existing or contemplated with the Company or any Subsidiary; except to the extent such information (i) was or becomes generally available to the public other than as a result of disclosure by the Bank, or (ii) was or becomes available on a non-confidential basis from a source other than the Company, provided that such source is not bound by a confidentiality agreement with the Company known to the Bank; provided, however, that any Bank may disclose such -------- ------- information (A) at the request or pursuant to any requirement of any Governmental Authority to which the Bank is subject or in connection with an examination of such Bank by any such authority; (B) pursuant to subpoena or other court process (and the affected Bank or Agent shall use reasonable efforts to notify the Company thereof, provided that the failure to provide such notice shall not subject the affected Person to liability to the Company or prevent the affected Person from complying with therewith); (C) when required to do so in accordance with the provisions of any applicable Requirement of Law; (D) to the extent reasonably required in connection with any litigation or proceeding to which the Agent, any Bank or their respective Affiliates may be party; (E) to the extent reasonably required in connection with the exercise of any remedy hereunder or under any other Loan Document; (F) to such Bank's independent auditors and other professional advisors; (G) to any Participant or -78- Assignee, actual or potential, provided that such Person agrees in writing to keep such information confidential to the same extent required of the Banks hereunder; (H) as to any Bank or its Affiliate, as expressly permitted under the terms of any other document or agreement regarding confidentiality to which the Company or any Subsidiary is party or is deemed party with such Bank or such Affiliate; and (I) to its Affiliates. 11.11 Set-off. In addition to any rights and remedies of the Banks ------- provided by law, if an Event of Default exists, each Bank is authorized at any time and from time to time, without prior notice to the Company, any such notice being waived by the Company to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held by, and other indebtedness at any time owing by, such Bank to or for the credit or the account of the Company against any and all Obligations owing to such Bank, now or hereafter existing, irrespective of whether or not the Agent or such Bank shall have made demand under this Agreement or any Loan Document and although such Obligations may be contingent or unmatured. Each Bank agrees promptly to notify the Company and the Agent after any such set-off and application made by such Bank; provided, however, that the failure to give such notice shall not -------- ------- affect the validity of such set-off and application. 11.12 Automatic Debits of Fees. With respect to any interest, commitment ------------------------ fee, letter of credit fee or agency fee due and payable to the Agent, any Issuing Bank or BofA under the Loan Documents, the Company hereby authorizes BofA to debit any deposit account of the Company with BofA in an amount such that the aggregate amount debited from all such deposit accounts does not exceed such fee or other cost or expense with notice, if agreed to by such Person in accordance with its procedures. If there are insufficient funds in such deposit accounts to cover the amount of the fee or other cost or expense then due, such debits will be reversed (in whole or in part, in BofA's sole discretion) and such amount not debited shall be deemed to be unpaid. No such debit under this Section shall be deemed a setoff. 11.13 Notification of Addresses, Lending Offices, Etc. Each Bank and each ------------------------------------------------ Issuing Bank shall notify the Agent in writing of any changes in the address to which notices to such Bank or Issuing Bank should be directed, of addresses of any Lending Office, of payment instructions in respect of all payments to be made to it hereunder and of such other administrative information as the Agent shall reasonably request. 11.14 Counterparts. This Agreement may be executed in any number of ------------ separate counterparts, each of which, when so executed, shall be deemed an original, and all of said counterparts taken together shall be deemed to constitute but one and the same instrument. 11.15 Severability. The illegality or unenforceability of any provision ------------ of this Agreement or any instrument or agreement required hereunder shall not in any way affect or impair the legality or enforceability of the remaining provisions of this Agreement or any instrument or agreement required hereunder. -79- 11.16 No Third Parties Benefited. This Agreement is made and entered into -------------------------- for the sole protection and legal benefit of the Company, the Banks, the Agent and the Agent-Related Persons, and their permitted successors and assigns, and no other Person shall be a direct or indirect legal beneficiary of, or have any direct or indirect cause of action or claim in connection with, this Agreement or any of the other Loan Documents. 11.17 Governing Law and Jurisdiction. ------------------------------ (a) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF CALIFORNIA; PROVIDED THAT THE AGENT AND THE BANKS SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW. (b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF CALIFORNIA OR OF THE UNITED STATES FOR THE NORTHERN DISTRICT OF CALIFORNIA, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE COMPANY, THE AGENT AND THE BANKS CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF THOSE COURTS. EACH OF THE COMPANY, THE AGENT AND THE BANKS IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER -------------------- HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO. THE COMPANY, THE AGENT AND THE BANKS EACH WAIVE PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY CALIFORNIA LAW. 11.18 Waiver of Jury Trial. THE COMPANY, THE BANKS AND THE AGENT EACH -------------------- WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR ANY AGENT-RELATED PERSON, PARTICIPANT OR ASSIGNEE, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. THE COMPANY, THE BANKS AND THE AGENT EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS. 11.19 Entire Agreement. This Agreement, together with the other Loan ---------------- Documents, embodies the entire agreement and understanding among the Company, the Banks and the Agent, and supersedes all prior or contemporaneous agreements and understandings of such Persons, verbal or written, relating to the subject matter hereof and thereof. 11.20 Termination of Existing Credit Agreement. On the Closing Date, the ---------------------------------------- Existing Credit Agreement will be cancelled and terminated, any Existing Offshore Rate Loans and Existing Letters of Credit -80- outstanding thereunder will be deemed Offshore Rate Loans and Letters of Credit outstanding hereunder, and the account party on such Existing Letters of Credit shall be deemed to be the Company. The Company hereby assumes and agrees to perform all Obligations arising from or related to the Existing Offshore Rate Loans and the Existing Letters of Credit. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered in California by their proper and duly authorized officers as of the day and year first above written. WEST MARINE FINANCE COMPANY, INC. By /s/ John C. Zott ---------------------------------- John C. Zott Senior Vice President, Finance; Chief Financial Officer; Secretary; and Treasurer BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Agent By /s/ Gary Flieger ---------------------------------- Gary Flieger Vice President BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as a Bank and an Issuing Bank By /s/ Kenneth E. Jones ---------------------------------- Kenneth E. Jones Vice President NATIONSBANK OF TEXAS, NATIONAL ASSOCIATION, as a Bank and an Issuing Bank By /s/ Charles Lilygren ---------------------------------- Charles Lilygren Vice President FLEET NATIONAL BANK, as a Bank and an Issuing Bank By /s/ Jeff Kinney ---------------------------------- Jeff Kinney Vice President -81- SCHEDULE 2.01 ------------- COMMITMENTS ----------- AND PRO RATA SHARES -------------------
Pro Rata Bank Commitment Share ---- ---------- ----- Bank of America National Trust and Savings Association $ 40,000,000 44.444444444% NationsBank of Texas, National Association $ 35,000,000 38.888888889% Fleet National Bank $ 15,000,000 16.666666667% TOTAL $ 90,000,000 100.000000000%
SCHEDULE 3.03 ------------- EXISTING LETTERS OF CREDIT -------------------------- Standby Letters of Credit ------------------------- Issuer: Bank of America National Trust and Savings Association
L/C Number Beneficiary Amount Expiry Date - ---------- ----------- ------ ----------- 0225945 Confederation Life $100,000 October 9, 1998
Issuer: NationsBank of Texas, National Association
L/C Number Beneficiary Amount Expiry Date - ---------- ----------- ------ ----------- 919221 Zodiac $500,000 December 31, 1997 919222 Ziang Kong $250,000 December 20, 1997 Garment Mfg.
Commercial Letters of Credit ---------------------------- None SCHEDULE 6.15 ------------- SUBSIDIARIES OF WEST MARINE, INC. ---------------------------------
State of Name of Subsidiary Incorporation Operations - ------------------ ------------- ---------- West Marine Products, Inc.* California Operating Subsidiary West Marine FSC, Inc.* Barbados Foreign Sales Co. West Marine Finance Company, Inc.* California Finance Co. W Marine Management Company, Inc.* California Management Company West Marine LBC, Inc.*** California Holding Co. West Marine IHC I, Inc.*** California Holding Co. West Marine IHC II, Inc.*** California Holding Co. E&B Marine Inc.* Delaware Holding Co. E&B Marine LBC, Inc.** California Holding Co. E&B Marine IHC I, Inc.** California Holding Co. E&B Marine IHC II, Inc.** California Holding Co. E&B Marine Supply (Florida) Inc.** Delaware Operating Subsidiary E&B Marine Supply, Inc. (NJ)** New Jersey Operating Subsidiary E&B Marine Supply, Inc. (MD)** Maryland Operating Subsidiary James Bliss & Co., Inc.** Massachusetts Operating Subsidiary Goldbergs' Marine Distributors, Inc.** Delaware Operating Subsidiary Central Marine Supply Inc.** New Jersey Inactive Central Marine Supply (Florida), Inc.** Delaware Inactive Krista Corporation** Delaware Inactive Sea Ranger Marine Inc.** Delaware Inactive
*Wholly owned subsidiaries of West Marine, Inc. **Wholly owned subsidiaries of E&B Marine Inc. ***Wholly owned subsidiaries of West Marine Products, Inc. SCHEDULE 8.01 PERMITTED LIENS AS OF NOVEMBER 24, 1996 WEST MARINE
California UCC Secured Party Lien Filing No/Date ------------- ---- -------------- EKCC Purchase money secured 9436361468 interest in Kodak copier 12/24/94 IBM Corporation Computer equipment referenced on 9607360162 IBM SUP #Y73481 dated 2/20/96 3/08/96 QTY-TYPE 1-9406 IBM Corporation Computer equipment referenced on 9607460900 IBM SUP #Y72889 dated 2/09/96 3/11/96 QTY-TYPE 1-9406 IBM Corporation Monitors 9634460187 12/06/96 IBM Corporation Servers 9634460176 12/06/96 IBM Corporation Desktops 9634460195 12/06/96 IBM Corporation Hubs 9636260881 12/26/96 IBM Corporation AS400 "Hobie" 9610860588 4/16/96 IBM Corporation Additional "Hobie" AS400 equipment 9610860588 4/16/96 IBM Corporation Power supply for AS400 "Hobie" 9619060984 7/03/96 IBM Corporation Software upgrade "Hobie" 9632360658 11/14/96 IBM Corporation Additional AS400 equipment 9518460088 6/28/95 IBM Corporation Additional AS400 equipment 95229C0456 8/16/95 Metlife Capital, Limited Point of Sale System, DC equipment, 92222813 Partnership computer and telephone equipment 10/16/92
SCHEDULE 8.05 ------------- PERMITTED INDEBTEDNESS ---------------------- AS OF THE CLOSING DATE ----------------------
Amount Description of Indebtedness in Thousands - --------------------------- ------------ Current portion of long term debt $ 1,412 owed to IBM and EKCC under capital leases Line of credit from Bank of America/NationsBank $ 65,500 Deferred rent $ 1,017 Long term debt owed to IBM and $ 1,601 EKCC under capital leases
SCHEDULE 8.08 ------------- CONTINGENT LIABILITIES ---------------------- AS OF THE CLOSING DATE ---------------------- Letters of Credit as described in Schedule 3.03. SCHEDULE 11.02 -------------- ADDRESSES FOR NOTICES --------------------- BORROWER - -------- WEST MARINE FINANCE COMPANY, INC. 500 Westridge Drive Watsonville, CA 95076 Attention: Chief Financial Officer With a copy to: Director of Cash Management Telephone: (408) 761-4229 Facsimile: (408) 761-4406 BANK OF AMERICA NATIONAL TRUST - ------------------------------ AND SAVINGS ASSOCIATION, - ----------------------- as Agent For administrative notices regarding borrowings, payments, conversions, continuations, letters of credit, fees and interest: Bank of America National Trust and Savings Association Agency Management Services #5596 1850 Gateway Blvd. Concord, CA 94520 Attention: John Sun Telephone: (510) 675-8368 Facsimile: (510) 675-8500 For notices regarding waivers, amendments, financial statements, assignments and all other notices: Bank of America National Trust and Savings Association Agency Management Services #10831 1455 Market Street, 12th Floor San Francisco, California 94103 Attention: Gary Flieger Vice President Telephone: (415) 436-3484 Facsimile: (415) 436-3425 BANK OF AMERICA NATIONAL TRUST - ------------------------------ AND SAVINGS ASSOCIATION, - ----------------------- as a Bank Bank of America National Trust and Savings Association 101 Park Center Plaza San Jose, CA 95113 Attention: Kenneth E. Jones Vice President Telephone: (408) 277-7644 Facsimile: (408) 277-7087 BANK OF AMERICA NATIONAL TRUST - ------------------------------ AND SAVINGS ASSOCIATION, - ----------------------- as an Issuing Bank Bank of America National Trust and Savings Association International Trade Banking Division #5655 333 S. Beaudry Ave., 19th Floor Los Angeles, CA 90017 NATIONSBANK OF TEXAS, - --------------------- NATIONAL ASSOCIATION, as a Bank - -------------------- and Issuing Bank NationsBank of Texas, National Association 901 Main Street TX1-492-14-06 Dallas, Texas 75202 Attn: Kay Hibbs Telephone: (214) 508-3089 Facsimile: (214) 508-0944 With a Copy to: Charles Lilygren Vice President NationsBank of Texas, National Association 444 S. Flower St, Suite 4100 Los Angeles, CA 90071 Telephone: (213) 236-4927 Facsimile: (213) 624-5812 FLEET NATIONAL BANK, as a Bank - ------------------- and Issuing Bank Fleet National Bank 777 Main Street CT MO 0237 Hartford, CT 06115 Attn: Jeff Kinney Vice President Telephone: (890) 986-2158 Facsimile: (890) 986-3450 EX-10.17.1 5 FIRST AMENDMENT TO CREDIT AGREEMENT EXHIBIT 10.17.1 FIRST AMENDMENT TO CREDIT AGREEMENT ----------------------------------- AND GUARANTY ------------ THIS FIRST AMENDMENT TO CREDIT AGREEMENT AND GUARANTY (the "Amendment"), --------- dated as of April 10, 1998, is entered into by and among WEST MARINE FINANCE COMPANY, INC., a California corporation (the "Company"), BANK OF AMERICA ------- NATIONAL TRUST AND SAVINGS ASSOCIATION, as agent for itself and the Banks (the "Agent"), and the several financial institutions party to the Credit Agreement - ------ (collectively, the "Banks"). ----- RECITALS -------- A. The Company, Banks, and Agent are parties to a Credit Agreement dated as of November 24, 1997 (the "Credit Agreement") pursuant to which the Agent and ---------------- the Banks have extended certain credit facilities to the Company. B. The obligations of the Company under the Credit Agreement are supported by the Guaranty. C. The Company has requested that the Banks agree to certain amendments of the Credit Agreement and the Guaranty. D. The Banks are willing to amend the Credit Agreement and the Guaranty, subject to the terms and conditions of this Amendment. AGREEMENT --------- NOW, THEREFORE, for valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. Defined Terms. Unless otherwise defined herein, capitalized terms used ------------- herein shall have the meanings, if any, assigned to them in the Credit Agreement. 2. Amendments to Credit Agreement. ------------------------------ (a) The definition of "Applicable Offshore Rate Margin" in Section 1.01 of the Credit Agreement is hereby amended to read as follows in its entirety: "Applicable Offshore Rate Margin" means ------------------------------- (i) on the Closing Date and until the earlier of (A) the date clause (ii) below becomes applicable, or (B) September 1, 1998, .55%; (ii) on and after the date the Parent receives a rating on the Parent or on the Parent's senior long term unsecured debt of "BBB-" or better from S&P or "Baa3" or -1- better from Moody's, and so long as the Parent's senior long term unsecured debt continues to be rated by either S&P or Moody's and such rating does not fall below "BBB-", in the case of S&P, or "Baa3", in the case of Moody's, .40%; and (iii) at all times that neither clause (i) nor clause (ii) is applicable, the percentage determined as set forth below: (A) on and after the fifteenth day following receipt by Banks and Agent of the financial statements required under Section 7.01(a) and (b), which financial statements reflect a Fixed Charge Coverage Ratio which is higher than 2.70:1 for the most recently concluded fiscal quarter, .45%; (B) on and after the fifteenth day following receipt by Banks and Agent of the financial statements required under Section 7.01(a) and (b), which financial statements reflect a Fixed Charge Coverage Ratio which is higher than 2.35:1, but not higher than 2.70:1, for the most recently concluded fiscal quarter, .55%; (C) on and after the fifteenth day following receipt by Banks and Agent of the financial statements required under Section 7.01(a) and (b), which financial statements reflect a Fixed Charge Coverage Ratio which is higher than 2.10:1, but not higher than 2.35:1, for the most recently concluded fiscal quarter, .75%; (D) on and after the fifteenth day following receipt by Banks and Agent of the financial statements required under Section 7.01(a) and (b), which financial statements reflect a Fixed Charge Coverage Ratio which is 2.10:1 or lower for the most recently concluded fiscal quarter, .875%; (E) on and after the fifteenth day following the Company's failure to deliver to Banks and Agent the financial statements required under Section 7.01(a) and (b) within the time periods set forth therein, and until the fifteenth day following receipt by Bank and Agent of such financial statements (at which time subpart (A) (B), (C) or (D) above shall become applicable), .875%. (b) The definition of "Guarantors" in Section 1.01 of the Credit Agreement is hereby amended by deleting "Central Marine Supply (Florida), Inc., a Delaware corporation" therefrom. -2- (c) The first sentence of Section 2.06 of the Credit Agreement is hereby amended to read as follows: Subject to Section 4.04, the Company may, at any time or from time to time, ratably prepay Loans in minimum amounts of $100,000 or multiples thereof upon the Company's irrevocable written notice to the Agent (which notice must be received by the Agent prior to 10.00 a.m. (San Francisco time) (i) at least four Business Days prior to the date prepayment, in the case of Offshore Rate Loans, and (ii) on the date of prepayment, in the case of Base Rate Loans.) 3. Amendment to Guaranty. The Guaranty is hereby amended by deleting --------------------- Central Marine Supply (Florida), Inc., a Delaware corporation, as a Guarantor thereunder. 4. Representations and Warranties. The Company hereby represents and ------------------------------ warrants to the Agent and the Banks as follows: (a) No Default or Event of Default has occurred and is continuing. (b) The execution, delivery and performance by the Company of this Amendment have been duly authorized by all necessary corporate and other action and do not and will not require any registration with, consent or approval of, notice to or action by, any Person (including any Governmental Authority) in order to be effective and enforceable. The Credit Agreement as amended by this Amendment constitutes the legal, valid and binding obligations of the Company, enforceable against it in accordance with its respective terms, without defense, counterclaim or offset. (c) All representations and warranties of the Company contained in the Credit Agreement are true and correct. (d) The Company is entering into this Amendment on the basis of its own investigation and for its own reasons, without reliance upon the Agent and the Banks or any other Person. 5. Effective Date. This Amendment will become effective as of April 10, -------------- 1998, provided that the Agent has received from the Company and each of Banks a -------- duly executed original (or, if elected by the Agent, an executed facsimile copy) of this Amendment, together with a duly executed Guarantor Acknowledgment and Consent in the form attached hereto. 6. Reservation of Rights. The Company acknowledges and agrees that the --------------------- execution and delivery by the Agent and the Banks of this Amendment shall not be deemed to create a course of dealing or otherwise obligate the Agent or the Banks to forbear or execute -3- similar amendments under the same or similar circumstances in the future. 7. Miscellaneous. ------------- (a) Except as herein expressly amended, all terms, covenants and provisions of the Credit Agreement are and shall remain in full force and effect and all references therein to such Credit Agreement shall henceforth refer to the Credit Agreement as amended by this Amendment. This Amendment shall be deemed incorporated into, and a part of, the Credit Agreement. (b) This Amendment shall be binding upon and inure to the benefit of the parties hereto and thereto and their respective successors and assigns. No third party beneficiaries are intended in connection with this Amendment. This Amendment shall be governed by and construed in accordance with the law of the State of California. (c) This Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. Each of the parties hereto understands and agrees that this document (and any other document required herein) may be delivered by any party thereto either in the form of an executed original or an executed original sent by facsimile transmission to be followed promptly by mailing of a hard copy original, and that receipt by the Agent of a facsimile transmitted document purportedly bearing the signature of a Bank or the Company shall bind such Bank or the Company, respectively, with the same force and effect as the delivery of a hard copy original. Any failure by the Agent to receive the hard copy executed original of such document shall not diminish the binding effect of receipt of the facsimile transmitted executed original of such document of the party whose hard copy page was not received by the Agent. (d) This Amendment, together with the Credit Agreement, contains the entire and exclusive agreement of the parties hereto with reference to the matters discussed herein and therein. This Amendment supersedes all prior drafts and communications with respect thereto. This Amendment may not be amended except in accordance with the provisions of Section 11.01 of the Credit Agreement. (e) If any term or provision of this Amendment shall be deemed prohibited by or invalid under any applicable law, such provision shall be invalidated without affecting the remaining provisions of this Amendment or the Credit Agreement, respectively. (f) The Company covenants to pay to or reimburse the Agent and the Banks, upon demand, for all costs and expenses (including allocated costs of in- house counsel) incurred in connection with the development, preparation, negotiation, execution and delivery of this -4- Amendment, including without limitation appraisal, audit, search and filing fees incurred in connection therewith. IN WITNESS WHEREOF, the parties hereto have executed and delivered this Amendment as of the date first above written. WEST MARINE FINANCE COMPANY, INC. By ------------------------------------ John C. Zott Senior Vice President, Finance; Chief Financial Officer; Secretary; and Treasurer BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Agent By ------------------------------------ Gary Flieger Vice President BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as a Bank and an Issuing Bank By ------------------------------------ Kenneth E. Jones Vice President NATIONSBANK OF TEXAS, NATIONAL ASSOCIATION, as a Bank and an Issuing Bank By ------------------------------------ Charles Lilygren Vice President FLEET NATIONAL BANK, as a Bank and an Issuing Bank By ------------------------------------ Jeff Kinney Vice President -5- GUARANTOR ACKNOWLEDGMENT AND CONSENT ------------------------------------ The undersigned, each a Guarantor with respect to the Company's obligations to the Agent and the Banks under the Credit Agreement, each hereby (i) acknowledges and consents to the execution, delivery and performance by Company of the foregoing First Amendment to Credit Agreement and Guaranty (the "Amendment"), (ii) consents to the modification of the Guaranty as set forth in - ---------- the Amendment, and (iii) reaffirms and agrees that the Guaranty, as modified by the Amendment, and all other documents and agreements executed and delivered by the undersigned to the Agent and the Banks in connection with the Credit Agreement are in full force and effect, without defense, offset or counterclaim. (Capitalized terms used herein have the meanings specified in the Amendment.) WEST MARINE, INC., a Delaware corporation By ------------------------------------ John C. Zott Senior Vice President, Finance; Chief Financial Officer; Secretary; and Treasurer WEST MARINE PRODUCTS, INC., a California corporation By ------------------------------------ John C. Zott Senior Vice President, Finance; Chief Financial Officer; Secretary; and Treasurer E&B MARINE INC., a Delaware corporation By ------------------------------------ John C. Zott Senior Vice President, Finance; Chief Financial Officer; Secretary; and Treasurer -6- E&B MARINE SUPPLY, INC., a Maryland corporation By ------------------------------------ John C. Zott Senior Vice President, Finance; Chief Financial Officer; Secretary; and Treasurer E&B MARINE SUPPLY, INC., a New Jersey corporation By ------------------------------------ John C. Zott Senior Vice President, Finance; Chief Financial Officer; Secretary; and Treasurer E&B MARINE SUPPLY (Florida), Inc., a Delaware corporation By ------------------------------------ John C. Zott Senior Vice President, Finance; Chief Financial Officer; Secretary; and Treasurer GOLDBERGS' MARINE DISTRIBUTORS, INC., a Delaware corporation By ------------------------------------ John C. Zott Senior Vice President, Finance; Chief Financial Officer; Secretary; and Treasurer JAMES BLISS & CO., INC., a Massachusetts corporation By ------------------------------------ John C. Zott Senior Vice President, Finance; Chief Financial Officer; Secretary; and Treasurer -7- SEA RANGER MARINE INC., a Delaware corporation By ------------------------------------ John C. Zott Senior Vice President, Finance; Chief Financial Officer; Secretary; and Treasurer KRISTA CORPORATION, a Delaware corporation By ------------------------------------ John C. Zott Senior Vice President, Finance; Chief Financial Officer; Secretary; and Treasurer CENTRAL MARINE SUPPLY, INC., a New Jersey corporation By ------------------------------------ John C. Zott Senior Vice President, Finance; Chief Financial Officer; Secretary; and Treasurer WEST MARINE LBC, INC., a California corporation By ------------------------------------ John C. Zott Senior Vice President, Finance; Chief Financial Officer; Secretary; and Treasurer -8- WEST MARINE IHC I, INC., a California corporation By ------------------------------------ John C. Zott Senior Vice President, Finance; Chief Financial Officer; Secretary; and Treasurer WEST MARINE IHC II, INC., a California corporation By ------------------------------------ John C. Zott Senior Vice President, Finance; Chief Financial Officer; Secretary; and Treasurer E&B MARINE LBC, INC., a California corporation By ------------------------------------ John C. Zott Senior Vice President, Finance; Chief Financial Officer; Secretary; and Treasurer E&B MARINE IHC I, INC., a California corporation By ------------------------------------ John C. Zott Senior Vice President, Finance; Chief Financial Officer; Secretary; and Treasurer E&B MARINE IHC II, INC., a California corporation By ------------------------------------ John C. Zott Senior Vice President, Finance; Chief Financial Officer; Secretary; and Treasurer -9- W MARINE MANAGEMENT COMPANY, INC., a California corporation By ------------------------------------ John C. Zott Senior Vice President, Finance; Chief Financial Officer; Secretary; and Treasurer -10- EX-10.17.2 6 SECOND AMENDMENT TO CREDIT AGREEMENT 10.17.2 SECOND AMENDMENT TO CREDIT -------------------------- AGREEMENT --------- THIS SECOND AMENDMENT TO CREDIT AGREEMENT (the "Amendment"), dated as of --------- September 30, 1998, is entered into by and among WEST MARINE FINANCE COMPANY, INC., a California corporation (the "Company"), BANK OF AMERICA NATIONAL TRUST ------- AND SAVINGS ASSOCIATION, as agent for itself and the Banks (the "Agent"), and ----- the several financial institutions party to the Credit Agreement (collectively, the "Banks"). ----- RECITALS -------- A. The Company, Banks, and Agent are parties to a Credit Agreement dated as of November 24, 1997, and amended on April 10, 1998 (collectively, the "Credit Agreement") pursuant to which the Banks have extended certain credit - ----------------- facilities to the Company. B. The Company has requested that the Banks agree to certain amendments of the Credit Agreement. C. The Banks are willing to amend the Credit Agreement, subject to the terms and conditions of this Amendment. AGREEMENT --------- NOW, THEREFORE, for valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. Defined Terms. Unless otherwise defined herein, capitalized terms used ------------- herein shall have the meanings, if any, assigned to them in the Credit Agreement. 2. Amendments to Credit Agreement. ------------------------------ (a) The definition of "Applicable Offshore Rate Margin" in Section 1.01 of the Credit Agreement is hereby amended to read as follows in its entirety: "Applicable Offshore Rate Margin" means ------------------------------- (i) on the Closing Date and until the earlier of (A) the date clause (ii) below becomes applicable, or (B) September 1, 1998, .55%; (ii) on and after the date the Parent receives a rating on the Parent or on the Parent's senior long term unsecured debt of "BBB-" or better from S&P or "Baa3" or better from Moody's, and so long as the Parent's senior long term unsecured debt continues to be rated by either S&P or Moody's and such rating does not fall below "BBB-", -1- in the case of S&P, or "Baa3", in the case of Moody's, .40%; and (iii) at all times that neither clause (i) nor clause (ii) is applicable, the percentage determined as set forth below: (A) on and after the fifteenth day following receipt by Banks and Agent of the financial statements required under Section 7.01(a) and (b), which financial statements reflect a Fixed Charge Coverage Ratio which is higher than 2.70:1 for the most recently concluded fiscal quarter, .45%; (B) on and after the fifteenth day following receipt by Banks and Agent of the financial statements required under Section 7.01(a) and (b), which financial statements reflect a Fixed Charge Coverage Ratio which is higher than 2.35:1, but not higher than 2.70:1, for the most recently concluded fiscal quarter, .55%; (C) on and after the fifteenth day following receipt by Banks and Agent of the financial statements required under Section 7.01(a) and (b), which financial statements reflect a Fixed Charge Coverage Ratio which is higher than 2.10:1, but not higher than 2.35:1, for the most recently concluded fiscal quarter, .75%; (D) on and after the fifteenth day following receipt by Banks and Agent of the financial statements required under Section 7.01(a) and (b), which financial statements reflect a Fixed Charge Coverage Ratio which is higher than 1.90:1, but not higher than 2.10:1, for the most recently concluded fiscal quarter, .875%; (E) on and after the fifteenth day following receipt by Banks and Agent of the financial statements required under Section 7.01(a) and (b), which financial statements reflect a Fixed Charge Coverage Ratio which is 1.90:1 or lower for the most recently concluded fiscal quarter, 1.25%; (F) on and after the fifteenth day following the Company's failure to deliver to Banks and Agent the financial statements required under Section 7.01(a) and (b) within the time periods set forth therein, and until the fifteenth day following receipt by Bank and Agent of such financial statements (at -2- which time subpart (A) (B), (C), (D) or (E) above shall become applicable), 1.25%. (b) The definition of "Commercial Letter of Credit Fee" in Section 1.01 of the Credit Agreement is hereby amended to read as follows in its entirety : "Commercial Letter of Credit Fee" means ------------------------------- (i) on and after the date the Parent receives a rating on the Parent or on the Parent's senior long term unsecured debt of "BBB-" or better from S&P or "Baa3" or better from Moody's, and so long as the Company's senior long term unsecured debt continues to be rated by either S&P or Moody's and such rating does not fall below "BBB-", in the case of S&P, or "Baa3", in the case of Moody's, .125%; and (ii) at all times that clause (i) is not applicable, commencing on the fifteenth day following the day the Company is first required to deliver financial statements to Banks and Agent under Section 7.01(a) or (b), the percentage determined as set forth below: (A) on and after the fifteenth day following receipt by Banks and Agent of the financial statements required under Section 7.01(a) and (b), which financial statements reflect a Fixed Charge Coverage Ratio which is higher than 2.70:1 for the most recently concluded fiscal quarter, .15%; (B) on and after the fifteenth day following receipt by Banks and Agent of the financial statements required under Section 7.01(a) and (b), which financial statements reflect a Fixed Charge Coverage Ratio which is higher than 2.35:1, but not higher than 2.70:1, for the most recently concluded fiscal quarter, .1875%; (C) on and after the fifteenth day following receipt by Banks and Agent of the financial statements required under Section 7.01(a) and (b), which financial statements reflect a Fixed Charge Coverage Ratio which is higher than 2.10:1, but not higher than 2.35:1, for the most recently concluded fiscal quarter, .20%; (D) on and after the fifteenth day following receipt by Banks and Agent of the financial statements required under Section 7.01(a) and (b), which financial statements reflect a Fixed Charge Coverage Ratio which is higher than 1.90:1, but not higher than -3- 2.10:1, for the most recently concluded fiscal quarter, .25%; (E) on and after the fifteenth day following receipt by Banks and Agent of the financial statements required under Section 7.01(a) and (b), which financial statements reflect a Fixed Charge Coverage Ratio which is 1.90:1 or lower for the most recently concluded fiscal quarter, .35%; (F) on and after the fifteenth day following the Company's failure to deliver to Banks and Agent the financial statements required under Section 7.01(a) and (b) within the time periods set forth therein, and until the fifteenth day following receipt by Bank and Agent of such financial statements (at which time subpart (A) (B), (C), (D), or (E) above shall become applicable), .35%. (c) The definition of "Standby Letter of Credit Fee" in Section 1.01 of the Credit Agreement is hereby amended to read as follows in its entirety: "Standby Letter of Credit Fee" means ---------------------------- (i) on and after the date the Parent receives a rating on the Parent or on the Parent's senior long term unsecured debt of "BBB-" or better from S&P or "Baa3" or better from Moody's, and so long as the Company's senior long term unsecured debt continues to be rated by either S&P or Moody's and such rating does not fall below "BBB-", in the case of S&P, or "Baa3", in the case of Moody's, .40%; and (ii) at all times that clause (i) is not applicable, commencing on the fifteenth day following the day the Company is first required to deliver financial statements to Banks and Agent under Section 7.01(a) or (b), the percentage determined as set forth below: (A) on and after the fifteenth day following receipt by Banks and Agent of the financial statements required under Section 7.01(a) and (b), which financial statements reflect a Fixed Charge Coverage Ratio which is higher than 2.70:1 for the most recently concluded fiscal quarter, .45; (B) on and after the fifteenth day following receipt by Banks and Agent of the financial statements required under Section 7.01(a) and (b), which financial statements reflect a Fixed Charge Coverage Ratio which is higher than 2.35:1, but not higher than -4- 2.70:1, for the most recently concluded fiscal quarter, .55%; (C) on and after the fifteenth day following receipt by Banks and Agent of the financial statements required under Section 7.01(a) and (b), which financial statements reflect a Fixed Charge Coverage Ratio which is higher than 2.10:1, but not higher than 2.35:1, for the most recently concluded fiscal quarter, .75%; (D) on and after the fifteenth day following receipt by Banks and Agent of the financial statements required under Section 7.01(a) and (b), which financial statements reflect a Fixed Charge Coverage Ratio which is higher than 1.90:1, but not higher than 2.10:1 for the most recently concluded fiscal quarter, .875%; (E) on and after the fifteenth day following receipt by Banks and Agent of the financial statements required under Section 7.01(a) and (b), which financial statements reflect a Fixed Charge Coverage Ratio which is 1.90:1 or lower for the most recently concluded fiscal quarter, 1.25%; (F) on and after the fifteenth day following the Company's failure to deliver to Banks and Agent the financial statements required under Section 7.01(a) and (b) within the time periods set forth therein, and until the fifteenth day following receipt by Bank and Agent of such financial statements (at which time subpart (A) (B), (C), (D), or (E) above shall become applicable), 1.25%. (d) Section 2.10(b) is amended by substituting ".35%" for ".25%" in the second sentence thereof, by deleting the word "or" at the end of subpart (B) of clause (ii) thereof, by adding the word "or" to the end of subpart (C) of clause (ii) thereof, and by adding a new subpart (D) immediately following subpart (C) of clause (ii) thereof, reading as follows: (D) greater than 1.90:1, but not exceeding 2.10:1, in which case the commitment fee shall be calculated at the rate of .25% per annum; (e) The first sentence of Section 7.13(b) is amended to read as follows in its entirety: (b) achieve a Fixed Charge Coverage Ratio of at least the ratio indicated below as of the end of each fiscal quarter set forth below: -5-
Fiscal Quarters Ratio --------------- ----- 3rd Qtr 1997 - 2nd Qtr 1998 1.90 to 1.0 3rd Qtr 1998 1.75 to 1.0 4th Qtr 1998 1.70 to 1.0 1st Qtr 1999 and thereafter 2.00 to 1.0
3. Representations and Warranties. The Company hereby represents and ------------------------------ warrants to the Agent and the Banks as follows: (a) No Event of Default has occurred and is continuing. (b) The execution, delivery and performance by the Company of this Amendment have been duly authorized by all necessary corporate and other action and do not and will not require any registration with, consent or approval of, notice to or action by, any Person (including any Governmental Authority) in order to be effective and enforceable. The Credit Agreement as amended by this Amendment constitutes the legal, valid and binding obligations of the Company, enforceable against it in accordance with its respective terms, except as enforceability may be limited by applicable bankruptcy, insolvency, or similar laws affecting the enforcement of creditors' rights generally or by equitable principles relating to enforceability, without defense, counterclaim or offset. (c) All representations and warranties of the Company contained in the Credit Agreement are true and correct on and as of the date hereof, except to the extent such representations and warranties expressly refer to an earlier date, in which case they are true and correct as of such earlier date. (d) The Company is entering into this Amendment on the basis of its own investigation and for its own reasons, without reliance upon the Agent and the Banks or any other Person. 4. Effective Date. This Amendment will become effective as of September -------------- 30, 1998 (the "Effective Date"), provided that each of the following conditions -------------- -------- precedent is satisfied: (a) The Agent has received from the Company and each of Banks a duly executed original (or, if elected by the Agent, an executed facsimile copy) of this Amendment, together with a duly executed Guarantor Acknowledgment and Consent in the form attached hereto. (b) The Agent has received from the Company for the ratable benefit of the Banks the amount of Fifteen Thousand Dollars ($15,000), representing payment in full of a non-refundable amendment -6- fee, which amount the Company hereby covenants to pay to the Agent for the benefit of the Banks on demand. 5. Reservation of Rights. The Company acknowledges and agrees that the --------------------- execution and delivery by the Agent and the Banks of this Amendment shall not be deemed to create a course of dealing or otherwise obligate the Agent or the Banks to enter into amendments under the same, similar, or any other circumstances in the future. 6. Miscellaneous. ------------- (a) Except as herein expressly amended, all terms, covenants and provisions of the Credit Agreement are and shall remain in full force and effect and all references therein and in the other Loan Documents to such Credit Agreement shall henceforth refer to the Credit Agreement as amended by this Amendment. This Amendment shall be deemed incorporated into, and a part of, the Credit Agreement. This Amendment is a Loan Document. (b) This Amendment shall be binding upon and inure to the benefit of the parties hereto and to the Credit Agreement and their respective successors and assigns. No third party beneficiaries are intended in connection with this Amendment. (c) This Amendment shall be governed by and construed in accordance with the law of the State of California. (d) This Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. Each of the parties hereto understands and agrees that this document (and any other document required herein) may be delivered by any party thereto either in the form of an executed original or an executed original sent by facsimile transmission to be followed promptly by mailing of a hard copy original, and that receipt by the Agent of a facsimile transmitted document purportedly bearing the signature of a Bank or the Company shall bind such Bank or the Company, respectively, with the same force and effect as the delivery of a hard copy original. Any failure by the Agent to receive the hard copy executed original of such document shall not diminish the binding effect of receipt of the facsimile transmitted executed original of such document of the party whose hard copy page was not received by the Agent, and the Agent is hereby authorized to make sufficient photocopies thereof to assemble complete counterparty documents. (e) This Amendment, together with the Credit Agreement, contains the entire and exclusive agreement of the parties hereto with reference to the matters discussed herein and therein. This Amendment supersedes all prior drafts and communications with respect thereto. This Amendment may not be amended except in accordance with the provisions of Section 11.01 of the Credit Agreement. -7- (f) If any term or provision of this Amendment shall be deemed prohibited by or invalid under any applicable law, such provision shall be invalidated without affecting the remaining provisions of this Amendment or the Credit Agreement, respectively. (g) The Company covenants to pay to or reimburse the Agent, upon demand, for all reasonable costs and expenses (including reasonable Attorney Costs) incurred in connection with the development, preparation, negotiation, execution and delivery of this Amendment. IN WITNESS WHEREOF, the parties hereto have executed and delivered this Amendment as of the date first above written. WEST MARINE FINANCE COMPANY, INC. By ______________________________ John C. Zott Senior Vice President, Finance; Chief Financial Officer; Secretary; and Treasurer BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Agent By ______________________________ Gary Flieger Vice President BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as a Bank and an Issuing Bank By ______________________________ Kenneth E. Jones Vice President -8- NATIONSBANK OF TEXAS, NATIONAL ASSOCIATION, as a Bank and an Issuing Bank By ______________________________ William B. Guffey Managing Director FLEET NATIONAL BANK, as a Bank and an Issuing Bank By ______________________________ Jeff Kinney Vice President -9- GUARANTOR ACKNOWLEDGMENT AND CONSENT ------------------------------------ Each of the undersigned Guarantors hereby (i) acknowledges and consents to the terms of and the execution, delivery and performance of the foregoing Second Amendment to Credit Agreement (the "Amendment") (without implying the need for --------- any such acknowledgement or consent), and (ii) represents and warrants to the Agent and the Banks that, both before and after giving effect to the Amendment, its respective Guaranty remains in full force and effect as an enforceable obligation of the Guarantor, except as enforceability may be limited by applicable bankruptcy, insolvency, or similar laws affecting the enforceability of creditors' rights generally or by equitable principles relating to enforceability, without defense, counterclaim or offset, and that it is in compliance with all of its covenants contained therein. Each Guarantor further represents that the execution, delivery and performance by such Person of this Acknowledgement and Consent have been duly authorized by all necessary corporate, partnership and other action and do not and will not require any registration with, consent or approval of, notice to or action by, any Person (including any Governmental Authority) in order to be effective and enforceable. Each Guarantor remakes as of the Effective Date (as defined in the Amendment) all of the representations and warranties made by it pursuant to its respective Guaranty. Capitalized terms used herein and not otherwise defined have the respective meanings defined in the Credit Agreement (as defined in the Amendment). IN WITNESS WHEREOF, each of the undersigned has executed this Acknowledgement and Consent by its duly authorized officers as of this ______ day of ________________, 1998. WEST MARINE, INC., a Delaware corporation By ____________________________ John C. Zott Senior Vice President, Finance; Chief Financial Officer; Secretary; and Treasurer WEST MARINE PRODUCTS, INC., a California corporation By ____________________________ John C. Zott Senior Vice President, Finance; Chief Financial Officer; Secretary; and Treasurer -10- E&B MARINE INC., a Delaware corporation By ____________________________ John C. Zott Senior Vice President, Finance; Chief Financial Officer; Secretary; and Treasurer -11- E&B MARINE SUPPLY, INC., a Maryland corporation By____________________________ John C. Zott Senior Vice President, Finance; Chief Financial Officer; Secretary; and Treasurer E&B MARINE SUPPLY, INC., a New Jersey corporation By____________________________ John C. Zott Senior Vice President, Finance; Chief Financial Officer; Secretary; and Treasurer E&B MARINE SUPPLY (Florida), Inc., a Delaware corporation By____________________________ John C. Zott Senior Vice President, Finance; Chief Financial Officer; Secretary; and Treasurer GOLDBERGS' MARINE DISTRIBUTORS, INC., a Delaware corporation By____________________________ John C. Zott Senior Vice President, Finance; Chief Financial Officer; Secretary; and Treasurer JAMES BLISS & CO., INC., a Massachusetts corporation By____________________________ John C. Zott Senior Vice President, Finance; Chief Financial Officer; Secretary; and Treasurer -12- SEA RANGER MARINE INC., a Delaware corporation By____________________________ John C. Zott Senior Vice President, Finance; Chief Financial Officer; Secretary; and Treasurer KRISTA CORPORATION, a Delaware corporation By____________________________ John C. Zott Senior Vice President, Finance; Chief Financial Officer; Secretary; and Treasurer CENTRAL MARINE SUPPLY, INC., a New Jersey corporation By____________________________ John C. Zott Senior Vice President, Finance; Chief Financial Officer; Secretary; and Treasurer WEST MARINE LBC, INC., a California corporation By____________________________ John C. Zott Senior Vice President, Finance; Chief Financial Officer; Secretary; and Treasurer -13- WEST MARINE IHC I, INC., a California corporation By____________________________ John C. Zott Senior Vice President, Finance; Chief Financial Officer; Secretary; and Treasurer WEST MARINE IHC II, INC., a California corporation By____________________________ John C. Zott Senior Vice President, Finance; Chief Financial Officer; Secretary; and Treasurer E&B MARINE LBC, INC., a California corporation By____________________________ John C. Zott Senior Vice President, Finance; Chief Financial Officer; Secretary; and Treasurer E&B MARINE IHC I, INC., a California corporation By____________________________ John C. Zott Senior Vice President, Finance; Chief Financial Officer; Secretary; and Treasurer E&B MARINE IHC II, INC., a California corporation By____________________________ John C. Zott Senior Vice President, Finance; Chief Financial Officer; Secretary; and Treasurer -14- W MARINE MANAGEMENT COMPANY, INC., a California corporation By____________________________ John C. Zott Senior Vice President, Finance; Chief Financial Officer; Secretary; and Treasurer -15- EX-10.17.3 7 THIRD AMENDMENT TO CREDIT AGREEMENT EXHIBIT 10.17.3 THIRD AMENDMENT TO CREDIT AGREEMENT ----------------------------------- THIS THIRD AMENDMENT TO CREDIT AGREEMENT (the "Amendment"), dated as of --------- February 23, 1999, is entered into by and among WEST MARINE FINANCE COMPANY, INC., a California corporation (the "Company"), BANK OF AMERICA NATIONAL TRUST ------- AND SAVINGS ASSOCIATION, as agent for itself and the Banks (the "Agent"), and ----- the several financial institutions party to the Credit Agreement (collectively, the "Banks"). ----- RECITALS -------- A. The Company, Banks, and Agent are parties to a Credit Agreement dated as of November 24, 1997, and amended on April 10, 1998, and September 30, 1998 (collectively, the "Credit Agreement") pursuant to which the Banks have extended ---------------- certain credit facilities to the Company. B. The Company has requested that the Banks agree to certain amendments of the Credit Agreement. C. The Banks are willing to amend the Credit Agreement, subject to the terms and conditions of this Amendment. AGREEMENT --------- NOW, THEREFORE, for valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. Defined Terms. Unless otherwise defined herein, capitalized terms used ------------- herein shall have the meanings, if any, assigned to them in the Credit Agreement. 2. Amendments to Credit Agreement. ------------------------------ (a) The definition of "Applicable Offshore Rate Margin" in Section 1.01 of the Credit Agreement is hereby amended to read as follows in its entirety: "Applicable Offshore Rate Margin" means ------------------------------- (i) on and after the date the Parent receives a rating on the Parent or on the Parent's senior long term unsecured debt of "BBB-" or better from S&P or "Baa3" or better from Moody's, and so long as the Parent's senior long term unsecured debt continues to be rated by either S&P or Moody's and such rating does not fall below "BBB-", in the case of S&P, or "Baa3", in the case of Moody's, .40%; and (ii) at all times that clause (i) is not applicable, the percentage determined as set forth below: -1- (A) on and after the fifteenth day following receipt by Banks and Agent of the financial statements required under Section 7.01(a) and (b), which financial statements reflect a Fixed Charge Coverage Ratio which is higher than 2.25:1 for the most recently concluded fiscal quarter, 1.0%; (B) on and after the fifteenth day following receipt by Banks and Agent of the financial statements required under Section 7.01(a) and (b), which financial statements reflect a Fixed Charge Coverage Ratio which is higher than 2.00:1, but not higher than 2.25:1, for the most recently concluded fiscal quarter, 1.25%; (C) on and after the fifteenth day following receipt by Banks and Agent of the financial statements required under Section 7.01(a) and (b), which financial statements reflect a Fixed Charge Coverage Ratio which is higher than 1.75:1, but not higher than 2.00:1, for the most recently concluded fiscal quarter, 1.5%; (D) on and after the fifteenth day following receipt by Banks and Agent of the financial statements required under Section 7.01(a) and (b), which financial statements reflect a Fixed Charge Coverage Ratio which is higher than 1.50:1, but not higher than 1.75:1, for the most recently concluded fiscal quarter, 1.75%; (E) on and after the fifteenth day following receipt by Banks and Agent of the financial statements required under Section 7.01(a) and (b), which financial statements reflect a Fixed Charge Coverage Ratio which is 1.50:1 or lower for the most recently concluded fiscal quarter, 2.0%; (F) on and after the fifteenth day following the Company's failure to deliver to Banks and Agent the financial statements required under Section 7.01(a) and (b) within the time periods set forth therein, and until the fifteenth day following receipt by Bank and Agent of such financial statements (at which time subpart (A) (B), (C), (D) or (E) above shall become applicable), 2.0%. (b) The definition of "Commercial Letter of Credit Fee" in Section 1.01 of the Credit Agreement is hereby amended to read as follows in its entirety: -2- "Commercial Letter of Credit Fee" means ------------------------------- (i) on and after the date the Parent receives a rating on the Parent or on the Parent's senior long term unsecured debt of "BBB-" or better from S&P or "Baa3" or better from Moody's, and so long as the Company's senior long term unsecured debt continues to be rated by either S&P or Moody's and such rating does not fall below "BBB-", in the case of S&P, or "Baa3", in the case of Moody's, .125%; and (ii) at all times that clause (i) is not applicable, commencing on the fifteenth day following the day the Company is first required to deliver financial statements to Banks and Agent under Section 7.01(a) or (b), the percentage determined as set forth below: (A) on and after the fifteenth day following receipt by Banks and Agent of the financial statements required under Section 7.01(a) and (b), which financial statements reflect a Fixed Charge Coverage Ratio which is higher than 2.0:1 for the most recently concluded fiscal quarter, .20%; (B) on and after the fifteenth day following receipt by Banks and Agent of the financial statements required under Section 7.01(a) and (b), which financial statements reflect a Fixed Charge Coverage Ratio which is higher than 1.75:1, but not higher than 2.0:1, for the most recently concluded fiscal quarter, .30%; (C) on and after the fifteenth day following receipt by Banks and Agent of the financial statements required under Section 7.01(a) and (b), which financial statements reflect a Fixed Charge Coverage Ratio which is higher than 1.50:1, but not higher than 1.75:1, for the most recently concluded fiscal quarter, .40%; (D) on and after the fifteenth day following receipt by Banks and Agent of the financial statements required under Section 7.01(a) and (b), which financial statements reflect a Fixed Charge Coverage Ratio which is 1.50:1 or lower for the most recently concluded fiscal quarter, .50%; (E) on and after the fifteenth day following the Company's failure to deliver to Banks and Agent the financial statements required under Section 7.01(a) and (b) within the time periods set forth therein, and until the fifteenth day following receipt -3- by Bank and Agent of such financial statements (at which time subpart (A) (B), (C), (D), or (E) above shall become applicable), .50%. (c) The definition of "Standby Letter of Credit Fee" in Section 1.01 of the Credit Agreement is hereby amended to read as follows in its entirety: "Standby Letter of Credit Fee" means ---------------------------- (i) on and after the date the Parent receives a rating on the Parent or on the Parent's senior long term unsecured debt of "BBB-" or better from S&P or "Baa3" or better from Moody's, and so long as the Company's senior long term unsecured debt continues to be rated by either S&P or Moody's and such rating does not fall below "BBB-", in the case of S&P, or "Baa3", in the case of Moody's, .40%; and (ii) at all times that clause (i) is not applicable, commencing on the fifteenth day following the day the Company is first required to deliver financial statements to Banks and Agent under Section 7.01(a) or (b), the percentage determined as set forth below: (A) on and after the fifteenth day following receipt by Banks and Agent of the financial statements required under Section 7.01(a) and (b), which financial statements reflect a Fixed Charge Coverage Ratio which is higher than 2.25:1 for the most recently concluded fiscal quarter, 1.0%; (B) on and after the fifteenth day following receipt by Banks and Agent of the financial statements required under Section 7.01(a) and (b), which financial statements reflect a Fixed Charge Coverage Ratio which is higher than 2.00:1, but not higher than 2.25:1, for the most recently concluded fiscal quarter, 1.25%; (C) on and after the fifteenth day following receipt by Banks and Agent of the financial statements required under Section 7.01(a) and (b), which financial statements reflect a Fixed Charge Coverage Ratio which is higher than 1.75:1, but not higher than 2.00:1, for the most recently concluded fiscal quarter, 1.5%; (D) on and after the fifteenth day following receipt by Banks and Agent of the financial statements required under Section 7.01(a) and (b), which financial statements reflect a Fixed Charge Coverage -4- Ratio which is higher than 1.50:1, but not higher than 1.75:1 for the most recently concluded fiscal quarter, 1.75%; (E) on and after the fifteenth day following receipt by Banks and Agent of the financial statements required under Section 7.01(a) and (b), which financial statements reflect a Fixed Charge Coverage Ratio which is 1.50:1 or lower for the most recently concluded fiscal quarter, 2.0%; (F) on and after the fifteenth day following the Company's failure to deliver to Banks and Agent the financial statements required under Section 7.01(a) and (b) within the time periods set forth therein, and until the fifteenth day following receipt by Bank and Agent of such financial statements (at which time subpart (A) (B), (C), (D), or (E) above shall become applicable), 2.0%. (d) Schedule 2.01 is hereby amended and restated in its entirety as set forth in Revised Schedule 2.01 attached hereto. All references in the Credit Agreement to "Schedule 2.01" shall be deemed to refer to Revised Schedule 2.01 attached hereto, and each Bank's Commitment and Pro Rata Share shall be determined in accordance with Revised Schedule 2.01. (e) The second sentence of Section 2.10(b) is deleted and the following is substituted in its place: The commitment fee shall be calculated as indicated below: (i) If, as of the last Business Day of the calendar quarter for which the commitment fee is calculated, the Parent has received a rating on the Parent or on the Parent's senior long term unsecured debt of "BBB-" or better from S&P or "Baa3" or better from Moody's, the commitment fee shall be calculated at the rate of .125% per annum; and (ii) At all times that clause (i) is not applicable, the commitment fee shall be calculated in accordance with this clause (ii). If, as of the last Business Day of the calendar quarter for which the commitment fee is calculated, the Company's Fixed Charge Coverage Ratio as of the most recent fiscal quarter for which the financial statements required under Section 7.01(a) and (b) have been delivered to Agent and Banks (and provided such financial statements have been delivered to Agent and Banks within the time periods set forth in Section 7.01(a) and (b) is: -5- (A) greater than 2.0:1.0, the commitment fee shall be calculated at the rate of .20%; (B) greater than 1.75:1.0 but not exceeding 2.0:1.0, the commitment fee shall be calculated at the rate of .30%; (C) greater than 1.50:1.0 but not exceeding 1.75:1.0, the commitment fee shall be calculated at the rate of .40%; or (D) 1.50:1.0 or lower, the commitment fee shall be calculated at the rate of .50%. (f) The first sentence of Section 7.13(b) is amended to read as follows in its entirety: (b) achieve a Fixed Charge Coverage Ratio of at least the ratio indicated below as of the end of each fiscal quarter set forth below:
Fiscal Quarters Ratio --------------- ------ 3rd Qtr 1997 - 2nd Qtr 1998 1.90 to 1.0 3rd Qtr 1998 1.75 to 1.0 4th Qtr 1998 - 1st Qtr 1999 1.40 to 1.0 2nd Qtr 1999 - 3rd Qtr 1999 1.50 to 1.0 4th Qtr 1999 1.75 to 1.0 1st Qtr 2000 and thereafter 2.00 to 1.0
(g) The first sentence of Section 7.13(c) is amended to read as follows in its entirety: (c) maintain current assets in excess of current liabilities by at least the amount indicated as of the end of each fiscal quarter set forth below:
Fiscal Quarters Ratio --------------- ------ 3rd Qtr 1997 - 4th Qtr 1997 $45,000,000 1st Qtr 1998 $70,000,000 2nd Qtr 1998 - 4th Qtr 1998 $85,000,000 1st Qtr 1999 $80,000,000
-6-
2nd Qtr 1999 and thereafter $90,000,000
(h) The first sentence of Section 7.13(d) is amended to read as follows in its entirety: (d) maintain Tangible Net Worth at least equal to amounts indicated below for each period set forth below: Fiscal Quarters Amount --------------- ------ 3rd Qtr 1997 4th Qtr 1998 (i) 80% of Tangible Net Worth as of June 28, 1997; plus (ii) the sum of 75% of net income after taxes (without subtracting losses) earned in each fiscal quarter commencing after June 28, 1997, plus (iii) the net proceeds from any equity securities issued after the date of this Agreement. 1st Qtr 1999 and thereafter (i) $107,500,000; plus (ii) the sum of 75% of net income after taxes (without subtracting losses) earned in each fiscal quarter commencing after April 3, 1999; plus (iii) the net proceeds from any equity securities issued after the date of this Agreement. (i) Section 8.04(d) is amended by the addition of the following clause to the end thereof: and further provided that the aggregate consideration paid for ---------------- all Acquisitions undertaken by the Parent and its Subsidiaries after February 23, 1999, does not exceed $5,000,000; (j) Section 8.05(f) is amended by substituting the amount "$5,000,000" for the amount "$10,000,000)." -7- (k) Section 8.05(j) is amended by substituting the amount "$5,000,000" for the amount "$10,000,000)." (l) Section 8.05(k) is amended by the addition of the following clause to the end thereof: and further provided that no such Indebtedness shall be incurred ---------------- on or after February 23, 1999; (m) The final clause of Section 8.05 beginning with the words "provided that, without duplication" is amended by substituting the amount - --------- "$5,000,000" for the amount "$10,000,000." (n) Section 8.15 is amended by substituting the amount "$18,000,000" for the amount "$35,000,000" opposite Fiscal Year 1999. 3. Reduction of Commitments; Adjustment of Pro Rata Shares; Risk ------------------------------------------------------------- Participations. - -------------- (a) Revised Schedule 2.01 attached hereto provides for a reduction of the aggregate amount of the Commitments as well as an adjustment of each Bank's Commitment and Pro Rata Share to occur on April 5, 1999, and July 5, 1999 (each a "Step-Down Date"). The Company hereby agrees that if, on each Step-Down Date, -------------- the Effective Amount of all Revolving Loans and L/C Obligations together would exceed the amount of the combined Commitments then in effect, the Company shall immediately prepay any outstanding Revolving Loans or Cash Collateralize outstanding Letters of Credit to the extent necessary to comply with the reduced amount of the combined Commitments. (b) On each Step-Down Date, each Bank whose Pro Rata Share has been increased (a "Purchasing Bank") hereby irrevocably and unconditionally agrees to --------------- purchase from each Bank whose Pro Rata Share has been reduced (a "Selling ------- Bank"), a participation in outstanding Base Rate Loans such that, immediately following such purchase, the Pro Rata Share of each Bank in Base Rate Loans shall correspond to the adjusted Pro Rata Shares applicable on such Step-Down Date. In no event, however, shall any Bank be required to purchase a participation in Base Rate Loans if such purchase would cause the Effective Amount of the Revolving Loans of such Bank plus the participation of such Bank in the Effective Amount of all L/C Obligations to exceed such Bank's Commitment. On the applicable Step-Down Date, each Purchasing Bank shall pay to the Agent for the account of the Selling Bank an amount equal to the Purchasing Bank's participation in outstanding Base Rate Loans. If any amount required to be paid to the Selling Bank by the Purchasing Bank pursuant to this Section 3(b) is not paid by 12:00 noon (San Francisco time) on the date such payment is due, then interest shall accrue on Purchasing Bank's obligation to make such payment, from the date due until Purchasing Bank makes such payment, at a rate per annum equal to the Federal Funds Rate in effect from time to time during such period. -8- (c) On each Step-Down Date, each Purchasing Bank shall be deemed to, and hereby irrevocably and unconditionally agrees to purchase from, each Selling Bank an undivided interest in Selling Bank's outstanding Offshore Rate Loans such that, immediately following such purchase, the Pro Rata Share of each Bank in Offshore Rate Loans shall correspond to the adjusted Pro Rata Shares applicable on such Step-Down Date. In no event, however, shall any Bank be required to purchase an undivided interest in Offshore Rate Loans if such purchase would cause the Effective Amount of the Revolving Loans of such Bank plus the participation of such Bank in the Effective Amount of all L/C Obligations to exceed such Bank's Commitment. Each Purchasing Bank unconditionally and irrevocably agrees with each Selling Bank that, if any amount in respect of the principal, interest or fees owing to such Selling Bank with respect to the purchased Offshore Rate Loans is not paid on its due date, the Purchasing Bank shall promptly pay to the Agent for the account of the Selling Bank an amount equal to the Purchasing Bank's Pro Rata Share of such unpaid amount. The Purchasing Bank's obligation to make the payment referred to in the immediately preceding sentence shall be absolute and unconditional and shall not be affected by any circumstance, including, without limitation, (i) any set-off, counterclaim, recoupment, defense or other right which the Purchasing Bank or the Company or the Parent may have against any Selling Bank or any other Person for any reason whatsoever, (ii) the occurrence or continuance of a Default or an Event of Default, (iii) the occurrence of any Material Adverse Effect, or (iv) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing. If any amount required to be paid to the Selling Bank by the Purchasing Bank pursuant to this Section 3(c) is not paid by 12:00 noon (San Francisco time) on the date such payment is due, then interest shall accrue on Purchasing Bank's obligation to make such payment, from the date due until Purchasing Bank makes such payment, at a rate per annum equal to the Federal Funds Rate in effect from time to time during such period. The Agent shall promptly give notice of the Company's failure to pay principal or interest of a purchased Offshore Rate Loan on its due date, but failure of the Agent to give any such notice on the due date or in sufficient time to enable Purchasing Bank to effect such payment on such due date shall not relieve Purchasing Bank from its obligations under this Section 3(c). (d) Each Selling Bank shall pay to each Purchasing Bank a risk participation fee with respect to Purchasing Bank's Pro Rata Share of the purchased Offshore Rate Loans for the period from the applicable Step-Down Date until the date of repayment of each such purchased Offshore Rate Loan. The risk participation fee shall be equal to 80% of the Applicable Offshore Rate Margin applicable to Purchasing Bank's Pro Rata Share of each such purchased Offshore Rate Loan. Such risk participation fee shall be paid to Purchasing Bank in arrears on the date the Agent receives payment of interest from the Company on the purchased Offshore Rate Loans. Each Selling Bank hereby authorizes the Agent to deduct from each interest payment made -9- by the Company to the Agent with respect to the purchased Offshore Rate Loans an amount equal to the risk participation fee payable to Purchasing Bank pursuant to this Section 3(d) and to remit said fee to Purchasing Bank promptly following the Agent's receipt thereof. (e) Whenever, at any time after any Selling Bank has received from any Purchasing Bank the full amount owing by such Purchasing Bank pursuant to and in accordance with Section 3(c) in respect of any purchased Offshore Rate Loan, such Selling Bank receives any payment related to such purchased Offshore Rate Loan (whether directly from the Company or otherwise), or any payment of interest on account thereof, such Selling Bank will distribute to Purchasing Bank its Pro Rata Share thereof. 4. Representations and Warranties. The Company hereby represents and ------------------------------ warrants to the Agent and the Banks as follows: (a) No Event of Default has occurred and is continuing. (b) The execution, delivery and performance by the Company of this Amendment have been duly authorized by all necessary corporate and other action and do not and will not require any registration with, consent or approval of, notice to or action by, any Person (including any Governmental Authority) in order to be effective and enforceable. The Credit Agreement as amended by this Amendment constitutes the legal, valid and binding obligations of the Company, enforceable against it in accordance with its respective terms, except as enforceability may be limited by applicable bankruptcy, insolvency, or similar laws affecting the enforcement of creditors' rights generally or by equitable principles relating to enforceability, without defense, counterclaim or offset. (c) All representations and warranties of the Company contained in the Credit Agreement are true and correct on and as of the date hereof, except to the extent such representations and warranties expressly refer to an earlier date, in which case they are true and correct as of such earlier date. (d) The Company is entering into this Amendment on the basis of its own investigation and for its own reasons, without reliance upon the Agent and the Banks or any other Person. 5. Effective Date. This Amendment will become effective as of February -------------- 23, 1999 (the "Effective Date"), provided that each of the following conditions -------------- -------- precedent is satisfied on or before March 1, 1999: (a) The Agent has received from the Company and each of Banks a duly executed original (or, if elected by the Agent, an executed facsimile copy) of this Amendment, together with a duly executed Guarantor Acknowledgment and Consent in the form attached hereto. -10- (b) The Agent has received from the Company for the ratable benefit of the Banks the amount of Twenty-Five Thousand Dollars ($25,000), representing payment in full of a non-refundable amendment fee, which amount the Company hereby covenants to pay to the Agent for the benefit of the Banks on demand. (c) The Company has entered into an amendment with the holders of the Company's long term notes issued under that certain Note Purchase Agreement dated as of December 22, 1997, pursuant to which the terms, covenants and conditions applicable to such notes are amended in a manner reasonably acceptable to the Banks. 6. Reservation of Rights. The Company acknowledges and agrees that the --------------------- execution and delivery by the Agent and the Banks of this Amendment shall not be deemed to create a course of dealing or otherwise obligate the Agent or the Banks to enter into amendments under the same, similar, or any other circumstances in the future. 7. Miscellaneous. ------------- (a) Except as herein expressly amended, all terms, covenants and provisions of the Credit Agreement are and shall remain in full force and effect and all references therein and in the other Loan Documents to such Credit Agreement shall henceforth refer to the Credit Agreement as amended by this Amendment. This Amendment shall be deemed incorporated into, and a part of, the Credit Agreement. This Amendment is a Loan Document. (b) This Amendment shall be binding upon and inure to the benefit of the parties hereto and to the Credit Agreement and their respective successors and assigns. No third party beneficiaries are intended in connection with this Amendment. (c) This Amendment shall be governed by and construed in accordance with the law of the State of California. (d) This Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. Each of the parties hereto understands and agrees that this document (and any other document required herein) may be delivered by any party thereto either in the form of an executed original or an executed original sent by facsimile transmission to be followed promptly by mailing of a hard copy original, and that receipt by the Agent of a facsimile transmitted document purportedly bearing the signature of a Bank or the Company shall bind such Bank or the Company, respectively, with the same force and effect as the delivery of a hard copy original. Any failure by the Agent to receive the hard copy executed original of such document shall not diminish the binding effect of receipt of the facsimile transmitted executed original of such document of the party whose hard copy page was not received by -11- the Agent, and the Agent is hereby authorized to make sufficient photocopies thereof to assemble complete counterparty documents. (e) This Amendment, together with the Credit Agreement, contains the entire and exclusive agreement of the parties hereto with reference to the matters discussed herein and therein. This Amendment supersedes all prior drafts and communications with respect thereto. This Amendment may not be amended except in accordance with the provisions of Section 11.01 of the Credit Agreement. (f) If any term or provision of this Amendment shall be deemed prohibited by or invalid under any applicable law, such provision shall be invalidated without affecting the remaining provisions of this Amendment or the Credit Agreement, respectively. (g) The Company covenants to pay to or reimburse the Agent, upon demand, for all reasonable costs and expenses (including reasonable Attorney Costs) incurred in connection with the development, preparation, negotiation, execution and delivery of this Amendment. IN WITNESS WHEREOF, the parties hereto have executed and delivered this Amendment as of the date first above written. WEST MARINE FINANCE COMPANY, INC. By______________________________ John C. Zott Senior Vice President, Finance; Chief Financial Officer; Secretary; and Treasurer BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Agent By______________________________ Gary Flieger Vice President BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as a Bank and an Issuing Bank By______________________________ Kenneth E. Jones Vice President -12- NATIONSBANK OF TEXAS, NATIONAL ASSOCIATION, as a Bank and an Issuing Bank By______________________________ James P. Johnson Managing Director FLEET NATIONAL BANK, as a Bank and an Issuing Bank By______________________________ Linda McKee Vice President -13- GUARANTOR ACKNOWLEDGMENT AND CONSENT ------------------------------------ Each of the undersigned Guarantors hereby (i) acknowledges and consents to the terms of and the execution, delivery and performance of the foregoing Third Amendment to Credit Agreement (the "Amendment") (without implying the need for --------- any such acknowledgement or consent), and (ii) represents and warrants to the Agent and the Banks that, both before and after giving effect to the Amendment, its respective Guaranty remains in full force and effect as an enforceable obligation of the Guarantor, except as enforceability may be limited by applicable bankruptcy, insolvency, or similar laws affecting the enforceability of creditors' rights generally or by equitable principles relating to enforceability, without defense, counterclaim or offset, and that it is in compliance with all of its covenants contained therein. Each Guarantor further represents that the execution, delivery and performance by such Person of this Acknowledgement and Consent have been duly authorized by all necessary corporate, partnership and other action and do not and will not require any registration with, consent or approval of, notice to or action by, any Person (including any Governmental Authority) in order to be effective and enforceable. Each Guarantor remakes as of the Effective Date (as defined in the Amendment) all of the representations and warranties made by it pursuant to its respective Guaranty. Capitalized terms used herein and not otherwise defined have the respective meanings defined in the Credit Agreement (as defined in the Amendment). IN WITNESS WHEREOF, each of the undersigned has executed this Acknowledgement and Consent by its duly authorized officers as of this ______ day of ________________, 1999. WEST MARINE, INC., a Delaware corporation By____________________________ John C. Zott Senior Vice President, Finance; Chief Financial Officer; Secretary; and Treasurer WEST MARINE PRODUCTS, INC., a California corporation By____________________________ John C. Zott Senior Vice President, Finance; Chief Financial Officer; Secretary; and Treasurer -14- E&B MARINE INC., a Delaware corporation By____________________________ John C. Zott Senior Vice President, Finance; Chief Financial Officer; Secretary; and Treasurer E&B MARINE SUPPLY, INC., a Maryland corporation By____________________________ John C. Zott Senior Vice President, Finance; Chief Financial Officer; Secretary; and Treasurer E&B MARINE SUPPLY, INC., a New Jersey corporation By____________________________ John C. Zott Senior Vice President, Finance; Chief Financial Officer; Secretary; and Treasurer E&B MARINE SUPPLY (Florida), Inc., a Delaware corporation By____________________________ John C. Zott Senior Vice President, Finance; Chief Financial Officer; Secretary; and Treasurer -15- GOLDBERGS' MARINE DISTRIBUTORS, INC., a Delaware corporation By____________________________ John C. Zott Senior Vice President, Finance; Chief Financial Officer; Secretary; and Treasurer JAMES BLISS & CO., INC., a Massachusetts corporation By____________________________ John C. Zott Senior Vice President, Finance; Chief Financial Officer; Secretary; and Treasurer SEA RANGER MARINE INC., a Delaware corporation By____________________________ John C. Zott Senior Vice President, Finance; Chief Financial Officer; Secretary; and Treasurer KRISTA CORPORATION, a Delaware corporation By____________________________ John C. Zott Senior Vice President, Finance; Chief Financial Officer; Secretary; and Treasurer CENTRAL MARINE SUPPLY, INC., a New Jersey corporation By____________________________ John C. Zott Senior Vice President, Finance; Chief Financial Officer; Secretary; and Treasurer -16- WEST MARINE LBC, INC., a California corporation By____________________________ John C. Zott Senior Vice President, Finance; Chief Financial Officer; Secretary; and Treasurer WEST MARINE IHC I, INC., a California corporation By____________________________ John C. Zott Senior Vice President, Finance; Chief Financial Officer; Secretary; and Treasurer WEST MARINE IHC II, INC., a California corporation By____________________________ John C. Zott Senior Vice President, Finance; Chief Financial Officer; Secretary; and Treasurer E&B MARINE LBC, INC., a California corporation By____________________________ John C. Zott Senior Vice President, Finance; Chief Financial Officer; Secretary; and Treasurer -17- E&B MARINE IHC I, INC., a California corporation By____________________________ John C. Zott Senior Vice President, Finance; Chief Financial Officer; Secretary; and Treasurer E&B MARINE IHC II, INC., a California corporation By____________________________ John C. Zott Senior Vice President, Finance; Chief Financial Officer; Secretary; and Treasurer W MARINE MANAGEMENT COMPANY, INC., a California corporation By____________________________ John C. Zott Senior Vice President, Finance; Chief Financial Officer; Secretary; and Treasurer -18- REVISED SCHEDULE 2.01 --------------------- COMMITMENTS ----------- AND PRO RATA SHARES ------------------- From the Closing Date until and including April 4, 1999, the Commitment and Pro - ------------------------------------------------------------------------------- Rata Share of each Bank shall be the amounts set forth below: - ------------------------------------------------------------- Pro Rata Bank Commitment Share ---- ---------- ----- Bank of America National Trust and Savings Association $ 40,000,000 44.444444444% NationsBank of Texas, National Association $ 35,000,000 38.888888889% Fleet National Bank $ 15,000,000 16.666666667% TOTAL $ 90,000,000 100.000000000% From April 5, 1999, until and including July 4, 1999, the Commitment and Pro - ---------------------------------------------------------------------------- Rata Share of each Bank shall be the amounts set forth below: - ------------------------------------------------------------- Pro Rata Bank Commitment Share ---- ---------- ----- Bank of America National Trust and Savings Association $ 40,000,000 53.333333333% NationsBank of Texas, National Association $ 25,000,000 33.333333333% Fleet National Bank $ 10,000,000 13.333333333% TOTAL $ 75,000,000 100.000000000% -19- REVISED SCHEDULE 2.01 (con't) --------------------- From July 5, 1999 and thereafter, the Commitment and Pro Rata Share of each Bank - -------------------------------------------------------------------------------- shall be the amounts set forth below: - ------------------------------------- Pro Rata Bank Commitment Share ---- ---------- ----- Bank of America National Trust and Savings Association $ 40,000,000 80.000000000% NationsBank of Texas, National Association $ -0- 0% Fleet National Bank $ 10,000,000 20.000000000% TOTAL $ 50,000,000 100.000000000% -20- EX-21.1 8 LIST OF SUBSIDIARIES Exhibit 21.1 LIST OF SUBSIDIARIES West Marine Products, Inc., a California corporation West Marine FSC, Inc., a Barbados corporation West Marine Finance Company, a California corporation West Marine Management Company, a California corporation West Marine LBC, Inc., a California corporation West Marine IHC I, Inc., a California corporation West Marine IHC II, Inc., a California corporation E&B Marine, Inc., a Delaware corporation E&B Marine LBC, Inc., a California corporation E&B Marine IHC I, Inc., a California corporation E&B Marine IHC II, Inc., a California corporation E&B Marine Supply , Inc., a New Jersey corporation E&B Marine Supply , Inc., a Maryland corporation E&B Marine Supply (Florida) , Inc., a Delaware corporation Goldbergs' Marine Distributors, Inc., a Delaware corporation James Bliss & Co., Inc., a Massachusetts corporation Sea Ranger Marine Inc., a Delaware corporation Krista Corporation, a Delaware corporation Central Marine Supply Inc., a New Jersey corporation Central Marine Supply (Florida), Inc., a Delaware corporation EX-23.1 9 CONSENT OF DELOITTE & TOUCHE EXHIBIT 23.1 [Deloitte & Touche Letterhead] INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statements No. 333-04712, No. 333-03728, No. 33-89322, No. 33-72956, No. 333-02903 and No. 333-71147 of West Marine, Inc. on Form S-8 of our report dated February 24, 1999, appearing in the Annual Report on Form 10-K of West Marine, Inc. for the year ended January 2, 1999. /s/ Deloitte & Touche LLP March 29, 1999 EX-27 10 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS DATED JANUARY 2, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR JAN-02-1999 JAN-04-1998 JAN-02-1999 1,024 0 4,660 0 160,069 177,327 60,219 0 279,545 33,353 0 0 0 17 149,753 279,545 448,832 448,832 335,956 335,956 100,927 0 6,071 2,594 1,496 1,098 0 0 0 1,098 .06 .06 Amount represents receivables, net of allowances for doubtful accounts. Amount represents PP&E, net of accumulated depreciation. Amount represents selling, general and administrative costs.
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