EXHIBIT 10.1
[EXECUTION COPY]
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AMENDED AND RESTATED
CREDIT AGREEMENT
Dated as of February 10, 1999
among
CALLAWAY GOLF COMPANY,
as Borrower,
THE OTHER CREDIT PARTIES SIGNATORY HERETO,
as Credit Parties,
THE LENDERS SIGNATORY HERETO
FROM TIME TO TIME,
as Lenders,
and
GENERAL ELECTRIC CAPITAL CORPORATION,
as Agent and Lender
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TABLE OF CONTENTS
Page
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1. AMOUNT AND TERMS OF CREDIT.............................................................. 2
1.1 Credit Facilities.............................................................. 2
1.2 Letters of Credit.............................................................. 5
1.3 Prepayments.................................................................... 5
1.4 Use of Proceeds................................................................ 7
1.5 Interest and Applicable Margins................................................ 8
1.6 Receivables.................................................................... 11
1.7 Eligible Inventory............................................................. 11
1.8 Cash Management Systems........................................................ 13
1.9 Fees........................................................................... 13
1.10 Receipt of Payments............................................................ 13
1.11 Application and Allocation of Payments......................................... 13
1.12 Loan Account and Accounting.................................................... 14
1.13 Indemnity...................................................................... 15
1.14 Access......................................................................... 16
1.15 Taxes.......................................................................... 16
1.16 Capital Adequacy; Increased Costs; Illegality.................................. 17
1.17 Single Loan.................................................................... 19
1.18 Eligible Real Estate........................................................... 19
1.19 Eligible Equipment............................................................. 20
2. CONDITIONS PRECEDENT.................................................................... 21
2.1 Conditions to the Loans........................................................ 21
2.2 Further Conditions to Each Loan................................................ 21
3. REPRESENTATIONS AND WARRANTIES.......................................................... 22
3.1 Corporate Existence; Compliance with Law....................................... 22
3.2 Executive Offices; FEIN........................................................ 23
3.3 Corporate Power, Authorization, Enforceable Obligations........................ 23
3.4 Financial Statements and Projections........................................... 23
3.5 Material Adverse Effect........................................................ 24
3.6 Ownership of Property; Liens................................................... 25
3.7 Labor Matters.................................................................. 25
3.8 Ventures, Subsidiaries and Affiliates; Outstanding Stock and Indebtedness...... 26
3.9 Government Regulation.......................................................... 26
3.10 Margin Regulations............................................................. 26
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3.11 Taxes.......................................................................... 27
3.12 ERISA.......................................................................... 27
3.13 No Litigation.................................................................. 28
3.14 Brokers........................................................................ 28
3.15 Intellectual Property.......................................................... 29
3.16 Full Disclosure................................................................ 29
3.17 Environmental Matters.......................................................... 29
3.18 Insurance...................................................................... 30
3.19 Deposit and Disbursement Accounts.............................................. 30
3.20 [INTENTIONALLY OMITTED.]....................................................... 30
3.21 Customer and Trade Relations................................................... 30
3.22 Agreements and Other Documents................................................. 31
3.23 Solvency....................................................................... 31
3.24 Year 2000 Representations...................................................... 31
3.25 Assets of Subsidiaries......................................................... 31
4. FINANCIAL STATEMENTS AND INFORMATION.................................................... 31
4.1 Reports and Notices............................................................ 31
4.2 Communication with Accountants................................................. 32
5. AFFIRMATIVE COVENANTS................................................................... 32
5.1 Maintenance of Existence and Conduct of Business............................... 32
5.2 Payment of Obligations......................................................... 32
5.3 Books and Records.............................................................. 33
5.4 Insurance; Damage to or Destruction of Collateral.............................. 33
5.5 Compliance with Laws........................................................... 35
5.6 Supplemental Disclosure........................................................ 35
5.7 Intellectual Property.......................................................... 35
5.8 Environmental Matters.......................................................... 35
5.9 Landlords' Agreements, Mortgagee Agreements and Bailee Letters................. 36
5.10 Further Assurances............................................................. 37
5.11 Year 2000 Corrective Actions................................................... 37
6. NEGATIVE COVENANTS...................................................................... 37
6.1 Mergers, Subsidiaries, Etc..................................................... 37
6.2 Investments; Loans and Advances................................................ 41
6.3 Indebtedness................................................................... 42
6.4 Employee Loans and Affiliate Transactions...................................... 43
6.5 Capital Structure and Business................................................. 44
6.6 Guaranteed Indebtedness........................................................ 44
6.7 Liens.......................................................................... 44
6.8 Sale of Stock and Assets....................................................... 45
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6.9 ERISA.......................................................................... 45
6.10 Financial Covenants............................................................ 46
6.11 Hazardous Materials............................................................ 46
6.12 Sale-Leasebacks................................................................ 46
6.13 Cancellation of Indebtedness................................................... 46
6.14 Restricted Payments............................................................ 46
6.15 Change of Corporate Name or Location; Change of Fiscal Year.................... 48
6.16 No Impairment of Intercompany Transfers........................................ 48
6.17 No Speculative Transactions.................................................... 48
6.18 Leases......................................................................... 49
7. TERM.................................................................................... 49
7.1 Termination.................................................................... 49
7.2 Survival of Obligations Upon Termination of Financing Arrangements............. 49
8. EVENTS OF DEFAULT; RIGHTS AND REMEDIES.................................................. 49
8.1 Events of Default.............................................................. 49
8.2 Remedies....................................................................... 51
8.3 Waivers by Credit Parties...................................................... 52
9. ASSIGNMENT AND PARTICIPATIONS; APPOINTMENT OF AGENT..................................... 52
9.1 Assignment and Participations.................................................. 52
9.2 Appointment of Agent........................................................... 54
9.3 Agent's Reliance, Etc.......................................................... 55
9.4 GE Capital and Affiliates...................................................... 56
9.5 Lender Credit Decision......................................................... 56
9.6 Indemnification................................................................ 56
9.7 Successor Agent................................................................ 57
9.8 Setoff and Sharing of Payments................................................. 57
9.9 Advances; Payments; Non-Funding Lenders; Information; Actions in Concert....... 58
9.10 Intercreditor Agreement........................................................ 60
10. SUCCESSORS AND ASSIGNS.................................................................. 61
10.1 Successors and Assigns......................................................... 61
11. MISCELLANEOUS........................................................................... 61
11.1 Complete Agreement; Modification of Agreement.................................. 61
11.2 Amendments and Waivers......................................................... 61
11.3 Fees and Expenses.............................................................. 63
11.4 No Waiver...................................................................... 64
11.5 Remedies....................................................................... 65
11.6 Severability................................................................... 65
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11.7 Conflict of Terms.............................................................. 65
11.8 Confidentiality................................................................ 65
11.9 GOVERNING LAW.................................................................. 66
11.10 Notices........................................................................ 66
11.11 Subordination of Intercompany Loans and Advances............................... 67
11.12 Section Titles................................................................. 68
11.13 Counterparts................................................................... 68
11.14 WAIVER OF JURY TRIAL........................................................... 68
11.15 Press Releases................................................................. 69
11.16 Reinstatement.................................................................. 69
11.17 Advice of Counsel.............................................................. 69
11.18 No Strict Construction......................................................... 69
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INDEX OF APPENDICES
Exhibit 1.1(a)(i) - Form of Notice of Revolving Credit Advance
Exhibit 1.1(a)(ii) - Form of Revolving Note
Exhibit 1.1(b)(ii) - Form of Swing Line Note
Exhibit 1.5(e) - Form of Notice of Conversion/Continuation
Exhibit 4.1(b) - Form of Borrowing Base Certificate
Exhibit 9.1(a) - Form of Assignment Agreement
Schedule 1.1 - Responsible Individual
Schedule 1.4 - Sources and Uses; Funds Flow Memorandum
Schedule 1.18 - Eligible Real Estate
Schedule 3.2 - Executive Offices; FEIN
Schedule 3.4(A) - Financial Statements
Schedule 3.4(B) - Projections
Schedule 3.4(C) - Fair Salable Balance Sheet
Schedule 3.5 - Adverse Events
Schedule 3.6 - Real Estate and Leases
Schedule 3.7 - Labor Matters
Schedule 3.8 - Ventures, Subsidiaries and Affiliates;
Outstanding Stock
Schedule 3.11 - Tax Matters
Schedule 3.12 - ERISA Plans
Schedule 3.13 - Litigation
Schedule 3.15 - Intellectual Property
Schedule 3.17 - Hazardous Materials
Schedule 3.18 - Insurance
Schedule 3.19 - Deposit and Disbursement Accounts
Schedule 3.20 - Government Contracts
Schedule 3.22 - Material Agreements
Schedule 5.1 - Trade Names
Schedule 5.9 - Properties with Landlord Waivers
Schedule 6.3 - Indebtedness
Schedule 6.4(a) - Transactions with Affiliates
Schedule 6.7 - Existing Liens
Schedule 6.8 - Disposition of Assets
Annex A (Recitals) - Definitions
Annex B (Section 1.2) - Letters of Credit
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Annex C (Section 1.8) - Cash Management System
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Annex D (Section 2.1(a)) - Schedule of Additional Closing Documents
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Annex E (Section 4.1(a)) - Financial Statements and Projections --
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Annex F (Section 4.1(b)) - Collateral Reports
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Annex G (Section 5.4(d)) - Mortgaged Property Insurance
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Annex H (Section 6.10) - Financial Covenants
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Annex I (Section 9.9(a)) - Lenders' Wire Transfer Information
Annex J (Section 11.10) - Notice Addresses
Annex K (from Annex A-
Commitments definition) - Commitments as of Effective Date
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AMENDED AND RESTATED CREDIT AGREEMENT, dated as of February 10, 1999, among
CALLAWAY GOLF COMPANY, a California corporation ("Borrower"); the other Credit
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Parties signatory hereto; GENERAL ELECTRIC CAPITAL CORPORATION, a New York
corporation (in its individual capacity, "GE Capital"), for itself, as Lender,
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and as Agent for Lenders, and the other Lenders signatory hereto from time to
time.
RECITALS
WHEREAS, Borrower, the other Credit Parties signatory thereto, and GE
Capital as Agent and as Lender entered into that certain Credit Agreement, dated
as of the Closing Date (the "Existing Credit Agreement");
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WHEREAS, Borrower, the other Credit Parties signatory hereto, Agent and
Lenders desire to amend and restate the Existing Credit Agreement in its
entirety to give effect to the terms and provisions set forth in this Amended
and Restated Credit Agreement (the Existing Credit Agreement and this Amended
and Restated Credit Agreement, as amended, restated, supplemented or otherwise
modified from time to time, collectively, this "Agreement"), it being understood
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and agreed that (i) with respect to any date or time period occurring and ending
prior to the Effective Date (as defined below), the rights and obligations of
the parties hereto shall be governed by the provisions of the Existing Credit
Agreement (including, without limitation, the Exhibits and Schedules thereto)
which for such purposes shall remain in full force and effect and (ii) with
respect to any date or time period occurring or ending on or after the Effective
Date, the rights and obligations of the parties hereto shall be governed by this
Agreement (including, without limitation, the Exhibits and Schedules hereto);
WHEREAS, it is the intent of Borrower, the other Credit Parties signatory
hereto, Agent and Lenders that Agent and Lenders shall be beneficiaries under
each Loan Document executed on or before the date hereof pursuant to which the
Credit Parties granted Liens to Agent, for the benefit of itself and Lenders, in
the Collateral and that all of the Obligations shall be secured by the Liens on
the Collateral, as well as the Liens granted to Agent, for the benefit of itself
and Lenders, on all other Collateral on and after the date hereof;
WHEREAS, Borrower desires that Lenders extend revolving credit facilities
to Borrower of up to One Hundred and Twenty Million Dollars ($120,000,000) in
the aggregate for the purpose of refinancing certain indebtedness of Borrower
and to provide (a) working capital financing for Borrower, and (b) funds for
other general corporate purposes of Borrower; and for these purposes, Lenders
are willing to make certain loans and other extensions of credit to Borrower of
up to such amount upon the terms and conditions set forth herein; and
WHEREAS, capitalized terms used in this Agreement shall have the meanings
ascribed to them in Annex A. All Annexes, Disclosure Schedules, Exhibits and
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other attachments
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(collectively, "Appendices") hereto, or expressly identified to this Agreement,
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are incorporated herein by reference, and taken together, shall constitute but a
single agreement. These Recitals shall be construed as part of the Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
hereinafter contained, and for other good and valuable consideration, the
parties hereto agree as follows:
1. AMOUNT AND TERMS OF CREDIT
1.1 Credit Facilities.
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(a) Revolving Credit Facility.
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(i) Subject to the terms and conditions hereof, each Revolving
Lender agrees to make available from time to time until the Commitment
Termination Date its Pro Rata Share of advances (each, a "Revolving Credit
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Advance"). The revolving loans outstanding under the Existing Credit
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Agreement on the Effective Date shall automatically, without further
action, be deemed to be Revolving Loans outstanding under this Agreement.
The Pro Rata Share of the Revolving Loan of any Revolving Lender shall not
at any time exceed its separate Revolving Loan Commitment. The obligations
of each Revolving Lender hereunder shall be several and not joint. The
aggregate amount of Revolving Credit Advances outstanding shall not exceed
at any time the lesser of (A) the Maximum Amount and (B) the Borrowing
Base, in each case less the sum of the Letter of Credit Obligations (other
than Letter of Credit Obligations which have been deemed to constitute
Revolving Credit Advances under paragraph (b)(i) of Annex B) and the Swing
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Line Loan outstanding at such time ("Borrowing Availability"). Until the
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Commitment Termination Date, Borrower may from time to time borrow, repay
and reborrow under this Section 1.1(a). Each Revolving Credit Advance
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shall be made on notice by Borrower to the representative of Agent
identified on Schedule 1.1 at the address specified thereon. Those notices
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must be given no later than (1) 1:00 p.m. (New York time) on the Business
Day of the proposed Revolving Credit Advance, in the case of an Index Rate
Loan, or (2) 1:00 p.m. (New York time) on the date which is three (3)
Business Days prior to the proposed Revolving Credit Advance, in the case
of a LIBOR Loan. Each such notice (a "Notice of Revolving Credit Advance")
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must be given in writing (by facsimile or overnight courier) substantially
in the form of Exhibit 1.1(a)(i), and shall include the information
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required in such Exhibit and such other information as may be required by
Agent. If Borrower desires to have the Revolving Credit Advances bear
interest by reference to a LIBOR Rate, it must comply with Section 1.5(e).
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(ii) Borrower shall execute and deliver to each Revolving Lender
a note to evidence the Revolving Loan Commitment of that Revolving Lender.
Each note shall be
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in the principal amount of the Revolving Loan Commitment of the applicable
Revolving Lender, dated the Effective Date and substantially in the form of
Exhibit 1.1(a)(ii) (each a "Revolving Note" and, collectively, the
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"Revolving Notes"). Each Revolving Note shall represent the obligation of
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Borrower to pay the amount of each Revolving Lender's Revolving Loan
Commitment or, if less, the applicable Revolving Lender's Pro Rata Share of
the aggregate unpaid principal amount of all Revolving Credit Advances to
Borrower together with interest thereon as prescribed in Section 1.5. The
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entire unpaid balance of the Revolving Loan and all other non-contingent
Obligations shall be immediately due and payable in full in immediately
available funds on the Commitment Termination Date.
(b) Swing Line Facility.
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(i) Agent shall notify the Swing Line Lender upon Agent's
receipt of any Notice of Revolving Credit Advance. Subject to the terms and
conditions hereof, upon receipt of any Notice of Revolving Credit Advance
requesting an Index Rate Loan, the Swing Line Lender may, in its
discretion, make available from time to time until the Commitment
Termination Date advances (each, a "Swing Line Advance") in accordance with
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any such notice. The aggregate amount of Swing Line Advances outstanding
shall not exceed the lesser of (A) the Swing Line Commitment and (B) the
lesser of the Maximum Amount and the Borrowing Base, in each case, less the
outstanding balance of the Revolving Loan at such time ("Swing Line
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Availability"). Unless the Swing Line Lender has received at least one
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business day's prior written notice from Agent or Requisite Lenders
instructing it not to make the Swing Line Advance, the Swing Line Lender
shall, notwithstanding the failure of any condition precedent set forth in
Section 2.2 of this Agreement (other than the condition precedent set forth
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in Section 2.2(e) of this Agreement), be entitled to fund such Swing Line
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Advance and, in connection with such Swing Line Advance, to have each
Lender make Revolving Credit Advances in accordance with Section
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1.1(b)(iii) or to purchase participating interests in accordance with
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Section 1.1(b)(iv). Until the Commitment Termination Date, Borrower may
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from time to time borrow, repay and reborrow under this Section 1.1(b).
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Each Swing Line Advance shall be made pursuant to a Notice of Revolving
Credit Advance delivered by Borrower to Agent in accordance with Section
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1.1(a). Those notices must be given no later than 1:00 p.m. (New York time)
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on the Business Day of the proposed Swing Line Advance. Notwithstanding any
other provision of this Agreement or the other Loan Documents, the Swing
Line Loan shall constitute an Index Rate Loan. Borrower shall repay the
aggregate outstanding principal amount of the Swing Line Loan upon demand
therefor by Agent.
(ii) Borrower shall execute and deliver to the Swing Line Lender
a promissory note to evidence the Swing Line Commitment. Such note shall be
in the principal amount of the Swing Line Commitment of the Swing Line
Lender, dated the Effective Date and substantially in the form of Exhibit
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1.1(b)(ii) (the "Swing Line Note "). The Swing Line
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Note shall represent the obligation of Borrower to pay the amount of the
Swing Line Commitment or, if less, the aggregate unpaid principal amount of
all Swing Line Advances made to Borrower together with interest thereon as
prescribed in Section 1.5. The entire unpaid balance of the Swing Line Loan
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and all other non-contingent Obligations shall be immediately due and
payable in full in immediately available funds on the Commitment
Termination Date if not sooner paid in full.
(iii) Refunding of Swing Line Loans. The Swing Line Lender, at any
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time and from time to time in its sole and absolute discretion but no less
frequently than once weekly, may on behalf of Borrower (and Borrower hereby
irrevocably authorizes the Swing Line Lender to so act on its behalf)
request each Revolving Lender (including the Swing Line Lender) to make a
Revolving Credit Advance to Borrower (which shall be an Index Rate Loan) in
an amount equal to such Revolving Lender's Pro Rata Share of the principal
amount of the Swing Line Loan (the "Refunded Swing Line Loan ") outstanding
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on the date such notice is given. Unless any of the events described in
Sections 8.1(h) or 8.1(i) shall have occurred (in which event the
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procedures of Section 1.1(b)(iv) shall apply) and regardless of whether the
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conditions precedent set forth in this Agreement to the making of a
Revolving Credit Advance are then satisfied, each Revolving Lender shall
disburse directly to Agent, its Pro Rata Share of a Revolving Credit
Advance on behalf of the Swing Line Lender, prior to 3:00 p.m. (New York
time), in immediately available funds on the Business Day next succeeding
the date such notice is given. The proceeds of such Revolving Credit
Advances shall be immediately paid to the Swing Line Lender and applied to
repay the Refunded Swing Line Loan.
(iv) Participation in Swing Line Loans. If, prior to refunding a
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Swing Line Loan with a Revolving Credit Advance pursuant to Section
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1.1(b)(iii), one of the events described in Sections 8.1(h) or 8.1(i) shall
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have occurred, then, subject to the provisions of Section 1.1(b)(v) below,
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each Revolving Lender will, on the date such Revolving Credit Advance was
to have been made for the benefit of Borrower, purchase from the Swing Line
Lender an undivided participation interest in the Swing Line Loan in an
amount equal to its Pro Rata Share of such Swing Line Loan. Upon request,
each Revolving Lender will promptly transfer to the Swing Line Lender, in
immediately available funds, the amount of its participation.
(v) Revolving Lenders' Obligations Unconditional. Each Revolving
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Lender's obligation to make Revolving Credit Advances in accordance with
Section 1.1(b)(iii) and to purchase participating interests in accordance
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with Section 1.1(b)(iv) shall be absolute and unconditional and shall not
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be affected by any circumstance, including (A) any setoff, counterclaim,
recoupment, defense or other right which such Revolving Lender may have
against the Swing Line Lender, Borrower or any other Person for any reason
whatsoever; (B) the occurrence or continuance of any Default or Event of
Default; (C) any inability of Borrower to satisfy the conditions precedent
to borrowing set forth in this Agreement on
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the date upon which such participating interest is to be purchased or (D)
any other circumstance, happening or event whatsoever, whether or not
similar to any of the foregoing. If any Revolving Lender does not make
available to Agent or the Swing Line Lender, as applicable, the amount
required pursuant to Section 1.1(b)(iii) or 1.1(b)(iv), as the case may be,
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the Swing Line Lender shall be entitled to recover such amount on demand
from such Revolving Lender, together with interest thereon for each day
from the date of non-payment until such amount is paid in full at the
Federal Funds Rate for the first two Business Days and at the Index Rate
thereafter.
(c) Reliance on Notices. Agent shall be entitled to rely upon, and shall
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be fully protected in relying upon, any Notice of Revolving Credit Advance,
Notice of Conversion/Continuation or similar notice believed by Agent to be
genuine. Agent may assume that each Person executing and delivering such a
notice was duly authorized, unless the responsible individual acting thereon for
Agent has actual knowledge to the contrary.
1.2 Letters of Credit. Subject to and in accordance with the terms and
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conditions contained herein and in Annex B, Borrower shall have the right to
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request, and Revolving Lenders agree to incur, or purchase participations in,
Letter of Credit Obligations in respect of Borrower.
1.3 Prepayments.
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(a) Voluntary Prepayments. Borrower may at any time on at least ten (10)
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days' prior written notice to Agent terminate the Revolving Loan Commitment;
provided that upon such termination, all Loans and other Obligations shall be
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immediately due and payable in full. Any such voluntary prepayment and any such
termination of the Revolving Loan Commitment must be accompanied by the payment
of the fee required by Section 1.9(c), plus the payment of any LIBOR funding
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breakage costs in accordance with Section 1.13(b). Upon any such prepayment and
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termination of the Revolving Loan Commitment, Borrower's right to request
Revolving Credit Advances, or request that Letter of Credit Obligations be
incurred on its behalf, or request Swing Line Advances, shall simultaneously be
terminated.
(b) Mandatory Prepayments.
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(i) If at any time the outstanding balance of the Revolving Loan
exceeds the lesser of (A) the Maximum Amount and (B) the Borrowing Base, less,
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in each case, the outstanding Swing Line Loan at such time, Borrower shall
immediately repay the aggregate outstanding Revolving Credit Advances to the
extent required to eliminate such excess. If any such excess remains after
repayment in full of the aggregate outstanding Revolving Credit Advances,
Borrower shall provide cash collateral for the Letter of Credit Obligations in
the manner set forth in Annex B to the extent required to eliminate such excess.
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(ii) Immediately upon receipt by any Credit Party of proceeds of any
asset disposition (including condemnation proceeds, but excluding proceeds
of asset dispositions permitted by clauses (a) through (e) of Section 6.8)
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or any sale of Stock of any Subsidiary of any Credit Party, Borrower shall
prepay the Loans in an amount equal to all such proceeds, net of (A)
commissions and other reasonable and customary transaction costs, fees and
expenses properly attributable to such transaction and payable by Borrower
in connection therewith (in each case, paid to non-Affiliates), (B)
transfer taxes, (C) amounts payable to holders of senior Liens (to the
extent such Liens constitute Permitted Encumbrances hereunder), if any, and
(D) an appropriate reserve for income taxes in accordance with GAAP in
connection therewith. Any such prepayment shall be applied in accordance
with clause (c) below.
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(iii) If Borrower issues Stock, Borrower shall, no later than the
Business Day following the date of receipt of any cash proceeds thereof
(other than cash proceeds of up to $1,000,000 in any Fiscal Year from the
issuance of Stock of Borrower to employees, officers or directors of any
Credit Party or any of its Subsidiaries), prepay the Loans in an amount
equal to all such proceeds, net of underwriting discounts and commissions
and other reasonable costs paid to non-Affiliates in connection therewith.
Any such prepayment shall be applied in accordance with clause (c) below.
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(c) Application of Certain Mandatory Prepayments. Any prepayments made by
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Borrower pursuant to clauses (b)(ii) or (b)(iii), above shall be applied as
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follows: first, to Fees and reimbursable expenses of Agent then due and payable
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pursuant to any of the Loan Documents; second, to interest then due and payable
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on the Swing Line Loan; third, to the principal balance of the Swing Line Loan
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until the same shall have been repaid in full; fourth, to interest then due and
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payable on the Revolving Credit Advances; fifth, to the outstanding principal
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balance of Revolving Credit Advances until the same shall have been paid in
full; and sixth, to any Letter of Credit Obligations, to provide cash collateral
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therefor in the manner set forth in Annex B, until all such Letter of Credit
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Obligations have been fully cash collateralized in the manner set forth in Annex
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B. Neither the Revolving Loan Commitment nor the Swing Line Commitment shall be
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permanently reduced by the amount of any such prepayments.
(d) Application of Prepayments from Insurance Proceeds. Prepayments from
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insurance proceeds in accordance with Section 5.4(c) shall be applied first, to
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the Swing Line Loans and, second, to the Revolving Credit Advances. Neither the
Revolving Loan Commitment nor the Swing Line Loan Commitment shall be
permanently reduced by the amount of any such prepayments.
(e) Application of Payments from Receivables Facility. Payments deposited
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in the Agent Account in accordance with Section 2.04 or Article VI (or any
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comparable provisions) of the Receivables Purchase Agreement shall be applied as
follows:
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first, to Fees and reimbursable expenses of Agent then due and payable
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pursuant to any of the Loan Documents;
second, to interest then due and payable on the Swing Line Loan;
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third, to the principal balance of the Swing Line Loan until the same shall
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have been repaid in full;
fourth, to interest then due and payable on the Revolving Credit Advances
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until the same shall have been paid in full, provided, however, that unless a
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Default or Event of Default has occurred and is continuing, interest on any
LIBOR Loans shall not be required to be paid pursuant to this clause (e)
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unless the date on which the payment is to be applied is the Interest Payment
Date applicable thereto;
fifth, to the outstanding principal balance of Revolving Credit Advances
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until the same shall have been paid in full, provided, however, that unless a
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Default or Event of Default has occurred and is continuing, the outstanding
principal balance of any LIBOR Loans shall not be required to be paid
pursuant to this clause (e) unless the date on which the payment is to be
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applied is the Interest Payment Date applicable thereto;
sixth, if a Default or Event of Default has occurred and is continuing, to
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any Letter of Credit Obligations, to provide cash collateral therefor in the
manner set forth in Annex B, until all such Letter of Credit Obligations have
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been fully cash collateralized in the manner set forth in Annex B; and
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seventh, the balance of any such payment shall be paid to Borrower on the
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Business Day on which the payment is received (or deemed received) by Agent
in accordance with Section 1.10.
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Neither the Revolving Loan Commitment nor the Swing Line Commitment shall be
permanently reduced by the amount of any such payments.
(f) No Implied Consent. Nothing in this Section 1.3 shall be construed to
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constitute Agent's or any Lender's consent to any transaction referred to in
clauses (b)(ii) and (b)(iii) above which is not permitted by other provisions
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of this Agreement or the other Loan Documents.
1.4 Use of Proceeds. Borrower shall utilize the proceeds of the Revolving
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Loan and the Swing Line Loan solely for the financing of Borrower's ordinary
working capital and general corporate needs (including transactions permitted
hereunder, but excluding in any event the making of any Restricted Payment not
specifically permitted by Section 6.14). Disclosure Schedule (1.4) contains a
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description of Borrower's sources and uses of funds as of the Effective Date,
including Loans and Letter of Credit Obligations to be made or incurred on that
date, and a
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funds flow memorandum detailing how funds from each source are to be transferred
to particular uses.
1.5 Interest and Applicable Margins.
-------------------------------
(a) Borrower shall pay interest to Agent, for the ratable benefit of
Lenders in accordance with the various Loans being made by each Lender, in
arrears on each applicable Interest Payment Date, at the following rates: (i)
with respect to the Revolving Credit Advances, the Index Rate plus the
Applicable Revolver Index Margin per annum or, at the election of Borrower, the
applicable LIBOR Rate plus the Applicable Revolver LIBOR Margin per annum, based
on the aggregate Revolving Credit Advances outstanding from time to time; and
(ii) with respect to the Swing Line Loan, the Index Rate plus the Applicable
Revolver Index Margin per annum. The Applicable Revolver Index Margin,
Applicable Revolver LIBOR Margin, Applicable L/C Margin, and the Applicable
Unused Line Fee Margin are each equal to the rates per annum set forth below as
of the Effective Date:
Applicable Revolver Index Margin 0.75%
Applicable Revolver LIBOR Margin 2.25%
Applicable L/C Margin 2.25%
Applicable Unused Line Fee Margin 0.375%
After the first anniversary of the Effective Date, the Applicable Margins will
be adjusted (up or down) prospectively on a quarterly basis as determined by
consolidated EBITDA of Borrower and its Subsidiaries for the four Fiscal
Quarters then most recently ended, commencing with the four Fiscal Quarters
ending December 31, 1999. Adjustments in Applicable Margins will be determined
by reference to the following grid:
--------------------------------------------------------------
If EBITDA is: Level of Applicable Margins:
--------------------------------------------------------------
**$85 million Level I
--------------------------------------------------------------
*$85 million, but **$70 million Level II
--------------------------------------------------------------
*$70 million, but **$55 million Level III
--------------------------------------------------------------
*$55 million, but **$40 million Level IV
--------------------------------------------------------------
*$40 million, but **$25 million Level V
--------------------------------------------------------------
*$25 million Level VI
--------------------------------------------------------------
* less than
** greater than or equal to
-8-
- -------------------------------------------------------------------------------------
Applicable Margins
- -------------------------------------------------------------------------------------
Level I Level II Level III Level IV Level V Level VI
-------- --------- ---------- --------- -------- ---------
- -------------------------------------------------------------------------------------
Applicable Revolver 0.00% 0.25% 0.50% 0.75% 1.00% 1.25%
Index Margin
- -------------------------------------------------------------------------------------
Applicable Revolver 1.50% 1.75% 2.00% 2.25% 2.50% 2.75%
LIBOR Margin
- -------------------------------------------------------------------------------------
Applicable 1.50% 1.75% 2.00% 2.25% 2.50% 2.75%
L/C Margin
- -------------------------------------------------------------------------------------
Applicable Unused 0.250% 0.250% 0.375% 0.375% 0.500% 0.500%
Line Fee Margin
- -------------------------------------------------------------------------------------
All adjustments in the Applicable Margins after the first anniversary of the
Effective Date will be implemented on a prospective basis, beginning with each
calendar month commencing at least five (5) days after the date of delivery to
Agent and Lenders of the quarterly unaudited Financial Statements of Borrower
evidencing the need for an adjustment. Concurrently with the delivery of those
Financial Statements, Borrower shall deliver to Agent and Lenders a certificate,
signed by its chief financial officer, setting forth in reasonable detail the
basis for the continuance of, or any change in, the Applicable Margins. Failure
to deliver such Financial Statements within eight (8) Business Days of the date
required therefor pursuant to Section 4 and Annex E shall, in addition to any
--------- -------
other remedy provided for in this Agreement, result in an increase in the
Applicable Margins to the highest level set forth in the foregoing grid until
the first day of the first calendar month following the delivery of those
Financial Statements demonstrating that such an increase is not required. If a
Default or Event of Default shall have occurred or be continuing at the time any
reduction in the Applicable Margins is to be implemented, that reduction shall
be deferred until the first day of the first calendar month following the date
on which such Default or Event of Default is waived or cured.
(b) If any payment on any Loan becomes due and payable on a day other than
a Business Day, the maturity thereof will be extended to the next succeeding
Business Day (except as set forth in the definition of LIBOR Period) and, with
respect to payments of principal, interest thereon shall be payable at the then
applicable rate during such extension.
(c) All computations of Fees calculated on a per annum basis and interest
shall be made by Agent on the basis of a three hundred and sixty (360) day year,
in each case for the actual number of days occurring in the period for which
such interest and Fees are payable. The Index Rate shall be determined each day
based upon the Index Rate as in effect each day. Each determination by Agent of
an interest rate and Fees hereunder shall be conclusive, absent manifest error.
-9-
(d) So long as an Event of Default shall have occurred and be continuing
under Section 8.1(a), (h) or (i), or so long as any other Event of Default shall
-------------- --- ---
have occurred and be continuing and at the election of Agent (or upon the
written request of Requisite Lenders) confirmed by written notice from Agent to
Borrower, the interest rates applicable to the Loans and the Letter of Credit
Fees shall be increased by two percent (2%) per annum above the rates of
interest or the rate of such Fees otherwise applicable hereunder ("Default
-------
Rate"), and all outstanding Obligations shall bear interest at the Default Rate
applicable to such Obligations. Interest and Letter of Credit Fees at the
Default Rate shall accrue from the initial date of such Event of Default until
that Event of Default is cured or waived and shall be payable upon demand.
(e) So long as no Default or Event of Default shall have occurred and be
continuing, and subject to the additional conditions precedent set forth in
Section 2.2, Borrower shall have the option to (i) request that any Revolving
- -----------
Credit Advances be made as a LIBOR Loan, (ii) convert at any time all or any
part of outstanding Loans (other than the Swing Line Loan) from Index Rate Loans
to LIBOR Loans, (iii) convert any LIBOR Loan to an Index Rate Loan, subject to
payment of LIBOR breakage costs in accordance with Section 1.13(b) if such
---------------
conversion is made prior to the expiration of the LIBOR Period applicable
thereto, or (iv) continue all or any portion of any Loan (other than the Swing
Line Loan) as a LIBOR Loan upon the expiration of the applicable LIBOR Period
and the succeeding LIBOR Period of that continued Loan shall commence on the
last day of the LIBOR Period of the Loan to be continued. Any Loan to be made
or continued as, or converted into, a LIBOR Loan must be in a minimum amount of
$5,000,000 and integral multiples of $500,000 in excess of such amount. Any
such election must be made by 1:00 p.m. (New York time) on the third (3rd)
Business Day prior to (1) the date of any proposed Advance which is to bear
interest at the LIBOR Rate, (2) the end of each LIBOR Period with respect to any
LIBOR Loans to be continued as such, or (3) the date on which Borrower wishes to
convert any Index Rate Loan to a LIBOR Loan for a LIBOR Period designated by
Borrower in such election. If no election is received with respect to a LIBOR
Loan by 1:00 p.m. (New York time) on the third (3rd) Business Day prior to the
end of the LIBOR Period with respect thereto (or if a Default or an Event of
Default shall have occurred and be continuing or the additional conditions
precedent set forth in Section 2.2 shall not have been satisfied), that LIBOR
-----------
Loan shall be converted to an Index Rate Loan at the end of its LIBOR Period.
Borrower must make such election by notice to Agent in writing, by facsimile or
overnight courier. In the case of any conversion or continuation, such election
must be made pursuant to a written notice (a "Notice of
---------
Conversion/Continuation") in the form of Exhibit 1.5(e).
- ----------------------- --------------
(f) Notwithstanding anything to the contrary set forth in this Section
-------
1.5, if a court of competent jurisdiction determines in a final order that the
- ---
rate of interest payable hereunder exceeds the highest rate of interest
permissible under law (the "Maximum Lawful Rate"), then so long as the Maximum
-------------------
Lawful Rate would be so exceeded, the rate of interest payable hereunder shall
be equal to the Maximum Lawful Rate; provided, however, that if at any time
-------- -------
thereafter the rate of interest payable hereunder is less than the Maximum
Lawful Rate, Borrower shall continue
-10-
to pay interest hereunder at the Maximum Lawful Rate until such time as the
total interest received by Agent, on behalf of Lenders, is equal to the total
interest which would have been received had the interest rate payable hereunder
been (but for the operation of this paragraph) the interest rate payable since
the Effective Date as otherwise provided in this Agreement. Thereafter, interest
hereunder shall be paid at the rate(s) of interest and in the manner provided in
Sections 1.5(a) through (e) above, unless and until the rate of interest again
- --------------- ---
exceeds the Maximum Lawful Rate, and at that time this paragraph shall again
apply. In no event shall the total interest received by any Lender pursuant to
the terms hereof exceed the amount which such Lender could lawfully have
received had the interest due hereunder been calculated for the full term hereof
at the Maximum Lawful Rate. If the Maximum Lawful Rate is calculated pursuant to
this paragraph, such interest shall be calculated at a daily rate equal to the
Maximum Lawful Rate divided by the number of days in the year in which such
calculation is made. If, notwithstanding the provisions of this Section 1.5(f),
--------------
a court of competent jurisdiction shall finally determine that a Lender has
received interest hereunder in excess of the Maximum Lawful Rate, Agent shall,
to the extent permitted by applicable law, promptly apply such excess in the
order specified in Section 1.11 and thereafter shall refund any excess to
------------
Borrower or as a court of competent jurisdiction may otherwise order.
1.6 Receivables. On the Effective Date, the Credit Parties intend to
-----------
transfer substantially all of their Receivables to Special Purpose Corporation
pursuant to the Receivables Documents. Upon notice to Agent by Borrower that a
Facility Termination Date under (and as defined in) the Receivables Purchase
Agreement may occur within sixty (60) days, Agent shall commence an evaluation
and audit of the Receivables of the Credit Parties for the purpose of
determining whether, and the basis on which, Receivables of the Credit Parties
might be included in the Borrowing Base. Any amendment, supplement or
modification to the definition of "Borrowing Base" and related terms and
provisions, the result of which is to include some or all Receivables of the
Credit Parties in the Borrowing Base, shall require the written consent of each
Lender.
1.7 Eligible Inventory. Based on the most recent Borrowing Base
------------------
Certificate delivered by Borrower to Agent and on other information available to
Agent, Agent shall in its reasonable judgment determine which Inventory of
Borrower and Callaway Golf Ball Company shall be "Eligible Inventory" for
------------------
purposes of this Agreement. References in this Section 1.7 to Callaway Golf
-----------
Ball Company shall be disregarded until such time as the Inventory of Callaway
Golf Ball Company is eligible for inclusion in the Borrowing Base in accordance
with the proviso to the definition of "Borrowing Base" in Annex A. In
------- -------
determining whether any particular Inventory constitutes Eligible Inventory,
Agent shall not include any such Inventory to which any of the exclusionary
criteria set forth below applies. Agent reserves the right, at any time and
from time to time after the Effective Date, to adjust any such criteria, to
establish new criteria and to adjust advance rates with respect to Eligible
Inventory in its reasonable judgment, subject to the approval of (x) each Lender
in the case of an increase in the percentage advance rate and (y) Supermajority
Revolving Lenders in the case of any adjustments or new criteria which have the
-11-
effect of making more credit available. Eligible Inventory shall not include
any Inventory of Borrower or Callaway Golf Ball Company that:
(a) is not owned by Borrower or Callaway Golf Ball Company free and clear
of all Liens (other than Permitted Encumbrances described in clause (a), (e) or
(i) of the definition thereof) and rights of any other Person (including the
rights of a purchaser that has made progress payments and the rights of a surety
that has issued a bond to assure Borrower's or Callaway Golf Ball Company's
performance with respect to that Inventory), except the Liens in favor of Agent,
on behalf of itself and Lenders;
(b) is (i) not located on premises owned or leased by Borrower or Callaway
Golf Ball Company or (ii) is stored with a bailee, warehouseman or similar
Person, unless Agent has given its prior consent thereto and unless (x) a
satisfactory bailee letter or landlord waiver has been delivered to Agent, or
(y) Reserves satisfactory to Agent have been established with respect thereto,
or (iii) located at any site if the aggregate book value of Inventory at any
such location is less than $100,000;
(c) is placed on consignment or is in transit;
(d) is covered by a negotiable document of title, unless such document has
been delivered to Agent with all necessary endorsements, free and clear of all
Liens except those in favor of Agent and Lenders;
(e) in Agent's reasonable determination, is excess, obsolete, unsalable,
shopworn, seconds, damaged, unfit for sale or otherwise no longer used or useful
in Borrower's or Callaway Golf Ball Company's business;
(f) consists of customized product, demonstration equipment, display items
or packing or shipping materials, manufacturing supplies, work-in-process
Inventory or replacement parts;
(g) consists of goods which have been returned by the buyer;
(h) is not of a type held for sale in the ordinary course of Borrower's or
Callaway Golf Ball Company's business;
(i) as to which Agent's Lien, on behalf of itself and Lenders, therein is
not a first priority perfected Lien;
(j) as to which any of the representations or warranties pertaining to
Inventory set forth in this Agreement, the Borrower Security Agreement or the
Subsidiaries Security Agreement (as applicable) is untrue;
-12-
(k) consists of any costs associated with "freight-in" charges;
(l) consists of Hazardous Materials or goods that can be transported or
sold only with licenses that are not readily available;
(m) is not covered by casualty insurance acceptable to Agent; or
(n) is otherwise unacceptable to Agent in its reasonable judgment.
1.8 Cash Management Systems. On or prior to the Effective Date, Borrower
-----------------------
will establish and will maintain until the Termination Date, the cash management
systems described on Annex C (the "Cash Management Systems").
-------- -----------------------
1.9 Fees.
----
(a) Borrower shall pay to GE Capital, individually, the Fees specified in
the GE Capital Fee Letter at the times specified for payment therein.
(b) As additional compensation for the Revolving Lenders, Borrower agrees
to pay to Agent, for the ratable benefit of such Lenders, in arrears, on the
first Business Day of each month prior to the Commitment Termination Date and on
the Commitment Termination Date, a fee for Borrower's non-use of available funds
in an amount equal to the Applicable Unused Line Fee Margin multiplied by the
difference between (x) the Maximum Amount (as it may be reduced from time to
time) and (y) the average for the period of the daily closing balances of the
Revolving Loan and the Swing Line Loan outstanding during the period for which
such fee is due.
1.10 Receipt of Payments. Borrower shall make each payment under this
-------------------
Agreement not later than 2:00 p.m. (New York time) on the day when due in
immediately available funds in Dollars to the Agent Account. For purposes of
computing interest and Fees and determining Borrowing Availability or Net
Borrowing Availability as of any date, all payments shall be deemed received on
the day of receipt of immediately available funds therefor in the Agent Account
prior to 2:00 p.m. New York time. Payments received after 2:00 p.m. New York
time on any Business Day shall be deemed to have been received on the following
Business Day.
1.11 Application and Allocation of Payments.
--------------------------------------
(a) So long as no Default or Event of Default shall have occurred and be
continuing, (i) payments consisting of proceeds of Receivables received in the
ordinary course of business shall be applied first, to the Swing Line Loan and
second, to the Revolving Loan; (ii) payments matching specific scheduled
payments then due shall be applied to those scheduled payments; (iii) voluntary
prepayments shall be applied as determined by Borrower, subject to the
provisions of Section 1.3(a); and (iv) mandatory prepayments shall be applied as
--------------
set forth in Sections 1.3(c),
---------------
-13-
1.3(d) and 1.3(e) (as applicable). All payments and prepayments applied to a
- ------ ------
particular Loan shall be applied ratably to the portion thereof held by each
Lender as determined by its Pro Rata Share. As to each other payment, and as to
all payments made when a Default or Event or Default shall have occurred and be
continuing or following the Commitment Termination Date, Borrower hereby
irrevocably waives the right to direct the application of any and all payments
received from or on behalf of Borrower, and Borrower hereby irrevocably agrees
that Agent shall have the continuing exclusive right to apply any and all such
payments against the Obligations as Agent may deem advisable notwithstanding any
previous entry by Agent in the Loan Account or any other books and records. In
the absence of a specific determination by Agent with respect thereto, payments
shall be applied to amounts then due and payable in the following order: (1) to
Fees and Agent's expenses reimbursable hereunder; (2) to interest on the Swing
Line Loan; (3) to principal payments on the Swing Line Loan; (4) to interest on
the other Loans, ratably in proportion to the interest accrued as to each Loan;
(5) to principal payments on the other Loans and to provide cash collateral for
Letter of Credit Obligations in the manner described in Annex B, ratably to the
-------
aggregate, combined principal balance of the other Loans and outstanding Letter
of Credit Obligations; and (6) to all other Obligations including expenses of
Lenders to the extent reimbursable under Section 11.3.
------------
(b) Agent is authorized to, and at its sole election may, charge to the
Revolving Loan balance on behalf of Borrower and cause to be paid all Fees,
expenses, Charges, costs (including insurance premiums in accordance with
Section 5.4(a)) and interest and principal, other than principal of the
- --------------
Revolving Loan, owing by Borrower under this Agreement or any of the other Loan
Documents if and to the extent Borrower fails to pay promptly any such amounts
as and when due, even if such charges would cause the aggregate balance of the
Revolving Loan and the Swing Line Loan to exceed Borrowing Availability. At
Agent's option and to the extent permitted by law, any charges so made shall
constitute part of the Revolving Loan hereunder.
1.12 Loan Account and Accounting. Agent shall maintain a loan account (the
---------------------------
"Loan Account") on its books to record: all Advances, all payments made by
------------
Borrower, and all other debits and credits as provided in this Agreement with
respect to the Loans or any other Obligations. All entries in the Loan Account
shall be made in accordance with Agent's customary accounting practices as in
effect from time to time. The balance in the Loan Account, as recorded on
Agent's most recent printout or other written statement, shall, absent manifest
error, be presumptive evidence of the amounts due and owing to Agent and Lenders
by Borrower; provided that any failure to so record or any error in so recording
--------
shall not limit or otherwise affect Borrower's duty to pay the Obligations.
Agent shall render to Borrower a monthly accounting of transactions with respect
to the Loans setting forth the balance of the Loan Account. Unless Borrower
notifies Agent in writing of any objection to any such accounting (specifically
describing the basis for such objection), within thirty (30) days after the date
thereof, each and every such accounting shall, absent manifest error, be deemed
final, binding and conclusive upon Borrower in all respects as to all matters
reflected therein. Only those items expressly objected to in such notice shall
be deemed to be disputed by Borrower.
-14-
Notwithstanding any provision herein contained to the contrary, any Lender may
elect (which election may be revoked) to dispense with the issuance of Notes to
that Lender and may rely on the Loan Account as evidence of the amount of
Obligations from time to time owing to it.
1.13 Indemnity.
---------
(a) Each Credit Party that is a signatory hereto shall jointly and
severally indemnify and hold harmless each of Agent, Lenders and their
respective Affiliates, and each such Person's respective officers, directors,
employees, attorneys, agents and representatives (each, an "Indemnified
-----------
Person"), from and against any and all suits, actions, proceedings, claims,
damages, losses, liabilities and expenses (including reasonable attorneys' fees
and disbursements and other costs of investigation or defense, including those
incurred upon any appeal) which may be instituted or asserted against or
incurred by any such Indemnified Person as the result of credit having been
extended, suspended or terminated under this Agreement and the other Loan
Documents and the administration of such credit, and in connection with or
arising out of the transactions contemplated hereunder and thereunder and any
actions or failures to act in connection therewith, including any and all
Environmental Liabilities and legal costs and expenses arising out of or
incurred in connection with disputes between or among any parties to any of the
--- -------
Loan Documents (collectively, "Indemnified Liabilities"); provided, that no such
----------------------- --------
Credit Party shall be liable for any indemnification to an Indemnified Person to
the extent that any such suit, action, proceeding, claim, damage, loss,
liability or expense results from that Indemnified Person's gross negligence or
willful misconduct. NO INDEMNIFIED PERSON SHALL BE RESPONSIBLE OR LIABLE TO ANY
OTHER PARTY TO ANY LOAN DOCUMENT, ANY SUCCESSOR, ASSIGNEE OR THIRD PARTY
BENEFICIARY OF SUCH PERSON OR ANY OTHER PERSON ASSERTING CLAIMS DERIVATIVELY
THROUGH SUCH PARTY, FOR INDIRECT, PUNITIVE, EXEMPLARY OR CONSEQUENTIAL DAMAGES
WHICH MAY BE ALLEGED AS A RESULT OF CREDIT HAVING BEEN EXTENDED, SUSPENDED OR
TERMINATED UNDER ANY LOAN DOCUMENT OR AS A RESULT OF ANY OTHER TRANSACTION
CONTEMPLATED HEREUNDER OR THEREUNDER.
(b) To induce Lenders to provide the LIBOR Rate option on the terms
provided herein, if (i) any LIBOR Loans are repaid in whole or in part prior to
the last day of any applicable LIBOR Period (whether that repayment is made
pursuant to any provision of this Agreement or any other Loan Document or is the
result of acceleration, by operation of law or otherwise); (ii) Borrower shall
default in payment when due of the principal amount of or interest on any LIBOR
Loan; (iii) Borrower shall default in making any borrowing of, conversion into
or continuation of LIBOR Loans after Borrower has given notice requesting the
same in accordance herewith; or (iv) Borrower shall fail to make any prepayment
of a LIBOR Loan after Borrower has given a notice thereof in accordance
herewith, Borrower shall indemnify and hold harmless each Lender from and
against all losses, costs and expenses resulting from or arising from any of the
foregoing. Such indemnification shall include any loss (including loss of
margin) or expense arising from the reemployment of funds obtained by it or from
fees payable to terminate deposits from which such
-15-
funds were obtained. For the purpose of calculating amounts payable to a Lender
under this subsection, each Lender shall be deemed to have actually funded its
relevant LIBOR Loan through the purchase of a deposit bearing interest at the
LIBOR Rate in an amount equal to the amount of that LIBOR Loan and having a
maturity comparable to the relevant LIBOR Period; provided, however, that each
-------- -------
Lender may fund each of its LIBOR Loans in any manner it sees fit, and the
foregoing assumption shall be utilized only for the calculation of amounts
payable under this subsection. This covenant shall survive the termination of
this Agreement and the payment of the Notes and all other amounts payable
hereunder. As promptly as practicable under the circumstances, each Lender shall
provide Borrower with its written calculation of all amounts payable pursuant to
this Section 1.13(b), and such calculation shall be binding on the parties
---------------
hereto unless Borrower shall object in writing within ten (10) Business Days of
receipt thereof, specifying the basis for such objection in detail.
1.14 Access. Each Credit Party which is a party hereto shall, during
------
normal business hours, from time to time upon one (1) Business Day's prior
notice as frequently as Agent determines to be appropriate: (a) provide Agent
and any of its officers, employees and agents access to its properties,
facilities, advisors and employees (including officers) of each Credit Party and
to the Collateral, (b) permit Agent, and any of its officers, employees and
agents, to inspect, audit and make extracts from any Credit Party's books and
records, and (c) permit Agent, and its officers, employees and agents, to
inspect, review, evaluate, appraise and make test verifications and counts of
the Receivables, Inventory, Equipment, Real Estate and other Collateral of any
Credit Party. If a Default or Event of Default shall have occurred and be
continuing or if access is necessary to preserve or protect the Collateral as
determined by Agent, each such Credit Party shall provide such access to Agent
and to each Lender at all times and without advance notice. Furthermore, so long
as any Event of Default shall have occurred and be continuing, Borrower shall
provide Agent and each Lender with access to its suppliers and customers. Each
Credit Party shall make available to Agent and its counsel, as quickly as is
possible under the circumstances, originals or copies of all books and records
which Agent may request. Each Credit Party shall deliver any document or
instrument necessary for Agent, as it may from time to time request, to obtain
records from any service bureau or other Person which maintains records for such
Credit Party, and shall maintain duplicate records or supporting documentation
on media, including computer tapes and discs owned by such Credit Party. Agent
will give Lenders at least ten (10) days' prior written notice of regularly
scheduled audits. Representatives of other Lenders may accompany Agent's
representatives on regularly scheduled audits at no charge to Borrower.
1.15 Taxes.
-----
(a) Any and all payments by Borrower hereunder or under the Notes shall be
made, in accordance with this Section 1.15, free and clear of and without
------------
deduction for any and all present or future Taxes. If Borrower shall be
required by law to deduct any Taxes from or in respect of any sum payable
hereunder or under the Notes, (i) the sum payable shall be increased as much as
shall be necessary so that after making all required deductions (including
deductions applicable to
-16-
additional sums payable under this Section 1.15) Agent or Lenders, as
------------
applicable, receive an amount equal to the sum they would have received had no
such deductions been made, (ii) Borrower shall make such deductions, and (iii)
Borrower shall pay the full amount deducted to the relevant taxing or other
authority in accordance with applicable law. Within thirty (30) days after the
date of any payment of Taxes, Borrower shall furnish to Agent the original or a
certified copy of a receipt evidencing payment thereof.
(b) Each Credit Party that is a signatory hereto shall indemnify and,
within ten (10) days of demand therefor, pay Agent and each Lender for the full
amount of Taxes (including any Taxes imposed by any jurisdiction on amounts
payable under this Section 1.15) paid by Agent or such Lender, as appropriate,
------------
and any liability (including penalties, interest and expenses) arising therefrom
or with respect thereto, whether or not such Taxes were correctly or legally
asserted.
(c) Each Lender organized under the laws of a jurisdiction outside the
United States (a "Foreign Lender") as to which payments to be made under this
--------------
Agreement or under the Notes are exempt from United States withholding tax under
an applicable statute or tax treaty shall provide to Borrower and Agent a
properly completed and executed IRS Form 4224 or Form 1001 or other applicable
form, certificate or document prescribed by the IRS or the United States
certifying as to such Foreign Lender's entitlement to such exemption (a
"Certificate of Exemption "). Any foreign Person that seeks to become a Lender
- -------------------------
under this Agreement shall provide a Certificate of Exemption to Borrower and
Agent prior to becoming a Lender hereunder. No foreign Person may become a
Lender hereunder if such Person is unable to deliver a Certificate of Exemption.
1.16 Capital Adequacy; Increased Costs; Illegality.
---------------------------------------------
(a) If any Lender shall have determined that any law, treaty, governmental
(or quasi-governmental) rule, regulation, guideline or order regarding capital
adequacy, reserve requirements or similar requirements or compliance by any
Lender with any request or directive regarding capital adequacy, reserve
requirements or similar requirements (whether or not having the force of law),
in each case, adopted after the Effective Date, from any central bank or other
Governmental Authority increases or would have the effect of increasing the
amount of capital, reserves or other funds required to be maintained by such
Lender and thereby reducing the rate of return on such Lender's capital as a
consequence of its obligations hereunder, then Borrower shall from time to time
upon demand by such Lender (with a copy of such demand to Agent) pay to Agent,
for the account of such Lender, additional amounts sufficient to compensate such
Lender for such reduction. A certificate as to the amount of that reduction and
showing the basis of the computation thereof submitted by such Lender to
Borrower and to Agent shall, absent manifest error, be final, conclusive and
binding for all purposes.
(b) If, due to either (i) the introduction of or any change in any law or
regulation (or any change in the interpretation thereof) or (ii) the compliance
with any guideline or request from
-17-
any central bank or other Governmental Authority (whether or not having the
force of law), in each case adopted after the Effective Date, there shall be any
increase in the cost to any Lender of agreeing to make or making, funding or
maintaining any LIBOR Loan, then Borrower shall from time to time, upon demand
by such Lender (with a copy of such demand to Agent), pay to Agent for the
account of such Lender additional amounts sufficient to compensate such Lender
for such increased cost; provided that the demand is made within 180 days after
--------
the incurrence of such costs (unless such adoption, change or compliance arose
or became effective retrospectively, in which case such Lender shall not be
limited to such 180 day period so long as the Lender has given the notice to
Borrower not later than 180 days from the date such adoption, change or
compliance became applicable to the Lender). A certificate as to the amount of
such increased cost, submitted to Borrower and to Agent by such Lender, shall be
conclusive and binding on Borrower for all purposes, absent manifest error. Each
Lender agrees that, as promptly as practicable after it becomes aware of any
circumstances referred to above which would result in any such increased cost,
the affected Lender shall, to the extent not inconsistent with such Lender's
internal policies of general application, use reasonable commercial efforts to
minimize costs and expenses incurred by it and payable to it by Borrower
pursuant to this Section 1.16(b).
---------------
(c) Notwithstanding anything to the contrary contained herein, if the
introduction of or any change in any law or regulation (or any change in the
interpretation thereof) shall make it unlawful, or any central bank or other
Governmental Authority shall assert that it is unlawful, for any Lender to agree
to make or to make or to continue to fund or maintain any LIBOR Loan, then,
unless that Lender is able to make or to continue to fund or to maintain such
LIBOR Loan at another branch or office of that Lender without, in that Lender's
opinion, adversely affecting it or its Loans or the income obtained therefrom,
on notice thereof and demand therefor by such Lender to Borrower through Agent,
(i) the obligation of such Lender to agree to make or to make or to continue to
fund or maintain LIBOR Loans shall terminate and (ii) Borrower shall forthwith
prepay in full all outstanding LIBOR Loans owing to such Lender, together with
interest accrued thereon, unless Borrower, within five (5) Business Days after
------
the delivery of such notice and demand, converts all such Loans into a Loan
bearing interest based on the Index Rate.
(d) Within fifteen (15) Business Days after receipt by Borrower of written
notice and demand from any Lender (an "Affected Lender") for payment of
---------------
additional amounts or increased costs as provided in Section 1.15(a), 1.15(b),
--------------- -------
1.16(a) or 1.16(b), Borrower may, at its option, notify Agent and such Affected
- ------- -------
Lender of its intention to replace the Affected Lender. So long as no Default
or Event of Default shall have occurred and be continuing, Borrower, with the
consent of Agent, may obtain, at Borrower's expense, a replacement Lender
("Replacement Lender") for the Affected Lender, which Replacement Lender must be
- --------------------
satisfactory to Agent. If Borrower obtains a Replacement Lender within ninety
(90) days following notice of its intention to do so, the Affected Lender must
sell and assign its Loans and Commitments to such Replacement Lender for an
amount equal to the principal balance of all Loans held by the Affected Lender
and all accrued interest and Fees with respect thereto through the date of such
sale, provided that Borrower shall have reimbursed such Affected Lender for the
--------
additional amounts or increased
-18-
costs that it is entitled to receive under this Agreement through the date of
such sale and assignment. Notwithstanding the foregoing, Borrower shall not have
the right to obtain a Replacement Lender if the Affected Lender rescinds its
demand for increased costs or additional amounts within fifteen (15) days
following its receipt of Borrower's notice of intention to replace such Affected
Lender. Furthermore, if Borrower gives a notice of intention to replace and does
not so replace such Affected Lender within ninety (90) days thereafter,
Borrower's rights under this Section 1.16(d) shall terminate and Borrower shall
---------------
promptly pay all increased costs or additional amounts demanded by such Affected
Lender pursuant to Sections 1.15(a), 1.16(a) and 1.16(b).
---------------- ------- -------
1.17 Single Loan. All Loans to Borrower and all of the other Obligations
-----------
of Borrower arising under this Agreement and the other Loan Documents shall
constitute one general obligation of Borrower secured, until the Termination
Date, by all of its Collateral.
1.18 Eligible Real Estate. Based on the most recent Borrowing Base
--------------------
Certificate delivered by Borrower to Agent and on other information available to
Agent, Agent shall in its reasonable judgment determine which Real Estate of
Borrower shall be "Eligible Real Estate" for purposes of this Agreement. In
--------------------
determining whether any particular Real Estate constitutes Eligible Real Estate,
Agent shall not include any such Real Estate to which any of the exclusionary
criteria set forth below applies. Agent reserves the right, at any time and
from time to time after the Effective Date, to adjust any such criteria, to
establish new criteria and to adjust advance rates with respect to Eligible Real
Estate in its reasonable judgment, subject to the approval of each Lender in the
case of an increase in the percentage advance rates and (y) Supermajority
Revolving Lenders in the case of any adjustments or new criteria which have the
effect of making more credit available. Eligible Real Estate shall not include
any Real Estate of the Borrower that:
(a) is not identified on Schedule 1.18;
-------------
(b) as to which any of the representations or warranties pertaining to
Real Estate set forth in this Agreement (including, without limitation, Sections
--------
3.6 and 3.17) or any of the Collateral Documents is untrue;
- --- ----
(c) is either not encumbered by a Deed of Trust or is encumbered by a Deed
of Trust where Borrower shall have failed or neglected to perform, keep or
observe any provision of such Deed of Trust, as a result of which an Event of
Default shall have occurred and be continuing;
(d) ceases to be covered by insurance required by the Loan Documents; or
(e) is encumbered by any Lien other than a Lien explicitly allowed under
Section 6.7.
- -----------
-19-
1.19 Eligible Equipment. Based on the most recent Borrowing Base
------------------
Certificate delivered by Borrower to Agent and on other information available to
Agent, Agent shall in its reasonable judgment determine which Equipment of
Credit Parties shall be "Eligible Equipment" for purposes of this Agreement. In
------------------
determining whether any particular Equipment constitutes Eligible Equipment,
Agent shall not include any such Equipment to which any of the exclusionary
criteria set forth below applies. Agent reserves the right, at any time and
from time to time after the Effective Date, to adjust any such criteria, to
establish new criteria and to adjust advance rates with respect to Eligible
Equipment in its reasonable judgment, subject to the approval of (x) each Lender
in the case of an increase in advance rates and (y) Supermajority Revolving
Lenders in the case of adjustments or new criteria which have the effect of
making more credit available. Eligible Equipment shall not include any Equipment
of the Credit Parties that:
(a) is not owned by a Credit Party free and clear of all Liens (other than
Permitted Encumbrances described in clause (a), (d) or (i) of the definition
---------- --- ---
thereof) and rights of any other Person, except the Liens in favor of Agent, on
behalf of itself and Lenders;
(b) is not located on premises owned by Borrower, unless Agent has given
its prior consent thereto and unless (x) a satisfactory bailee letter or
landlord waiver has been delivered to Agent, or (y) Reserves satisfactory to
Agent have been established with respect thereto;
(c) is covered by a certificate of title or title to which is otherwise
required to be registered with a Governmental Authority, unless such certificate
or other evidence of registration has been delivered to Agent with all necessary
endorsements and filed or registered with the applicable Governmental Authority,
free and clear of all Liens except those in favor of Agent and Lenders;
(d) as to which Agent's Lien, on behalf of itself and Lenders, therein is
not a first priority perfected Lien (other than Permitted Encumbrances described
in clause (a) or (d) of the definition thereof or Liens permitted by clause (c)
---------- --- ----------
of Section 6.7);
------------
(e) as to which any of the representations or warranties pertaining to any
item or group of items of Equipment set forth in this Agreement or any of the
Collateral Documents is untrue in any respect which would have a material
adverse effect on the value thereof;
(f) consists of Hazardous Materials or goods that can be transported or
sold only with licenses that are not readily available;
(g) is not covered by casualty insurance acceptable to Agent;
(h) is not subject to the CEF Lease Facility; or
(i) is otherwise unacceptable to Agent in its reasonable judgment.
-20-
2. CONDITIONS PRECEDENT
2.1 Conditions to the Loans.
-----------------------
No Lender shall be obligated to make any Loan or incur any Letter of Credit
Obligations on the Effective Date, or to take, fulfill, or perform any other
action hereunder, until the following conditions have been satisfied or provided
for in a manner satisfactory to Agent, or waived in writing by Agent and
Lenders:
(a) Credit Agreement; Loan Documents. This Agreement or counterparts
--------------------------------
hereof shall have been duly executed by, and delivered to, Borrower, Agent and
Lenders; and Agent shall have received such documents, instruments, agreements
and legal opinions as Agent shall reasonably request in connection with the
transactions contemplated by this Agreement and the other Loan Documents,
including all those listed in the Closing Checklist attached hereto as Annex D,
-------
each in form and substance satisfactory to Agent.
(b) Receivables Facility. The Receivables Documents shall have been
--------------------
executed and delivered by the parties thereto, the Receivables Facility shall be
in effect and the initial purchase of Receivables Program Assets shall have
occurred thereunder.
(c) Approvals. Agent shall have received (i) satisfactory evidence that
---------
the Credit Parties have obtained all required consents and approvals of all
Persons including all requisite Governmental Authorities, to the execution,
delivery and performance of this Agreement and the other Loan Documents or (ii)
an officer's certificate in form and substance satisfactory to Agent affirming
that no such consents or approvals are required.
(d) Payment of Fees. Borrower shall have paid the Fees required to be paid
---------------
on the Effective Date in the respective amounts specified in Section 1.9
-----------
(including the Fees specified in the GE Capital Fee Letter), and shall have
reimbursed Agent for all fees, costs and expenses of closing presented as of the
Effective Date.
2.2 Further Conditions to Each Loan. Except as otherwise expressly
-------------------------------
provided herein, no Lender shall be obligated to fund any Loan, convert or
continue (on or after the expiration of the LIBOR Period therefor) any Loan as a
LIBOR Loan or incur any Letter of Credit Obligation, if, as of the date thereof:
(a) Any representation or warranty by any Credit Party contained herein or
in any of the other Loan Documents shall be untrue or incorrect in any material
respect as of such date, except to the extent that such representation or
warranty expressly relates to an earlier date and except for changes therein
expressly permitted or expressly contemplated by this Agreement, and Agent or
Requisite Lenders shall have determined (and so notified Borrower) not to make
such Loan, convert or continue (on or after the expiration of the LIBOR Period
therefor) such Loan as
-21-
a LIBOR Loan or incur such Letter of Credit Obligation due to the fact that such
warranty or representation is untrue or incorrect; or
(b) Any event or circumstance having a Material Adverse Effect shall have
occurred since the date hereof as determined by the Requisite Lenders; or
(c) Any Default or Event of Default shall have occurred and be continuing
or would result after giving effect to any Loan or the incurrence of any Letter
of Credit Obligation, and Agent or Requisite Lenders shall have determined not
to make such Loan, convert or continue such Loan as a LIBOR Loan, incur such
Letter of Credit Obligation on the basis of such Default or Event of Default; or
(d) After giving effect to any Advance (or the incurrence of any Letter of
Credit Obligations), the outstanding principal amount of the Revolving Loan
would exceed the lesser of the Borrowing Base and the Maximum Amount, less, in
----
each case, the then outstanding principal amount of the Swing Line Loan; or
(e) After giving effect to any Swing Line Advance, the outstanding
principal amount of the Swing Line Loan would exceed Swing Line Availability.
The request and acceptance by Borrower of the proceeds of any Loan, the
incurrence of any Letter of Credit Obligations or the conversion or continuation
of any Loan into, or as, a LIBOR Loan, as the case may be, shall be deemed to
constitute, as of the date of such request or acceptance, (i) a representation
and warranty by Borrower that the conditions in this Section 2.2 have been
-----------
satisfied and (ii) a reaffirmation by Borrower of the granting and continuance
of Agent's Liens, on behalf of itself and Lenders, pursuant to the Collateral
Documents.
3. REPRESENTATIONS AND WARRANTIES
To induce Lenders to make the Loans and to incur Letter of Credit
Obligations, the Credit Parties executing this Agreement, jointly and severally,
make the following representations and warranties to Agent and each Lender with
respect to all Credit Parties and (where indicated) their Subsidiaries, each and
all of which shall survive the execution and delivery of this Agreement.
3.1 Corporate Existence; Compliance with Law. Each Credit Party and each
----------------------------------------
of its Subsidiaries (a) is a corporation duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation; (b) is duly
qualified to conduct business and is in good standing in each other jurisdiction
where its ownership or lease of property or the conduct of its business requires
such qualification, except where the failure to be so qualified would not result
in exposure to losses, damages or liabilities in excess of (i) $100,000 for any
Credit Party or (ii) $500,000 for all Credit Parties in the aggregate; (c) has
the requisite corporate power and authority and the legal right to own, pledge,
mortgage or otherwise encumber and operate its
-22-
properties, to lease the property it operates under lease and to conduct its
business as now, heretofore and proposed to be conducted; (d) subject to
specific representations regarding Environmental Laws, has all licenses,
permits, consents or approvals from or by, and has made all filings with, and
has given all notices to, all Governmental Authorities having jurisdiction, to
the extent required for such ownership, operation and conduct; (e) is in
compliance with its charter and by-laws; and (f) subject to specific
representations set forth herein regarding ERISA, Environmental Laws, tax and
other laws, is in compliance with all applicable provisions of law (including,
but not limited to, with respect to all Real Estate, any applicable federal,
state or local codes, ordinances, laws, rules and regulations, including
building codes, safety and fire codes, and zoning and land use laws, disabled
access requirements, and seismic safety laws) except where the failure to
comply, individually or in the aggregate, could not reasonably be expected to
have a Material Adverse Effect.
3.2 Executive Offices; FEIN. As of the Effective Date, the current
-----------------------
location of each Credit Party's chief executive office and principal place of
business is set forth in Disclosure Schedule (3.2), and none of such locations
-------------------------
has changed within the twelve (12) months preceding the Effective Date. In
addition, Disclosure Schedule (3.2) lists the federal employer identification
-------------------------
number of each Credit Party.
3.3 Corporate Power, Authorization, Enforceable Obligations. The
-------------------------------------------------------
execution, delivery and performance by each Credit Party of the Loan Documents
to which it is a party and the creation of all Liens provided for therein: (a)
are within such Person's corporate power; (b) have been duly authorized by all
necessary or proper corporate and shareholder action; (c) do not contravene any
provision of such Person's charter or bylaws; (d) do not violate any law or
regulation, or any order or decree of any court or Governmental Authority; (e)
do not conflict with or result in the breach or termination of, constitute a
default under or accelerate or permit the acceleration of any performance
required by, any indenture, mortgage, deed of trust, lease, agreement or other
instrument to which such Person is a party or by which such Person or any of its
property is bound; (f) do not result in the creation or imposition of any Lien
upon any of the property of such Person other than those in favor of Agent, on
behalf of itself and Lenders, pursuant to the Loan Documents; and (g) do not
require the consent or approval of any Governmental Authority or any other
Person, except those referred to in Section 2.1(c), all of which will have been
--------------
duly obtained, made or complied with prior to the Closing Date. On or prior to
the Effective Date, each of the Loan Documents shall have been duly executed and
delivered by each Credit Party thereto and each such Loan Document shall then
constitute a legal, valid and binding obligation of such Credit Party
enforceable against it in accordance with its terms.
3.4 Financial Statements and Projections. Except for the Projections and
------------------------------------
the Fair Salable Balance Sheet, all Financial Statements concerning Borrower and
its Subsidiaries which are referenced below have been prepared in accordance
with GAAP consistently applied throughout the periods covered (except as
disclosed therein and except, with respect to unaudited
-23-
Financial Statements, for the absence of footnotes and normal year-end audit
adjustments) and present fairly in all material respects the financial position
of the Persons covered thereby as at the dates thereof and the results of their
operations and cash flows for the periods then ended.
(a) The following Financial Statements attached hereto as Disclosure
----------
Schedule (3.4(A)) have been delivered on the date hereof:
- -----------------
(i) The audited consolidated and consolidating balance sheets at
December 31, 1996 and 1997 and the related statements of income and cash
flows of Borrower and its Subsidiaries for the Fiscal Years then ended,
certified by PricewaterhouseCoopers, L.L.P.
(ii) The unaudited balance sheet at September 30, 1998 and the related
statement of income and cash flows of Borrower and its Subsidiaries for the
three Fiscal Quarters then ended.
(b) Projections. The Projections delivered on the Closing Date and
-----------
attached hereto as Disclosure Schedule (3.4(B)) have been prepared by Borrower
----------------------------
in light of the past operations of its businesses, but including future payments
of known contingent liabilities reflected on the Fair Salable Balance Sheet, and
reflect projections for the five (5) year period beginning on January 1, 1999 on
a month by month basis for the first year and on a year by year basis
thereafter. The Projections are based upon estimates and assumptions stated
therein, all of which Borrower believes to be reasonable and fair in light of
current conditions and current facts known to Borrower and, as of the Effective
Date, reflect Borrower's good faith and reasonable estimates of the future
financial performance of Borrower and of the other information projected therein
for the period set forth therein.
(c) Fair Salable Balance Sheets. The Fair Salable Balance Sheets delivered
---------------------------
on the Closing Date and attached hereto as Disclosure Schedule (3.4(C)) were
----------------------------
prepared by each Credit Party named thereon on a pro forma basis, except that
assets of each Credit Party named thereon are set forth therein at their fair
salable values on a going concern basis and the liabilities set forth therein
include all contingent liabilities of each Credit Party named thereon stated at
the reasonably estimated present values thereof.
3.5 Material Adverse Effect. Between December 31, 1997 and the Effective
-----------------------
Date, (a) no Credit Party nor any of its Subsidiaries has incurred any
obligations, contingent or non-contingent liabilities, liabilities for Charges,
long-term leases or unusual forward or long-term commitments which, alone or in
the aggregate, could reasonably be expected to have a Material Adverse Effect,
other than as listed on Disclosure Schedule 3.5, (b) no contract, lease or other
-----------------------
agreement or instrument has been entered into by any Credit Party or any of its
Subsidiaries or has become binding upon the assets of a Credit Party or any of
its Subsidiaries and no law or regulation applicable to any Credit Party or any
of its Subsidiaries has been adopted which has had or could reasonably be
expected to have a Material Adverse Effect, and (c) no Credit Party
-24-
nor any of its Subsidiaries is in default and to the knowledge of each Credit
Party after diligent inquiry, no third party is in default under any material
contract, lease or other agreement or instrument (other than defaults under the
Prior Loan Agreement), which alone or in the aggregate could reasonably be
expected to have a Material Adverse Effect. Between December 31, 1997 and the
Effective Date no event has occurred, which alone or together with other events,
could reasonably be expected to have a Material Adverse Effect, other than as
listed on Disclosure Schedule (3.5).
-------------------------
3.6 Ownership of Property; Liens. As of the Effective Date, the real
----------------------------
estate ("Real Estate") listed on Disclosure Schedule (3.6) constitutes all of
----------- -------------------------
the real property owned, leased, subleased, or used by any Credit Party. Each
Credit Party owns good and marketable fee simple title (subject to various
matters of record) to all of its owned real estate, and valid and marketable
leasehold interests in all of its leased Real Estate, all as described on
Disclosure Schedule (3.6), and copies of all such leases or a summary of terms
- -------------------------
thereof satisfactory to Agent have been delivered to Agent. Disclosure Schedule
-------------------
(3.6) further describes any Real Estate with respect to which any Credit Party
- -----
is a lessor, sublessor or assignor as of the Effective Date. Each Credit Party
also has good and marketable title to, or valid leasehold interests in, all of
its personal properties and assets, excluding all Receivables Program Assets
sold, contributed or otherwise disposed of under the Receivables Documents, and
subject, in the case of Callaway Golf Ball Company, to the interests of the
lessor under the CEF Lease Facility. As of the Effective Date, none of the
properties and assets of any Credit Party are subject to any Liens other than
Permitted Encumbrances and Liens arising under the Receivables Documents or
under the CEF Lease Facility, and there are no facts, circumstances or
conditions known to any Credit Party that may result in any Liens (including
Liens arising under Environmental Laws) other than Permitted Encumbrances and
Liens arising under the Receivables Documents or under the CEF Lease Facility.
Each Credit Party has received all deeds, assignments, waivers, consents, non-
disturbance and recognition or similar agreements, bills of sale and other
documents, and has duly effected all recordings, filings and other actions
necessary to establish, protect and perfect such Credit Party's right, title and
interest in and to all such Real Estate and other properties and assets.
Disclosure Schedule (3.6) also describes any purchase options, rights of first
- -------------------------
refusal or other similar contractual rights pertaining to any Real Estate. As
of the Effective Date, no portion of any Credit Party's Real Estate has suffered
any material damage by fire or other casualty loss which has not heretofore been
repaired and restored in all material respects to its original condition or
otherwise remedied and no Credit Party is aware of any latent or patent
structural or other significant defect or deficiency in any improvements on any
of the Real Estate. As of the Effective Date, all material permits required to
have been issued or appropriate to enable the Real Estate to be lawfully
occupied and used for all of the purposes for which they are currently occupied
and used have been lawfully issued and are in full force and effect.
3.7 Labor Matters. As of the Effective Date (a) no strikes or other
-------------
material labor disputes against Borrower or any of its Domestic Subsidiaries are
pending or, to any Credit Party's knowledge, threatened; (b) hours worked by and
payment made to employees of Borrower
-25-
and its Domestic Subsidiaries comply with the Fair Labor Standards Act and each
other federal, state, local or foreign law applicable to such matter; (c) all
payments due from Borrower or any of its Domestic Subsidiaries for employee
health and welfare insurance have been paid or accrued as a liability on the
books of Borrower or such Subsidiary; (d) except as set forth in Disclosure
----------
Schedule (3.7), neither Borrower nor any of its Domestic Subsidiaries is a party
- -------------
to or bound by any collective bargaining agreement, management agreement,
consulting agreement or any employment agreement; (e) there is no organizing
activity involving Borrower or any of its Domestic Subsidiaries pending or, to
any Credit Party's knowledge, threatened by any labor union or group of
employees; (f) there are no representation proceedings pending or, to any Credit
Party's knowledge, threatened with the National Labor Relations Board, and no
labor organization or group of employees of Borrower or any of its Domestic
Subsidiaries has made a pending demand for recognition; and (g) except as set
forth in Disclosure Schedule (3.7), there are no complaints or charges against
------------------------
Borrower or any of its Domestic Subsidiaries pending or, to the knowledge of any
Credit Party, threatened to be filed with any Governmental Authority or
arbitrator based on, arising out of, in connection with, or otherwise relating
to the employment or termination of employment by Borrower or any of its
Domestic Subsidiaries of any individual.
3.8 Ventures, Subsidiaries and Affiliates; Outstanding Stock and
------------------------------------------------------------
Indebtedness. Except as set forth in Disclosure Schedule (3.8), no Credit Party
- ------------ -------------------------
has any Subsidiaries, is engaged in any joint venture or partnership with any
other Person, or is an Affiliate of any other Person. All of the issued and
outstanding Stock of each Credit Party and each of its Subsidiaries is owned by
each of the stockholders and in the amounts set forth on Disclosure Schedule
-------------------
(3.8). Except as set forth in Disclosure Schedule (3.8), there are no
- ----- -------------------------
outstanding rights to purchase, options, warrants or similar rights or
agreements pursuant to which any Credit Party or any of its Subsidiaries may be
required to issue, sell, repurchase or redeem any of its Stock or other equity
securities or any Stock or other equity securities of its Subsidiaries. All
outstanding Indebtedness of each Credit Party and each of its Subsidiaries as of
the Effective Date is described in Section 6.3 (including Disclosure Schedule
----------- -------------------
(6.3)).
- -----
3.9 Government Regulation. No Credit Party nor any of its Subsidiaries is
---------------------
an "investment company" or an "affiliated person" of, or "promoter" or
"principal underwriter" for, an "investment company," as such terms are defined
in the Investment Company Act of 1940 as amended. No Credit Party nor any of
its Subsidiaries is subject to regulation under the Public Utility Holding
Company Act of 1935, the Federal Power Act, or any other federal or state
statute that restricts or limits its ability to incur Indebtedness or to perform
its obligations hereunder. The making of the Loans by Lenders to Borrower, the
incurrence of the Letter of Credit Obligations on behalf of Borrower, the
application of the proceeds thereof and repayment thereof will not violate any
provision of any such statute or any rule, regulation or order issued by the
Securities and Exchange Commission.
3.10 Margin Regulations. No Credit Party nor any of its Subsidiaries is
------------------
engaged, nor will it engage, principally or as one of its important activities,
in the business of extending credit
-26-
for the purpose of "purchasing" or "carrying" any "margin security" as such
terms are defined in Regulation U of the Federal Reserve Board as now and from
time to time hereafter in effect (such securities being referred to herein as
"Margin Stock"). No Credit Party nor any of its Subsidiaries owns any Margin
------------
Stock (other than investments by Borrower permitted by Section 6.2(j)). The
--------------
extensions of credit contemplated by the Loan Documents do not violate, and no
Credit Party nor any of its Subsidiaries will take or permit to be taken any
action which might cause any Loan Document or the extension of credit
contemplated thereby to violate, any regulation of the Federal Reserve Board.
3.11 Taxes. All material tax returns, reports and statements, including
-----
information returns, required by any Governmental Authority to be filed by any
Credit Party or any of its Subsidiaries have been filed with the appropriate
Governmental Authority. All Charges have been paid prior to the date on which
any fine, penalty, interest or late charge may be added thereto for nonpayment
thereof (or any such fine, penalty, interest, late charge or loss has been
paid), excluding Charges or other amounts which are being contested in
accordance with Section 5.2(b) or have been included as a liability on the most
--------------
recent consolidated balance sheet prepared by Borrower and provided to Agent
pursuant to Section 4.1. Proper and accurate amounts have been withheld by each
-----------
Credit Party and each of its Subsidiaries from its respective employees for all
periods in full and complete compliance with all applicable federal, state,
local and foreign law or have been included as a liability on the most recent
consolidated balance sheet prepared by Borrower and provided to Agent pursuant
to Section 4.1. All amounts withheld have been timely paid to the respective
-----------
Governmental Authorities. Disclosure Schedule (3.11) sets forth as of the
--------------------------
Effective Date those taxable years for which the tax returns of any Credit Party
or its Subsidiary are currently being audited by the IRS or any other applicable
Governmental Authority and any assessments or threatened assessments in
connection with such audit, or otherwise currently outstanding. Except as
described on Disclosure Schedule (3.11) , no Credit Party nor any of its
--------------------------
Subsidiaries has executed or filed with the IRS or any other Governmental
Authority any agreement or other document extending, or having the effect of
extending, the period for assessment or collection of any Charges. None of the
Credit Parties nor any of their Subsidiaries nor any of their respective
predecessors are liable for any Charges: (a) under any agreement (including any
tax sharing agreements) or (b) to each Credit Party's knowledge, as a
transferee. As of the Effective Date, no Credit Party nor any of its
Subsidiaries has agreed or been requested to make any adjustment under IRC
Section 481(a), by reason of a change in accounting method or otherwise, which
would have a Material Adverse Effect.
3.12 ERISA.
-----
(a) Disclosure Schedule (3.12) lists and separately identifies all Title
--------------------------
IV Plans, Multiemployer Plans, ESOPs and Retiree Welfare Plans. Copies of all
such listed Plans, together with a copy of the latest form 5500 for each such
Plan, have been delivered to Agent. Except with respect to Multiemployer Plans,
each Qualified Plan has been determined by the IRS to qualify under Section 401
of the IRC, and the trusts created thereunder have been determined to
-27-
be exempt from tax under the provisions of Section 501 of the IRC, and nothing
has occurred which would cause the loss of such qualification or tax-exempt
status. Each Plan is in compliance with the applicable provisions of ERISA and
the IRC, including the filing of reports required under the IRC or ERISA. No
Credit Party or ERISA Affiliate has failed to make any contribution or pay any
amount due as required by either Section 412 of the IRC or Section 302 of ERISA
or the terms of any such Plan. No Credit Party or ERISA Affiliate has engaged in
a prohibited transaction, as defined in Section 4975 of the IRC, in connection
with any Plan, which would subject any Credit Party to a material tax on
prohibited transactions imposed by Section 4975 of the IRC.
(b) Except as set forth in Disclosure Schedule (3.12): (i) no Title IV
--------------------------
Plan has any Unfunded Pension Liability; (ii) no ERISA Event or event described
in Section 4062(e) of ERISA with respect to any Title IV Plan has occurred or is
reasonably expected to occur; (iii) there are no pending, or to the knowledge of
any Credit Party, threatened claims (other than claims for benefits in the
normal course), sanctions, actions or lawsuits, asserted or instituted against
any Plan or any Person as fiduciary or sponsor of any Plan; (iv) no Credit Party
or ERISA Affiliate has incurred or reasonably expects to incur any liability as
a result of a complete or partial withdrawal from a Multiemployer Plan; (v)
within the last five years no Title IV Plan with Unfunded Pension Liabilities
has been transferred outside of the "controlled group" (within the meaning of
Section 4001(a)(14) of ERISA) of any Credit Party or ERISA Affiliate; and (vi)
no liability under any Title IV Plan has been satisfied with the purchase of a
contract from an insurance company that is not rated AAA by the Standard &
Poor's Corporation or the equivalent by another nationally recognized rating
agency.
3.13 No Litigation. No action, claim, lawsuit, demand, investigation or
-------------
proceeding is now pending or, to the knowledge of any Credit Party, threatened
against any Credit Party or any of its Subsidiaries, before any Governmental
Authority or before any arbitrator or panel of arbitrators or in any way
regarding or directly affecting any of the Real Estate (collectively,
"Litigation"), (a) which challenges any Credit Party's right or power to enter
----------
into or perform any of its obligations under the Loan Documents to which it is a
party, or the validity or enforceability of any Loan Document or any action
taken thereunder or the interest of Borrower in any of the Real Estate, or (b)
which has a reasonable risk of being determined adversely to any Credit Party or
any of its Subsidiaries and which, if so determined, could have a Material
Adverse Effect. Except as set forth on Disclosure Schedule (3.13), as of the
--------------------------
Effective Date there is no Litigation pending or threatened which seeks damages
in excess of $1,000,000 or injunctive relief or alleges criminal misconduct of
any Credit Party or any of its Subsidiaries.
3.14 Brokers. No broker or finder acting on behalf of any Credit Party
-------
brought about the obtaining, making or closing of the Loans, and no Credit Party
has any obligation to any Person in respect of any finder's or brokerage fees in
connection therewith.
-28-
3.15 Intellectual Property. As of the Effective Date, each Credit Party
---------------------
and each of its Subsidiaries owns or has rights to use all Intellectual Property
necessary to continue to conduct its business as now or heretofore conducted by
it or proposed to be conducted by it, and each Patent, Trademark, Copyright and
License is listed, together with application or registration numbers, as
applicable, in Disclosure Schedule (3.15) hereto. To Borrower's knowledge after
--------------------------
diligent inquiry, each Credit Party and each of its Subsidiaries conducts its
business and affairs without infringement of or interference with any
Intellectual Property of any other Person.
3.16 Full Disclosure. No information contained in this Agreement, any of
---------------
the other Loan Documents, any Projections, Financial Statements or Collateral
Reports or other reports from time to time delivered hereunder or any written
statement furnished by or on behalf of any Credit Party to Agent or any Lender
pursuant to the terms of this Agreement contains or will contain any untrue
statement of a material fact or omits or will omit to state a material fact
necessary to make the statements contained herein or therein not misleading in
light of the circumstances under which they were made. The Liens granted to
Agent, on behalf of itself and Lenders, pursuant to the Collateral Documents
will at all times be fully perfected first priority Liens in and to the
Collateral described therein, subject, as to priority, only to Permitted
Encumbrances with respect to the Collateral other than Receivables.
3.17 Environmental Matters.
---------------------
(a) Except as set forth in Disclosure Schedule (3.17), as of the Effective
--------------------------
Date (and, in the case of any Subsidiary of a Credit Party other than a Domestic
Subsidiary, to the knowledge of the applicable Credit Party): (i) the Real
Estate is free of contamination from any Hazardous Material except for such
contamination that would not adversely impact the value or marketability of such
Real Estate and which would not result in Environmental Liabilities which could
reasonably be expected to exceed $100,000; (ii) no Credit Party nor any of its
Subsidiaries has caused or suffered to occur any Release of Hazardous Materials
on, at, in, under, above, to, from or about any of its Real Estate; (iii) the
Credit Parties and their Subsidiaries are and have been in compliance with all
Environmental Laws, except for such noncompliance which would not result in
Environmental Liabilities which could reasonably be expected to exceed $100,000;
(iv) the Credit Parties and their Subsidiaries have obtained, and are in
compliance with, all Environmental Permits required by Environmental Laws for
the operations of their respective businesses as presently conducted or as
proposed to be conducted, except where the failure to so obtain or comply with
such Environmental Permits would not result in Environmental Liabilities which
could reasonably be expected to exceed $100,000, and all such Environmental
Permits are valid, uncontested and in good standing; (v) no Credit Party nor any
of its Subsidiaries is involved in operations or knows of any facts,
circumstances or conditions, including any Releases of Hazardous Materials, that
are likely to result in any Environmental Liabilities of such Credit Party or
Subsidiary which could reasonably be expected to exceed $100,000, and no Credit
Party nor any of its Subsidiaries has permitted any current or former tenant or
occupant of the Real Estate to engage in any such operations; (vi) there is no
Litigation arising under or related to any
-29-
Environmental Laws, Environmental Permits or Hazardous Material which seeks
damages, penalties, fines, costs or expenses in excess of $25,000 or injunctive
relief, or which alleges criminal misconduct by any Credit Party or any of its
Subsidiaries; (vii) no notice has been received by any Credit Party or any of
its Subsidiaries identifying it as a "potentially responsible party" or
requesting information under CERCLA or analogous state statutes, and to the
knowledge of the Credit Parties, there are no facts, circumstances or conditions
that may result in any Credit Party or any of its Subsidiaries being identified
as a "potentially responsible party" under CERCLA or analogous state statutes;
and (viii) the Credit Parties have provided to Agent copies of all existing
environmental reports, reviews and audits and all written information pertaining
to actual or potential Environmental Liabilities, in each case relating to any
Credit Party or any of its Subsidiaries, other than documents the disclosure of
which would result in the loss of an evidentiary privilege.
(b) Each Credit Party hereby acknowledges and agrees that Agent (i) is not
now, and has not ever been, in control of any of the Real Estate or the affairs
of any Credit Party or any of its Subsidiaries, and (ii)does not have the
capacity through the provisions of the Loan Documents or otherwise to influence
the conduct of any Credit Party or any of its Subsidiaries with respect to the
ownership, operation or management of any of its Real Estate (except as
specifically provided in the Deeds of Trust) or compliance with Environmental
Laws or Environmental Permits.
3.18 Insurance. Disclosure Schedule (3.18) lists all insurance policies of
--------- --------------------------
any nature maintained, as of the Effective Date, for current occurrences by each
Credit Party, as well as a summary of the terms of each such policy.
3.19 Deposit and Disbursement Accounts. Disclosure Schedule (3.19) lists
--------------------------------- --------------------------
all banks and other financial institutions at which any Credit Party or any of
its Domestic Subsidiaries maintains deposits and/or other accounts as of the
Effective Date, including any Disbursement Accounts, and such Schedule correctly
identifies the name, address and telephone number of each depository, the name
in which the account is held, a description of the purpose of the account, and
the complete account number.
3.20 [INTENTIONALLY OMITTED.]
------------------------
3.21 Customer and Trade Relations. As of the Effective Date, except as
----------------------------
disclosed in writing to Agent on or before the Effective Date, there exists no
actual or, to the knowledge of any Credit Party, threatened termination or
cancellation of, or any material adverse modification or change in: the
business relationship of any Credit Party or any of its Subsidiaries with any
customer or group of customers whose purchases during the preceding twelve (12)
months caused them to be ranked among the ten largest customers of such Credit
Party; or the business relationship of any Credit Party or any of its
Subsidiaries with any supplier material to its operations.
-30-
3.22 Agreements and Other Documents. As of the Effective Date, each Credit
------------------------------
Party has provided to Agent or its counsel, on behalf of Lenders, accurate and
complete copies (or summaries) of all of the following agreements or documents
to which it is subject, each of which are listed on Disclosure Schedule (3.22):
--------------------------
supply agreements and purchase agreements not terminable by such Credit Party or
Subsidiary within sixty (60) days following written notice issued by such Credit
Party or Subsidiary and involving transactions in excess of $1,000,000 per
annum; any lease of Equipment having a remaining term of one year or longer and
requiring aggregate rental and other payments in excess of $500,000 per annum;
licenses and permits held by the Credit Parties or their Subsidiaries, the
absence of which could be reasonably likely to have a Material Adverse Effect;
and instruments or documents evidencing Indebtedness of such Credit Party or
Subsidiary and any security interest granted by such Credit Party or Subsidiary
with respect thereto.
3.23 Solvency. Both before and after giving effect to (a) the Loans and
--------
Letter of Credit Obligations to be made or extended on the Effective Date or
such other date as Loans and Letter of Credit Obligations requested hereunder
are made or extended, (b) the disbursement of the proceeds of such Loans
pursuant to the instructions of Borrower, (c) the Refinancing and (d) the
payment and accrual of all transaction costs in connection with the foregoing,
each Credit Party is Solvent, provided that this representation shall apply to
--------
Callaway Golf Ball Company only after Inventory and Receivables of Callaway Golf
Ball Company are determined to be eligible for inclusion in the Borrowing Base
in accordance with the proviso to the definition of "Borrowing Base" in Annex A.
------- -------
3.24 Year 2000 Representations. Borrower, on behalf of each Credit Party,
-------------------------
has adopted a Year 2000 Corrective Plan, copies of which have been delivered to
Agent.
3.25 Assets of Subsidiaries. The aggregate fair salable value of tangible
----------------------
assets of all of Borrower's Other Subsidiaries does not exceed $5,000,000.
4. FINANCIAL STATEMENTS AND INFORMATION
4.1 Reports and Notices.
-------------------
(a) Each Credit Party executing this Agreement hereby agrees that from and
after the Effective Date and until the Termination Date, it shall deliver to
Agent and/or Lenders, as required, the Financial Statements, notices,
Projections and other information at the times, to the Persons and in the manner
set forth in Annex E.
-------
(b) Each Credit Party executing this Agreement hereby agrees that from and
after the Effective Date and until the Termination Date, it shall deliver to
Agent and/or Lenders, as
-31-
required, the various Collateral Reports (including Borrowing Base Certificates
in the form of Exhibit 4.1(b)) at the times, to the Persons and in the manner
--------------
set forth in Annex F.
-------
4.2 Communication with Accountants. Each Credit Party executing this
------------------------------
Agreement authorizes Agent and, so long as a Default or Event of Default shall
have occurred and be continuing, each Lender, to communicate directly with its
independent certified public accountants including PricewaterhouseCoopers,
L.L.P., and shall disclose and make available (and shall authorize such
accountants and advisors to disclose and make available) to Agent and each
Lender any and all Financial Statements and other supporting financial
documents, schedules and information relating to any Credit Party (including
copies of any issued management letters) with respect to the business, financial
condition and other affairs of any Credit Party.
5. AFFIRMATIVE COVENANTS
Each Credit Party executing this Agreement jointly and severally agrees as
to all Credit Parties that from and after the date hereof and until the
Termination Date:
5.1 Maintenance of Existence and Conduct of Business. Each Credit Party
------------------------------------------------
shall: do or cause to be done, and shall cause each of its Subsidiaries which
is a Material Subsidiary to do or cause to be done, all things necessary to
preserve and keep in full force and effect its corporate existence and its
rights and franchises, provided that Borrower shall be permitted to consummate a
--------
Reincorporation Merger; continue to conduct its business substantially as now
conducted or as otherwise permitted hereunder; at all times maintain, preserve
and protect all of its assets and properties used or useful in the conduct of
its business, and keep the same in good repair, working order and condition in
all material respects (taking into consideration ordinary wear and tear) and
from time to time make, or cause to be made, all necessary or appropriate
repairs, replacements and improvements thereto consistent with industry
practices; and transact business only in such corporate and trade names as are
set forth in Disclosure Schedule (5.1), provided that the winding down and
------------------------- --------
dissolution of Odyssey Golf, Inc. shall not be deemed a violation of this
covenant.
5.2 Payment of Obligations.
----------------------
(a) Subject to Section 5.2(b), each Credit Party shall, and shall cause
--------------
each of its Subsidiaries to, pay and discharge or cause to be paid and
discharged promptly all Charges payable by it, including (A) Charges imposed
upon it, its income and profits, or any of its property (real, personal or
mixed) and all Charges with respect to tax, social security and unemployment
withholding with respect to its employees, and (B) lawful claims for labor,
materials, supplies and services or otherwise, before any thereof shall become
past due.
(b) Each Credit Party and each of its Subsidiaries may in good faith
contest, by appropriate proceedings, the validity or amount of any Charges or
claims described in Section 5.2(a); provided, that (i) adequate reserves with
-------------- --------
respect to such contest are maintained on the
-32-
books of such Credit Party or Subsidiary, in accordance with GAAP, (ii) no Lien
shall be imposed to secure payment of such Charges that is superior to any of
the Liens securing payment of the Obligations and such contest is maintained and
prosecuted continuously and with diligence and operates to suspend collection or
enforcement of such Charges, (iii) none of the Collateral becomes subject to
forfeiture or loss as a result of such contest, (iv) such Credit Party or
Subsidiary shall promptly pay or discharge such contested Charges or claims and
all additional charges, interest, penalties and expenses, if any, and shall
deliver to Agent evidence acceptable to Agent of such compliance, payment or
discharge, if such contest is terminated or discontinued adversely to such
Credit Party or Subsidiary or the conditions set forth in this Section 5.2(b)
-------------
are no longer met, and (v) Agent has not advised Borrower in writing that Agent
reasonably believes that nonpayment or nondischarge thereof could have or result
in a Material Adverse Effect.
5.3 Books and Records. Each Credit Party shall, and shall cause each of
-----------------
its Domestic Subsidiaries to, keep adequate books and records with respect to
its business activities in which proper entries, reflecting all financial
transactions, are made in accordance with GAAP and on a basis consistent with
the Financial Statements attached as Disclosure Schedule (3.4(A)).
---------------------------
5.4 Insurance; Damage to or Destruction of Collateral.
-------------------------------------------------
(a) The Credit Parties shall at their sole cost and expense, maintain the
policies of insurance described on Disclosure Schedule (3.18) as in effect on
--------------------------
the date hereof or otherwise in form and amounts and with insurers acceptable to
Agent. If any Credit Party at any time or times hereafter shall fail to obtain
or maintain any of the policies of insurance required above or to pay all
premiums relating thereto, Agent may at any time or times thereafter obtain and
maintain such policies of insurance and pay such premiums and take any other
action with respect thereto which Agent deems advisable. Agent shall have no
obligation to obtain insurance for any Credit Party or pay any premiums
therefor. By doing so, Agent shall not be deemed to have waived any Default or
Event of Default arising from any Credit Party's failure to maintain such
insurance or pay any premiums therefor. All sums so disbursed, including
attorneys' fees, court costs and other charges related thereto, shall be payable
on demand by Borrower to Agent and shall be additional Obligations hereunder
secured by the Collateral.
(b) Agent reserves the right at any time upon any change in any Credit
Party's risk profile (including any change in the product mix maintained by any
Credit Party or any laws affecting the potential liability of such Credit Party)
to require additional forms and limits of insurance to, in Agent's opinion,
adequately protect both Agent's and Lender's interests in all or any portion of
the Collateral and to ensure that each Credit Party is protected by insurance in
amounts and with coverage customary for its industry. If requested by Agent,
each Credit Party shall deliver to Agent from time to time a report of a
reputable insurance broker, satisfactory to Agent, with respect to its insurance
policies.
-33-
(c) Each Credit Party shall deliver to Agent, in form and substance
satisfactory to Agent, endorsements to (i) all "All Risk" and business
interruption insurance naming Agent, on behalf of itself and Lenders, as loss
payee, and (ii) all general liability and other liability policies naming Agent,
on behalf of itself and Lenders, as additional insured. Each Credit Party
irrevocably makes, constitutes and appoints Agent (and all officers, employees
or agents designated by Agent), so long as any Default or Event of Default shall
have occurred and be continuing or the anticipated insurance proceeds exceed
$5,000,000, as such Credit Party's true and lawful agent and attorney-in-fact
for the purpose of making, settling and adjusting claims under such "All Risk"
policies of insurance, endorsing the name of such Credit Party on any check or
other item of payment for the proceeds of such "All Risk" policies of insurance
and for making all determinations and decisions with respect to such "All Risk"
policies of insurance. Agent shall have no duty to exercise any rights or
powers granted to it pursuant to the foregoing power-of-attorney. Borrower
shall promptly notify Agent of any loss, damage, or destruction to the
Collateral in the amount of $1,000,000 or more, whether or not covered by
insurance. After deducting from such proceeds the expenses, if any, incurred by
Agent in the collection or handling thereof, Agent may, at its option, apply
such proceeds to the reduction of the Obligations in accordance with Section
-------
1.3(d), or permit or require the applicable Credit Party to use such money, or
- ------
any part thereof, to replace, repair, restore or rebuild the Collateral in a
diligent and expeditious manner with materials and workmanship of substantially
the same quality as existed before the loss, damage or destruction.
Notwithstanding the foregoing, if the casualty giving rise to such insurance
proceeds would not reasonably be expected to have a Material Adverse Effect and
such insurance proceeds do not exceed $1,000,000 in the aggregate, Agent shall
permit the applicable Credit Party to replace, restore, repair or rebuild the
property; provided that if such Credit Party has not completed or entered into
--------
binding agreements to complete such replacement, restoration, repair or
rebuilding within 180 days of such casualty, Agent may apply such insurance
proceeds to the Obligations in accordance with Section 1.3(d). All insurance
--------------
proceeds which are to be made available to Borrower to replace, repair, restore
or rebuild the Collateral shall be applied by Agent to reduce the outstanding
principal balance of the Revolving Loan (which application shall not result in a
permanent reduction of the Revolving Loan Commitment) and upon such application,
Agent shall establish a Reserve against the Borrowing Base in an amount equal to
the amount of such proceeds so applied. All insurance proceeds made available
to any Credit Party that is not a Borrower or to any of its Subsidiaries to
replace, repair, restore or rebuild Collateral shall be deposited in a cash
collateral account. Thereafter, such funds shall be made available to such
Credit Party or Subsidiary to provide funds to replace, repair, restore or
rebuild the Collateral as follows: (i) Borrower shall request a Revolving Credit
Advance or release from the cash collateral account be made to such Credit Party
in the amount requested to be released; (ii) so long as the conditions set forth
in Section 2.2 have been met, Revolving Lenders shall make such Revolving Credit
-----------
Advance or Agent shall release funds from the cash collateral account; and (iii)
in the case of insurance proceeds applied against the Revolving Loan, the
Reserve established with respect to such insurance proceeds shall be reduced by
the amount of such Revolving Credit Advance. To the extent not used to replace,
repair, restore or rebuild the Collateral, such insurance proceeds shall be
applied in accordance with Section 1.3(d); provided
-------------- --------
-34-
that in the case of insurance proceeds pertaining to any Credit Party other than
Borrower or any other Subsidiary of Borrower, such insurance proceeds shall be
applied to the Loans owing by Borrower.
(d) Notwithstanding anything to the contrary set forth in this Agreement,
including but not limited to Sections 5.4 (a)-(c), above, and in addition to all
--------------------
insurance requirements set forth in this Agreement and in the Loan Documents,
Borrower shall, with respect to each Mortgaged Property, comply with the
requirements of Annex G.
-------
5.5 Compliance with Laws. Each Credit Party shall, and shall cause each
--------------------
of its Subsidiaries to, comply with all federal, state, local and foreign laws
and regulations applicable to it, including those relating to ERISA and labor
matters and Environmental Laws and Environmental Permits, except to the extent
that the failure to comply, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect.
5.6 Supplemental Disclosure. From time to time as may be requested by
-----------------------
Agent (which request will not be made more frequently than once each year absent
the occurrence and continuance of a Default or an Event of Default), the Credit
Parties shall supplement each Disclosure Schedule hereto, or any representation
herein or in any other Loan Document, with respect to any matter hereafter
arising which, if existing or occurring at the date of this Agreement, would
have been required to be set forth or described in such Disclosure Schedule or
as an exception to such representation or which is necessary to correct any
information in such Disclosure Schedule or representation which has been
rendered inaccurate thereby (and, in the case of any supplements to any
Disclosure Schedule, such Disclosure Schedule shall be appropriately marked to
show the changes made therein); provided that (a) no such supplement to any such
--------
Disclosure Schedule or representation shall be or be deemed a waiver of any
Default or Event of Default resulting from the matters disclosed therein, except
as consented to by Agent and Requisite Lenders in writing; and (b) no supplement
shall be required as to representations and warranties that relate solely to the
Effective Date.
5.7 Intellectual Property. Each Credit Party will, and will cause each of
---------------------
its Subsidiaries to, conduct its business and affairs without infringement of or
interference with any Intellectual Property of any other Person in any material
respect.
5.8 Environmental Matters. Each Credit Party shall and shall cause each
---------------------
of its Subsidiaries and each Person within its control to: (a) conduct its
operations and keep and maintain its Real Estate in compliance with all
Environmental Laws and Environmental Permits other than noncompliance which
could not reasonably be expected to have a Material Adverse Effect; (b)
implement any and all investigation, remediation, removal and response actions
which are appropriate or necessary to maintain the value and marketability of
the Real Estate or to otherwise comply with Environmental Laws and Environmental
Permits pertaining to the presence, generation, treatment, storage, use,
disposal, transportation or Release of any
-35-
Hazardous Material on, at, in, under, above, to, from or about any of its Real
Estate; (c) notify Agent promptly after such Credit Party or Subsidiary becomes
aware of any violation of Environmental Laws or Environmental Permits or any
Release on, at, in, under, above, to, from or about any Real Estate which is
reasonably likely to result in Environmental Liabilities in excess of $50,000;
and (d) promptly forward to Agent a copy of any order, notice, request for
information or any communication or report received by such Credit Party or
Subsidiary in connection with any such violation or Release or any other matter
relating to any Environmental Laws or Environmental Permits that could
reasonably be expected to result in Environmental Liabilities in excess of
$50,000, in each case whether or not the Environmental Protection Agency or any
other Governmental Authority has taken or threatened any action in connection
with any such violation, Release or other matter. If Agent at any time has a
reasonable basis to believe that there may be a violation of any Environmental
Laws or Environmental Permits by any Credit Party or any of its Subsidiaries or
any Environmental Liability arising thereunder, or a Release of Hazardous
Materials on, at, in, under, above, to, from or about any of its Real Estate,
which, in each case, could reasonably be expected to have a Material Adverse
Effect, then each Credit Party shall, and shall cause each of its Subsidiaries
to, upon Agent's written request (i) cause the performance of such environmental
audits including subsurface sampling of soil and groundwater, and preparation of
such environmental reports, at Borrower's expense, as Agent may from time to
time reasonably request, which shall be conducted by reputable environmental
consulting firms reasonably acceptable to Agent and shall be in form and
substance acceptable to Agent, and (ii) permit Agent or its representatives to
have access to all Real Estate for the purpose of conducting such environmental
audits and testing as Agent deems appropriate, including subsurface sampling of
soil and groundwater. Borrower shall reimburse Agent for the costs of such
audits and tests and the same will constitute a part of the Obligations secured
hereunder.
5.9 Landlords' Agreements, Mortgagee Agreements and Bailee Letters. Each
--------------------------------------------------------------
Credit Party shall obtain a landlord's agreement, mortgagee agreement or bailee
letter, as applicable, from the lessor of each leased property or mortgagee of
owned property or with respect to any warehouse, processor or converter facility
or other location listed on Disclosure Schedule (5.9) or leased or acquired by
-------------------------
the Credit Party after the date hereof, which agreement or letter shall contain
a waiver or subordination of all Liens or claims that the landlord, mortgagee or
bailee may assert against the Inventory or Collateral at that location, and
shall otherwise be satisfactory in form and substance to Agent. With respect to
each location or warehouse space leased or owned as of the Effective Date and
thereafter, if Agent has not received a landlord or mortgagee agreement or
bailee letter as of the Effective Date (or, if later, as of the date such
location is acquired or leased), Eligible Inventory and Eligible Equipment at
that location shall, in Agent's discretion, be excluded from the Borrowing Base
or be subject to such Reserves as may be established by Agent in its reasonable
judgment (which Reserves shall be equal to three months rent for the property
located at 2105 Rutherford Road, Carlsbad, California). After the Effective
Date, no real property or warehouse space shall be leased or acquired by any
Credit Party or any of its Subsidiaries and no Inventory or Equipment shall be
shipped to a processor or converter under arrangements established after the
Effective Date without the prior written consent of
-36-
Agent (which consent, in Agent's discretion, may be conditioned upon the
exclusion from the Borrowing Base of Eligible Inventory and Eligible Equipment
at that location or the establishment of Reserves acceptable to Agent) or,
unless and until a satisfactory landlord or mortgagee agreement or bailee
letter, as appropriate, shall first have been obtained with respect to such
location. Each Credit Party shall, and shall cause each of its Subsidiaries to,
timely and fully pay and perform its obligations under all leases and other
agreements with respect to each leased location or public warehouse where any
Collateral is or may be located.
5.10 Further Assurances. Each Credit Party executing this Agreement agrees
------------------
that it shall and shall cause each other Credit Party and each of its
Subsidiaries to, at such Credit Party's expense and upon request of Agent, duly
execute and deliver, or cause to be duly executed and delivered, to Agent such
further instruments and do and cause to be done such further acts as may be
necessary or proper in the reasonable opinion of Agent to carry out more
effectively the provisions and purposes of this Agreement or any other Loan
Document.
5.11 Year 2000 Corrective Actions. On or before June 30, 1999, Borrower,
----------------------------
on behalf of the Credit Parties, shall have completed and delivered to Agent a
Year 2000 Assessment. Each Credit Party shall, and shall cause each of its
Subsidiaries to, have completed all Year 2000 Corrective Actions by September
30, 1999 Year 2000 and Implementation Testing by September 30, 1999. Each
Credit Party shall, and shall cause each of its Subsidiaries to, have eliminated
all Year 2000 Problems by September 30, 1999, except where the failure to
correct the same could not reasonably be expected to have a Material Adverse
Effect, individually or in the aggregate.
6. NEGATIVE COVENANTS
Each Credit Party executing this Agreement jointly and severally agrees as
to all Credit Parties that, without the prior written consent of Agent and the
Requisite Lenders, from and after the date hereof until the Termination Date:
6.1 Mergers, Subsidiaries, Etc.
---------------------------
(a) No Credit Party nor any of its Subsidiaries shall directly or
indirectly, by operation of law or otherwise, except in the case of Special
Purpose Corporation, (i) form or acquire any Subsidiary, or (ii) merge with,
consolidate with, acquire all or substantially all of the assets or capital
stock of, or otherwise combine with or acquire, any Person, other than (A) a
merger of an Other Subsidiary, with a Credit Party or other person in connection
with the sale or other disposition of the assets or Stock of the Other
Subsidiary, (B) the investment in the distributor of Borrower's products in
Ireland contemplated by Section 6.2(g) and (C) the acquisition of other current
--------------
assets pursuant to clause (c)(ii) of Section 6.2.
-------------- -----------
-37-
(b) Notwithstanding the prohibitions in clause (a) of this Section 6.1,
---------- -----------
Borrower may consummate a Reincorporation Merger, subject to satisfaction of
each of the following conditions:
(i) Agent shall have received written confirmation that any changes to
the charter and by-laws of Borrower resulting from the Reincorporation Merger
which would adversely affect Agent or Lenders or any Credit Party's duty or
ability to repay the Obligations, are satisfactory in form and substance to
Requisite Lenders;
(ii) any changes in the capital structure of Borrower after giving effect
to the Reincorporation Merger shall be satisfactory to Requisite Lenders;
(iii) at least ten (10) Business Days prior to the effectiveness of the
Reincorporation Merger, Agent shall have received a copy for each Lender of the
following documents, each of which shall be satisfactory in form and substance
to Agent (and Agent shall be deemed to have approved each of the following
documents absent notice to Borrower to the contrary within ten (10) Business
Days after Agent's receipt of the document): (A) the merger agreement and
articles of merger with respect to the Reincorporation Merger; (B) good standing
certificates (including verification of tax status) in the States of Delaware
and California for the Person into which Borrower is to be merged; (C)
certificates of qualification to do business in each jurisdiction where such
Person's ownership or lease of property or the conduct of its business requires
such qualification (unless waived by Agent in its sole discretion), each dated a
recent date and certified by the applicable Secretary of State or other
authorized Governmental Authority; (D) resolutions of such Person's and
Borrower's Board of Directors approving and authorizing the execution, delivery
and performance of the merger agreement and the assumption agreement with
respect to the Loan Documents, certified as of a recent date by Borrower's and
such Person's corporate secretary or an assistant secretary as being in full
force and effect without any modification or amendment; (E) signature and
incumbency certificates of the officers of such Person executing any of the Loan
Documents, certified as of a recent date by such Person's corporate secretary or
an assistance secretary as being true, accurate, correct and complete; (F) a
duly executed assumption agreement pursuant to which such Person assumes all of
the Obligations; and (G) duly executed originals of opinions of Gibson Dunn &
Crutcher LLP and the General Counsel or an Associate General Counsel of Borrower
and such Person with respect to the Reincorporation Merger and its effect on the
Loan Documents;
(iv) Agent shall have received a copy of the proxy statement to be
delivered to shareholders of Borrower with respect to the Reincorporation Merger
on or prior to the date of its mailing to shareholders; and
(v) Borrower and the Person into which Borrower is to be merged shall
have executed and delivered to Agent such further instruments and done such
further acts as may be necessary or
-38-
proper in the reasonable opinion of Agent to perfect and protect the security
interest of Agent on behalf of itself and Lenders in the Collateral.
(c) Notwithstanding the prohibitions in clause (a) of this Section 6.1,
---------- -----------
Borrower may acquire all or substantially all of the assets or all of the Stock
of any Person (the "Target") (in each case, a "Permitted Acquisition", including
------ ---------------------
without limitation the acquisition of distribution rights pursuant to clause
------
(c)(i) of Section 6.2), subject to the satisfaction of each of the following
- ------ -----------
conditions:
(i) Agent shall receive at least ten (10) days' prior written notice of
such proposed Permitted Acquisition, which notice shall include a reasonably
detailed description of such proposed Permitted Acquisition;
(ii) such Permitted Acquisition shall only involve those assets of a
business, of the type engaged in by Borrower as of the Effective Date, and which
business would not subject Agent or any Lender to regulatory or third party
approvals in connection with the exercise of its rights and remedies under this
Agreement or any other Loan Documents other than approvals applicable to the
exercise of such rights and remedies with respect to Borrower prior to such
Permitted Acquisition;
(iii) such Permitted Acquisition shall be consensual and shall have been
approved by the Target's board of directors;
(iv) no additional Indebtedness, Guaranteed Indebtedness, contingent
obligations or other liabilities shall be incurred, assumed or otherwise be
reflected on a consolidated balance sheet of Borrower and Target after giving
effect to such Permitted Acquisition, except (A) Loans made hereunder and (B)
ordinary course trade payables, accrued expenses and unsecured Indebtedness of
the Target to the extent no Default or Event of Default shall have occurred and
be continuing or would result after giving effect to such Permitted Acquisition;
(v) the sum of all amounts payable in connection with all Permitted
Acquisitions (including all transaction costs and all Indebtedness, liabilities
and contingent obligations (with contingent obligations other than Indebtedness
being valued in accordance with GAAP) incurred or assumed in connection
therewith or otherwise reflected on a consolidated balance sheet of Borrower and
Target) shall not exceed in the case of all Permitted Acquisitions, $25,000,000
during any Fiscal Year and $100,000,000 during the term hereof;
(vi) the business and assets acquired in such Permitted Acquisition shall
be free and clear of all Liens (other than Permitted Encumbrances);
(vii) (A) at the closing of any Permitted Acquisition of assets or any
Permitted Acquisition of Stock of a Target which is to become a Domestic
Subsidiary of Borrower, Agent
-39-
will be granted a first priority perfected Lien (subject to Permitted
Encumbrances) in all assets acquired pursuant thereto or in the assets and Stock
of the Target, and Borrower and the Target shall have executed such documents
and taken such actions as may be required by Agent in connection therewith, and
the Target shall execute a joinder to this Agreement and become a Credit Party
hereunder and (B) at or prior to the closing of any Permitted Acquisition of
Stock of a Target (other than a Target which is to become a Domestic Subsidiary
of Borrower), Agent will be granted a first priority perfected Lien (subject to
Permitted Encumbrances described in clause (a) of the definition thereof) in the
------ -
Stock of the Target, provided that the security interest described in this
--------
clause (B) shall not exceed two-thirds of the combined voting power of all Stock
- ------ -
of the Target;
(viii) concurrently with delivery of the notice referred to in clause (i)
----------
above, Borrower shall have delivered to Agent, in form and substance
satisfactory to Agent:
(A) a pro forma consolidated balance sheet, income statement and
cash flow statement of Borrower and its Subsidiaries (the "Acquisition Pro
---------------
Forma"), based on recent financial statements, which shall be complete and
-----
shall fairly present in all material respects the assets, liabilities,
financial condition and results of operations of Borrower and its
Subsidiaries in accordance with GAAP consistently applied, but taking into
account such Permitted Acquisition and the funding of all Loans in
connection therewith, and such Acquisition Pro Forma shall reflect that (x)
on a pro forma basis, Borrower and its Subsidiaries would have had a ratio
of Funded Debt to Adjusted EBITDA not in excess of 2.25 to 1.0 for the
period of four Fiscal Quarters then most recently ended, as reflected in a
certificate of the Chief Financial Officer of Borrower delivered to Agent
prior to the consummation of such Permitted Acquisition (giving effect to
such Permitted Acquisition and all Loans funded in connection therewith as
if made on the first day of such period), (y) average daily Net Borrowing
Availability for the 90-day period preceding the consummation of such
Permitted Acquisition would have exceeded $18,000,000 on a pro forma basis
(giving effect to such Permitted Acquisition and all Loans funded in
connection therewith as if made on the first day of such period) and the
Acquisition Projections (as hereinafter defined) shall reflect that such
Net Borrowing Availability of $18,000,000 shall continue for at least 90
days after the consummation of such Permitted Acquisition, and (z) on a pro
forma basis, no Event of Default shall have occurred and be continuing or
would result after giving effect to such Permitted Acquisition and Borrower
would have been in compliance with the financial covenants set forth in
Annex H for the four quarter period reflected in the Compliance Certificate
-------
most recently delivered to Agent pursuant to Annex E prior to the
-------
consummation of such Permitted Acquisition (giving effect to such Permitted
Acquisition and all Loans funded in connection therewith as if made on the
first day of such period);
(B) updated versions of the most recently delivered Projections
covering the one (1) year period commencing on the date of such Permitted
Acquisition and otherwise
-40-
[Execution Copy]
prepared in accordance with the Projections (the "Acquisition Projections")
-----------------------
and based upon historical financial data of a recent date satisfactory to
Agent, taking into account such Permitted Acquisition; and
(C) a certificate of the chief financial officer of Borrower to the
effect that: (w) Borrower will be Solvent upon the consummation of the
Permitted Acquisition; (x) the Acquisition Pro Forma fairly presents the
financial condition of Borrower (on a consolidated basis) as of the date
thereof after giving effect to the Permitted Acquisition; (y) the
Acquisition Projections are reasonable estimates of the future financial
performance of Borrower subsequent to the date thereof based upon the
historical performance of Borrower and the Target and show that Borrower
shall continue to be in compliance with the financial covenants set forth
in Annex H for the three (3) year period thereafter; and (z) Borrower has
-------
completed its due diligence investigation with respect to the Target and
such Permitted Acquisition, which investigation was conducted in a manner
similar to that which would have been conducted by a prudent purchaser of a
comparable business and the results of which investigation were delivered
to Agent and Lenders;
(ix) on or prior to the date of such Permitted Acquisition, Agent shall
have received, in form and substance satisfactory to Agent, copies of the
acquisition agreement and related agreements and instruments, and all opinions,
certificates, lien search results and other documents (including without
limitation environmental audits) reasonably requested by Agent; and
(x) at the time of such Permitted Acquisition and after giving effect
thereto, no Default or Event of Default shall have occurred and be continuing .
Notwithstanding the foregoing, the assets of the Target shall not be
included in the Borrowing Base without the prior written consent of Agent and
Requisite Lenders.
6.2 Investments; Loans and Advances. Except as otherwise expressly
-------------------------------
permitted by this Section 6, no Credit Party nor any of its Subsidiaries shall
----------
make or permit to exist any investment in, or make, accrue or permit to exist
loans or advances of money to, any Person, through the direct or indirect
lending of money, holding of securities or otherwise, except that (a) any Credit
Party may hold investments comprised of notes payable, or stock or other
securities issued by Account Debtors to such Credit Party pursuant to negotiated
agreements with respect to settlement of such Account Debtor's Receivables in
the ordinary course of business, so long as the aggregate amount of such
Receivables so settled by all Credit Parties does not exceed $1,000,000; (b)
each Credit Party may maintain its existing investments in its Subsidiaries as
of the Effective Date and investments in its Subsidiaries specifically permitted
under Section 6.1; (c) so long as no Event of Default shall have occurred and be
-----------
continuing, Borrower or ERC International Company may acquire (i) distribution
rights for Borrower's products in Japan for an aggregate amount of up to
$10,000,000 and (ii) other current assets in Japan related to Borrower's
business for an aggregate amount of up to $30,000,000, and Borrower may loan or
-41-
advance money to ERC International Company to finance such investments; and (d)
so long as no Event of Default shall have occurred and be continuing, Borrower
may make investments subject to Control Letters in favor of Agent for the
benefit of Lenders or otherwise subject to a perfected security interest in
favor of Agent for the benefit of Lenders, in (i) marketable direct obligations
issued or unconditionally guaranteed by the United States of America or any
agency thereof maturing within one year from the date of acquisition thereof,
(ii) commercial paper maturing no more than nine months from the date of
creation thereof and currently having the highest rating obtainable from either
Standard & Poor's Ratings Group or Moody's Investors Service, Inc., (iii)
certificates of deposit, maturing no more than one year from the date of
creation thereof, issued by commercial banks incorporated under the laws of the
United States of America, each having combined capital, surplus and undivided
profits of not less than $300,000,000 and having a senior unsecured rating of
"A" or better by a nationally recognized rating agency (an "A Rated Bank"), (iv)
------------
time deposits, maturing no more than 30 days from the date of creation thereof
with A Rated Banks and (v) mutual funds that invest solely in one or more of the
investments described in clauses (i) through (iv) above, (e) each Credit Party
or any of their respective Subsidiaries may make loans or advances as permitted
under clauses (a) and (c) of Section 6.14; (f) Borrower may maintain its
------- --- --- ------------
existing investment in the GSOT, provided that the aggregate amount thereof
--------
does not exceed $87,000,000 at any time; and (g) Borrower may acquire the stock
or assets of the distributor of Borrower's products in Ireland for an aggregate
amount up to $1,500,000; (h) so long as no Event of Default shall have occurred
and be continuing, Borrower may make additional investments in Callaway Golf
Ball Company of (i) up to $20,000,000 in the Fiscal Year ending December 31,
1999, (ii) up to $10,000,000 in the Fiscal Year ending December 31, 2000 and
(iii) up to $5,000,000 in the Fiscal Year ending December 31, 2001; (i) Borrower
or any Receivables Subsidiary may make investments in Special Purpose
Corporation and Borrower may guarantee the obligations of a Receivables
Subsidiary, in each case in connection with the Receivables Facility; and (j)
Borrower may make other investments not exceeding $200,000 in the aggregate at
any time outstanding.
6.3 Indebtedness. No Credit Party nor any of its Subsidiaries shall
------------
create, incur, assume or permit to exist any Indebtedness, except (without
duplication) (i) Indebtedness secured by purchase money security interests and
Capitalized Leases permitted in clause (c) of Section 6.7, (ii) Indebtedness
---------- -----------
incurred in connection with the CEF Lease Facility, the aggregate outstanding
balance of which shall not exceed $60,000,000, (iii) the Loans and the other
Obligations, (iv) unfunded pension fund and other employee benefit plan
obligations and liabilities to the extent they are permitted to remain unfunded
(without penalty therefor) under applicable law, (v) existing Indebtedness
described in Disclosure Schedule (6.3) and refinancings thereof or amendments or
-------------------------
modifications thereof which do not have the effect of increasing the principal
amount thereof or changing the amortization thereof (other than to extend the
same) and which are otherwise on terms and conditions no less favorable to any
Credit Party, any Subsidiary thereof, Agent or any Lender, as determined by
Agent, than the terms of the Indebtedness being refinanced, amended or modified,
(vi) Indebtedness specifically permitted under Section 6.1, (vii) Indebtedness
-----------
consisting of intercompany loans and advances made by Borrower to any other
-42-
Credit Party that is a Guarantor or by any such Guarantor to Borrower, provided
--------
that (A) no note of any kind shall be executed or delivered to evidence any such
intercompany Indebtedness owing at any time by Borrower to such Guarantor or by
such Guarantor to Borrower; (B) Borrower shall accurately record all
intercompany transactions on its books and records; (C) the obligations of each
Credit Party related to any such intercompany loan or advance shall be
subordinated to the Obligations pursuant to Section 11.11 hereunder; (D) at the
-------------
time any such intercompany loan or advance is entered into by any Credit Party
and after giving effect thereto, such Credit Party shall be Solvent; and (E) no
Default or Event of Default would occur and be continuing after giving effect to
any such proposed intercompany loan; (viii) Indebtedness consisting of
obligations under transactions permitted under Section 6.17; (ix) Indebtedness
------------
incurred in accordance with clauses (a) or (c) of Section 6.2, (x)
------------ --- -----------
Indebtedness incurred in accordance with Section 6.4(b), (xi) Indebtedness
--------------
created or arising under the Receivables Documents (including without limitation
any Indebtedness pursuant to a note payable by a Receivable Subsidiary to
Special Purpose Corporation); (xii) Indebtedness of ERC International Company
the aggregate outstanding principal amount of which does not exceed $25,000,000
at any time; (xiii) Indebtedness due to Borrower from its Subsidiaries (A) which
arises from transfers of Inventory by Borrower to its Subsidiaries in the
ordinary course of business or (B) the aggregate outstanding principal amount of
which does not exceed $1,000,000 for each such Subsidiary and $5,000,000 for all
such Subsidiaries; (xiv) obligations with respect to letters of credit issued
prior to the Effective Date by Wells Fargo Bank, National Association, provided
that the entire amount of such obligations shall be payable pursuant to one or
more Letters of Credit issued for the benefit of Wells Fargo Bank, National
Association to backstop or pay directly such obligations; and (xv)other
unsecured Indebtedness, the aggregate outstanding principal amount of which
shall not exceed $2,500,000.
6.4 Employee Loans and Affiliate Transactions.
-----------------------------------------
(a) Except as otherwise expressly permitted in this Section 6 with respect
---------
to Affiliates, no Credit Party nor any of its Subsidiaries shall enter into or
be a party to any transaction with any other Credit Party or any Affiliate
thereof except in the ordinary course of and pursuant to the reasonable
requirements of such Credit Party's or Subsidiary's business and upon fair and
reasonable terms that are no less favorable to such Credit Party or Subsidiary
than would be obtained in a comparable arm's length transaction with a Person
not an Affiliate of such Credit Party or Subsidiary. All transactions existing
as of the date hereof among Credit Parties and their Affiliates are described on
Disclosure Schedule (6.4(a)), other than intercompany transactions permitted by
- ---------------------------
Section 6.3.
- -----------
(b) No Credit Party nor any of its Subsidiaries shall enter into any
lending or borrowing transaction with any employees of any Credit Party or
Subsidiary thereof, except (i) loans to their respective employees in the
ordinary course of business consistent with past practices and stock option
financing up to a maximum of $1,000,000 to any employee and up to a
-43-
maximum of $5,000,000 in the aggregate at any one time outstanding and (ii)
existing loans described on Disclosure Schedule (6.3).
-------------------------
(c) Notwithstanding anything to the contrary in subsections (a) and (b) of
this Section 6.4, the Credit Parties and each of their respective Subsidiaries
-----------
shall be permitted to engage in any transaction with any Affiliate pursuant to
the Receivables Facility.
6.5 Capital Structure and Business. No Credit Party nor any of its
------------------------------
Subsidiaries shall (a) make any changes in any of its business objectives,
purposes or operations which could in any way adversely affect the repayment of
the Loans or any of the other Obligations or could reasonably be expected to
have or result in a Material Adverse Effect, (b) make any change in its capital
structure as described on Disclosure Schedule (3.8), including the issuance of
-------------------------
any shares of Stock, warrants or other securities convertible into Stock or any
revision of the terms of its outstanding Stock, except (i) to the extent
permitted by Section 6.14, (ii) as a result of a Reincorporation Merger, (iii)
------------
that Special Purpose Corporation may issue Stock in connection with the
Receivables Facility and (iv) that Borrower may make a Public Offering of its
common Stock so long as (A) the proceeds thereof are applied in prepayment of
the Obligations as required by Section 1.3(b)(iii), and (B) no Change of Control
-------------------
occurs after giving effect thereto, or (c) amend its charter or bylaws in a
manner which would adversely affect Agent or Lenders or any Credit Party's duty
or ability to repay the Obligations. No Credit Party nor any of its
Subsidiaries shall engage in any business other than the businesses currently
engaged in by it or businesses reasonably related thereto.
6.6 Guaranteed Indebtedness. No Credit Party nor any of its Subsidiaries
-----------------------
shall create, incur, assume or permit to exist any Guaranteed Indebtedness
except (a) by endorsement of instruments or items of payment for deposit to the
general account of any Credit Party or Subsidiary, (b) for Guaranteed
Indebtedness incurred for the benefit of any other Credit Party if the primary
obligation is expressly permitted by this Agreement and (c) for Guaranteed
Indebtedness described on Disclosure Schedule (6.3).
-------------------------
6.7 Liens. No Credit Party nor any of its Subsidiaries shall create,
-----
incur, assume or permit to exist any Lien on or with respect to its Receivables
or any of its other properties or assets (whether now owned or hereafter
acquired), including but not limited to the interests of a Credit Party or any
of its Subsidiaries in any Real Estate, except for (a) Permitted Encumbrances;
(b) Liens in existence on the date hereof and summarized on Disclosure Schedule
-------------------
(6.7); (c) Liens created after the date hereof by conditional sale or other
- -----
title retention agreements (including Capital Leases) or in connection with
purchase money Indebtedness with respect to Equipment and Fixtures acquired by
any Credit Party in the ordinary course of business, involving the incurrence of
an aggregate amount of purchase money Indebtedness and Capital Lease Obligations
of not more than $15,000,000 outstanding at any one time for all such Liens
(provided that such Liens attach only to the assets subject to such purchase
- ---------
money debt and such Indebtedness is incurred within twenty (20) days following
such purchase and does not exceed
-44-
100% of the purchase price of the subject assets); (d) Liens created in
connection with leases specifically permitted under Section 6.3(ii), (e) Liens
---------------
on assets of ERC International Company to secure Indebtedness permitted by
clause (xii) of Section 6.3 and (f) Liens created in connection with the
- ------------ -----------
Receivables Facility; and (g) any proposed transaction in which Borrower intends
to lease any real property owned by Borrower to any Person other than an
Affiliate of Borrower, so long as, prior to the consummation thereof, (i)
Borrower shall deliver a certificate to Agent setting forth the material
economic terms of the proposed lease and the net effective rental rate thereof,
together with true and correct copies of the documents evidencing such proposed
transaction, and (ii) the net effective rental rate, as set forth on Borrower's
certificate, is equal to or greater than the rent rate assumed for such real
property in the then most recent appraisal obtained by Agent for the real
property intended to be demised thereby. In addition, no Credit Party nor any of
its Subsidiaries shall become a party to any agreement, note, indenture or
instrument, or take any other action, which would prohibit the creation of a
Lien on any of its properties or other assets in favor of Agent, on behalf of
itself and Lenders, as additional collateral for the Obligations, except (i)
operating leases, Capital Leases, the CEF Lease Facility, or Licenses which, in
each case, prohibit Liens only upon the assets that are the subject of the
transactions contemplated thereby and (ii) the Receivables Documents.
Notwithstanding anything to the contrary contained herein the Borrower shall not
create, incur, assume or permit to exist any Lien on or with respect to the
Mortgaged Properties, other than those explicitly set forth in the pro-forma
title policies delivered to Agent on or prior to the Effective Date or Permitted
Encumbrances described in clause (a), (d), (h) or (i) of the definition thereof.
---------- --- --- ---
6.8 Sale of Stock and Assets. No Credit Party nor any of its Subsidiaries
------------------------
shall sell, transfer, convey, assign or otherwise dispose of any of its
properties or other assets (other than goodwill), including the capital Stock
of any of its Subsidiaries (whether in a public or a private offering or
otherwise) or any of their Receivables, other than (a) the sale or other
disposition of Inventory in the ordinary course of business; (b) the sale,
transfer, conveyance or other disposition of Equipment, Fixtures or Real Estate
that are obsolete or no longer used or useful in such Credit Party's business or
other Equipment and Fixtures which, in each case, are either (i) described on
Disclosure Schedule (6.8), (ii) subject to the CEF Lease Facility or (iii) have
- -------------------------
a value not exceeding $1,000,000 in any single transaction or $5,000,000 in the
aggregate in any Fiscal Year; (c) the factoring of Japanese retail Receivables
by ERC International Company; (d) the sale, transfer, conveyance or other
disposition of Stock or assets of an Other Subsidiary and (e) the sale or other
disposition of Receivables Program Assets in connection with the Receivables
Facility. With respect to any disposition of assets or other properties
permitted pursuant to clause (b) above, Agent agrees on reasonable prior written
----------
notice to release its Lien on such assets or other properties in order to permit
the applicable Credit Party to effect such disposition and shall execute and
deliver to Borrower, at Borrower's expense, appropriate UCC-3 termination
statements and other releases as reasonably requested by Borrower.
6.9 ERISA. No Credit Party shall or shall cause or permit any ERISA
-----
Affiliate to, cause or permit to occur an event which could result in the
imposition of a Lien under Section
-45-
412 of the IRC or Section 302 or 4068 of ERISA or cause or permit to occur an
ERISA Event to the extent such ERISA Event could reasonably be expected to have
a Material Adverse Effect.
6.10 Financial Covenants. Borrower shall not breach or fail to comply with
-------------------
any of the Financial Covenants (the "Financial Covenants") set forth in Annex H.
------------------- -------
6.11 Hazardous Materials. No Credit Party nor any of its Subsidiaries
-------------------
shall cause or permit a Release of any Hazardous Material on, at, in, under,
above, to, from or about any of the Real Estate where such Release would (a)
violate in any respect, or form the basis for any Environmental Liabilities
under, any Environmental Laws or Environmental Permits or (b) otherwise
adversely impact the value or marketability of any of the Real Estate or any of
the Collateral, other than such violations or Environmental Liabilities which
could not reasonably be expected to have a Material Adverse Effect.
6.12 Sale-Leasebacks. No Credit Party nor any of its Subsidiaries shall
---------------
engage in any sale-leaseback, synthetic lease or similar transaction involving
any of its assets, except for those transactions contemplated by the CEF Lease
Facility.
6.13 Cancellation of Indebtedness. No Credit Party nor any Material
----------------------------
Subsidiary shall cancel any claim or debt owing to it, except for reasonable
consideration negotiated on an arm's-length basis and in the ordinary course of
its business consistent with past practices, other than (i) reductions in
interest and principal owing on the note receivable due to Borrower from the
GSOT; and (ii) the conversion to shareholders' equity of advances made by
Borrower to its Subsidiaries.
6.14 Restricted Payments. No Credit Party nor any of its Subsidiaries
-------------------
shall make any Restricted Payment, except:
(a) intercompany loans and advances between Borrower and Guarantors to the
extent permitted by Section 6.3 above,
-----------
(b) dividends and distributions by Subsidiaries of Borrower paid to
Borrower,
(c) employee loans permitted under Section 6.4(b) above,
--------------
(d) dividends by Borrower on the common Stock of Borrower, provided that
--------
(i) the aggregate amount of dividends paid pursuant to this clause (d) shall not
----------
exceed $22,000,000 in any Fiscal Year, and (ii) at the time of the declaration
and payment of such dividend and after giving effect thereto, no Default or
Event of Default shall have occurred and be continuing,
(e) amounts paid to (or on behalf of) holders of Borrower's common Stock
to repurchase such Stock, provided that with respect to this clause (e):
-------- ----------
-46-
(i) Agent shall have received at least thirty (30) Business Days prior to
any such proposed payment (A) a written notice thereof, which shall
include a reasonably detailed description of such proposed payment,
(B) a pro forma consolidated balance sheet, income statement and cash
flow statement of Borrower and its Subsidiaries, based on recent
financial statements, which shall be complete and shall fairly present
in all material respects the assets, liabilities, financial condition
and results of operations of Borrower and its Subsidiaries in
accordance with GAAP consistently applied, but taking into account
such proposed payment and the funding of all Loans in connection
therewith, and such pro forma statements shall reflect that the
requirements of this clause (e) shall be satisfied and (C) a
----------
certificate of the chief financial officer of Borrower to the effect
that Borrower will be Solvent after the proposed payment and that the
pro forma statements fairly present the financial condition of
Borrower (on a consolidated basis) as of the date thereof after giving
effect to the proposed payment,
(ii) on a pro forma basis, Borrower and its Subsidiaries would have had a
ratio of Funded Debt to Adjusted EBITDA not in excess of 2.0 to 1.0
for the period of four Fiscal Quarters then most recently ended (after
giving effect to such proposed payment and all Loans funded in
connection therewith as if made on the first day of such period),
(iii) on a pro forma basis (calculated after further reducing EBITDA in
clause (a) of the definition of "Fixed Charge Coverage Ratio" by the
----------
amount of all payments to holders of Borrower's Stock pursuant to this
clause (e) during the rolling period described herein), Borrower and
----------
its Subsidiaries would have had on a consolidated basis, at the end of
the Fiscal Quarter then most recently ended, a Fixed Charge Coverage
Ratio for the twelve month period then ended (or, with respect to
Fiscal Quarters ending on or before September 30, 1999, the period
commencing on January 1, 1999 and ending on the last day of such
Fiscal Quarter) of not less than 1.0;
(iv) average daily Net Borrowing Availability for the 90-day period
preceding the date of such proposed payment would have exceeded
$18,000,000 on a pro forma basis (giving effect to such proposed
payment and all Loans funded in connection therewith as if made on the
first day of such period),
(v) Net Borrowing Availability of $18,000,000 shall continue for at least
90 days after the consummation of such proposed payment,
(vi) no Event of Default shall have occurred and be continuing or on a pro
forma basis, would result after giving effect to such proposed payment
and Borrower would have been in compliance with the financial
covenants set forth in Annex H for the
-------
-47-
four quarter period reflected in the Compliance Certificate most
recently delivered to Agent pursuant to Annex E prior to the
-------
consummation of such proposed payment (after giving effect to such
proposed payment and all Loans funded in connection therewith as if
made on the first day of the period of four Fiscal Quarters then most
recently ended), and
(vii) all Stock repurchased pursuant to this clause (e) shall be immediately
----------
canceled and retired, and
(f) payments, loans, contributions or other transfers of funds between or
among Borrower, Special Purpose Corporation and a Receivables Subsidiary made
in connection with the Receivables Facility.
6.15 Change of Corporate Name or Location; Change of Fiscal Year. No
-----------------------------------------------------------
Credit Party nor any other Material Subsidiary shall (a) change its corporate
name, or (b) change its chief executive office, principal place of business,
corporate offices or warehouses or locations at which Collateral is held or
stored, or the location of its records concerning the Collateral, in any case
without at least thirty (30) days prior written notice to Agent and after
Agent's written acknowledgment that any reasonable action requested by Agent in
connection therewith, including to continue the perfection of any Liens in favor
of Agent, on behalf of Lenders, in any Collateral, has been completed or taken,
and provided that any such new location shall be in the continental United
--------
States. Without limiting the foregoing, no Credit Party shall change its name,
identity or corporate structure in any manner which might make any financing or
continuation statement filed in connection herewith seriously misleading within
the meaning of Section 9-402(7) of the Code or any other then applicable
provision of the Code except upon prior written notice to Agent and Lenders and
after Agent's written acknowledgment that any reasonable action requested by
Agent in connection therewith, including to continue the perfection of any Liens
in favor of Agent, on behalf of Lenders, in any Collateral, has been completed
or taken. No Credit Party nor any of its Subsidiaries shall change its Fiscal
Year.
6.16 No Impairment of Intercompany Transfers. No Credit Party nor any of
---------------------------------------
its Subsidiaries shall directly or indirectly enter into or become bound by any
agreement, instrument, indenture or other obligation (other than this Agreement,
the other Loan Documents and the Receivables Documents) which could directly or
indirectly restrict, prohibit or require the consent of any Person with respect
to the payment of dividends or distributions or the making or repayment of
intercompany loans by a Subsidiary of Borrower to Borrower.
6.17 No Speculative Transactions. No Credit Party nor any of its
---------------------------
Subsidiaries shall engage in any transaction involving commodity options,
futures contracts or similar transactions, except solely to hedge against
fluctuations in the prices of commodities owned or purchased by it and the
values of foreign currencies receivable or payable by it and interest swaps,
caps or collars.
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6.18 Leases. No Credit Party nor any of its Subsidiaries shall enter into
------
any operating lease for Equipment (other than the CEF Lease Facility) or Real
Estate, if the aggregate of all such operating lease payments payable in any
Fiscal Year for Borrower and its Subsidiaries on a consolidated basis would
exceed $5,000,000.
7. TERM
7.1 Termination. The financing arrangements contemplated hereby shall be
-----------
in effect until the Commitment Termination Date, and the Loans and all other
Obligations shall be automatically due and payable in full on such date.
7.2 Survival of Obligations Upon Termination of Financing Arrangements.
------------------------------------------------------------------
Except as otherwise expressly provided for in the Loan Documents, no termination
or cancellation (regardless of cause or procedure) of any financing arrangement
under this Agreement shall in any way affect or impair the obligations, duties
and liabilities of the Credit Parties or the rights of Agent and Lenders
relating to any unpaid portion of the Loans or any other Obligations, due or not
due, liquidated, contingent or unliquidated or any transaction or event
occurring prior to such termination, or any transaction or event, the
performance of which is required after the Commitment Termination Date. Except
as otherwise expressly provided herein or in any other Loan Document, all
undertakings, agreements, covenants, warranties and representations of or
binding upon the Credit Parties, and all rights of Agent and each Lender, all as
contained in the Loan Documents, shall not terminate or expire, but rather shall
survive any such termination or cancellation and shall continue in full force
and effect until the Termination Date; provided however, that in all events the
--------
provisions of Section 11, the payment obligations under Sections 1.15 and 1.16,
---------- ------------- ----
and the indemnities contained in the Loan Documents shall survive the
Termination Date.
8. EVENTS OF DEFAULT; RIGHTS AND REMEDIES
8.1 Events of Default. The occurrence of any one or more of the following
-----------------
events (regardless of the reason therefor) shall constitute an "Event of
--------
Default" hereunder:
(a) Borrower (i) fails to make any payment of principal of, or interest
on, or Fees owing in respect of, the Loans or any of the other Obligations when
due and payable, or (ii) fails to pay or reimburse Agent or Lenders for any
expense reimbursable hereunder or under any other Loan Document within ten (10)
days following Agent's written demand for such reimbursement or payment of
expenses.
(b) Any Credit Party shall fail or neglect to perform, keep or observe any
of the provisions of Sections 1.4, 1.8, 5.4 or 6, or any of the provisions set
------------ ---- --- -
forth in Annexes C or H, respectively.
---------- -
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(c) Any Credit Party shall fail or neglect to perform, keep or observe any
of the provisions of Section 4 or any provisions set forth in Annexes E or F,
--------- --------- -
respectively, and the same shall remain unremedied for five (5) Business Days or
more.
(d) Any Credit Party shall fail or neglect to perform, keep or observe any
other provision of this Agreement or of any of the other Loan Documents (other
than any provision embodied in or covered by any other clause of this Section
-------
8.1) and the same shall remain unremedied for twenty (20) days or more from the
- ---
date of delivery of notice thereof to Borrower by Agent.
(e) A default or breach by any Credit Party or any of its Subsidiaries
shall occur under any other agreement, document or instrument to which any
Credit Party or any of its Subsidiaries is a party which is not cured within any
applicable grace period, and such default or breach (i) involves the failure to
make any payment when due in respect of any Indebtedness (other than the
Obligations) of any Credit Party or any of its Subsidiaries in excess of
$5,000,000 in the aggregate, or (ii) causes, or permits any holder of such
Indebtedness or a trustee to cause, Indebtedness or a portion thereof in excess
of $5,000,000 in the aggregate to become due prior to its stated maturity or
prior to its regularly scheduled dates of payment, regardless of whether such
default is waived, or such right is exercised, by such holder or trustee.
(f) Any information contained in any Borrowing Base Certificate is untrue
or incorrect in any respect, or any representation or warranty herein or in any
Loan Document or in any written statement, report, financial statement or
certificate (other than a Borrowing Base Certificate) made or delivered to Agent
or any Lender by any Credit Party is untrue or incorrect in any material respect
as of the date when made or deemed made.
(g) Assets of any Credit Party or any of its Subsidiaries with a fair
market value of $500,000 or more shall be attached, seized, levied upon or
subjected to a writ or distress warrant, or come within the possession of any
receiver, trustee, custodian or assignee for the benefit of creditors of any
Credit Party or any of its Subsidiaries and such condition continues for thirty
(30) days or more.
(h) A case or proceeding shall have been commenced against any Credit
Party or any of its Subsidiaries seeking a decree or order in respect of any
Credit Party or any of its Subsidiaries (i) under Title 11 of the United States
Code, as now constituted or hereafter amended or any other applicable federal,
state or foreign bankruptcy or other similar law (other than the dissolution of
Callaway Golf (Germany) GMBH and Callaway Golf Trading GmbH under German law and
of Callaway Golf Europe S.A. under French law), (ii) appointing a custodian,
receiver, liquidator, assignee, trustee or sequestrator (or similar official)
for any Credit Party or any of its Subsidiaries or of any substantial part of
any such Person's assets, or (iii) ordering the winding-up or liquidation of the
affairs of any Credit Party or any of its Subsidiaries, and such
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case or proceeding shall remain undismissed or unstayed for sixty (60) days or
more or such court shall enter a decree or order granting the relief sought in
such case or proceeding.
(i) Any Credit Party or any of its Subsidiaries (i) shall file a petition
seeking relief under Title 11 of the United States Code, as now constituted or
hereafter amended, or any other applicable federal, state or foreign bankruptcy
or other similar law (other than the dissolution of Callaway Golf (Germany) GMBH
and Callaway Golf Trading GmbH under German law and of Callaway Golf Europe S.A.
under French law), (ii) shall fail to contest in a timely and appropriate manner
or shall consent to the institution of proceedings thereunder or to the filing
of any such petition or to the appointment of or taking possession by a
custodian, receiver, liquidator, assignee, trustee or sequestrator (or similar
official) of any Credit Party or any of its Subsidiaries or of any substantial
part of any such Person's assets, (iii) shall make an assignment for the benefit
of creditors, or (iv) shall take any corporate action in furtherance of any of
the foregoing, or (v) shall admit in writing its inability to, or shall be
generally unable to, pay its debts as such debts become due.
(j) A final judgment or judgments for the payment of money in excess of
$1,000,000 in the aggregate at any time outstanding shall be rendered against
any Credit Party or any of its Subsidiaries and the same shall not, within
thirty (30) days after the entry thereof, have been discharged or execution
thereof stayed or bonded pending appeal, or shall not have been discharged prior
to the expiration of any such stay.
(k) Any material provision of any Loan Document shall for any reason cease
to be valid, binding and enforceable in accordance with its terms (or any Credit
Party or any of its Subsidiaries shall challenge the enforceability of any Loan
Document or shall assert in writing, or engage in any action or inaction based
on any such assertion, that any provision of any of the Loan Documents has
ceased to be or otherwise is not valid, binding and enforceable in accordance
with its terms), or any security interest created under any Loan Document shall
cease to be a valid and perfected first priority security interest or Lien
(except as otherwise permitted herein or therein) in any of the Collateral
purported to be covered thereby.
(l) Any Change of Control shall occur.
(m) Any Termination Event or Event of Servicer Termination (in each case,
as defined in the Receivables Purchase Agreement) shall occur and be continuing.
8.2 Remedies.
--------
(a) If any Default or Event of Default shall have occurred and be
continuing, Agent may (and at the written request of Requisite Lenders, shall),
without notice, suspend the Revolving Loan facility with respect to further
Advances and/or the incurrence of further Letter of Credit Obligations whereupon
any further Advances and the incurrence of further Letter of Credit
-51-
Obligations shall be made or extended in Agent's sole discretion (or in the sole
discretion of the Requisite Lenders, if such suspension occurred at their
direction) so long as such Default or Event of Default is continuing. If any
Default or Event of Default shall have occurred and be continuing, Agent may
(and at the written request of Requisite Lenders shall), without notice except
as otherwise expressly provided herein, increase the rate of interest applicable
to the Loans and the Letter of Credit Fees to the Default Rate.
(b) If any Event of Default shall have occurred and be continuing, Agent
may (and at the written request of the Requisite Lenders shall), without notice,
(i) terminate the Revolving Loan facility with respect to further Advances or
the incurrence of further Letter of Credit Obligations; (ii) declare all or any
portion of the Obligations, including all or any portion of any Loan to be
forthwith due and payable, and require that the Letter of Credit Obligations be
cash collateralized as provided in Annex B, all without presentment, demand,
-------
protest or further notice of any kind, all of which are expressly waived by
Borrower and each other Credit Party; and (iii) exercise any rights and remedies
provided to Agent under the Loan Documents and/or at law or equity, including
all remedies provided under the Code; provided, however, that upon the
-------- -------
occurrence of an Event of Default specified in Sections 8.1(h) or (i), the
--------------- ---
Revolving Loan facility shall be immediately terminated and all of the
Obligations, including the Revolving Loan, shall become immediately due and
payable without declaration, notice or demand by any Person.
8.3 Waivers by Credit Parties. Except as otherwise provided for in this
-------------------------
Agreement or by applicable law, each Credit Party waives: (a) presentment,
demand and protest and notice of presentment, dishonor, notice of intent to
accelerate, notice of acceleration, protest, default, nonpayment, maturity,
release, compromise, settlement, extension or renewal of any or all commercial
paper, accounts, contract rights, documents, instruments, chattel paper and
guaranties at any time held by Agent on which any Credit Party may in any way be
liable, and hereby ratifies and confirms whatever Agent may do in this regard,
(b) all rights to notice and a hearing prior to Agent's taking possession or
control of, or to Agent's replevy, attachment or levy upon, the Collateral or
any bond or security which might be required by any court prior to allowing
Agent to exercise any of its remedies, and (c) the benefit of all valuation,
appraisal, marshaling and exemption laws.
9. ASSIGNMENT AND PARTICIPATIONS; APPOINTMENT OF AGENT
9.1 Assignment and Participations.
-----------------------------
(a) Subject to the provisions of this Section 9.1(a), the Credit Parties
--------------
signatory hereto consent to any Lender's assignment of, and/or sale of
participations in, at any time or times, the Loan Documents, Loans, Letter of
Credit Obligations and any Commitment or of any portion thereof or interest
therein, including any Lender's rights, title, interests, remedies, powers or
duties thereunder, whether evidenced by a writing or not. Any assignment by a
Lender shall (i) require the consent of Agent and Borrower (with Borrower's
consent not to be unreasonably
-52-
withheld and except that upon the occurrence and during the continuance of any
Default or Event of Default, Borrower's consent shall not be required) and the
execution of an assignment agreement (an "Assignment Agreement") substantially
--------------------
in the form attached hereto as Exhibit 9.1(a) and otherwise in form and
--------------
substance satisfactory to, and acknowledged by, Agent; (ii) be conditioned on
such assignee Lender representing to the assigning Lender and Agent that it is
purchasing the applicable Loans to be assigned to it for its own account, for
investment purposes and not with a view to the distribution thereof; (iii) if a
partial assignment, be in an amount at least equal to $5,000,000 and integral
multiples of $1,000,000 in excess thereof and, after giving effect to any such
partial assignment, the assigning Lender shall have retained Commitments in an
amount at least equal to $5,000,000; (iv) include a payment to Agent of an
assignment fee of $3,500; and (v) be effective only upon delivery to Agent of
(A) the executed Assignment Agreement and (B) if the assignee is to become a
Foreign Lender, the Certificate of Exemption required by Section 1.15(c). In the
---------------
case of an assignment by a Lender under this Section 9.1, the assignee shall
-----------
have, to the extent of such assignment, the same rights, benefits and
obligations as it would if it were a Lender hereunder. The assigning Lender
shall be relieved of its obligations hereunder with respect to its Commitments
or assigned portion thereof from and after the date of such assignment. Borrower
hereby acknowledges and agrees that any assignment permitted hereunder will give
rise to a direct obligation of Borrower to the assignee and that the assignee
shall be considered to be a "Lender". In all instances, each Lender's liability
to make Loans hereunder shall be several and not joint and shall be limited to
such Lender's Pro Rata Share of the applicable Commitment. In the event Agent or
any Lender assigns or otherwise transfers all or any part of the Obligations
pursuant to this Section 9.1, Agent or any such Lender shall so notify Borrower
-----------
and Borrower shall, upon the request of Agent or such Lender, execute new Notes
in exchange for the Notes, if any, being assigned. Notwithstanding the foregoing
provisions of this Section 9.1(a), any Lender may at any time transfer the
--------------
Obligations held by it and its rights under this Agreement and the other Loan
Documents to an Affiliate of the Lender which (if the Affiliate is organized
under the laws of a jurisdiction outside the United States) complies with the
requirements of Section 1.15(c), any Lender may at any time pledge the
---------------
Obligations held by it and such Lender's rights under this Agreement and the
other Loan Documents to a Federal Reserve Bank, and any Lender that is an
investment fund may assign the Obligations held by it and such Lender's rights
under this Agreement and the other Loan Documents to another investment fund
managed by the same investment advisor; provided, however, that no such pledge
-------- -------
to a Federal Reserve Bank shall release such Lender from such Lender's
obligations hereunder or under any other Loan Document.
(b) Any participation by a Lender of all or any part of its Commitments
shall be made with the understanding that all amounts payable by Borrower
hereunder shall be determined as if that Lender had not sold such participation,
and that the holder of any such participation shall not be entitled to require
such Lender to take or omit to take any action hereunder except actions directly
affecting (i) any reduction in the principal amount of, or interest rate or Fees
payable with respect to, any Loan in which such holder participates, (ii) any
extension of the final maturity date of any Loan in which such holder
participates, and (iii) any release of all or substantially all of the
-53-
Collateral (other than in accordance with the terms of this Agreement, the
Collateral Documents or the other Loan Documents). Solely for purposes of
Sections 1.13, 1.15, 1.16 and 9.8, Borrower acknowledges and agrees that a
- ------------- ---- ---- ---
participation shall give rise to a direct obligation of Borrower to the
participant and the participant shall be considered to be a "Lender". Except as
set forth in the preceding sentence neither Borrower nor any other Credit Party
shall have any obligation or duty to any participant. Neither Agent nor any
Lender (other than the Lender selling a participation) shall have any duty to
any participant and may continue to deal solely with the Lender selling a
participation as if no such sale had occurred.
(c) Except as expressly provided in this Section 9.1, no Lender shall, as
-----------
between Borrower and that Lender, or Agent and that Lender, be relieved of any
of its obligations hereunder as a result of any sale, assignment, transfer or
negotiation of, or granting of participation in, all or any part of the Loans,
the Notes or other Obligations owed to such Lender.
(d) Each Credit Party executing this Agreement shall assist any Lender
permitted to sell assignments or participations under this Section 9.1 as
-----------
reasonably required to enable the assigning or selling Lender to effect any such
assignment or participation, including the execution and delivery of any and all
agreements, notes and other documents and instruments as shall be requested and
the preparation of informational materials for, and the participation of
management in meetings with, potential assignees or participants. Each Credit
Party executing this Agreement shall certify the correctness, completeness and
accuracy of all descriptions of the Credit Parties and their affairs contained
in any selling materials provided by it and all other information provided by it
and included in such materials, except that any Projections delivered by a
Credit Party shall only be certified by the Credit Party as having been prepared
by the Credit Party in compliance with the representations contained in Section
-------
3.4(b).
- ------
(e) A Lender may furnish any information concerning Credit Parties in the
possession of such Lender from time to time to assignees and participants
(including prospective assignees and participants). Each Lender shall obtain
from assignees or participants confidentiality covenants substantially
equivalent to those contained in Section 11.8.
------------
(f) So long as no Event of Default shall have occurred and be continuing,
no Lender shall assign or sell participations in any portion of its Loans or
Commitments to a potential Lender or participant, if, as of the date of the
proposed assignment or sale, the assignee Lender or participant would be subject
to capital adequacy or similar requirements under Section 1.16(a), increased
---------------
costs under Section 1.16(b), an inability to fund LIBOR Loans under Section
--------------- -------
1.16(c), or withholding taxes in accordance with Section 1.15(a).
- ------- ---------------
9.2 Appointment of Agent. GE Capital is hereby appointed to act on behalf
--------------------
of all Lenders as Agent under this Agreement and the other Loan Documents. The
provisions of this Section 9.2 are solely for the benefit of Agent and Lenders
-----------
and no Credit Party nor any other Person shall have any rights as a third party
beneficiary of any of the provisions hereof. In
-54-
performing its functions and duties under this Agreement and the other Loan
Documents, Agent shall act solely as an agent of Lenders and does not assume and
shall not be deemed to have assumed any obligation toward or relationship of
agency or trust with or for any Credit Party or any other Person. Agent shall
have no duties or responsibilities except for those expressly set forth in this
Agreement and the other Loan Documents. The duties of Agent shall be mechanical
and administrative in nature and Agent shall not have, or be deemed to have, by
reason of this Agreement, any other Loan Document or otherwise a fiduciary
relationship in respect of any Lender. Neither Agent nor any of its Affiliates
nor any of their respective officers, directors, employees, agents or
representatives shall be liable to any Lender for any action taken or omitted to
be taken by it hereunder or under any other Loan Document, or in connection
herewith or therewith, except for damages caused by its or their own gross
negligence or willful misconduct.
If Agent shall request instructions from Requisite Lenders, Supermajority
Revolving Lenders or all affected Lenders with respect to any act or action
(including failure to act) in connection with this Agreement or any other Loan
Document, then Agent shall be entitled to refrain from such act or taking such
action unless and until Agent shall have received instructions from Requisite
Lenders, Supermajority Revolving Lenders, or all affected Lenders, as the case
may be, and Agent shall not incur liability to any Person by reason of so
refraining. Agent shall be fully justified in failing or refusing to take any
action hereunder or under any other Loan Document (a) if such action would, in
the opinion of Agent, be contrary to law or the terms of this Agreement or any
other Loan Document, (b) if such action would, in the opinion of Agent, expose
Agent to Environmental Liabilities or (c) if Agent shall not first be
indemnified to its satisfaction against any and all liability and expense which
may be incurred by it by reason of taking or continuing to take any such action.
Without limiting the foregoing, no Lender shall have any right of action
whatsoever against Agent as a result of Agent acting or refraining from acting
hereunder or under any other Loan Document in accordance with the instructions
of Requisite Lenders, Supermajority Revolving Lenders or all affected Lenders,
as applicable.
9.3 Agent's Reliance, Etc. Neither Agent nor any of its Affiliates nor
----------------------
any of their respective directors, officers, agents or employees shall be liable
for any action taken or omitted to be taken by it or them under or in connection
with this Agreement or the other Loan Documents, except to the extent of damages
caused by its or their own gross negligence or willful misconduct. Without
limitation of the generality of the foregoing, Agent: (a) may treat the payee
of any Note as the holder thereof until Agent receives written notice of the
assignment or transfer thereof signed by such payee and in form satisfactory to
Agent; (b) may consult with legal counsel, independent public accountants and
other experts selected by it and shall not be liable for any action taken or
omitted to be taken in good faith by it in accordance with the advice of such
counsel, accountants or experts; (c) makes no warranty or representation to any
Lender and shall not be responsible to any Lender for any statements, warranties
or representations made in or in connection with this Agreement or the other
Loan Documents; (d) shall not have any duty to ascertain or to inquire as to the
performance or observance of any of the terms, covenants or conditions of this
Agreement or the other Loan Documents on the part of any Credit Party or to
-55-
inspect the Collateral (including the books and records) of any Credit Party;
(e) shall not be responsible to any Lender for the due execution, legality,
validity, enforceability, genuineness, sufficiency or value of this Agreement or
the other Loan Documents or any other instrument or document furnished pursuant
hereto or thereto; and (f) shall incur no liability under or in respect of this
Agreement or the other Loan Documents by acting upon any notice, consent,
certificate or other instrument or writing (which may be by facsimile, telegram,
cable or telex) believed by it to be genuine and signed or sent by the proper
party or parties.
9.4 GE Capital and Affiliates. With respect to its Commitments hereunder,
-------------------------
GE Capital shall have the same rights and powers under this Agreement and the
other Loan Documents as any other Lender and may exercise the same as though it
were not Agent; and the term "Lender" or "Lenders" shall, unless otherwise
expressly indicated, include GE Capital in its individual capacity. GE Capital
and its Affiliates may lend money to, invest in, and generally engage in any
kind of business with, any Credit Party, any of their Affiliates and any Person
who may do business with or own securities of any Credit Party or any such
Affiliate, all as if GE Capital were not Agent and without any duty to account
therefor to Lenders. GE Capital and its Affiliates may accept fees and other
consideration from any Credit Party for services in connection with this
Agreement or otherwise without having to account for the same to Lenders. Each
Lender acknowledges the potential conflict of interest between GE Capital as a
Lender holding disproportionate interests in the Loans and GE Capital as Agent.
9.5 Lender Credit Decision. Each Lender acknowledges that it has,
----------------------
independently and without reliance upon Agent or any other Lender and based on
the Financial Statements referred to in Section 3.4(a) and such other documents
--------------
and information as it has deemed appropriate, made its own credit and financial
analysis of the Credit Parties and their Subsidiaries and its own decision to
enter into this Agreement. Each Lender also acknowledges that it will,
independently and without reliance upon Agent or any other Lender and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action under
this Agreement. Each Lender acknowledges the potential conflict of interest of
each other Lender as a result of Lenders holding disproportionate interests in
the Loans, and expressly consents to, and waives any claim based upon, such
conflict of interest.
9.6 Indemnification. Lenders agree to indemnify Agent (to the extent not
---------------
reimbursed by Credit Parties and without limiting the obligations of Borrower
hereunder), ratably according to their respective Pro Rata Shares, from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind or
nature whatsoever which may be imposed on, incurred by, or asserted against
Agent in any way relating to or arising out of this Agreement or any other Loan
Document or any action taken or omitted by Agent in connection therewith;
provided, however, that no Lender shall be liable for any portion of such
- -------- -------
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements resulting from Agent's gross negligence or
wilful misconduct.
-56-
Without limiting the foregoing, each Lender agrees to reimburse Agent promptly
upon demand for its ratable share of any out-of-pocket expenses (including
counsel fees) incurred by 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 and each other Loan
Document, to the extent that Agent is not reimbursed for such expenses by Credit
Parties.
9.7 Successor Agent. Agent may resign at any time by giving not less than
---------------
thirty (30) days' prior written notice thereof to Lenders and Borrower. Upon
any such resignation, the Requisite Lenders shall have the right to appoint a
successor Agent. If no successor Agent shall have been so appointed by the
Requisite Lenders and shall have accepted such appointment within 30 days after
the resigning Agent's giving notice of resignation, then the resigning Agent
may, on behalf of Lenders, appoint a successor Agent, which shall be a Lender,
if a Lender is willing to accept such appointment, or otherwise shall be a
commercial bank or financial institution or a subsidiary of a commercial bank or
financial institution if such commercial bank or financial institution is
organized under the laws of the United States of America or of any State thereof
and has a combined capital and surplus of at least $300,000,000. If no
successor Agent has been appointed pursuant to the foregoing, by the 30th day
after the date such notice of resignation was given by the resigning Agent, such
resignation shall become effective and the Requisite Lenders shall thereafter
perform all the duties of Agent hereunder until such time, if any, as the
Requisite Lenders appoint a successor Agent as provided above. Any successor
Agent appointed by Requisite Lenders hereunder shall be subject to the approval
of Borrower, such approval not to be unreasonably withheld or delayed; provided
--------
that such approval shall not be required if a Default or an Event of Default
shall have occurred and be continuing. Upon the acceptance of any appointment
as Agent hereunder by a successor Agent, such successor Agent shall succeed to
and become vested with all the rights, powers, privileges and duties of the
resigning Agent. Upon the earlier of the acceptance of any appointment as Agent
hereunder by a successor Agent or the effective date of the resigning Agent's
resignation, the resigning Agent shall be discharged from its duties and
obligations under this Agreement and the other Loan Documents, except that any
indemnity rights or other rights in favor of such resigning Agent shall
continue. After any resigning Agent's resignation hereunder, the provisions of
this Section 9 shall inure to its benefit as to any actions taken or omitted to
---------
be taken by it while it was Agent under this Agreement and the other Loan
Documents.
9.8 Setoff and Sharing of Payments. In addition to any rights now or
------------------------------
hereafter granted under applicable law and not by way of limitation of any such
rights, upon the occurrence and during the continuance of any Event of Default,
each Lender and each holder of any Note is hereby authorized at any time or from
time to time, with the prior consent of Agent, but otherwise without notice to
any Credit Party or to any other Person, any such notice (other than notice to
Agent) being hereby expressly waived, to set off and to appropriate and to apply
any and all balances held by it at any of its offices for the account of
Borrower or any Guarantor (regardless of whether such balances are then due to
Borrower or any Guarantor) and any other properties or
-57-
assets any time held or owing by that Lender or that holder to or for the credit
or for the account of Borrower or any Guarantor against and on account of any of
the Obligations which are not paid when due. Any Lender or holder of any Note
exercising a right to set off or otherwise receiving any payment on account of
the Obligations in excess of its Pro Rata Share thereof shall purchase for cash
(and the other Lenders or holders shall sell) such participations in each such
other Lender's or holder's Pro Rata Share of the Obligations as would be
necessary to cause such Lender to share the amount so set off or otherwise
received with each other Lender or holder in accordance with their respective
Pro Rata Shares. Each Lender's obligation under this Section 9.8 shall be in
-----------
addition to and not limitation of its obligations to purchase a participation in
an amount equal to its Pro Rata Share of the Swing Line Loans under Section 1.1.
-----------
Borrower and each Guarantor agrees, to the fullest extent permitted by law, that
(a) any Lender or holder may exercise its right to set off with respect to
amounts in excess of its Pro Rata Share of the Obligations and may sell
participations in such amount so set off to other Lenders and holders and (b)
any Lender or holders so purchasing a participation in the Loans made or other
Obligations held by other Lenders or holders may exercise all rights of set-off,
bankers' lien, counterclaim or similar rights with respect to such participation
as fully as if such Lender or holder were a direct holder of the Loans and the
other Obligations in the amount of such participation. Notwithstanding the
foregoing, if all or any portion of the set-off amount or payment otherwise
received is thereafter recovered from the Lender that has exercised the right of
set-off, the purchase of participations by that Lender shall be rescinded and
the purchase price restored without interest.
9.9 Advances; Payments; Non-Funding Lenders; Information; Actions in
----------------------------------------------------------------
Concert.
- -------
(a) Advances; Payments. (i) Revolving Lenders shall refund or
------------------
participate in the Swing Line Loan in accordance with clauses (iii) and (iv)
------------- ----
of Section 1.1(b). If the Swing Line Lender declines to make a Swing Line
--------------
Loan or if Swing Line Availability is zero, Agent shall notify Revolving
Lenders, promptly after receipt of a Notice of Revolving Advance and in any
event prior to 2:00 p.m. (New York time) on the date such Notice of Revolving
Advance is received, by facsimile, telephone or other similar form of
transmission. Each Revolving Lender shall make the amount of such Lender's
Pro Rata Share of such Revolving Credit Advance available to Agent in same
day funds by wire transfer to Agent's account as set forth in Annex I not
-------
later than 3:00 p.m. (New York time) on the requested funding date, in the
case of an Index Rate Loan and not later than 11:00 a.m. (New York time) on
the requested funding date in the case of a LIBOR Loan. After receipt of
such wire transfers (or, in Agent's sole discretion, before receipt of such
wire transfers), subject to the terms hereof, Agent shall make the requested
Revolving Credit Advance to Borrower. All payments by each Revolving Lender
shall be made without setoff, counterclaim or deduction of any kind.
(ii) On the second (2nd) Business Day of each calendar week or more
frequently as aggregate cumulative payments in excess of $5,000,000 are
received with
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respect to the Loans (other than the Swing Line Loan) (each, a
"Settlement Date"), Agent will advise each Lender by telephone, or facsimile
---------------
of the amount of such Lender's Pro Rata Share of principal, interest and Fees
paid for the benefit of Lenders with respect to each applicable Loan.
Provided that such Lender has funded all payments and Advances required to be
made by it and purchased all participations required to be purchased by it
under this Agreement and the other Loan Documents as of such Settlement Date,
Agent will pay to each Lender such Lender's Pro Rata Share of principal,
interest and Fees paid by Borrower since the previous Settlement Date for
the benefit of that Lender on the Loans held by it. To the extent that any
Lender (a "Non-Funding Lender") has failed to fund all such payments and
Advances or failed to fund the purchase of all such participations, Agent
shall be entitled to set off the funding short-fall against that Non-Funding
Lender's Pro Rata Share of all payments received from Borrower. Such
payments shall be made by wire transfer to such Lender's account (as
specified by such Lender in Annex I or the applicable Assignment Agreement)
-------
not later than 2:00 p.m. (New York time) on the next Business Day following
each Settlement Date.
(b) Availability of Lender's Pro Rata Share. Agent may assume that each
---------------------- ----------------
Revolving Lender will make its Pro Rata Share of each Revolving Credit Advance
available to Agent on each funding date. If such Pro Rata Share is not, in
fact, paid to Agent by such Revolving Lender when due, Agent will be entitled to
recover such amount on demand from such Revolving Lender without set-off,
counterclaim or deduction of any kind. If any Revolving Lender fails to pay the
amount of its Pro Rata Share forthwith upon Agent's demand, Agent shall promptly
notify Borrower and Borrower shall immediately repay such amount to Agent.
Nothing in this Section 9.9(b) or elsewhere in this Agreement or the other Loan
--------------
Documents shall be deemed to require Agent to advance funds on behalf of any
Revolving Lender or to relieve any Revolving Lender from its obligation to
fulfill its Commitments hereunder or to prejudice any rights that Borrower may
have against any Revolving Lender as a result of any default by such Revolving
Lender hereunder. To the extent that Agent advances funds to Borrower on behalf
of any Revolving Lender and is not reimbursed therefor on the same Business Day
as such Advance is made, Agent shall be entitled to retain for its account all
interest accrued on such Advance until reimbursed by the applicable Revolving
Lender.
(c) Return of Payments.
------------------
(i) If Agent pays an amount to a Lender under this Agreement in the
belief or expectation that a related payment has been or will be received by
Agent from Borrower and such related payment is not received by Agent, then
Agent will be entitled to recover such amount from such Lender on demand
without set-off, counterclaim or deduction of any kind.
(ii) If Agent determines at any time that any amount received by Agent
under this Agreement must be returned to Borrower or paid to any other Person
pursuant to any insolvency law or otherwise, then, notwithstanding any other
term or condition of this
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Agreement or any other Loan Document, Agent will not be required to
distribute any portion thereof to any Lender. In addition, each Lender will
repay to Agent on demand any portion of such amount that Agent has
distributed to such Lender, together with interest at such rate, if any, as
Agent is required to pay to Borrower or such other Person, without set-off,
counterclaim or deduction of any kind.
(d) Non-Funding Lenders. The failure of any Non-Funding Lender to make
-------------------
any Revolving Credit Advance or any payment required by it hereunder, or to
purchase any participation in any Swing Line Loan to be made or purchased by it
on the date specified therefor shall not relieve any other Revolving Lender
(each such other Revolving Lender, an "Other Lender") of its obligations to make
such Advance or purchase such participation on such date, but neither any Other
Lender nor Agent shall be responsible for the failure of any Non-Funding Lender
to make an Advance or to purchase a participation required hereunder.
Notwithstanding anything set forth herein to the contrary, a Non-Funding Lender
shall not have any voting or consent rights under or with respect to any Loan
Document or constitute a "Lender" or a "Revolving Lender" (or be included in the
calculation of "Requisite Lenders" or "Supermajority Revolving Lenders"
hereunder) for any voting or consent rights under or with respect to any Loan
Document.
(e) Dissemination of Information. Agent will use reasonable efforts to
----------------------------
provide Lenders with any notice of Default or Event of Default received by Agent
from, or delivered by Agent to, any Credit Party, with notice of any Event of
Default of which Agent has actually become aware and with notice of any action
taken by Agent following any Event of Default; provided, however, that Agent
shall not be liable to any Lender for any failure to do so, except to the extent
that such failure is attributable to Agent's gross negligence or willful
misconduct. Lenders acknowledge that Borrower is required to provide Financial
Statements and Collateral Reports to Lenders in accordance with Annexes E and F
--------- -
hereto and agree that Agent shall have no duty to provide the same to Lenders.
(f) Actions in Concert . Anything in this Agreement to the contrary
------------------
notwithstanding, each Lender hereby agrees with each other Lender that no Lender
shall take any action to protect or enforce its rights arising out of this
Agreement or the Notes (including exercising any rights of set-off) without
first obtaining the prior written consent of Agent and Requisite Lenders, it
being the intent of Lenders that any such action to protect or enforce rights
under this Agreement and the Notes shall be taken in concert and at the
direction or with the consent of Agent.
9.10 Intercreditor Agreement. Each Lender hereby authorizes Agent to enter
-----------------------
into the Intercreditor Agreement, to make the representations, warranties and
covenants on behalf of Lenders contained therein, and to take such actions as it
is required or authorized to take thereunder (and such other actions as are
reasonably incidental thereto). Each Lender agrees to be bound by the terms of
the Intercreditor Agreement.
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[Execution Copy]
10. SUCCESSORS AND ASSIGNS
10.1 Successors and Assigns. This Agreement and the other Loan Documents
----------------------
shall be binding on and shall inure to the benefit of each Credit Party, Agent,
Lenders and their respective successors and assigns (including, in the case of
any Credit Party, a debtor-in-possession on behalf of such Credit Party), except
as otherwise provided herein or therein. No Credit Party may assign, transfer,
hypothecate or otherwise convey its rights, benefits, obligations or duties
hereunder or under any of the other Loan Documents without the prior express
written consent of Agent and Lenders. Any such purported assignment, transfer,
hypothecation or other conveyance by any Credit Party without the prior express
written consent of Agent and Lenders shall be void. The terms and provisions of
this Agreement are for the purpose of defining the relative rights and
obligations of each Credit Party, Agent and Lenders with respect to the
transactions contemplated hereby and no Person shall be a third party
beneficiary of any of the terms and provisions of this Agreement or any of the
other Loan Documents.
11. MISCELLANEOUS
11.1 Complete Agreement; Modification of Agreement. The Loan Documents
---------------------------------------------
constitute the complete agreement between the parties with respect to the
subject matter thereof and may not be modified, altered or amended except as set
forth in Section 11.2 below. Any letter of interest, proposal letter,
------------
commitment letter, fee letter (other than the GE Capital Fee Letter) or
confidentiality agreement between any Credit Party and Agent or any Lender or
any of their respective affiliates, predating this Agreement and relating to a
financing of substantially similar form, purpose or effect shall be superseded
by this Agreement.
11.2 Amendments and Waivers.
----------------------
(a) Except for actions expressly permitted to be taken by Agent, no
amendment, modification, termination or waiver of any provision of this
Agreement, any of the Notes or any other Loan Document, or any consent to any
departure by any Credit Party therefrom, shall in any event be effective unless
the same shall be in writing and signed by Agent and Borrower, and by Requisite
Lenders, Supermajority Revolving Lenders or all affected Lenders, as applicable.
Except as set forth in clauses (b) and (c) below, all such amendments,
----------- ---
modifications, terminations or waivers requiring the consent of any Lenders
shall require the written consent of Requisite Lenders.
(b) No amendment, modification, termination or waiver of or consent with
respect to any provision of this Agreement which increases the percentage
advance rates set forth in the definition of the Borrowing Base, or which makes
less restrictive the nondiscretionary criteria for Eligible Inventory, Eligible
Real Estate or Eligible Equipment set forth in Sections 1.7, 1.18 or 1.19,
------------ ---- ----
respectively, shall be effective unless the same shall be in writing and signed
by Agent,
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Supermajority Revolving Lenders (or, in the case of an increase in the
percentage advance rates, each Lender) and Borrower.
(c) No amendment, modification, termination or waiver shall, unless in
writing and signed by Agent and each Lender directly affected thereby, do any of
the following: (i) increase the principal amount of any Lender's Commitment
(which action shall require the consent of each Lender); (ii) reduce the
principal of, rate of interest on or Fees payable with respect to any Loan or
Letter of Credit Obligations of any affected Lender; (iii) extend any scheduled
payment date or final maturity date of the principal amount of any Loan of any
affected Lender; (iv) waive, forgive, defer, extend or postpone any payment of
interest or Fees as to any affected Lender; (v) except as otherwise permitted
herein or in the other Loan Documents, release, or permit any Credit Party to
sell or otherwise dispose of, any Collateral with a value exceeding $10,000,000
in the aggregate (which action shall be deemed to directly affect all Lenders);
(vi) change the percentage of the Commitments or of the aggregate unpaid
principal amount of the Loans which shall be required for Lenders or any of them
to take any action hereunder; and (vii) amend or waive this Section 11.2 or the
------------
definitions of the terms "Requisite Lenders" or "Supermajority Revolving
Lenders" insofar as such definitions affect the substance of this Section 11.2.
------------
Furthermore, no amendment, modification, termination or waiver affecting the
rights or duties of Agent under this Agreement or any other Loan Document shall
be effective unless in writing and signed by Agent, in addition to Lenders
required hereinabove to take such action. Each amendment, modification,
termination or waiver shall be effective only in the specific instance and for
the specific purpose for which it was given. No amendment, modification,
termination or waiver shall be required for Agent to take additional Collateral
pursuant to any Loan Document. No amendment, modification, termination or waiver
of any provision of any Note shall be effective without the written concurrence
of the holder of that Note. No notice to or demand on any Credit Party in any
case shall entitle such Credit Party or any other Credit Party to any other or
further notice or demand in similar or other circumstances. Any amendment,
modification, termination, waiver or consent effected in accordance with this
Section 11.2 shall be binding upon each holder of the Notes at the time
- ------------
outstanding and each future holder of the Notes.
(d) If, in connection with any proposed amendment, modification, waiver or
termination (a "Proposed Change"):
---------------
(i) requiring the consent of all affected Lenders, the consent of
Requisite Lenders is obtained, but the consent of other Lenders whose consent
is required is not obtained (any such Lender whose consent is not obtained as
described this clause (i) and in clauses (ii) and (iii) below being referred
---------- ------------ -----
to as a "Non-Consenting Lender"), or
---------------------
(ii) requiring the consent of Supermajority Revolving Lenders, the
consent of Requisite Lenders is obtained, but the consent of Supermajority
Revolving Lenders is not obtained, or
-62-
(iii) requiring the consent of Requisite Lenders, the consent of
Lenders holding 51% or more of the aggregate Commitments is obtained, but the
consent of Requisite Lenders is not obtained,
then, so long as Agent is not a Non-Consenting Lender, at Borrower's request
Agent, or a Person acceptable to Agent, shall have the right with Agent's
consent and in Agent's sole discretion (but shall have no obligation) to
purchase from such Non-Consenting Lenders, and such Non-Consenting Lenders agree
that they shall, upon Agent's request, sell and assign to Agent or such Person,
all of the Commitments of such Non-Consenting Lender for an amount equal to the
principal balance of all Loans held by the Non-Consenting Lender and all accrued
interest and Fees with respect thereto through the date of sale, such purchase
and sale to be consummated pursuant to an executed Assignment Agreement.
(e) Upon indefeasible payment in full in cash and performance of all of
the Obligations (other than indemnification Obligations under Section 1.13),
------------
termination of the Commitments and a release of all claims against Agent and
Lenders, and so long as no suits, actions proceedings, or claims are pending or
threatened against any Indemnified Person asserting any damages, losses or
liabilities that are Indemnified Liabilities, Agent shall deliver to Borrower
termination statements, mortgage releases and other documents necessary or
appropriate to evidence the termination of the Liens securing payment of the
Obligations.
11.3 Fees and Expenses. Borrower shall reimburse Agent for all out-of-
-----------------
pocket expenses incurred in connection with the preparation of the Loan
Documents (including the reasonable fees and expenses of all of its special loan
counsel, advisors, consultants and auditors retained in connection with the Loan
Documents and advice in connection therewith). Borrower shall reimburse Agent
(and, with respect to clauses (c) and (d) below, all Lenders) for all fees,
----------- ---
costs and expenses, including the reasonable fees, costs and expenses of counsel
or other advisors (including environmental and management consultants and
appraisers) for advice, assistance, or other representation in connection with:
(a) the forwarding to Borrower or any other Person on behalf of Borrower
by Agent of the proceeds of the Loans;
(b) any amendment, modification or waiver of, or consent with respect to,
any of the Loan Documents or advice in connection with the administration of the
Loans made pursuant hereto or its rights hereunder or thereunder;
(c) any litigation, contest, dispute, suit, proceeding or action (whether
instituted by Agent, any Lender, Borrower or any other Person) in any way
relating to the Collateral, any of the Loan Documents or any other agreement to
be executed or delivered in connection therewith or herewith, whether as party,
witness, or otherwise, including any litigation, contest, dispute, suit, case,
proceeding or action, and any appeal or review thereof, in connection with a
case
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commenced by or against Borrower or any other Person that may be obligated
to Agent by virtue of the Loan Documents; including any such litigation,
contest, dispute, suit, proceeding or action arising in connection with any
work-out or restructuring of the Loans during the pendency of one or more Events
of Default; provided that in the case of reimbursement of counsel for Lenders
--------
other than Agent, such reimbursement shall be limited to one counsel for all
such Lenders;
(d) any attempt to enforce any remedies of Agent or any Lender against any
or all of the Credit Parties or any other Person that may be obligated to Agent
or any Lender by virtue of any of the Loan Documents; including any such attempt
to enforce any such remedies in the course of any work-out or restructuring of
the Loans during the pendency of one or more Events of Default; provided that in
--------
the case of reimbursement of counsel for Lenders other than Agent, such
reimbursement shall be limited to one counsel for all such Lenders;
(e) any work-out or restructuring of the Loans during the pendency of one
or more Events of Default;
(f) efforts to (i) monitor the Loans or any of the other Obligations, (ii)
evaluate, observe or assess any of the Credit Parties or their respective
affairs, and (iii) verify, protect, evaluate, assess, appraise, collect, sell,
liquidate or otherwise dispose of any of the Collateral (provided that unless a
--------
Default or Event of Default has occurred and is continuing, reimbursement for
appraisals of any asset or group of assets shall be limited to one appraisal for
each calendar year, in addition to appraisals otherwise required by this
Agreement);
including, as to each of clauses (a) through (f) above, all attorneys' and other
professional and service providers' fees arising from such services, including
those in connection with any appellate proceedings; and all expenses, costs,
charges and other fees incurred by such counsel and others in any way or respect
arising in connection with or relating to any of the events or actions described
in this Section 11.3 shall be payable, on demand, by Borrower to Agent. Without
------------
limiting the generality of the foregoing, such expenses, costs, charges and fees
may include: fees, costs and expenses of accountants, environmental advisors,
appraisers, investment bankers, management and other consultants and paralegals;
court costs and expenses; photocopying and duplication expenses; court reporter
fees, costs and expenses; long distance telephone charges; air express charges;
telegram or facsimile charges; secretarial overtime charges; and expenses for
travel, lodging and food paid or incurred in connection with the performance of
such legal or other advisory services.
11.4 No Waiver. Agent's or any Lender's failure, at any time or times, to
---------
require strict performance by the Credit Parties of any provision of this
Agreement and any of the other Loan Documents shall not waive, affect or
diminish any right of Agent or such Lender thereafter to demand strict
compliance and performance therewith. Any suspension or waiver of an Event of
Default shall not suspend, waive or affect any other Event of Default whether
the same is prior or subsequent thereto and whether the same or of a different
type. Subject to the provisions of
-64-
Section 11.2, none of the undertakings, agreements, warranties, covenants and
- ------------
representations of any Credit Party contained in this Agreement or any of the
other Loan Documents and no Default or Event of Default by any Credit Party
shall be deemed to have been suspended or waived by Agent or any Lender, unless
such waiver or suspension is by an instrument in writing signed by an officer of
or other authorized employee of Agent and the applicable required Lenders and
directed to Borrower specifying such suspension or waiver.
11.5 Remedies. Agent's and Lenders' rights and remedies under this
--------
Agreement shall be cumulative and nonexclusive of any other rights and remedies
which Agent or any Lender may have under any other agreement, including the
other Loan Documents, by operation of law or otherwise. Recourse to the
Collateral shall not be required.
11.6 Severability. Wherever possible, each provision of this Agreement and
------------
the other Loan Documents shall be interpreted in such a manner as to be
effective and valid under applicable law, but if any provision of this Agreement
shall be prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement.
11.7 Conflict of Terms. Except as otherwise provided in this Agreement or
-----------------
any of the other Loan Documents by specific reference to the applicable
provisions of this Agreement, if any provision contained in this Agreement is in
conflict with, or inconsistent with, any provision in any of the other Loan
Documents, the provision contained in this Agreement shall govern and control.
11.8 Confidentiality. Agent and each Lender agree to use commercially
---------------
reasonable efforts (equivalent to the efforts Agent or such Lender applies to
maintain the confidentiality of its own confidential information) to maintain as
confidential all confidential information provided to them by the Credit Parties
and designated as confidential for a period of two (2) years following receipt
thereof, except that Agent and each Lender may disclose such information (a) to
Persons employed or engaged by Agent or such Lender in evaluating, approving,
structuring or administering the Loans and the Commitments; (b) to any bona fide
assignee or participant or potential assignee or participant that has agreed to
comply with the covenant contained in this Section 11.8 (and any such bona fide
------------
assignee or participant or potential assignee or participant may disclose such
information to Persons employed or engaged by them as described in clause (a)
----------
above); (c) as required or requested by any Governmental Authority or reasonably
believed by Agent or such Lender to be compelled by any court decree, subpoena
or legal or administrative order or process; (d) as, on the advise of Agent's or
such Lender's counsel, required by law; (e) in connection with the exercise of
any right or remedy under the Loan Documents or in connection with any
Litigation to which Agent or such Lender is a party; or (f) which ceases to be
confidential through no fault of Agent or such Lender.
-65-
11.9 GOVERNING LAW. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN ANY OF THE
-------------
LOAN DOCUMENTS, IN ALL RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY
AND PERFORMANCE, THE LOAN DOCUMENTS AND THE OBLIGATIONS SHALL BE GOVERNED BY,
AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN THAT STATE AND ANY APPLICABLE
LAWS OF THE UNITED STATES OF AMERICA. EACH CREDIT PARTY HEREBY CONSENTS AND
AGREES THAT THE STATE OR FEDERAL COURTS LOCATED IN NEW YORK COUNTY, CITY OF NEW
YORK, NEW YORK SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY
CLAIMS OR DISPUTES BETWEEN THE CREDIT PARTIES, AGENT AND LENDERS PERTAINING TO
THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR TO ANY MATTER ARISING OUT
OF OR RELATING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS, PROVIDED,
--------
THAT AGENT, LENDERS AND THE CREDIT PARTIES ACKNOWLEDGE THAT ANY APPEALS FROM
THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF NEW YORK COUNTY,
CITY OF NEW YORK, NEW YORK AND, PROVIDED, FURTHER NOTHING IN THIS AGREEMENT
-------- -------
SHALL BE DEEMED OR OPERATE TO PRECLUDE AGENT FROM BRINGING SUIT OR TAKING OTHER
LEGAL ACTION IN ANY OTHER JURISDICTION TO REALIZE ON THE COLLATERAL OR ANY OTHER
SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN
FAVOR OF AGENT. EACH CREDIT PARTY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO
SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND EACH
CREDIT PARTY HEREBY WAIVES ANY OBJECTION WHICH SUCH CREDIT PARTY MAY HAVE BASED
UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS AND
----- --- ----------
HEREBY CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED
APPROPRIATE BY SUCH COURT. EACH CREDIT PARTY HEREBY WAIVES PERSONAL SERVICE OF
THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND
AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINTS AND OTHER PROCESS MAY BE MADE BY
REGISTERED OR CERTIFIED MAIL ADDRESSED TO SUCH CREDIT PARTY AT THE ADDRESS SET
FORTH IN ANNEX J OF THIS AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED
-------
COMPLETED UPON THE EARLIER OF SUCH CREDIT PARTY'S ACTUAL RECEIPT THEREOF OR
THREE (3) DAYS AFTER DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE PREPAID.
11.10 Notices. Except as otherwise provided herein, whenever it is provided
-------
herein that any notice, demand, request, consent, approval, declaration or other
communication shall or may be given to or served upon any of the parties by any
other parties, or whenever any of the parties
-66-
desires to give or serve upon any other parties any communication with respect
to this Agreement, each such notice, demand, request, consent, approval,
declaration or other communication shall be in writing and shall be deemed to
have been validly served, given or delivered (a) upon the earlier of actual
receipt and three (3) Business Days after deposit in the United States Mail,
registered or certified mail, return receipt requested, with proper postage
prepaid, (b) upon transmission, when sent by facsimile or other similar
facsimile transmission (with such facsimile or facsimile promptly confirmed by
delivery of a copy by personal delivery or United States Mail as otherwise
provided in this Section 11.10), (c) one (1) Business Day after deposit with a
-------------
reputable overnight courier with all charges prepaid or (d) when delivered, if
hand-delivered by messenger, all of which shall be addressed to the party to be
notified and sent to the address or facsimile number indicated on Annex J or to
-------
such other address (or facsimile number) as may be substituted by notice given
as herein provided. The giving of any notice required hereunder may be waived in
writing by the party entitled to receive such notice. Failure or delay in
delivering copies of any notice, demand, request, consent, approval, declaration
or other communication to any Person (other than Borrower or Agent) designated
on Annex J to receive copies shall in no way adversely affect the effectiveness
-------
of such notice, demand, request, consent, approval, declaration or other
communication.
11.11 Subordination of Intercompany Loans and Advances. Each of the Credit
------------------------------------------------
Parties agrees that any and all claims of such Credit Party against any other
Credit Party, or against any of their respective properties, shall be
subordinate and subject in right of payment to the prior payment, in full and in
cash, of all Obligations; provided, that such Credit Party may make payments
--------
otherwise permitted under this Agreement; provided, further, that all such
-------- -------
payments shall be received by the applicable Credit Party subject to the
provisions of this Agreement. Notwithstanding any right of any Credit Party to
ask, demand, sue for, take or receive any payment from any other Credit Party,
all rights, liens and security interests of such Credit Party, whether now or
hereafter arising and howsoever existing, in any assets of any other Credit
Party (whether constituting part of the security or collateral given to any
Lender or Agent to secure payment of all or any part of the Obligations or
otherwise) shall be and hereby are subordinated to the rights of Agent and
Lenders in those assets. Except as permitted by this Agreement, the Credit
Parties shall have no right to possession of any such asset or to foreclose upon
any such asset, whether by judicial action or otherwise, unless and until all of
the Obligations shall have been fully paid in cash and the Commitments have been
terminated. If all or any part of the assets of any Credit Party, or the
proceeds thereof, are subject to any distribution, division or application to
the creditors of any Credit Party, whether partial or complete, voluntary or
involuntary, and whether by reason of liquidation, bankruptcy, arrangement,
receivership, assignment for the benefit of creditors or any other action or
proceeding, or if the business of any Credit Party is dissolved or if (except as
permitted by this Agreement) substantially all of the assets of any Credit Party
are sold, then, and in any such event, any payment or distribution of any kind
or character, either in cash, securities or other property, which shall be
payable or deliverable upon or with respect to any Indebtedness of such Credit
Party to any other Credit Party ("Intercompany Indebtedness") shall be paid or
-------------------------
delivered directly to Agent for application on any of the
-67-
Obligations, due or to become due, until such Obligations shall have first been
fully paid in cash. Each Credit Party irrevocably authorizes and empowers Agent
to demand, sue for, collect and receive every such payment or distribution and
give acquittance therefor and to make and present for and on behalf of such
Credit Party such proofs of claim and take such other action, in Agent's own
name or in the name of such Credit Party or otherwise, as Agent may deem
necessary or advisable for the enforcement of this Section 11.11. Agent may vote
-------------
such proofs of claim in any such proceeding, receive and collect any and all
dividends or other payments or disbursements made on Intercompany Indebtedness
in whatever form the same may be paid or issued and apply the same on account of
any of the Obligations. Except as otherwise permitted by this Agreement, should
any payment, distribution, security or instrument or proceeds thereof be
received by any Credit Party upon or with respect to Intercompany Indebtedness
owing to such Credit Party prior to the payment in full in cash of all of the
Obligations and the termination of the Commitments, such Credit Party shall
receive and hold the same in trust, as trustee, for the benefit of Agent and
Lenders, and shall forthwith deliver the same to Agent, for the benefit of Agent
and Lenders, in precisely the form received (except for the endorsement or
assignment of such Credit Party where necessary), for application to any of the
Obligations, due or not due, and, until so delivered, the same shall be held in
trust by such Credit Party as the property of Agent, for the benefit of Agent
and Lenders. If such Credit Party fails to make any such endorsement or
assignment to Agent, Agent or any of its officers or employees are hereby
irrevocably authorized to make the same. Each Credit Party agrees that until the
Obligations have been paid in full in cash and the Commitments have been
terminated, such Credit Party will not assign or transfer to any Person any
claim such Credit Party has or may have against any other Credit Party.
11.12 Section Titles. The Section titles and Table of Contents contained in
--------------
this Agreement are and shall be without substantive meaning or content of any
kind whatsoever and are not a part of the agreement between the parties hereto.
11.13 Counterparts. This Agreement may be executed in any number of
------------
separate counterparts, each of which shall collectively and separately
constitute one agreement.
11.14 WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN CONNECTION WITH
--------------------
COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN
EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL
LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT THEIR
DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO
ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF
ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION,
SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER SOUNDING IN
CONTRACT, TORT OR OTHERWISE, AMONG AGENT, LENDERS AND ANY CREDIT PARTY ARISING
OUT OF, CONNECTED WITH, RELATED TO,
-68-
OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH,
THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS RELATED
THERETO.
11.15 Press Releases. Each Credit Party executing this Agreement agrees
--------------
that neither it nor its Affiliates will in the future issue any press releases
or other public disclosure using the name of GE Capital or its affiliates or
referring to this Agreement or the other Loan Documents without at least two (2)
Business Days' prior notice to GE Capital and without the prior written consent
of GE Capital unless (and only to the extent that) such Credit Party or
Affiliate is required to do so under law and then, in any event, such Credit
Party or Affiliate will consult with GE Capital before issuing such press
release or other public disclosure. Each Credit Party consents to the
publication by Agent or any Lender of a tombstone or similar advertising
material relating to the financing transactions contemplated by this Agreement.
Agent or such Lender shall provide a draft of any such tombstone or similar
advertising material to each Credit Party for review and comment prior to the
publication thereof. Agent reserves the right to provide to industry trade
organizations information necessary and customary for inclusion in league table
measurements with Borrower's consent which shall not be unreasonably withheld or
delayed.
11.16 Reinstatement. This Agreement shall remain in full force and effect
-------------
and continue to be effective should any petition be filed by or against Borrower
for liquidation or reorganization, should Borrower become insolvent or make an
assignment for the benefit of any creditor or creditors or should a receiver or
trustee be appointed for all or any significant part of Borrower's assets, and
shall continue to be effective or to be reinstated, as the case may be, if at
any time payment and performance of the Obligations, or any part thereof, is,
pursuant to applicable law, rescinded or reduced in amount, or must otherwise be
restored or returned by any obligee of the Obligations, whether as a "voidable
preference," "fraudulent conveyance," or otherwise, all as though such payment
or performance had not been made. In the event that any payment, or any part
thereof, is rescinded, reduced, restored or returned, the Obligations shall be
reinstated and deemed reduced only by such amount paid and not so rescinded,
reduced, restored or returned.
11.17 Advice of Counsel. Each of the parties represents to each other party
-----------------
hereto that it has discussed this Agreement and, specifically, the provisions of
Sections 11.9 and 11.14, with its counsel.
- ------------- -----
11.18 No Strict Construction. The parties hereto have participated jointly
----------------------
in the negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties hereto and no presumption or burden of
proof shall arise favoring or disfavoring any party by virtue of the authorship
of any provisions of this Agreement.
-69-
IN WITNESS WHEREOF, this Agreement has been duly executed as of the date
first written above.
CALLAWAY GOLF COMPANY
By: /s/ David A. Rane
--------------------------------------------
Title: Executive Vice President, Administration
------------------------------------------
and Planning, and Chief Executive Officer
------------------------------------------
GENERAL ELECTRIC CAPITAL
CORPORATION, as Agent and Lender
By:________________________________
Title:_____________________________
EXECUTION COPY
IN WITNESS WHEREOF, this Agreement has been duly executed as of the date
first written above.
CALLAWAY GOLF COMPANY
By:____________________________________
Title:_________________________________
GENERAL ELECTRIC CAPITAL
CORPORATION, as Agent and Lender
By: /s/ Robert Yasuda
------------------------------------
Title: Assistant Vice President
---------------------------------
The following Persons are signatories to this Agreement in their capacity
as Credit Parties and not as Borrowers.
CALLAWAY GOLF SALES COMPANY
By: /s/ David A. Rane
----------------------------------------------
Title: Vice President and Chief Financial Officer
-------------------------------------------
CALLAWAY GOLF BALL COMPANY
By: /s/ David A. Rane
----------------------------------------------
Title: Vice President and Chief Financial Officer
-------------------------------------------
ODYSSEY GOLF, INC.
By: /s/ David A. Rane
----------------------------------------------
Title: Vice President and Chief Financial Officer
-------------------------------------------
The following Persons are signatories to this Agreement in their capacity
as Lenders.
BANKAMERICA BUSINESS CREDIT, INC.
By: /s/
------------------------------
Title: VICE PRESIDENT
------------------------------
NATIONAL WESTMINSTER BANK PLC
By: /s/
-----------------------------
Title:
-----------------------------
AMERICAN NATIONAL BANK AND
TRUST COMPANY OF CHICAGO
By: /s/
------------------------------
Title: VICE PRESIDENT
------------------------------
KEY CORPORATE CAPITAL INC.
By: /s/
------------------------------
Title: SR. V.P.
------------------------------
NATIONAL CITY COMMERCIAL FINANCE, INC.
By: /s/
------------------------------
Title: V.P.
------------------------------
ANNEX A (RECITALS)
--------
TO
CREDIT AGREEMENT
----------------
DEFINITIONS
-----------
Capitalized terms used in the Loan Documents shall have (unless otherwise
provided elsewhere in the Loan Documents) the following respective meanings and
all section references in the following definitions shall refer to Sections of
the Agreement:
"Account Debtor" shall mean any Person who may become obligated to any
--------------
Credit Party under, with respect to, or on account of, a Receivable.
"Additional Collateral Amount" shall mean an amount equal to $35,000,000 as
----------------------------
of the Effective Date, which amount shall be decreased by $2,500,000 per year,
each such decrease to be effective on the first day of each Fiscal Year
beginning after the Effective Date.
"Adjusted EBITDA" shall mean EBITDA plus, for the Fiscal Quarter ending
--------------- ----
December 31, 1998, restructuring charges of up to $86,000,000.
"Advance" shall mean any Revolving Credit Advance or Swing Line Advance, as
-------
the context may require.
"Affiliate" shall mean, with respect to any Person, (a) each Person that,
---------
directly or indirectly, owns or controls, whether beneficially, or as a trustee,
guardian or other fiduciary, five percent (5%) or more of the Stock having
ordinary voting power in the election of directors of such Persons, (b) each
Person that controls, is controlled by or is under common control with such
Person, (c) each of such Person's officers, directors, joint venturers and
partners and (d) in the case of Borrower, the immediate family members, spouses
and lineal descendants of individuals who are Affiliates of Borrower. For the
purposes of this definition, "control" of a Person shall mean the possession,
-------
directly or indirectly, of the power to direct or cause the direction of its
management or policies, whether through the ownership of voting securities, by
contract or otherwise; provided, however, that the term "Affiliate" shall
-------- ------- ---------
specifically exclude Agent and each Lender.
"Agent" shall mean GE Capital or its successor appointed pursuant to
-----
Section 9.7.
- -----------
"Agent Account" shall mean that certain account of Agent, account number
-------------
502-328-54 in the name of Agent at Bankers Trust Company in New York, New York
or such other account as Agent shall specify.
A-1
"Agreement" shall mean the Credit Agreement by and among Borrower, the
---------
other Credit Parties named therein, GE Capital, as Agent and Lender and the
other Lenders signatory from time to time to the Agreement.
"Appendices" shall have the meaning assigned to it in the recitals to the
----------
Agreement.
"Applicable L/C Margin" shall mean the per annum fee, from time to time in
---------------------
effect, payable with respect to outstanding Letter of Credit Obligations as
determined by reference to Section 1.5(a).
--------------
"Applicable Margins" means collectively the Applicable L/C Margin, the
------------------
Applicable Unused Line Fee Margin, the Applicable Revolver Index Margin, and the
Applicable Revolver LIBOR Margin.
"Applicable Revolver Index Margin" shall mean the per annum interest rate
--------------------------------
margin from time to time in effect and payable in addition to the Index Rate
applicable to the Revolving Loan, as determined by reference to Section 1.5(a)
--------------
of the Agreement.
"Applicable Revolver LIBOR Margin" shall mean the per annum interest rate
---------------------------------
from time to time in effect and payable in addition to the LIBOR Rate applicable
to the Revolving Loan, as determined by reference to Section 1.5(a) of the
--------------
Agreement.
"Applicable Unused Line Fee Margin" shall mean the per annum fee, from time
---------------------------------
to time in effect, payable in respect to Borrower's non-use of committed funds
pursuant to Section 1.9(b), which fee is determined by reference to Section
-------------- -------
1.5(a).
- ------
"Appraised Value" shall mean (a) with respect to Eligible Real Estate, the
---------------
aggregate fair market value thereof listed in the appraisals delivered to Agent
on or prior to the Effective Date pursuant to Annex D, as modified or
-------
supplemented by appraisals delivered to or prepared on behalf of Agent in
accordance with Section 1.14 or 4.1 and (b) with respect to Eligible Equipment,
-------------------
the aggregate orderly liquidation value thereof listed in the appraisals
delivered to Agent on or prior to the Effective Date pursuant to Annex D, as
-------
modified or supplemented by appraisals delivered to or prepared on behalf of
Agent in accordance with Section 1.14 or 4.1. In the event the applicable
-------------------
appraisal lists a range of values for any item or group of items, the Appraised
Value for the item or group of items shall be the lowest number indicated in the
range.
"Assignment Agreement" shall have the meaning assigned to it in Section
-------------------- -------
9.1(a).
- ------
"Billing Date" shall mean, with respect to any Receivable, the date on
------------
which the invoice with respect thereto was generated.
"Borrower" shall have the meaning assigned thereto in the recitals to the
--------
Agreement.
A-2
"Borrower Accounts" shall have the meaning assigned to it in Annex C.
----------------- -------
"Borrower Pledge Agreement" shall mean the Pledge Agreement dated as of the
-------------------------
Closing Date executed by Borrower in favor of Agent, on behalf of itself and
Lenders, pledging (a) all Stock of the Domestic Subsidiaries of Borrower
identified therein, (b) two-thirds of all Stock of the Subsidiaries of Borrower
identified therein that are not Domestic Subsidiaries and (c) all Indebtedness
identified therein owing to or held by Borrower.
"Borrower Security Agreement" shall mean the Security Agreement dated as of
---------------------------
the Closing Date entered into among Agent, on behalf of itself and Lenders, and
Borrower, as amended, modified or supplemented from time to time.
"Borrowing Availability" shall have the meaning assigned to it in Section
---------------------- -------
1.1(a)(i).
- ---------
"Borrowing Base" shall mean, as of any date of determination by Agent, from
--------------
time to time, an amount equal to the sum at such time of:
(a) sixty percent (60%) of the book value of Borrower's Eligible Inventory
valued on a first-in, first-out basis (at the lower of cost or market), less
any Reserves established by Agent at such time; and
(b) the lesser of :
(i) the Additional Collateral Amount and
(ii) an amount equal to the sum of (x) fifty percent (50%) of the
Appraised Value of the Eligible Real Estate, and (y) eighty-five
percent (85%) of the Appraised Value of the Eligible Equipment,
less any Reserves established by Agent at such time, minus, the
-----
aggregate outstanding principal amount of Indebtedness
(including Indebtedness described in clause (i) of Section 6.3,
------ -----------
but excluding the Obligations and Indebtedness created or
arising under the Receivables Documents) which is secured by any
Eligible Equipment;
provided that since Callaway Golf Ball Company has not commenced operations as
- --------
of the date of this Agreement, its Inventory and Equipment shall be included in
the Borrowing Base only upon (i) the commencement of business operations, (ii)
delivery to Agent for the benefit of Lenders of a certificate of the Chief
Financial Officer of Callaway Golf Ball Company as to the matters addressed in
Section 3.23 and the other certificates and statements (including without
- ------------
limitation a Fair Salable Balance Sheet) described in paragraph X of Annex D (to
-------
the extent not delivered on or prior to the Closing Date), each in form and
substance satisfactory to Agent, (iii) the audit and appraisal of the Inventory
and Equipment of Callaway Golf Ball Company, the results of which
A-3
EXECUTION COPY
shall be satisfactory to Agent and Requisite Lenders, and (iv) the review and,
where appropriate (in the reasonable judgment of Agent), modification by Agent
(subject to the approval of all Lenders or Supermajority Revolving Lenders, to
the extent required by Sections 1.7, 1.18 and 1.19) of the criteria and advance
---------------------------
rates applicable to the Receivables and Equipment of Callaway Golf Ball Company.
"Borrowing Base Certificate" shall mean a certificate to be executed and
--------------------------
delivered from time to time by Borrower in the form attached to the Agreement as
Exhibit 4.1(b).
- --------------
"Business Day" shall mean any day that is not a Saturday, a Sunday or a day
------------
on which banks are required or permitted to be closed in the State of New York
and in reference to LIBOR Loans shall mean any such day that is also a LIBOR
Business Day.
"Callaway Golf Ball Company" shall mean Callaway Golf Ball Company, a
--------------------------
California corporation.
"Callaway Golf Sales Company" shall mean Callaway Golf Sales Company, a
---------------------------
California corporation.
"Callaway Golf Sales Company Pledge Agreement" shall mean the Pledge
--------------------------------------------
Agreement dated as of the Effective Date executed by Callaway Golf Sales Company
in favor of Agent, on behalf of itself and Lenders, pledging (a) all Stock of
Special Purpose Corporation and (b) all Indebtedness identified therein owing to
or held by Callaway Golf Sales Company.
"Capital Expenditures" shall mean, with respect to any Person, all
--------------------
expenditures (by the expenditure of cash or the incurrence of Indebtedness) by
such Person during any measuring period for any fixed assets or improvements or
for replacements, substitutions or additions thereto, that have a useful life of
more than one year and that are required to be capitalized under GAAP.
"Capital Lease" shall mean, with respect to any Person, any lease of any
-------------
property (whether real, personal or mixed) by such Person as lessee that, in
accordance with GAAP, would be required to be classified and accounted for as a
capital lease on a balance sheet of such Person.
"Capital Lease Obligation" shall mean, with respect to any Capital Lease of
------------------------
any Person, the amount of the obligation of the lessee thereunder that, in
accordance with GAAP, would appear on a balance sheet of such lessee in respect
of such Capital Lease.
"Cash Management Systems" has the meaning specified in Section 1.8.
----------------------- -----------
"CEF Lease Facility" shall mean (i) the Master Lease Agreement dated as of
------------------
December 30, 1998 between General Electric Capital Corporation, for itself and
as agent for certain
A-4
participants, as lessor, and Callaway Golf Ball Company, as lessee, (ii) the
Corporate Guaranty dated December 30, 1998 by Borrower (as guarantor) for the
benefit of GE Capital, for itself and as agent for certain participants, (iii)
the Interim Finance Agreement dated December 30, 1998 between General Electric
Capital Corporation, for itself and as agent for certain participants, as
lender, and Callaway Golf Ball Company, as borrower and (iv) all documents
delivered under, and relating to, any of the agreements described in clauses (i)
-------
through (iii) hereof, in each case as amended, modified, supplemented or
---
restated from time to time, provided that any amendment, modification,
--------
supplement or restatement which changes the description of the assets subject to
the security interests granted by the CEF Lease Facility in a manner which may
adversely affect Agent or the Lenders shall not be incorporated in this
definition of "CEF Lease Facility" unless the Supermajority Revolving Lenders
have consented to its incorporation.
"Change of Control" means any of the following: (a) any person or group of
-----------------
persons (within the meaning of the Securities Exchange Act of 1934, as amended)
shall have acquired beneficial ownership (within the meaning of Rule 13d-3
promulgated by the Securities and Exchange Commission under the Securities
Exchange Act of 1934, as amended) of 20% or more of the issued and outstanding
shares of capital Stock of Borrower having the right to vote for the election of
directors of Borrower under ordinary circumstances; (b) during any period of
twelve consecutive calendar months, individuals who at the beginning of such
period constituted the board of directors of Borrower (together with any new
directors whose election by the board of directors of Borrower or whose
nomination for election by the stockholders of Borrower was approved by a vote
of at least two-thirds of the directors then still in office who either were
directors at the beginning of such period or whose elections or nomination for
election was previously so approved) cease for any reason other than death or
disability to constitute a majority of the directors then in office, or (c)
Borrower shall cease to own and control all of the economic and voting rights
associated with all of the outstanding capital Stock of any Material Subsidiary.
"Charges" shall mean all federal, state, county, city, municipal, local,
-------
foreign or other governmental taxes (including taxes owed to the PBGC at the
time due and payable), levies, assessments, charges, liens, claims or
encumbrances upon or relating to (a) the Collateral, (b) the Obligations, (c)
the employees, payroll, income or gross receipts of any Credit Party, (d) any
Credit Party's ownership or use of any properties or other assets, or (e) any
other aspect of any Credit Party's business.
"Chattel Paper" shall mean any "chattel paper," as such term is defined in
-------------
the Code, now owned or hereafter acquired by any Credit Party, wherever located.
"Closing Date" shall mean December 30, 1998.
------------
"Closing Checklist" shall mean the schedule, including all appendices,
-----------------
exhibits or schedules thereto, listing certain documents and information to be
delivered in connection with the
A-5
Agreement, the other Loan Documents and the transactions contemplated
thereunder, substantially in the form attached hereto as Annex D.
-------
"Code" shall mean the Uniform Commercial Code as the same may, from time to
----
time, be enacted and in effect in the State of New York; provided, however, in
-------- -------
the event that, by reason of mandatory provisions of law, any or all of the
attachment, perfection or priority of Agent's or any Lender's security interest
in any Collateral is governed by the Uniform Commercial Code as enacted and in
effect in a jurisdiction other than the State of New York, the term "Code" shall
----
mean the Uniform Commercial Code as enacted and in effect in such other
jurisdiction solely for purposes of the provisions hereof relating to such
attachment, perfection or priority and for purposes of definitions related to
such provisions.
"Collateral" shall mean the property covered by the Deeds of Trust, the
----------
Borrower Security Agreement, the Subsidiaries Security Agreement and the other
Collateral Documents and any other property, real or personal, tangible or
intangible, now existing or hereafter acquired, that may at any time be or
become subject to a security interest or Lien in favor of Agent, on behalf of
itself and Lenders, to secure the Obligations, including, but not limited to,
the Mortgaged Properties.
"Collateral Documents" shall mean the Deeds of Trust, the Borrower Security
--------------------
Agreement, the Subsidiaries Security Agreement, the Pledge Agreements, the
Guaranties, the Patent Security Agreements, the Trademark Security Agreement,
the Copyright Security Agreement and all similar agreements entered into
guaranteeing payment of, or granting a Lien upon property as security for
payment of, the Obligations.
"Collateral Reports" shall mean the reports with respect to the Collateral
------------------
referred to in Annex F.
-------
"Collections" shall mean, with respect to any Receivable, all cash
-----------
collections and other proceeds of such Receivable (including late charges, fees
and interest arising thereon, and all recoveries with respect to any Receivables
that have been written off as uncollectible).
"Commitment Termination Date" shall mean the earliest of (a) February 10,
---------------------------
2004, (b) the date of termination of Lenders' obligations to make Advances
and/or incur Letter of Credit Obligations or permit existing Loans to remain
outstanding pursuant to Section 8.2(b), and (c) the date of indefeasible
--------------
prepayment in full by Borrower of the Loans and the cancellation and return (or
stand-by guarantee) of all Letters of Credit or the cash collateralization of
all Letter of Credit Obligations pursuant to Annex B, and the permanent
-------
reduction of the Revolving Loan Commitment and the Swing Line Commitment to zero
dollars ($0).
"Commitments" shall mean (a) as to any Lender, the aggregate of such
-----------
Lender's Revolving Loan Commitment (including without duplication the Swing Line
Lender's Swing Line
A-6
Commitment as a subset of its Revolving Loan Commitment) as set forth on Annex K
-------
to the Agreement or in the most recent Assignment Agreement executed by such
Lender and (b) as to all Lenders, the aggregate of all Lenders' Revolving Loan
Commitments (including without duplication the Swing Line Lender's Swing Line
Commitment as a subset of its Revolving Loan Commitment), which aggregate
commitment shall be One Hundred and Twenty Million Dollars ($120,000,000) on the
Effective Date, as to each of clauses (a) and (b), as such Commitments may be
reduced, amortized or adjusted from time to time in accordance with the
Agreement.
"Compliance Certificate" shall have the meaning assigned to it in Annex E.
---------------------- -------
"Concentration Account" shall have the meaning assigned to it in Annex C.
--------------------- -------
"Contracts" shall mean all "contracts," as such term is defined in the
---------
Code, now owned or hereafter acquired by any Credit Party, in any event,
including all contracts, undertakings, or agreements (other than rights
evidenced by Chattel Paper, Documents or Instruments) in or under which any
Credit Party may now or hereafter have any right, title or interest, including
any agreement relating to the terms of payment or the terms of performance of
any Receivable.
"Control Letter" means a letter agreement between Agent and (i) the issuer
--------------
of uncertificated securities with respect to uncertificated securities in the
name of any Credit Party, (ii) a securities intermediary with respect to
securities, whether certificated or uncertificated, securities entitlements and
other financial assets held in a securities account in the name of any Credit
Party, or (iii) a futures commission merchant or clearing house with respect to
commodity accounts and commodity contracts held by any Credit Party, whereby,
among other things, the issuer, securities intermediary or futures commission
merchant disclaims any security interest in the applicable financial assets,
acknowledges the Lien of Agent, on behalf of itself and Lenders, on such
financial assets, and agrees to follow the instructions or entitlement orders of
Agent without further consent by the affected Credit Party.
"Copyright License" shall mean any and all rights now owned or hereafter
-----------------
acquired by any Credit Party under any written agreement granting any right to
use any Copyright or Copyright registration.
"Copyright Security Agreements" shall mean the Copyright Security
-----------------------------
Agreements made in favor of Agent, on behalf of itself and Lenders, by each
applicable Credit Party, as amended, modified or supplemented from time to time.
"Copyrights" shall mean all of the following now owned or hereafter
----------
acquired by any Credit Party: (a) all copyrights and general intangibles of like
nature (whether registered or unregistered), now owned or existing or hereafter
adopted or acquired, all registrations and recordings thereof, and all
applications in connection therewith, including all registrations, recordings
and applications in the United States Copyright Office or in any similar office
or
A-7
agency of the United States, any state or territory thereof, or any other
country or any political subdivision thereof, and (b) all reissues, extensions
or renewals thereof.
"Credit and Collection Policies" shall mean the credit, collection,
------------------------------
customer relations and service policies of Borrower in effect on the Effective
Date, as the same may from time to time be amended, restated, supplemented or
otherwise modified with the written consent of Agent.
"Credit Parties" shall mean Borrower and each of its Domestic Subsidiaries
--------------
which is a Material Subsidiary (other than Special Purpose Corporation).
"Current Assets" shall mean, with respect to any Person, all current assets
--------------
of such Person as of any date of determination calculated in accordance with
GAAP, but excluding cash, cash equivalents and debts due from Affiliates.
"Current Liabilities" shall mean, with respect to any Person, all
-------------------
liabilities which should, in accordance with GAAP, be classified as current
liabilities, and in any event shall include all Indebtedness payable on demand
or within one year from any date of determination without any option on the part
of the obligor to extend or renew beyond such year, all accruals for federal or
other taxes based on or measured by income and payable within such year, and the
current portion of long-term debt required to be paid within one year, but
excluding, in the case of Borrower, the aggregate outstanding principal balances
of the Revolving Loan and the Swing Line Loan.
"Current Ratio" shall mean, with respect to any Person as of any date of
-------------
determination, the ratio of (a) Current Assets, to (b) Current Liabilities.
"Deeds of Trust" shall mean each of the deeds of trust and any other real
--------------
estate security documents delivered by any Credit Party to Agent with respect to
the Mortgaged Properties, all in form and substance satisfactory to Agent.
"Default" shall mean any event which, with the passage of time or notice or
-------
both, would, unless cured or waived, become an Event of Default.
"Default Rate" shall have the meaning assigned to it in Section 1.5(d).
------------ --------------
"Defaulted Receivable" shall mean any Receivable (a) with respect to which
--------------------
any payment, or part thereof, remains unpaid for more than (i) 60 days after its
Maturity Date or (ii) 150 days after its Billing Date, provided, however, that
this clause (a)(ii) shall not apply to Winter Dating Receivables, (b) with
--------------
respect to which the Account Debtor thereunder has taken any action, or suffered
any event to occur, of the type described in Sections 8.1(h) or 8.1(i) or (c)
--------------- ------
that otherwise is determined to be uncollectible and is written off in
accordance with the Credit and Collection Policies.
A-8
"Delinquent Receivable" shall mean any Receivable, other than a Defaulted
---------------------
Receivable, with respect to which any payment, or part thereof, remains unpaid
for more than 30 days past its Maturity Date.
"Disbursement Accounts" shall have the meaning assigned to it on Annex C.
--------------------- -------
"Disclosure Schedules" shall mean the Schedules prepared by Borrower and
--------------------
denominated as Disclosure Schedules 1.4 through 6.7 in the Index to the
------------------------ ---
Agreement.
"Documents" shall mean any "documents," as such term is defined in the
---------
Code, now owned or hereafter acquired by any Credit Party, wherever located.
"Dollars" or "$" shall mean lawful currency of the United States of
------- -
America.
"Domestic Subsidiary" shall mean a Subsidiary organized under the laws of
-------------------
the United States of America or any State thereof.
"EBITDA" shall mean, with respect to any Person for any fiscal period, an
------
amount equal to
(a) consolidated net income of such Person for such period, minus
-----
(b) the sum, without duplication, of (i) income tax credits, (ii)
interest income, (iii) gain from extraordinary items for such period, (iv)
any aggregate net gain (but not any aggregate net loss) during such period
arising from the sale, exchange or other disposition of capital assets by
such Person (including any fixed assets, whether tangible or intangible,
all inventory sold in conjunction with the disposition of fixed assets and
all securities), and (v) any other non-cash gains which have been added in
determining consolidated net income, in each case to the extent included in
the calculation of consolidated net income of such Person for such period
in accordance with GAAP, plus
----
(c) the sum, without duplication, of (i) any provision for income
taxes, (ii) Interest Expense, (iii) loss from extraordinary items for such
period, (iv) the amount of non-cash charges (including depreciation and
amortization) for such period, (v) amortized debt discount for such period,
and (vi) the amount of any deduction to consolidated net income as the
result of any grant to any members of the management of such Person of any
Stock, in each case to the extent included in the calculation of
consolidated net income of such Person for such period in accordance with
GAAP.
"Effective Date" shall mean the earliest date on which the conditions set
--------------
forth in Section 2.1 are simultaneously satisfied.
-----------
A-9
"Eligible Equipment" shall have the meaning assigned to it in Section 1.19
------------------ ------------
of the Agreement.
"Eligible Inventory" shall have the meaning assigned to it in Section 1.7
------------------ -----------
of the Agreement.
"Eligible Real Estate" shall have the meaning assigned to it in Section
-------------------- -------
1.18 of the Agreement.
- ----
"Eligible Real Estate Transaction" shall mean a transaction between
--------------------------------
Borrower and any other Person (other than an Affiliate of Borrower) which is
reasonably expected to result in a reduction in the fair market value of any
Eligible Real Estate. For purposes of this definition only, a lease which
satisfies each of the tests in Section 6.7(g) of the Agreement is presumed not
--------------
to result in a reduction of the fair market value of any Eligible Real Estate
which is the subject thereof.
"Environmental Laws" shall mean all applicable federal, state, local and
------------------
foreign laws, statutes, ordinances, codes, rules, standards and regulations, now
or hereafter in effect, and in each case as amended or supplemented from time to
time, and any applicable judicial or administrative interpretation thereof,
including any applicable judicial or administrative order, consent decree, order
or judgment, imposing liability or standards of conduct for or relating to the
regulation and protection of human health, safety, the environment and natural
resources (including ambient air, surface water, groundwater, wetlands, land
surface or subsurface strata, wildlife, aquatic species and vegetation).
Environmental Laws include the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980 (42 U.S.C. (S)(S) 9601 et seq.)
-------
("CERCLA"); the Hazardous Materials Transportation Authorization Act of 1994 (49
------
U.S.C. (S)(S) 5101 et seq.); the Federal Insecticide, Fungicide, and Rodenticide
-------
Act (7 U.S.C. (S)(S) 136 et seq.); the Solid Waste Disposal Act (42 U.S.C.
-------
(S)(S) 6901 et seq.); the Toxic Substance Control Act (15 U.S.C. (S)(S) 2601 et
------- --
seq.); the Clean Air Act (42 U.S.C. (S)(S) 7401 et seq.); the Federal Water
- ---- -------
Pollution Control Act (33 U.S.C. (S)(S) 1251 et seq.); the Occupational Safety
-------
and Health Act (29 U.S.C. (S)(S) 651 et seq.); and the Safe Drinking Water Act
-------
(42 U.S.C. (S)(S) 300(f) et seq.), each as from time to time amended, and any
-------
and all regulations promulgated thereunder, and all analogous state, local and
foreign counterparts or equivalents and any transfer of ownership notification
or approval statutes.
"Environmental Liabilities" shall mean, with respect to any Person, all
-------------------------
liabilities, obligations, responsibilities, response, remedial and removal
costs, investigation and feasibility study costs, capital costs, operation and
maintenance costs, losses, damages, punitive damages, property damages, natural
resource damages, consequential damages, treble damages, costs and expenses
(including all fees, disbursements and expenses of counsel, experts and
consultants), fines, penalties, sanctions and interest incurred as a result of
or related to any claim, suit, action, investigation, proceeding or demand by
any Person, whether based in contract, tort, implied or express warranty, strict
liability, criminal or civil statute or common law, including any arising
A-10
under or related to any Environmental Laws, Environmental Permits, or in
connection with any Release or threatened Release or presence of a Hazardous
Material whether on, at, in, under, from or about or in the vicinity of any real
or personal property.
"Environmental Permits" shall mean all permits, licenses, authorizations,
---------------------
certificates, approvals or registrations required by any Governmental Authority
under any Environmental Laws.
"Equipment" shall mean all "equipment," as such term is defined in the
---------
Code, now owned or hereafter acquired by any Credit Party, wherever located and,
in any event, including all such Credit Party's machinery and equipment,
including processing equipment, conveyors, machine tools, data processing and
computer equipment with software and peripheral equipment (other than software
constituting part of the Receivables), and all engineering, processing and
manufacturing equipment, office machinery, furniture, materials handling
equipment, tools, attachments, accessories, automotive equipment, trailers,
trucks, forklifts, molds, dies, stamps, motor vehicles, rolling stock and other
equipment of every kind and nature, trade fixtures and fixtures not forming a
part of real property, all whether now owned or hereafter acquired, and wherever
situated, together with all additions and accessions thereto, replacements
therefor, all parts therefor, all substitutes for any of the foregoing, fuel
therefor, and all manuals, drawings, instructions, warranties and rights with
respect thereto, and all products and proceeds thereof and condemnation awards
and insurance proceeds with respect thereto.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974 (or
-----
any successor legislation thereto), as amended from time to time, and any
regulations promulgated thereunder.
"ERISA Affiliate" shall mean, with respect to any Credit Party, any trade
---------------
or business (whether or not incorporated) which, together with such Credit
Party, are treated as a single employer within the meaning of Sections 414(b),
(c), (m) or (o) of the IRC.
"ERISA Event" shall mean, with respect to any Credit Party or any ERISA
-----------
Affiliate, (a) any event described in Section 4043(c) of ERISA with respect to a
Title IV Plan; (b) the withdrawal of any Credit Party or ERISA Affiliate from a
Title IV 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; (c) the
complete or partial withdrawal of any Credit Party or any ERISA Affiliate from
any Multiemployer Plan; (d) the filing of a notice of intent to terminate a
Title IV Plan or the treatment of a plan amendment as a termination under
Section 4041 of ERISA; (e) the institution of proceedings to terminate a Title
IV Plan or Multiemployer Plan by the PBGC; (f) the failure by any Credit Party
or ERISA Affiliate to make when due required contributions to a Multiemployer
Plan or Title IV Plan unless such failure is cured within 30 days; (g) any other
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 Title IV Plan or Multiemployer
A-11
Plan or for the imposition of liability under Section 4069 or 4212(c) of ERISA;
(h) the termination of a Multiemployer Plan under Section 4041A of ERISA or the
reorganization or insolvency of a Multiemployer Plan under Section 4241 of
ERISA; (i) the loss of a Qualified Plan's qualification or tax exempt status; or
(j) the termination of a Plan described in Section 4064 of ERISA.
"ESOP" shall mean a Plan which is intended to satisfy the requirements of
----
Section 4975(e)(7) of the IRC.
"Event of Default" shall have the meaning assigned to it in Section 8.1.
---------------- -----------
"Existing Credit Agreement" shall have the meaning assigned to it in the
-------------------------
recitals hereto.
"Fair Salable Balance Sheets" shall mean the balance sheets of each Credit
---------------------------
Party prepared in accordance with Section 3.4(c) or the proviso to the
-------------- -------
definition of "Borrowing Base."
"Federal Funds Rate" shall mean, for any day, a floating rate equal to the
------------------
weighted average of the rates on overnight federal funds transactions among
members of the Federal Reserve System, as determined by Agent.
"Federal Reserve Board" means the Board of Governors of the Federal Reserve
---------------------
System, or any successor thereto.
"Fees" shall mean any and all fees payable to Agent or any Lender pursuant
----
to the Agreement or any of the other Loan Documents.
"Financial Statements" shall mean the consolidated and consolidating income
--------------------
statements, statements of cash flows and balance sheets of Borrower delivered in
accordance with Section 3.4 of the Agreement and Annex E to the Agreement.
----------- -------
"Fiscal Month" shall mean any of the monthly accounting periods of
------------
Borrower.
"Fiscal Quarter" shall mean any of the quarterly accounting periods of
--------------
Borrower, ending on March 31, June 30, September 30 and December 31 of each
year.
"Fiscal Year" shall mean any of the annual accounting periods of Borrower
-----------
ending on December 31 of each year.
"Fixed Charges" shall mean, with respect to any Person for any fiscal
-------------
period, (a) the aggregate of all Interest Expense paid or accrued during such
period, plus (b) scheduled payments of principal with respect to Indebtedness
(including the principal component of payments with
A-12
respect to Capital Leases and the CEF Lease Facility) during such period, plus
(c) Restricted Payments described in Section 6.14(d) paid or accrued during such
---------------
period.
"Fixed Charge Coverage Ratio" shall mean, with respect to any Person for
---------------------------
any fiscal period, the ratio of (a) EBITDA, minus the sum of (i) Capital
-----
Expenditures (other than Capital Expenditures financed pursuant to clause (i) or
----------
(ii) of Section 6.3), (ii) all taxes paid or accrued during such period and
- ---- -----------
(iii) amounts payable (determined in accordance with clause (v) of Section 6.1)
---------- -----------
during such period in connection with Permitted Acquisitions to (b) Fixed
Charges. In computing Fixed Charges for any fiscal period, interest and
principal payments that are due within one week after the end of that fiscal
period, without duplication, shall be deemed to have been paid on the last day
of that fiscal period.
"Fixtures" shall mean any "fixtures" as such term is defined in the Code,
--------
now owned or hereafter acquired by any Credit Party.
"Funded Debt" shall mean, with respect to any Person and without
-----------
duplication, all Indebtedness for borrowed money evidenced by notes, bonds,
debentures, or similar evidences of Indebtedness and which by its terms matures
more than one year from, or is directly or indirectly renewable or extendible at
such Person's option under a revolving credit or similar agreement obligating
the lender or lenders to extend credit over a period of more than one year from
the date of creation thereof, and specifically including Capital Lease
Obligations, obligations with respect to the CEF Lease Facility, current
maturities of long-term debt, revolving credit and short-term debt extendible
beyond one year at the option of the debtor, and also including, in the case of
Borrower, the Obligations and, Guaranteed Indebtedness consisting of guaranties
of Funded Debt of other Persons.
"Funding" shall mean Bertha Funding Corporation, a corporation to be
-------
organized and established as a wholly-owned subsidiary of Borrower.
"GAAP" shall mean generally accepted accounting principles in the United
----
States of America, consistently applied, as such term is further defined in
Annex H to the Agreement.
- -------
"GE Capital" shall have the meaning assigned thereto in the recitals to the
----------
Agreement.
"GE Capital Fee Letter" shall mean that certain letter, dated as of
---------------------
December 30, 1998, as amended and restated by that certain letter, dated as of
February 10, 1999, in each case between GE Capital and Borrower with respect to
certain Fees to be paid from time to time by Borrower to GE Capital.
"General Intangibles" shall mean any "general intangibles," as such term is
-------------------
defined in the Code, now owned or hereafter acquired by any Credit Party, and,
in any event, including all right, title and interest which such Credit Party
may now or hereafter have in or under any Contract, all
A-13
[Execution Copy]
customer lists, Licenses, Copyrights, Trademarks, Patents, and all applications
therefor and reissues, extensions or renewals thereof, rights in Intellectual
Property, interests in partnerships, joint ventures and other business
associations, licenses, permits, copyrights, trade secrets, proprietary or
confidential information, inventions (whether or not patented or patentable),
technical information, procedures, designs, knowledge, know-how, software, data
bases, data, skill, expertise, experience, processes, models, drawings,
materials and records, goodwill (including the goodwill associated with any
Trademark or Trademark License), all rights and claims in or under insurance
policies (including insurance for fire, damage, loss and casualty, whether
covering personal property, real property, tangible rights or intangible rights,
all liability, life, key man and business interruption insurance, and all
unearned premiums), uncertificated securities, choses in action, deposit,
checking and other bank accounts, rights to receive tax refunds and other
payments, rights of indemnification, all books and records, correspondence,
credit files, invoices and other papers, including without limitation all tapes,
cards, computer runs and other papers and documents in the possession or under
the control of such Credit Party or any computer bureau or service company from
time to time acting for such Credit Party.
"Governmental Authority" shall mean any nation or government, any state or
----------------------
other political subdivision thereof, and any agency, department or other entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.
"GSOT" shall mean the Callaway Golf Company Grantor Stock Trust established
----
pursuant to the Trust Agreement dated as of July 14, 1995 between Borrower and
Sanwa Bank California.
"Guaranteed Indebtedness" shall mean, as to any Person, any obligation of
-----------------------
such Person guaranteeing any indebtedness, lease, dividend, or other obligation
("primary obligations") of any other Person (the "primary obligor") in any
------------------- ---------------
manner, including any obligation or arrangement of such Person (a) to purchase
or repurchase any such primary obligation, (b) to advance or supply funds (i)
for the purchase or payment of any such primary obligation or (ii) to maintain
working capital or equity capital of the primary obligor or otherwise to
maintain the net worth or solvency or any balance sheet condition of the primary
obligor, (c) 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 (d) to
indemnify the owner of such primary obligation against loss in respect thereof.
The amount of any Guaranteed Indebtedness at any time shall be deemed to be an
amount equal to the lesser at such time of (x) the stated or determinable amount
of the primary obligation in respect of which such Guaranteed Indebtedness is
made and (y) the maximum amount for which such Person may be liable pursuant to
the terms of the instrument embodying such Guaranteed Indebtedness; or, if not
stated or determinable, the maximum reasonably anticipated liability (assuming
full performance) in respect thereof.
"Guaranties" shall mean, collectively, each Subsidiary Guaranty and any
----------
other guaranty executed by any Guarantor in favor of Agent and Lenders in
respect of the Obligations.
A-14
"Guarantors" shall mean each Credit Party, and each other Person, if any,
----------
which executes a guarantee or other similar agreement in favor of Agent in
connection with the transactions contemplated by the Agreement and the other
Loan Documents.
"Hazardous Material" shall mean any substance, material or waste which is
------------------
regulated by or forms the basis of liability now or hereafter under, any
Environmental Laws, including any material or substance which is (a) defined as
a "solid waste," "hazardous waste," "hazardous material," "hazardous substance,"
"extremely hazardous waste," "restricted hazardous waste," "pollutant,"
"contaminant," "hazardous constituent," "special waste," "toxic substance" or
other similar term or phrase under any Environmental Laws, or (b) petroleum or
any fraction or by-product thereof, asbestos, polychlorinated biphenyls (PCB's),
or any radioactive substance.
"Indebtedness" of any Person shall mean without duplication (a) all
------------
indebtedness of such Person for borrowed money or for the deferred purchase
price of property payment for which is deferred six (6) months or more, but
excluding obligations to trade creditors incurred in the ordinary course of
business that are not overdue by more than six (6) months unless being contested
in good faith, (b) all reimbursement and other obligations with respect to
letters of credit, bankers' acceptances and surety bonds, whether or not
matured, (c) all obligations evidenced by notes, bonds, debentures or similar
instruments, (d) all indebtedness created or arising under any conditional sale
or other title retention agreement with respect to property acquired by such
Person (even though the rights and remedies of the seller or lender under such
agreement in the event of default are limited to repossession or sale of such
property), (e) all Capital Lease Obligations and the present value (discounted
at the Index Rate as in effect on the Effective Date) of future rental payments
under all synthetic leases, (f) all obligations of such Person under commodity
purchase or option agreements or other commodity price hedging arrangements, in
each case whether contingent or matured, (g) all obligations of such Person
under any foreign exchange contract, currency swap agreement, interest rate
swap, cap or collar agreement or other similar agreement or arrangement designed
to alter the risks of that Person arising from fluctuations in currency values
or interest rates, in each case whether contingent or matured, (h) all
Indebtedness referred to 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 or other assets (including accounts and contract
rights) owned by such Person, even though such Person has not assumed or become
liable for the payment of such Indebtedness, (i) all indebtedness created or
arising under the CEF Lease Facility, (j) all indebtedness created or arising
under the Receivables Documents, and (k) the Obligations.
"Indemnified Liabilities" shall have the meaning assigned to it in Section
----------------------- -------
1.13.
- ----
"Index Rate" shall mean, for any day, a floating rate equal to the higher
----------
of (i) the rate publicly quoted from time to time by The Wall Street Journal as
-----------------------
the "base rate on corporate loans at large U.S. money center commercial banks"
(or, if The Wall Street Journal ceases quoting a base rate of the type
-----------------------
described, the highest per annum rate of interest published by the Federal
A-15
Reserve Board in Federal Reserve statistical release H.15 (519) entitled
"Selected Interest Rates" as the Bank prime loan rate or its equivalent), and
(ii) the Federal Funds Rate plus fifty (50) basis points per annum. Each
change in any interest rate provided for in the Agreement based upon the Index
Rate shall take effect at the time of such change in the Index Rate.
"Index Rate Loan" shall mean a Loan or portion thereof bearing interest by
---------------
reference to the Index Rate.
"Instruments" shall mean any "instrument," as such term is defined in the
-----------
Code, now owned or hereafter acquired by any Credit Party, wherever located,
and, in any event, including all certificated securities, all certificates of
deposit, and all notes and other, without limitation, evidences of indebtedness,
other than instruments that constitute, or are a part of a group of writings
that constitute, Chattel Paper.
"Intellectual Property" shall mean any and all Licenses, Patents,
---------------------
Copyrights, Trademarks, trade secrets and customer lists.
"Intercompany Notes" shall have the meaning assigned to it in Section 6.3.
------------------ -----------
"Intercreditor Agreement" shall mean the Intercreditor Agreement dated as
-----------------------
of February 10, 1999 among GE Capital (as Agent and as Operating Agent and
Collateral Agent under the Receivables Documents), Special Purpose Corporation,
Borrower, the Receivables Subsidiaries and Redwood Receivables Corporation.
"Interest Expense" shall mean, with respect to any Person for any fiscal
----------------
period, interest expense (whether cash or non-cash) of such Person determined in
accordance with GAAP for the relevant period ended on such date, including, in
any event, interest expense with respect to any Funded Debt of such Person, the
interest component of any payment with respect to Capital Leases and the CEF
Lease Facility, interest expense for the relevant period that has been
capitalized on the balance sheet of such Person and yield or other amounts due
and payable (other than upfront fees) under the Receivables Documents.
"Interest Payment Date" means (a) as to any Index Rate Loan, the first
---------------------
Business Day of each month to occur while such Loan is outstanding, (b) as to
any LIBOR Loan, the last day of the applicable LIBOR Period, provided that, in
--------
addition to the foregoing, each of (x) the date upon which all of the
Commitments have been terminated and the Loans have been paid in full and (y)
the Commitment Termination Date shall be deemed to be an "Interest Payment Date"
---------------------
with respect to any interest which is then accrued under the Agreement.
"Inventory" shall mean any "inventory," as such term is defined in the
---------
Code, now or hereafter owned or acquired by any Credit Party, wherever located,
and in any event including inventory, merchandise, goods and other personal
property which are held by or on behalf of any
A-16
Credit Party for sale or lease or are furnished or are to be furnished under a
contract of service, or which constitute raw materials, work in process or
materials used or consumed or to be used or consumed in such Credit Party's
business or in the processing, production, packaging, promotion, delivery or
shipping of the same, including other supplies.
"Investment Property" shall have the meaning ascribed thereto in Section 9-
-------------------
115 of the Code in those jurisdictions in which such definition has been adopted
and shall include (i) all securities, whether certificated or uncertificated,
including stocks, bonds, interests in limited liability companies, partnership
interests, treasuries, certificates of deposit, and mutual fund shares; (ii) all
securities entitlements of any Credit Party, including the rights of such
Credit Party to any securities account and the financial assets held by a
securities intermediary in such securities account and any free credit balance
or other money owing by any securities intermediary with respect to that
account; (iii) all securities accounts held by any Credit Party; (iv) all
commodity contracts held by any Credit Party; and (v) all commodity accounts
held by any Credit Party.
"IRC" shall mean the Internal Revenue Code of 1986, as amended, and any
---
successor thereto.
"IRS" shall mean the Internal Revenue Service, or any successor thereto.
---
"L/C Issuer" shall have the meaning assigned to such term in Annex B.
---------- -------
"Lenders" shall mean GE Capital, the other Lenders named on the signature
-------
page of the Agreement, and, if any such Lender shall decide to assign all or any
portion of the Obligations, such term shall include such assignee.
"Letter of Credit Fee" has the meaning ascribed thereto in Annex B.
-------------------- -------
"Letter of Credit Obligations" shall mean all outstanding obligations
----------------------------
incurred by Agent and Lenders at the request of Borrower, whether direct or
indirect, contingent or otherwise, due or not due, in connection with the
issuance of a Letter of Credit pursuant to the Master L/C Agreement, the
issuance of a reimbursement agreement or guaranty by Agent or purchase of a
participation as set forth in Annex B with respect to any Letter of Credit. The
-------
amount of such Letter of Credit Obligations shall equal the maximum amount which
may be payable by Agent or Lenders thereupon or pursuant thereto.
"Letters of Credit" shall mean commercial or standby letters of credit
-----------------
issued for the account of Borrower by any L/C Issuer, and bankers' acceptances
issued by Borrower, for which Agent and Lenders have incurred Letter of Credit
Obligations.
A-17
"LIBOR Business Day" shall mean a Business Day on which banks in the city
------------------
of London are generally open for interbank or foreign exchange transactions.
"LIBOR Loan" shall mean a Loan or any portion thereof bearing interest by
----------
reference to the LIBOR Rate.
"LIBOR Period" shall mean, with respect to any LIBOR Loan, each period
------------
commencing on a LIBOR Business Day selected by Borrower pursuant to the
Agreement and ending one, two or three months thereafter, as selected by
Borrower's irrevocable notice to Agent as set forth in Section 1.5(e); provided
-------------- --------
that the foregoing provision relating to LIBOR Periods is subject to the
following:
(a) if any LIBOR Period would otherwise end on a day that is not a
LIBOR Business Day, such LIBOR Period shall be extended to the next
succeeding LIBOR Business Day unless the result of such extension would be
to carry such LIBOR Period into another calendar month in which event such
LIBOR Period shall end on the immediately preceding LIBOR Business Day;
(b) any LIBOR Period that would otherwise extend beyond the Commitment
Termination Date shall end two (2) LIBOR Business Days prior to such date;
(c) any LIBOR Period pertaining to a LIBOR Loan that begins on the
last LIBOR 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 LIBOR Period) shall end on the last LIBOR Business Day of a calendar
month;
(d) Borrower shall select LIBOR Periods so as not to require a payment
or prepayment of any LIBOR Loan during a LIBOR Period for such Loan; and
(e) Borrower shall select LIBOR Periods so that there shall be no more
than six (6) separate LIBOR Loans in existence at any one time.
"LIBOR Rate" shall mean for each LIBOR Period, a rate of interest
----------
determined by Agent equal to:
(a) the offered rate for deposits in United States Dollars for the
applicable LIBOR Period which appears on Telerate Page 3750 as of 11:00
a.m., London time, on the second full LIBOR Business Day next preceding
the first day of each LIBOR Period (unless such date is not a Business
Day, in which event the next succeeding Business Day will be used);
divided by
A-18
(b) a number equal to 1.0 minus the aggregate (but without
duplication) of the rates (expressed as a decimal fraction) of reserve
requirements in effect on the day which is two (2) LIBOR Business Days
prior to the beginning of such LIBOR Period (including basic, supplemental,
marginal and emergency reserves under any regulations of the Board of
Governors of the Federal Reserve system or other governmental authority
having jurisdiction with respect thereto, as now and from time to time in
effect) for Eurocurrency funding (currently referred to as "Eurocurrency
liabilities" in Regulation D of such Board) which are required to be
maintained by a member bank of the Federal Reserve System.
If such interest rates shall cease to be available from Telerate News
Service, the LIBOR Rate shall be determined from such financial reporting
service or other information as shall be mutually acceptable to Agent and
Borrower.
"License" shall mean any Copyright License, Patent License, Trademark
-------
License or other license of rights or interests now held or hereafter acquired
by any Credit Party.
"Lien" shall mean any mortgage or deed of trust, pledge, hypothecation,
----
assignment, deposit arrangement, lien, charge, claim, security interest,
easement or encumbrance, or preference, priority or other security agreement or
preferential arrangement of any kind or nature whatsoever (including any lease
or title retention agreement, any financing lease having substantially the same
economic effect as any of the foregoing, and the filing of, or agreement to
give, any financing statement perfecting a security interest under the Code or
comparable law of any jurisdiction).
"Litigation" shall have the meaning assigned to it in Section 3.13.
---------- ------------
"Loan Account" shall have the meaning assigned to it in Section 1.12.
------------ ------------
"Loan Documents" shall mean the Agreement, the Notes, the Collateral
--------------
Documents, the Intercreditor Agreement, the Master L/C Agreement and all other
agreements, instruments, documents and certificates identified in the Closing
Checklist executed and delivered to, or in favor of, Agent and/or Lenders and
including all other pledges, powers of attorney, consents, assignments,
contracts, notices, and all other written matter whether heretofore, now or
hereafter executed by or on behalf of any Credit Party, or any employee of any
Credit Party, and delivered to Agent or any Lender in connection with the
Agreement or the transactions contemplated hereby. Any reference in the
Agreement or any other Loan Document to a Loan Document shall include all
appendices, exhibits or schedules thereto, and all amendments, restatements,
supplements or other modifications thereto, and shall refer to such Agreement as
the same may be in effect at any and all times such reference becomes operative.
"Loans" shall mean the Revolving Loan and the Swing Line Loan.
-----
A-19
"Margin Stock" shall have the meaning assigned to it in Section 3.10.
------------ ------------
"Master L/C Agreement" shall mean that certain Master Agreement for
--------------------
Documentary Letters of Credit of even date herewith between Borrower and GE
Capital.
"Material Adverse Effect" shall mean a material adverse effect on (a) the
-----------------------
business, assets, operations, prospects or financial or other condition of any
Credit Party, other than the effect of the dissolution of Odyssey Golf, Inc. on
the condition of Odyssey Golf, Inc., (b) Borrower's ability to pay any of the
Loans or any of the other Obligations in accordance with the terms of the
Agreement, (c) the Collateral or Agent's Liens, on behalf of itself and Lenders,
on the Collateral or the priority of such Liens, or (d) Agent's or any Lender's
rights and remedies under the Agreement and the other Loan Documents.
"Material Subsidiary" shall mean Callaway Golf Ball Company, Callaway Golf
-------------------
Sales Company, Odyssey Golf, Inc., Special Purpose Corporation, Callaway Golf
Europe Ltd., Callaway (Barbados) Foreign Sales Corporation, ERC International
Company, Callaway Golf Korea Ltd., Callaway Golf Canada Ltd. and each Person
which becomes a Subsidiary of Borrower after the date of this Agreement.
"Maturity Date" shall mean, with respect to any Receivable, the due date
-------------
for payment therefor specified in the Contract therefor, or, if no date is so
specified, thirty (30) days from the Billing Date.
"Maximum Amount" shall mean, at any particular time, an amount equal to the
--------------
Revolving Loan Commitment of all Lenders.
"Mortgaged Property" shall mean one or more parcels of Real Estate
------------------
identified on Schedule 1.18 to the Agreement.
-------------
"Multiemployer Plan" shall mean a "multiemployer plan" as defined in
------------------
Section 4001(a)(3) of ERISA, and to which any Credit Party or ERISA Affiliate is
making, is obligated to make, has made or been obligated to make, contributions
on behalf of participants who are or were employed by any of them.
"Net Borrowing Availability" shall mean as of any date of determination,
--------------------------
the lesser of (i) the Maximum Amount and (ii) the Borrowing Base, in each case
less the sum of the Revolving Loan and Swing Line Loan then outstanding.
- ----
"Net Worth" shall mean, with respect to any Person as of any date of
---------
determination, the book value of the assets of such Person, minus (a) reserves
-----
applicable thereto, and minus (b) all of such Person's liabilities on a
-----
consolidated basis (including accrued and deferred income taxes), all as
determined in accordance with GAAP.
A-20
"Non-Funding Lender" shall have the meaning assigned to it in Section
------------------
9.9(a)(ii).
"Notes" shall mean the Revolving Notes and the Swing Line Note,
-----
collectively.
"Notice of Conversion/Continuation" shall have the meaning assigned to it
---------------------------------
in Section 1.5(e) .
--------------
"Notice of Revolving Credit Advance" shall have the meaning assigned to it
----------------------------------
in Section 1.1(a) .
--------------
"Obligations" shall mean all loans, advances, debts, liabilities and
-----------
obligations, for the performance of covenants, tasks or duties or for payment of
monetary amounts (whether or not such performance is then required or
contingent, or such amounts are liquidated or determinable) owing by any Credit
Party to Agent or any Lender, and all covenants and duties regarding such
amounts, of any kind or nature, present or future, whether or not evidenced by
any note, agreement or other instrument, arising under the Agreement or any of
the other Loan Documents. This term includes all principal, interest (including
all interest which accrues after the commencement of any case or proceeding in
bankruptcy after the insolvency of, or for the reorganization of, any Credit
Party, whether or not allowed in such proceeding), Fees, Charges, expenses,
attorneys' fees and any other sum chargeable to any Credit Party under the
Agreement or any of the other Loan Documents.
"Other Subsidiary" shall mean each Subsidiary of Borrower which is not a
----------------
Material Subsidiary.
"Patent Security Agreements" shall mean the Patent Security Agreements made
--------------------------
in favor of Agent, on behalf of itself and Lenders, by each applicable Credit
Party, as amended, modified or supplemented from time to time.
"Patent License" shall mean rights under any written agreement now owned or
--------------
hereafter acquired by any Credit Party granting any right with respect to any
invention on which a Patent is in existence.
"Patents" shall mean all of the following in which any Credit Party now
-------
holds or hereafter acquires any interest: (a) all letters patent of the United
States or any other country, all registrations and recordings thereof, and all
applications for letters patent of the United States or any other country,
including registrations, recordings and applications in the United States Patent
and Trademark Office or in any similar office or agency of the United States,
any State or Territory thereof, or any other country, and (b) all reissues,
continuations, continuations-in-part or extensions thereof.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any successor
----
thereto.
A-21
"Permitted Acquisition" shall have the meaning assigned to it in Section
--------------------- -------
6.1.
- ---
"Permitted Encumbrances" shall mean the following encumbrances: (a) Liens
----------------------
for taxes or assessments or other governmental Charges not yet due and payable;
(b) pledges or deposits of money securing statutory obligations under workmen's
compensation, unemployment insurance, social security or public liability laws
or similar legislation (excluding Liens under ERISA); (c) pledges or deposits of
money securing bids, tenders, contracts (other than contracts for the payment
of money) or leases to which any Credit Party is a party as lessee made in the
ordinary course of business; (d) inchoate and unperfected workers', mechanics'
or similar liens arising in the ordinary course of business, so long as such
Liens attach only to Equipment, Fixtures and/or Real Estate; (e) carriers',
warehousemen's, suppliers' or other similar possessory liens arising in the
ordinary course of business and securing liabilities in an outstanding aggregate
amount not in excess of $100,000 at any time, so long as such Liens attach only
to Inventory; (f) deposits securing, or in lieu of, surety, appeal or customs
bonds in proceedings to which any Credit Party is a party; (g) any attachment or
judgment lien not constituting an Event of Default under Section 8.1(j); (h)
--------------
zoning restrictions, easements, licenses, or other restrictions on the use of
any Real Estate or other minor irregularities in title (including leasehold
title) thereto, so long as the same do not materially impair the use, value, or
marketability of such Real Estate; (i) presently existing or hereinafter created
Liens in favor of Agent, on behalf of Lenders; (j) Liens expressly permitted
under clauses (b), (c) or (f) of Section 6.7 of the Agreement; and (k) leases
----------- --- --- -----------
and subleases of Real Estate which do not adversely affect the value thereof.
"Person" shall mean any individual, sole proprietorship, partnership, joint
------
venture, trust, unincorporated organization, association, corporation, limited
liability company, institution, public benefit corporation, other entity or
government (whether federal, state, county, city, municipal, local, foreign, or
otherwise, including any instrumentality, division, agency, body or department
thereof).
"Plan" shall mean, at any time, an employee benefit plan, as defined in
----
Section 3(3) of ERISA, which any Credit Party maintains, contributes to or has
an obligation to contribute to on behalf of participants who are or were
employed by any Credit Party.
"Pledge Agreements" shall mean the Borrower Pledge Agreement, the Callaway
-----------------
Golf Sales Company Pledge Agreement and any other pledge agreement entered into
after the Effective Date by any Credit Party (as required by the Agreement or
any other Loan Document).
"Prior Lender" shall mean the Lenders under (and as defined in) the Prior
------------
Loan Agreement.
"Prior Lender Obligations" shall mean the Obligations under (and as defined
------------------------
in) the Prior Loan Agreement.
A-22
"Prior Loan Agreement" shall mean the Revolving Loan Agreement dated as of
--------------------
February 4, 1998 (together with such written amendments, modifications and
supplements thereto as are provided to Agent prior to the Closing Date) among
Borrower, the financial institutions party thereto and Wells Fargo Bank,
National Association, as administrative agent.
"Proceeds" shall mean "proceeds," as such term is defined in the Code and,
--------
in any event, shall include (a) any and all proceeds of any insurance,
indemnity, warranty or guaranty payable to any Credit Party from time to time
with respect to any of the Collateral, (b) any and all payments (in any form
whatsoever) made or due and payable to any Credit Party from time to time in
connection with any requisition, confiscation, condemnation, seizure or
forfeiture of all or any part of the Collateral by any Governmental Authority
(or any Person acting under color of governmental authority), (c) any claim of
any Credit Party against third parties (i) for past, present or future
infringement of any Patent or Patent License, or (ii) for past, present or
future infringement or dilution of any Copyright, Copyright License, Trademark
or Trademark License, or for injury to the goodwill associated with any
Trademark or Trademark License, (d) any recoveries by any Credit Party against
third parties with respect to any litigation or dispute concerning any of the
Collateral, and (e) any and all other amounts from time to time paid or payable
under or in connection with any of the Collateral, upon disposition or
otherwise.
"Projections" means Borrower's forecasted consolidated: (a) balance sheets;
-----------
(b) profit and loss statements; (c) cash flow statements; and (d) capitalization
statements, prepared on a basis consistent with the historical Financial
Statements of Borrower, together with appropriate supporting details and a
statement of underlying assumptions.
"Pro Rata Share" shall mean with respect to all matters relating to any
--------------
Lender, the percentage obtained by dividing (i) the Revolving Loan Commitment
(including the Swing Line Commitment as a subset of the Swing Line Lender's
Revolving Loan Commitment), by (ii) the aggregate Revolving Loan Commitments.
"Public Offering" shall mean a firm underwritten public offering of common
---------------
stock registered on form S-1, S-2 or S-3 under the Securities Act of 1933, as
amended, by a nationally recognized investment banking firm and after giving
effect to which the issuer shall be qualified for listing or quotation on the
NASDAQ National Market, the American Stock Exchange or the New York Stock
Exchange.
"Qualified Plan" shall mean a Plan which is intended to be tax-qualified
--------------
under Section 401(a) of the IRC.
"Qualifying Winter Dating Account Debtor" shall mean, for any year, any
---------------------------------------
Account Debtor with respect to which, (a) no payment, or part thereof, with
respect to any Receivables of such Account Debtor originated during the previous
year remained unpaid for more than 30 days past its Maturity Date, or (b) no
payment, or part thereof, with respect to any Receivables of such
A-23
[Execution Copy]
Account Debtor remained unpaid for more than 30 days past its Maturity Date
during the one (1) year period prior to the placement of a Winter Dating Order
by such Account Debtor in such year.
"Real Estate" shall have the meaning assigned to it in Section 3.6.
----------- -----------
"Receivable" shall mean, with respect to any Person:
----------
(a) indebtedness of such Person (whether constituting an account, Chattel
Paper, Document, Instrument or General Intangible) arising from the provision of
merchandise, goods or services by a Credit Party to such Person, including the
right to payment of any interest or finance charges and other obligations of
such Person with respect thereto;
(b) all Liens and property subject thereto from time to time securing or
purporting to secure any such indebtedness of such Person;
(c) all guaranties, indemnities and warranties, insurance policies,
financing statements and other agreements or arrangements of whatever character
from time to time supporting or securing payment of any such indebtedness;
(d) all Collections with respect to any of the foregoing;
(e) all Records with respect to any of the foregoing; and
(f) all proceeds with respect to any of the foregoing.
"Receivables Documents" shall mean (i) the Receivables Purchase Agreement;
---------------------
(ii) the Transfer Agreement, dated as of February 10, 1999, between Special
Purpose Corporation and Callaway Golf Sales Company, (iii) the Transfer
Agreement dated as of February 10, 1999 between Odyssey Golf, Inc. and Callaway
Golf Sales Company and (iv) the other Related Documents (as defined in the
Receivables Purchase Agreement), in each case as the same may from time to time
be supplemented, modified, amended, restated or extended.
"Receivables Facility" shall mean the transactions contemplated by the
--------------------
Receivables Documents.
"Receivables Program Assets" shall mean (a) all Receivables which are
--------------------------
described as being transferred by a Receivables Subsidiary pursuant to the
Receivables Documents and (b) all Receivables Related Assets related to such
Receivables.
"Receivables Purchase Agreement" shall mean the Receivables Purchase and
------------------------------
Servicing Agreement, dated as of February 10, 1999, among Special Purpose
Corporation, Redwood
A-24
Receivables Corporation, Borrower, and GE Capital, as supplemented, modified,
amended, restated or extended from time to time.
"Receivables Related Assets" shall mean (a) any rights arising under the
--------------------------
documentation governing or relating to Receivables (including rights in respect
---------
of Liens securing such Receivables and other credit support in respect of such
Receivables), (b) any proceeds of any Receivables and any lockboxes or accounts
in which such proceeds are deposited, (c) spread accounts and other similar
accounts (and any amounts on deposit therein) established in connection with the
Receivables Documents, (d) any warranty, indemnity, dilution and other
intercompany claim arising out of Receivables Documents and (e) other assets
which are customarily transferred or in respect of which security interests are
customarily granted in connection with asset securitization transactions
involving accounts receivable.
"Receivables Subsidiary" shall mean one or more (as applicable) of Callaway
----------------------
Golf Sales Company, Odyssey Golf, Inc. or any other Subsidiary of Borrower which
transfers its Receivables Program Assets pursuant to the Receivables Documents.
"Records" shall mean all Contracts and other documents, books, records and
-------
other information (including computer programs, tapes, disks, data processing
software and related property and rights) prepared and maintained by Borrower or
any other Credit Party with respect to the Receivables and the Account Debtors
thereunder.
"Refinancing" shall mean the repayment in full by Borrower of the Prior
-----------
Lender Obligations (other than obligations with respect to letters of credit) on
the Closing Date.
"Refunded Swing Line Loan" shall have the meaning assigned to it in Section
------------------------ -------
1.1(b)(iii).
- -----------
"Reincorporation Merger" shall mean the merger of Borrower with and into a
----------------------
Delaware corporation solely for the purpose of reincorporating Borrower as a
Delaware corporation..
"Release" shall mean any release, threatened release, spill, emission,
-------
leaking, pumping, pouring, emitting, emptying, escape, injection, deposit,
disposal, discharge, dispersal, dumping, leaching or migration of Hazardous
Material in the indoor or outdoor environment, including the movement of
Hazardous Material through or in the air, soil, surface water, ground water or
property.
"Requisite Lenders" shall mean (a) Lenders having more than sixty-six and
-----------------
two-thirds percent (66 2/3%) of the Commitments of all Lenders, or (b) if the
Commitments have been terminated, more than sixty-six and two-thirds percent (66
2/3%) of the aggregate outstanding amount of the Loans.
A-25
"Reserves" shall mean, with respect to the Borrowing Base of Borrower (a)
--------
reserves established by Agent from time to time against Eligible Inventory or
Eligible Equipment pursuant to Section 5.9, (b) reserves established pursuant to
-----------
Section 5.4(c), and (c) such other reserves against Eligible Inventory, Eligible
- --------------
Equipment or Borrowing Availability of Borrower which Agent may, in its
reasonable judgment, establish from time to time. Without limiting the
generality of the foregoing, Reserves established to ensure the payment of
accrued Interest Expenses or Indebtedness shall be deemed to be a reasonable
exercise of Agent's credit judgment.
"Restricted Payment" shall mean (a) the declaration or payment of any
------------------
dividend or the incurrence of any liability to make any other payment or
distribution of cash or other property or assets in respect of a Person's Stock,
(b) any payment on account of the purchase, redemption, defeasance, sinking fund
or other retirement of a Person's Stock or any other payment or distribution
made in respect thereof, either directly or indirectly, (c) any payment or
prepayment of principal of, premium, if any, or interest, fees or other charges
on or with respect to, and any redemption, purchase, retirement, defeasance,
sinking fund or similar payment and any claim for rescission with respect to,
any Subordinated Debt (other than as permitted by Section 6.13); (d) any payment
------------
made to redeem, purchase, repurchase or retire, or to obtain the surrender of,
any outstanding warrants, options or other rights to acquire Stock of such
Person now or hereafter outstanding; (e) any payment of a claim for the
rescission of the purchase or sale of, or for material damages arising from the
purchase or sale of, any shares of such Person's Stock or of a claim for
reimbursement, indemnification or contribution arising out of or related to any
such claim for damages or rescission; (f) any payment, loan, contribution, or
other transfer of funds or other property to any Stockholder of such Person
other than payment of compensation in the ordinary course to stockholders who
are employees of such Person; and (g) any payment of management fees (or other
fees of a similar nature) by such Person to any Stockholder of such Person or
their Affiliates.
"Retiree Welfare Plan" shall mean, at any time, a Plan that is a "welfare
--------------------
plan" as defined in Section 3(2) of ERISA, that provides for continuing coverage
or benefits for any participant or any beneficiary of a participant after such
participant's termination of employment, other than continuation coverage
provided pursuant to Section 4980B of the IRC and at the sole expense of the
participant or the beneficiary of the participant.
"Revolving Credit Advance" shall have the meaning assigned to it in Section
------------------------ -------
1.1(a)(i).
- ---------
"Revolving Lenders" shall mean, as of any date of determination, Lenders
-----------------
having a Revolving Loan Commitment.
"Revolving Loan" shall mean, at any time, the sum of (i) the aggregate
--------------
amount of Revolving Credit Advances outstanding to Borrower plus (ii) the
----
aggregate Letter of Credit Obligations incurred on behalf of Borrower. Unless
the context otherwise requires, references to the outstanding principal balance
of the Revolving Loan shall include the outstanding balance of
A-26
Letter of Credit Obligations (without duplication of deemed Revolving Credit
Advances resulting from payment on or pursuant to Letter of Credit Obligations
pursuant to paragraph (b)(i) of Annex B).
-------
"Revolving Loan Commitment" shall mean (a) as to any Revolving Lender, the
-------------------------
aggregate commitment of such Revolving Lender to make Revolving Credit Advances
(including without duplication Swing Line Advances as a subset of the Swing Line
Lender's Revolving Loan Commitment) and/or incur Letter of Credit Obligations as
set forth on Annex K to the Agreement or in the most recent Assignment Agreement
-------
executed by such Revolving Lender and (b) as to all Revolving Lenders, the
aggregate commitment of all Revolving Lenders to make Revolving Credit Advances
(including without duplication Swing Line Advances as a subset of the Swing Line
Lender's Revolving Loan Commitment) and/or incur Letter of Credit Obligations,
which aggregate commitment shall be One Hundred and Twenty Million Dollars
($120,000,000) on the Effective Date, as such amount may be adjusted, if at all,
from time to time in accordance with the Agreement.
"Revolving Note" shall have the meaning assigned to it in Section
-------------- -------
1.1(a)(ii).
- ----------
"Solvent" shall mean, with respect to any Person on a particular date,
-------
that on such date (a) the fair value of the property of such Person is greater
than the total amount of liabilities, including contingent liabilities, of such
Person; (b) the present fair salable value of the assets of such Person is not
less than the amount that will be required to pay the probable liability of such
Person on its debts as they become absolute and matured; (c) such Person does
not intend to, and does not believe that it will, incur debts or liabilities
beyond such Person's ability to pay as such debts and liabilities mature; and
(d) such Person is not engaged in a business or transaction, and is not about to
engage in a business or transaction, for which such Person's property would
constitute an unreasonably small capital. The amount of contingent liabilities
(such as litigation, guarantees and pension plan liabilities) at any time shall
be computed as the amount which, in light of all the facts and circumstances
existing at the time, represents the amount which can be reasonably be expected
to become an actual or matured liability.
"Special Purpose Corporation" shall mean Golf Funding Corporation, a
---------------------------
Delaware corporation.
"Stock" shall mean all shares, options, warrants, general or limited
-----
partnership interests or other equivalents (regardless of how designated) of or
in a corporation, partnership or equivalent entity whether voting or nonvoting,
including common stock, preferred stock or any other "equity security" (as such
term is defined in Rule 3a11-1 of the General Rules and Regulations promulgated
by the Securities and Exchange Commission under the Securities Exchange Act of
1934, as amended).
A-27
"Subordinated Debt" shall mean any Indebtedness of any Credit Party
-----------------
subordinated to the Obligations in a manner and form satisfactory to Agent and
Lenders in their sole discretion, as to right and time of payment and as to any
other rights and remedies thereunder.
"Subsidiaries Security Agreement" shall mean the Security Agreement dated
-------------------------------
as of the Closing Date entered into among Agent, on behalf of itself and
Lenders, and each Credit Party that is a signatory thereto, as amended by that
certain Amendment to Security Agreement dated as of the Effective Date entered
into among Agent, on behalf of itself and Lenders, and each Credit Party that is
a signatory thereto.
"Subsidiary" shall mean, with respect to any Person, (a) any corporation of
----------
which an aggregate of more than fifty percent (50%) of the outstanding Stock
having ordinary voting power to elect a majority of the board of directors of
such corporation (irrespective of whether, at the time, Stock of any other class
or classes of such corporation shall have or might have voting power by reason
of the happening of any contingency) is at the time, directly or indirectly,
owned legally or beneficially by such Person and/or one or more Subsidiaries of
such Person, or with respect to which any such Person has the right to vote or
designate the vote of fifty percent (50%) or more of such Stock whether by
proxy, agreement, operation of law or otherwise, and (b) any partnership or
limited liability company in which such Person and/or one or more Subsidiaries
of such Person shall have an interest (whether in the form of voting or
participation in profits or capital contribution) of more than fifty percent
(50%) or of which any such Person is a general partner or may exercise the
powers of a general partner.
"Subsidiary Guaranty" shall mean the Subsidiary Guaranty of even date
-------------------
herewith executed by each Credit Party (other than Borrower) in favor of Agent,
on behalf of itself and Lenders.
"Supermajority Revolving Lenders" shall mean (a) Lenders having eighty
-------------------------------
percent (80%) or more of the Revolving Loan Commitments of all Lenders, or (b)
if the Revolving Loan Commitments have been terminated, eighty percent (80%) or
more of the aggregate outstanding amount of the Revolving Loan (with the Swing
Line Loan being attributed to the Lender making such Loan) and Letter of Credit
Obligations.
"Swing Line Advance" has the meaning assigned to it in Section 1.1(b)(i).
------------------ -----------------
"Swing Line Availability" has the meaning assigned to it in Section
----------------------- -------
1.1(b)(i).
- ---------
"Swing Line Commitment" shall mean, as to the Swing Line Lender, the
---------------------
commitment of the Swing Line Lender to make Swing Line Loans as set forth on
Annex K to the Agreement, which commitment constitutes a subfacility of the
- -------
Revolving Loan Commitment of the Swing Line Lender.
"Swing Line Lender" shall mean GE Capital.
-----------------
A-28
"Swing Line Loan" shall mean at any time, the aggregate amount of Swing
---------------
Line Advances outstanding to Borrower.
"Swing Line Note" has the meaning assigned to it in Section 1.1(b)(ii).
--------------- ------------------
"Tangible Net Worth" shall mean, with respect to any Person at any date,
------------------
the Net Worth of such Person at such date, excluding, however, from the
--------- -------
determination of the total assets at such date, (a) all goodwill, capitalized
organizational expenses, capitalized research and development expenses,
trademarks, trade names, copyrights, patents, patent applications, licenses and
rights in any thereof, and other intangible items, (b) all unamortized debt
discount and expense, (c) treasury Stock, and (d) any write-up in the book value
of any asset resulting from a revaluation thereof.
"Target" shall have the meaning assigned to it in Section 6.1.
------ -----------
"Taxes" shall mean taxes, levies, imposts, deductions, Charges or
-----
withholdings, and all liabilities with respect thereto, excluding taxes imposed
on or measured by the net income of Agent or a Lender by the jurisdictions under
the laws of which Agent and Lenders are organized or any political subdivision
thereof.
"Termination Date" shall mean the date on which the Loans have been
----------------
indefeasibly repaid in full and all other Obligations under the Agreement and
the other Loan Documents have been completely discharged and Letter of Credit
Obligations have been cash collateralized, cancelled or backed by stand-by
letters of credit in accordance with Annex B, and Borrower shall not have any
-------
further right to borrow any monies under the Agreement.
"Third Party Interactives" shall mean all Persons with whom any Credit
------------------------
Party exchanges data electronically in the ordinary course of business,
including, without limitation, customers, suppliers, third-party vendors,
subcontractors, processors-converters, shippers and warehousemen.
"Title IV Plan" shall mean an employee pension benefit plan, as defined in
-------------
Section 3 (2) of ERISA (other than a Multiemployer Plan), which is covered by
Title IV of ERISA, and which any Credit Party or ERISA Affiliate maintains,
contributes to or has an obligation to contribute to on behalf of participants
who are or were employed by any of them.
"Trademark Security Agreements" shall mean the Trademark Security
-----------------------------
Agreements made in favor of Agent, on behalf of itself and Lenders, by each
applicable Credit Party, as amended, modified or supplemented from time to time.
"Trademark License" shall mean rights under any written agreement now owned
-----------------
or hereafter acquired by any Credit Party granting any right to use any
Trademark.
A-29
"Trademarks" shall mean all of the following now owned or hereafter
----------
acquired by any Credit Party: (a) all trademarks, trade names, corporate names,
business names, trade styles, service marks, logos, other source or business
identifiers, prints and labels on which any of the foregoing have appeared or
appear, designs and general intangibles of like nature (whether registered or
unregistered), now owned or existing or hereafter adopted or acquired, all
registrations and recordings thereof, and all applications in connection
therewith, including registrations, recordings and applications in the United
States Patent and Trademark Office or in any similar office or agency of the
United States, any state or territory thereof, or any other country or any
political subdivision thereof; (b) all reissues, extensions or renewals thereof;
and (c) all goodwill associated with or symbolized by any of the foregoing.
"Unfunded Pension Liability" shall mean, at any time, the aggregate amount,
--------------------------
if any, of the sum of (a) the amount by which the present value of all accrued
benefits under each Title IV Plan exceeds the fair market value of all assets of
such Title IV Plan allocable to such benefits in accordance with Title IV of
ERISA, all determined as of the most recent valuation date for each such Title
IV Plan using the actuarial assumptions for funding purposes in effect under
such Title IV Plan, and (b) for a period of five (5) years following a
transaction which might reasonably be expected to be covered by Section 4069 of
ERISA, the liabilities (whether or not accrued) that could be avoided by any
Credit Party or any ERISA Affiliate as a result of such transaction.
"Year 2000 Assessment" shall mean a comprehensive written assessment of the
--------------------
nature and extent of each Credit Party's material Year 2000 Problems and Year
2000 Date-Sensitive Systems/Components, including, without limitation, Year 2000
Problems regarding data exchanges with Third Party Interactives.
"Year 2000 Corrective Actions" shall mean, as to each Credit Party, all
----------------------------
actions necessary to eliminate such Person's material Year 2000 Problems,
including, without limitation, computer code enhancements and revisions,
upgrades and replacements of Year 2000 Date-Sensitive Systems/Components, and
coordination of such enhancements, revisions, upgrades and replacements with
Third Party Interactives.
"Year 2000 Corrective Plan" shall mean, with respect to each Credit Party,
-------------------------
a comprehensive plan to eliminate all of its material Year 2000 Problems on or
before September 30, 1999, including without limitation (i) computer code
enhancements or revisions, (ii) upgrades or replacements of Year 2000 Date-
Sensitive Systems/Components, (iii) test and validation procedures, (iv) an
implementation time line and budget and (v) designation of specific employees
who will be responsible for planning, coordinating and implementing each phase
or subpart of the Year 2000 Corrective Plan.
"Year 2000 Date-Sensitive System/Component" shall mean, as to any Person,
-----------------------------------------
any system software, network software, applications software, data base,
computer file, embedded microchip, firmware or hardware that accepts, creates,
manipulates, sorts, sequences, calculates, compares or
A-30
outputs calendar-related data accurately; such systems and components shall
include, without limitation, mainframe computers, file server/client systems,
computer workstations, routers, hubs, other network-related hardware, and other
computer-related software, firmware or hardware and information processing and
delivery systems of any kind and telecommunications systems and other
communications processors, security systems, alarms, elevators and HVAC systems.
"Year 2000 Implementation Testing" shall mean, as to each Credit Party, (i)
--------------------------------
the performance of test and validation procedures regarding Year 2000 Corrective
Actions on a unit basis and on a systemwide basis; (ii) the performance of test
and validation procedures regarding data exchanges among the Credit Parties'
material Year 2000 Date-Sensitive Systems/Components and data exchanges with
Third Party Interactives, and (iii) the design and implementation of additional
Corrective Actions, the need for which has been demonstrated by test and
validation procedures.
"Year 2000 Problems" shall mean, with respect to each Credit Party,
------------------
limitations on the capacity or readiness of any such Credit Party's Year 2000
Date-Sensitive Systems/Components to accurately accept, create, manipulate,
sort, sequence, calculate, compare or output calendar date information with
respect to calendar year 1999 or any subsequent calendar year beginning on or
after January 1, 2000 (including leap year computations), including, without
limitation, exchanges of information among Year 2000 Date-Sensitive
Systems/Components of the Credit Parties and exchanges of information among the
Credit Parties and Year 2000 Date-Sensitive Systems/Components of Third Party
Interactives and functionality of peripheral interfaces, firmware and embedded
microchips.
All other undefined terms contained in any of the Loan Documents shall,
unless the context indicates otherwise, have the meanings provided for by the
Code as in effect in the State of New York to the extent the same are used or
defined therein. Unless otherwise specified, references in the Agreement or any
of the Appendices to a Section, subsection or clause refer to such Section,
subsection or clause as contained in the Agreement. The words "herein,"
"hereof" and "hereunder" and other words of similar import refer to the
Agreement as a whole, including all Annexes, Exhibits and Schedules, as the same
may from time to time be amended, restated, modified or supplemented, and not to
any particular section, subsection or clause contained in the Agreement or any
such Annex, Exhibit or Schedule.
Wherever from the context it appears appropriate, each term stated in
either the singular or plural shall include the singular and the plural, and
pronouns stated in the masculine, feminine or neuter gender shall include the
masculine, feminine and neuter genders. The words "including", "includes" and
"include" shall be deemed to be followed by the words "without limitation";
references to Persons include their respective successors and assigns (to the
extent and only to the extent permitted by the Loan Documents) or, in the case
of governmental Persons, Persons succeeding to the relevant functions of such
Persons; and all references to statutes and related regulations shall include
any amendments of the same and any successor statutes and regulations.
A-31
Whenever any provision in any Loan Document refers to the knowledge (or an
analogous phrase) of any Credit Party, such words are intended to signify that
such Credit Party has actual knowledge or awareness of a particular fact or
circumstance or that such Credit Party, if it had exercised reasonable
diligence, would have known or been aware of such fact or circumstance.
A-32
ANNEX B (SECTION 1.2)
-----------
TO
CREDIT AGREEMENT
----------------
LETTERS OF CREDIT
-----------------
(a) Issuance. Subject to the terms and conditions of the Agreement, Agent
--------
and Revolving Lenders agree to incur, from time to time prior to the Commitment
Termination Date, upon the request of Borrower and for Borrower's account,
Letter of Credit Obligations by causing Letters of Credit to be issued (by a
bank or other legally authorized Person selected by or acceptable to Agent in
its sole discretion (each, an "L/C Issuer")) for Borrower's account and
----------
guaranteed by Agent; provided, however, that if the L/C Issuer is a Revolving
-------- -------
Lender, then such Letters of Credit shall not be guaranteed by Agent but rather
each Revolving Lender shall, subject to the terms and conditions hereinafter set
forth, purchase (or be deemed to have purchased) risk participations in all such
Letters of Credit issued with the written consent of Agent, as more fully
described in paragraph (b)(ii) below. The aggregate amount of all such Letter
of Credit Obligations shall not at any time exceed the least of (i) Ten Million
Dollars ($10,000,000) (the "L/C Sublimit"), and (ii) the Maximum Amount less the
------------ ----
aggregate outstanding principal balance of the Revolving Credit Advances and the
Swing Line Loan, and (iii) the Borrowing Base less the aggregate outstanding
----
principal balance of the Revolving Credit Advances and the Swing Line Loan. No
such Letter of Credit shall have an expiry date which is more than one year
following the date of issuance thereof, and neither Agent nor Revolving Lenders
shall be under any obligation to incur Letter of Credit Obligations in respect
of, or purchase risk participations in, any Letter of Credit having an expiry
date which is later than the Commitment Termination Date.
(b)(i) Advances Automatic; Participations. In the event that Agent or any
----------------------------------
Revolving Lender shall make any payment on or pursuant to any Letter of Credit
Obligation, such payment shall then be deemed automatically to constitute a
Revolving Credit Advance under Section 1.1(a) of the Agreement regardless of
--------------
whether a Default or Event of Default shall have occurred and be continuing and
notwithstanding Borrower's failure to satisfy the conditions precedent set forth
in Section 2, and each Revolving Lender shall be obligated to pay its Pro Rata
---------
Share thereof in accordance with the Agreement. The failure of any Revolving
Lender to make available to Agent for Agent's own account its Pro Rata Share of
any such Revolving Credit Advance or payment by Agent under or in respect of a
Letter of Credit shall not relieve any other Revolving Lender of its obligation
hereunder to make available to Agent its Pro Rata Share thereof, but no
Revolving Lender shall be responsible for the failure of any other Revolving
Lender to make available such other Revolving Lender's Pro Rata Share of any
such payment.
(ii) If it shall be illegal or unlawful for Borrower to incur
Revolving Credit Advances as contemplated by paragraph (b)(i) above because of
an Event of Default described in Section 8.1(h) or (i) or otherwise or if it
-------------- ---
shall be illegal or unlawful for any Revolving Lender to be deemed to have
assumed a ratable share of the reimbursement obligations owed to an L/C
B-1
[Execution Copy]
Issuer, or if the L/C Issuer is a Revolving Lender, then (i) immediately and
without further action whatsoever, each Revolving Lender shall be deemed to have
irrevocably and unconditionally purchased from Agent (or such L/C Issuer, as the
case may be) an undivided interest and participation equal to such Revolving
Lender's Pro Rata Share (based on the Revolving Loan Commitments) of the Letter
of Credit Obligations in respect of all Letters of Credit then outstanding and
(ii) thereafter, immediately upon issuance of any Letter of Credit, each
Revolving Lender shall be deemed to have irrevocably and unconditionally
purchased from Agent (or such L/C Issuer, as the case may be) an undivided
interest and participation in such Revolving Lender's Pro Rata Share (based on
the Revolving Loan Commitments) of the Letter of Credit Obligations with respect
to such Letter of Credit on the date of such issuance. Each Revolving Lender
shall fund its participation in all payments or disbursements made under the
Letters of Credit in the same manner as provided in the Agreement with respect
to Revolving Credit Advances.
(c) Cash Collateral. If Borrower is required to provide cash collateral
---------------
for any Letter of Credit Obligations pursuant to the Agreement prior to the
Commitment Termination Date, Borrower will pay to Agent for the benefit of
Revolving Lenders cash or cash equivalents acceptable to Agent ("Cash
----
Equivalents") in an amount equal to 105% of the maximum amount then available to
- -----------
be drawn under each applicable Letter of Credit outstanding. Such funds or Cash
Equivalents shall be held by Agent in a cash collateral account (the "Cash
----
Collateral Account") maintained at a bank or financial institution acceptable to
- ------------------
Agent. The Cash Collateral Account shall be in the name of Borrower and shall
be pledged to, and subject to the control of, Agent, for the benefit of Agent
and Lenders, in a manner satisfactory to Agent. Borrower hereby pledges and
grants to Agent, on behalf of Lenders, a security interest in all such funds and
Cash Equivalents held in the Cash Collateral Account from time to time and all
proceeds thereof, as security for the payment of all amounts due in respect of
the Letter of Credit Obligations and other Obligations, whether or not then due.
The Agreement, including this Annex B, shall constitute a security agreement
-------
under applicable law.
If any Letter of Credit Obligations, whether or not then due and payable,
shall for any reason be outstanding on the Commitment Termination Date, Borrower
shall either (i) provide cash collateral therefor in the manner described above,
or (ii) cause all such Letters of Credit and guaranties thereof to be canceled
and returned, or (iii) deliver a stand-by letter (or letters) of credit in
guarantee of such Letter of Credit Obligations, which stand-by letter (or
letters) of credit shall be of like tenor and duration (plus thirty (30)
additional days) as, and in an amount equal to 105% of the aggregate maximum
amount then available to be drawn under, the Letters of Credit to which such
outstanding Letter of Credit Obligations relate and shall be issued by a Person,
and shall be subject to such terms and conditions, as shall be satisfactory to
Agent in its sole discretion.
From time to time after funds are deposited in the Cash Collateral Account
by Borrower, whether before or after the Commitment Termination Date, Agent may
apply such funds or Cash Equivalents then held in the Cash Collateral Account to
the payment of any amounts, in such
B-2
order as Agent may elect, as shall be or shall become due and payable by
Borrower to Lenders with respect to such Letter of Credit Obligations of
Borrower and, upon the satisfaction in full of all Letter of Credit Obligations
of Borrower, to any other Obligations then due and payable.
Neither Borrower nor any Person claiming on behalf of or through Borrower
shall have any right to withdraw any of the funds or Cash Equivalents held in
the Cash Collateral Account, except that upon the termination of all Letter of
Credit Obligations and the payment of all amounts payable by Borrower to Lenders
in respect thereof, any funds remaining in the Cash Collateral Account shall be
applied to other Obligations when due and owing and upon payment in full of such
Obligations, any remaining amount shall be paid to Borrower or as otherwise
required by law.
(d) Fees and Expenses. Borrower agrees to pay to Agent for the benefit of
-----------------
Revolving Lenders, as compensation to such Lenders for Letter of Credit
Obligations incurred hereunder, (x) all costs and expenses incurred by Agent or
any Lender on account of such Letter of Credit Obligations, and (y) for each
month during which any Letter of Credit Obligation shall remain outstanding, a
fee (the "Letter of Credit Fee") in an amount equal to the Applicable L/C Margin
--------------------
from time to time in effect multiplied by the maximum amount available from time
to time to be drawn under the applicable Letter of Credit. Such fee shall be
paid to Agent for the benefit of the Revolving Lenders in arrears, on the first
day of each month. In addition, Borrower shall pay to any L/C Issuer, on
demand, such fees (including all per annum fees), charges and expenses of such
L/C Issuer in respect of the issuance, negotiation, acceptance, amendment,
transfer and payment of such Letter of Credit or otherwise payable pursuant to
the application and related documentation under which such Letter of Credit is
issued.
(e) Request for Incurrence of Letter of Credit Obligations. Borrower shall
------------------------------------------------------
give Agent at least two (2) Business Days prior written notice requesting the
incurrence of any Letter of Credit Obligation, specifying the date such Letter
of Credit Obligation is to be incurred, identifying the beneficiary to which
such Letter of Credit Obligation relates and describing the nature of the
transactions proposed to be supported thereby. In the case of Letters of Credit
to be issued pursuant to a reimbursement agreement, the notice shall be
accompanied by the form of the Letter of Credit (which shall be acceptable to
the L/C Issuer) to be guaranteed and, to the extent not previously delivered to
Agent, copies of all agreements between Borrower and the L/C Issuer pertaining
to the issuance of Letters of Credit. In the case of Letters of Credit issued
pursuant to the Master L/C Agreement, the notice shall be in the form, and
accompanied by such documentation, as is required thereby. Notwithstanding
anything contained herein to the contrary, Letter of Credit applications by
Borrower and approvals by Agent and the L/C Issuer may be made and transmitted
pursuant to electronic codes and security measures mutually agreed upon and
established by and among Borrower, Agent and the L/C Issuer.
(f) Obligation Absolute. The obligation of Borrower to reimburse Agent and
-------------------
Revolving Lenders for payments made with respect to any Letter of Credit
Obligation shall be
B-3
absolute, unconditional and irrevocable, without necessity of presentment,
demand, protest or other formalities, and the obligations of each Revolving
Lender to make payments to Agent with respect to Letters of Credit shall be
unconditional and irrevocable. Such obligations of Borrower and Revolving
Lenders shall be paid strictly in accordance with the terms hereof under all
circumstances including the following circumstances:
(i) any lack of validity or enforceability of any Letter of Credit
or the Agreement or the other Loan Documents or any other agreement;
(ii) the existence of any claim, set-off, defense or other right
which Borrower or any of its Affiliates or any Lender may at any time have
against a beneficiary or any transferee of any Letter of Credit (or any
Persons or entities for whom any such transferee may be acting), Agent, any
Lender, or any other Person, whether in connection with the Agreement, the
Letter of Credit, the transactions contemplated herein or therein or any
unrelated transaction (including any underlying transaction between
Borrower or any of its Affiliates and the beneficiary for which the Letter
of Credit was procured);
(iii) any draft, demand, certificate or any other document presented
under any Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or
inaccurate in any respect;
(iv) payment by Agent (except as otherwise expressly provided in
paragraph (g)(ii)(C) below) or any L/C Issuer under any Letter of Credit or
guaranty thereof against presentation of a demand, draft or certificate or
other document which does not comply with the terms of such Letter of
Credit or such guaranty;
(v) any other circumstance or happening whatsoever, which is similar
to any of the foregoing; or
(vi) the fact that a Default or an Event of Default shall have
occurred and be continuing.
(g) Indemnification; Nature of Lenders' Duties. (i) In addition to amounts
------------------------------------------
payable as elsewhere provided in the Agreement, Borrower hereby agrees to pay
and to protect, indemnify, and save harmless Agent and each Lender from and
against any and all claims, demands, liabilities, damages, losses, costs,
charges and expenses (including attorneys' fees and allocated costs of internal
counsel) which Agent or any Lender may incur or be subject to as a consequence,
direct or indirect, of (A) the issuance of any Letter of Credit or guaranty
thereof, or (B) the failure of Agent or any Lender seeking indemnification or of
any L/C Issuer to honor a demand for payment under any Letter of Credit or
guaranty thereof as a result of any act or omission, whether rightful or
wrongful, of any present or future de jure or de facto government or
Governmental Authority,
B-4
in each case other than to the extent solely as a result of the gross negligence
or willful misconduct of Agent or such Lender (as finally determined by a court
of competent jurisdiction).
(ii) As between Agent and any Lender and Borrower, Borrower assumes all
risks of the acts and omissions of, or misuse of any Letter of Credit by
beneficiaries of any Letter of Credit. In furtherance and not in limitation of
the foregoing, to the fullest extent permitted by law neither Agent nor any
Lender shall be responsible: (A) for the form, validity, sufficiency, accuracy,
genuineness or legal effect of any document issued by any party in connection
with the application for and issuance of any Letter of Credit, even if it should
in fact prove to be in any or all respects invalid, insufficient, inaccurate,
fraudulent or forged; (B) for the validity or sufficiency of any instrument
transferring or assigning or purporting to transfer or assign any 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; (C) for
failure of the beneficiary of any Letter of Credit to comply fully with
conditions required in order to demand payment under such Letter of Credit;
provided that, in the case of any payment by Agent under any Letter of Credit or
- -------
guaranty thereof, Agent shall be liable to the extent such payment was made
solely as a result of its gross negligence or willful misconduct (as finally
determined by a court of competent jurisdiction) in determining that the demand
for payment under such Letter of Credit or guaranty thereof complies on its face
with any applicable requirements for a demand for payment under such Letter of
Credit or guaranty thereof; (D) for errors, omissions, interruptions or delays
in transmission or delivery of any messages, by mail, cable, telegraph, telex or
otherwise, whether or not they be in cipher; (E) for errors in interpretation of
technical terms; (F) for any loss or delay in the transmission or otherwise of
any document required in order to make a payment under any Letter of Credit or
guaranty thereof or of the proceeds thereof; (G) for the credit of the proceeds
of any drawing under any Letter of Credit or guaranty thereof; and (H) for any
consequences arising from causes beyond the control of Agent or any Lender. None
of the above shall affect, impair, or prevent the vesting of any of Agent's or
any Lender's rights or powers hereunder or under the Agreement.
(iii) Nothing contained herein shall be deemed to limit or to expand any
waivers, covenants or indemnities made by Borrower in favor of any L/C Issuer
the Master L/C Agreement or in any letter of credit application, reimbursement
agreement or similar document, instrument or agreement between Borrower and such
L/C Issuer.
B-5
ANNEX C (SECTION 1.8)
-----------
TO
CREDIT AGREEMENT
----------------
CASH MANAGEMENT SYSTEMS
-----------------------
Until transfer to Agent of the Blocked Accounts and Collection Account
in accordance with (and as defined in) the Intercreditor Agreement (the date of
such transfer being referred to herein as the "Transfer Date"), Borrower and
-------------
each other Credit Party shall comply with the requirements of the Cash
Management System described in the Receivables Documents. In addition, Borrower
and each other Credit Party shall establish and maintain the Cash Management
Systems described below (each reference to "Borrower" in this Annex C shall,
-------
unless otherwise specified also be deemed to be a reference to each other Credit
Party):
(a) On or before the Transfer Date and until the Termination Date,
Borrower shall deposit and cause the Credit Parties to deposit or cause to be
deposited promptly, and in any event no later than the first Business Day after
the date of receipt thereof, all cash, checks, drafts or other similar items of
payment relating to or constituting payments made in respect of any and all
Collateral (other than, prior to the Transfer Date, Purchased Property, as
defined on the Intercreditor Agreement) into bank accounts in Borrower's name or
any such Subsidiary's name (collectively, the "Borrower Accounts") at banks set
-----------------
forth on Disclosure Schedule (3.19) (each, a "Relationship Bank").
-------------------------- -----------------
(b) On or before the Effective Date (or such later date as Agent
shall consent to in writing), each Relationship Bank shall have entered into
tri-party blocked account agreements with Agent, for the benefit of itself and
Lenders, and Borrower and Subsidiaries thereof, as applicable, in form and
substance acceptable to Agent, which shall become operative on or prior to the
Effective Date. Each such blocked account agreement shall provide, among other
things, that (i) all items of payment deposited in such account and proceeds
thereof are held by such bank as agent or bailee-in-possession for Agent, on
behalf of Lenders, (ii) the bank executing such agreement has no rights of
setoff or recoupment or any other claim against such account, as the case may
be, other than for payment of its service fees and other charges directly
related to the administration of such account and for returned checks or other
items of payment, and (iii) from and after the Effective Date with respect to
banks at which a Borrower Account is located, such bank agrees to forward
immediately all amounts in each Borrower Account to the Agent Account and to
commence the process of daily sweeps from such Borrower Account into the Agent
Account. From and after the Effective Date, Borrower shall not, and shall not
cause or permit any Subsidiary thereof to, accumulate or maintain cash in
disbursement or payroll accounts as of any date of determination in excess of
checks outstanding against such accounts as of that date and amounts necessary
to meet minimum balance requirements.
C-1
(c) So long as no Default or Event of Default has occurred and is
continuing, Borrower may amend Disclosure Schedule (3.19) to add or replace a
--------------------------
Relationship Bank or Borrower Account or to replace any Concentration Account or
any Disbursement Account; provided, however, that (i) Agent shall have consented
-------- ------- ----
in writing in advance to the opening of such account with the relevant bank and
(ii) prior to the time of the opening of such account, Borrower and/or the
Subsidiaries thereof, as applicable, and such bank shall have executed and
delivered to Agent a tri-party blocked account agreement, in form and substance
satisfactory to Agent. Borrower shall close any of its accounts (and establish
replacement accounts in accordance with the foregoing sentence) promptly and in
any event within thirty (30) days of notice from Agent that the creditworthiness
of any bank holding an account is no longer acceptable in Agent's reasonable
judgment, or as promptly as practicable and in any event within sixty (60) days
of notice from Agent that the operating performance, funds transfer and/or
availability procedures or performance with respect to accounts or lockboxes of
the bank holding such accounts or Agent's liability under any tri-party blocked
account agreement with such bank is no longer acceptable in Agent's reasonable
judgment.
(d) The Borrower Accounts and the Disbursement Accounts shall be cash
collateral accounts, with all cash, checks and other similar items of payment in
such accounts securing payment of the Loans and all other Obligations, and in
which Borrower and each Subsidiary thereof shall have granted a Lien to Agent,
on behalf of itself and Lenders, pursuant to the Borrower Security Agreement and
the Subsidiaries Security Agreement.
(e) All amounts deposited in the Agent Account shall be deemed received by
Agent in accordance with Section 1.10 of the Agreement and shall be applied (and
------------
allocated) by Agent in accordance with Section 1.11 of the Agreement. In no
------------
event shall any amount be so applied unless and until such amount shall have
been credited in immediately available funds to the Agent Account.
(f) Borrower may maintain, in its name, an account (each a "Disbursement
------------
Account" and collectively, the "Disbursement Accounts") at a bank acceptable to
- ------- ---------------------
Agent into which Agent shall, from time to time, deposit proceeds of Revolving
Credit Advances and Swing Line Advances made to Borrower pursuant to Section 1.1
-----------
for use by Borrower solely in accordance with the provisions of Section 1.4.
-----------
(g) Borrower shall (i) hold in trust for Agent, for the benefit of itself
and Lenders, all checks, cash and other items of payment received by Borrower,
and (ii) within one (1) Business Day after receipt by Borrower of any checks,
cash or other items or payment, deposit the same into a Borrower Account. All
proceeds of the sale or other disposition of any Collateral shall be deposited
directly into Borrower Accounts.
C-2
ANNEX D (SECTION 2.1(A))
-------------
TO
CREDIT AGREEMENT
----------------
SCHEDULE OF ADDITIONAL CLOSING DOCUMENTS
----------------------------------------
In addition to, and not in limitation of, the conditions described in
Section 2.1 of the Agreement, pursuant to Section 2.1(a), the following items
- ----------- --------------
must be received by Agent in form and substance satisfactory to Agent on or
prior to the Effective Date (each capitalized term used but not otherwise
defined herein shall have the meaning ascribed thereto in Annex A to the
-------
Agreement):
A. Appendices. All Appendices to the Agreement, in form and substance
----------
satisfactory to Agent.
B. Revolving Notes and Swing Line Note. Duly executed originals of the
-----------------------------------
Revolving Notes and Swing Line Note for each applicable Lender, dated the
Effective Date.
C. Security Agreements. Duly executed originals of the Borrower Security
-------------------
Agreement and the Subsidiaries Security Agreement, dated as of the Closing Date,
and all instruments, documents and agreements executed pursuant thereto,
together with executed originals of all amendments, restatements and/or
supplements to the Borrower Security Agreement and the Subsidiaries Security
Agreement.
D. Insurance. Satisfactory evidence that the insurance policies required
---------
by Section 5.4 are in full force and effect, together with appropriate evidence
-----------
showing loss payable and/or additional insured clauses or endorsements, as
requested by Agent, in favor of Agent, on behalf of Lenders.
E. Security Interests and Code Filings. (a) Evidence satisfactory to
-----------------------------------
Agent that Agent (for the benefit of itself and Lenders) has a valid and
perfected first priority security interest in the Collateral, including (i) such
documents duly executed by each Credit Party (including financing statements
under the Code and other applicable documents under the laws of any jurisdiction
with respect to the perfection of Liens) as Agent may request in order to
perfect its security interests in the Collateral and (ii) copies of Code search
reports listing all effective financing statements that name any Credit Party as
debtor, together with copies of such financing statements, none of which shall
cover the Collateral, except for those relating to the Prior Lender Obligations
(all of which shall be terminated on the Closing Date).
(b) Evidence satisfactory to Agent, including copies, of all UCC-1 and
other financing statements filed in favor of any Credit Party with respect to
each location, if any, at which Inventory may be consigned.
D-1
(c) Control Letters from (i) all issuers of uncertificated securities and
financial assets held by Borrower, (ii) all securities intermediaries with
respect to all securities accounts and securities entitlements of Borrower, and
(iii) all futures commission agents and clearing houses with respect to all
commodities contracts and commodities accounts held by Borrower.
F. Appraisals. Appraisals of the Appraised Value of the Eligible Real
----------
Estate and Eligible Equipment conducted by appraisers, and in form and
substance, satisfactory to Agent.
G. Intellectual Property Security Agreements. Duly executed originals of
-----------------------------------------
Trademark Security Agreements, Copyright Security Agreements and Patent Security
Agreements, each dated the Closing Date and signed by each Credit Party which
owns Trademarks, Copyrights and/or Patents, as applicable, all in form and
substance satisfactory to Agent, together with all instruments, documents and
agreements executed pursuant thereto.
H. Reaffirmations. Reaffirmations of the Loan Documents executed by each
--------------
Credit Party in favor of Agent, for the benefit of itself and Lenders.
I. Borrowing Base Certificate. Duly executed originals of a Borrowing
--------------------------
Base Certificate from Borrower, dated the Effective Date, reflecting information
concerning Eligible Inventory, Eligible Real Estate and Eligible Equipment as of
the most recent practicable date.
J. Notice of Revolving Credit Advance. Duly executed originals of a
----------------------------------
Notice of Revolving Credit Advance, dated the Effective Date, with respect to
the Revolving Credit Advance to be requested by Borrower on the Effective Date.
K. Letter of Direction. Duly executed originals of a letter of direction
-------------------
from Borrower addressed to Agent, on behalf of itself and Lenders, with respect
to the disbursement on the Effective Date of the proceeds of the initial
Revolving Credit Advance.
L. Cash Management System; Blocked Account Agreements. Evidence
--------------------------------------------------
satisfactory to Agent that, as of the Effective Date, the Cash Management
Systems required by Annex C and Cash Management Systems complying with the
-------
Receivables Documents have been established and are currently being maintained
in the manner required hereby and by the Receivables Documents.
M. Charter and Good Standing. For each Credit Party, such Person's (a)
-------------------------
charter and all amendments thereto, (b) good standing certificates (including
verification of tax status) in its state of incorporation and (c) good standing
certificates (including verification of tax status) and certificates of
qualification to conduct business in each jurisdiction where its ownership or
lease of property or the conduct of its business requires such qualification
(unless waived by Agent in its sole discretion), each dated a recent date prior
to the Effective Date and certified by the applicable Secretary of State or
other authorized Governmental Authority.
D-2
N. Bylaws and Resolutions. For each Credit Party, (a) such Person's
----------------------
bylaws, together with all amendments thereto and (b) resolutions of such
Person's Board of Directors, approving and authorizing the execution, delivery
and performance of the Loan Documents to which such Person is a party and the
transactions to be consummated in connection therewith, each certified as of the
Effective Date by such Person's corporate secretary or an assistant secretary as
being in full force and effect without any modification or amendment.
O. Incumbency Certificates. For each Credit Party, signature and
-----------------------
incumbency certificates of the officers of each such Person executing any of the
Loan Documents, certified as of the Effective Date by such Person's corporate
secretary or an assistant secretary as being true, accurate, correct and
complete.
P. Opinions of Counsel. Duly executed originals of opinions of Gibson
-------------------
Dunn & Crutcher LLP, counsel for the Credit Parties, and Anne-Marie Oldham,
Associate General Counsel of Borrower, each in form and substance satisfactory
to Agent and its counsel, dated the Effective Date.
Q. Deeds of Trust. Deeds of Trust covering all of the Mortgaged
--------------
Properties, together with (a) ALTA lender's extended coverage title insurance
policies regarding each of the Mortgaged Properties, in each case satisfactory
in form and substance to Agent, in its sole discretion; and (b) evidence that
each of the Deeds of Trust has been recorded in all places to the extent
necessary or desirable, in the judgment of Agent, to create a valid and
enforceable first priority lien on each Mortgaged Property in favor of Agent for
the benefit of itself and Lenders.
R. Pledge Agreements. Duly executed originals of each of the Pledge
-----------------
Agreements accompanied by (as applicable) (a) share certificates representing
all of the outstanding Stock being pledged pursuant to such Pledge Agreement and
stock powers for such share certificates executed in blank and (b) all other
instruments evidencing Indebtedness being pledged pursuant to such Pledge
Agreement, duly endorsed in blank.
S. Appointment of Agent for Service. An appointment of CT Corporation as
--------------------------------
each Credit Party's agent for service of process.
T. Solvency Certificate. The Chief Financial Officer of each Credit
--------------------
Party (other than Callaway Golf Ball Company) shall deliver to Agent for the
benefit of Lenders a certificate as to the matters addressed in Section 3.23 in
------------
form and substance satisfactory to Agent.
U. Fee Letter. Duly executed originals of the GE Capital Fee Letter.
----------
V. Officer's Certificate. Agent shall have received duly executed
---------------------
originals of a certificate of the Chief Executive Officer and Chief Financial
Officer of Borrower, dated the Effective Date, stating that, since December 31,
1997 (i) no event or condition has occurred or is
D-3
existing which could reasonably be expected to have a Material Adverse Effect;
(ii) no Litigation has been commenced which, if successful, would have a
Material Adverse Effect or could challenge any of the transactions contemplated
by the Agreement and the other Loan Documents; and (iii) there has been no
material increase in liabilities, liquidated or contingent (except for the CEF
Lease Facility or the Receivables Facility), and no material decrease in assets
of Borrower or any of its Subsidiaries, other than, in connection with the
Receivables Facility or in the case of clauses (i) and (iii), as listed on
Disclosure Schedule (3.5) or otherwise permitted by the Agreement.
- -------------------------
W. Waivers. Agent, on behalf of Lenders, shall have received landlord
-------
waivers and consents, bailee letters and mortgagee agreements in form and
substance satisfactory to Agent, in each case as required pursuant to Section
-------
5.9.
- ---
X. Financial Statements (Borrower). Agent shall have received Borrower's
-------------------------------
final Financial Statements for its Fiscal Year ended December 31, 1997, audited
by PricewaterhouseCoopers, L.L.P. Borrower shall have provided Agent with its
current operating statements, a consolidated balance sheet and statement of cash
flows, Projections, a Fair Salable Balance Sheet and a Borrowing Base
Certificate, in each case certified by its Chief Financial Officer and in form
and substance satisfactory to Agent, and Agent shall be satisfied, in its sole
discretion, with all of the foregoing. Agent shall have further received a
certificate of the Chief Executive Officer and/or the Chief Financial Officer of
Borrower, based on its Projections, to the effect that (a) Borrower will be
Solvent upon the consummation of the transactions contemplated herein; (b) the
Projections are based upon estimates and assumptions stated therein, all of
which Borrower believes to be reasonable and fair in light of current conditions
and current facts known to Borrower and, as of the Effective Date, reflect
Borrower's good faith and reasonable estimates of its future financial
performance and of the other information projected therein for the period set
forth therein; (c) the Fair Salable Balance Sheet was prepared on a pro forma
basis, except that Borrower's assets are set forth therein at their fair salable
values on a going concern basis and the liabilities set forth therein include
all contingent liabilities of Borrower stated at the reasonably estimated
present values thereof; and (d) containing such other statements with respect to
the solvency of Borrower and matters related thereto as Agent shall request.
Y. Financial Statements (Other Credit Parties). Each of Callaway Golf
-------------------------------------------
Sales Company and Odyssey Golf, Inc. shall have provided Agent with its current
operating statements, a consolidated balance sheet and statement of cash flows
and a Fair Salable Balance Sheet, in each case certified by its Chief Financial
Officer and in form and substance satisfactory to Agent, and Agent shall be
satisfied, in its sole discretion, with all of the foregoing. Agent shall have
further received a certificate of the Chief Executive Officer and/or the Chief
Financial Officer of Callaway Golf Sales Company and Odyssey Golf, Inc. to the
effect that (a) such Credit Party will be Solvent upon the consummation of the
transactions contemplated herein; (b) the Fair Salable Balance Sheet was
prepared on a pro forma basis, except that such Credit Party's assets are set
forth therein at their fair salable values on a going concern basis and the
liabilities set forth therein
D-4
[Execution Copy]
include all contingent liabilities of such Credit Party stated at the reasonably
estimated present values thereof; and (c) containing such other statements with
respect to the solvency of such Credit Party and matters related thereto as
Agent shall request.
Z. Environmental Reports. Agent shall have received Phase I
---------------------
Environmental Site Assessment Reports, consistent with American Society of
Testing and Materials (ASTM) Standard E 1527-94, and applicable state
requirements, on all of the Real Estate, dated no more than 6 months prior to
the Effective Date, prepared by environmental engineers satisfactory to Agent,
all in form and substance satisfactory to Agent, in its sole discretion; and
Agent shall have further received such environmental review and audit reports,
including Phase II reports, with respect to the Real Estate of any Credit Party
as Agent shall have requested, and Agent shall be satisfied, in its sole
discretion, with the contents of all such environmental reports. Agent shall
have received letters executed by the environmental firms preparing such
environmental reports, in form and substance satisfactory to Agent, authorizing
Agent and Lenders to rely on such reports.
AA. Master L/C Agreement. A duly executed original of the Master L/C
-----------
Agreement.
BB. Other Documents. Such other certificates, documents and agreements
---------------
respecting any Credit Party as Agent may, in its sole discretion, request.
D-5
ANNEX E (SECTION 4.1(A))
-------------
TO
CREDIT AGREEMENT
----------------
FINANCIAL STATEMENTS AND PROJECTIONS -- REPORTING
-------------------------------------------------
Borrower shall deliver or cause to be delivered to Agent or to Agent and
Lenders, as indicated, the following:
(a) Monthly Financials. To Agent and Lenders, within thirty (30) days
------------------
after the end of each Fiscal Month, financial information regarding Borrower and
its Subsidiaries, certified by the Chief Financial Officer of Borrower,
consisting of consolidated (i) unaudited balance sheets as of the close of such
Fiscal Month and the related statements of income and cash flow for that portion
of the Fiscal Year ending as of the close of such Fiscal Month; and (ii)
unaudited statements of income and cash flows for such Fiscal Month, setting
forth in comparative form the figures for the corresponding period in the prior
year and the figures contained in the Projections for such Fiscal Year, all
prepared in accordance with GAAP (subject to normal year-end adjustments). Such
financial information shall be accompanied by the certification of the Chief
Financial Officer of Borrower that (i) such financial information presents
fairly in accordance with GAAP (subject to normal year-end adjustments) the
financial position and results of operations of Borrower and its Subsidiaries,
on a consolidated basis, in each case as at the end of such month and for the
period then ended and (ii) any other information presented is true, correct and
complete in all material respects and that there was no Default or Event of
Default in existence as of such time or, if a Default or Event of Default shall
have occurred and be continuing, describing the nature thereof and all efforts
undertaken to cure such Default or Event of Default;
(b) Quarterly Financials. To Agent and Lenders, within forty-five (45)
--------------------
days after the end of each Fiscal Quarter, consolidated and consolidating
financial information regarding Borrower and its Subsidiaries, certified by the
Chief Financial Officer of Borrower, including (i) unaudited balance sheets as
of the close of such Fiscal Quarter and the related statements of income and
cash flow for that portion of the Fiscal Year ending as of the close of such
Fiscal Quarter and (ii) unaudited statements of income and cash flows for such
Fiscal Quarter, in each case setting forth in comparative form the figures for
the corresponding period in the prior year and the figures contained in the
Projections for such Fiscal Year, all prepared in accordance with GAAP (subject
to normal year-end adjustments). Such financial information shall be
accompanied by (A) a statement in reasonable detail (each, a "Compliance
----------
Certificate") showing the calculations used in determining compliance with each
- -----------
of the financial covenants set forth on Annex H which is tested on a quarterly
-------
basis and (B) the certification of the Chief Financial Officer of Borrower that
(i) such financial information presents fairly in accordance with GAAP (subject
to normal year-end adjustments) the financial position, results of operations
and statements of cash flows of Borrower and its Subsidiaries, on both a
consolidated and consolidating basis, as at the end of such Fiscal Quarter and
for the period then ended, (ii) any
E-1
other information presented is true, correct and complete in all material
respects and that there was no Default or Event of Default in existence as of
such time or, if a Default or Event of Default shall have occurred and be
continuing, describing the nature thereof and all efforts undertaken to cure
such Default or Event of Default. In addition, Borrower shall deliver to Agent
and Lenders, within forty-five (45) days after the end of each Fiscal Quarter,
unaudited balance sheets as of the close of such Fiscal Quarter for each Other
Subsidiary and the executive information package for that Fiscal Quarter
prepared for management and the Board of Directors on a basis consistent with
past practice.
(c) Operating Plan. To Agent and Lenders, as soon as available, but not
--------------
later than forty five (45) days after the end of each Fiscal Year, an annual
operating plan for Borrower, certified by the Chief Financial Officer of
Borrower, for the following year, which will include a statement of all of the
material assumptions on which such plan is based, will include monthly balance
sheets and a monthly budget for the following year and will integrate sales,
gross profits, operating expenses, operating profit, cash flow projections and
Borrowing Availability projections all prepared on the same basis and in similar
detail as that on which operating results are reported (and in the case of cash
flow projections, representing management's good faith estimates of future
financial performance based on historical performance), and including plans for
personnel, Capital Expenditures and facilities;
(d) Annual Audited Financials. To Agent and Lenders, within ninety (90)
-------------------------
days after the end of each Fiscal Year, audited Financial Statements for
Borrower and its Subsidiaries on a consolidated and (unaudited) consolidating
basis, consisting of balance sheets and statements of income and retained
earnings and cash flows, setting forth in comparative form in each case the
figures for the previous Fiscal Year, which Financial Statements shall be
prepared in accordance with GAAP, certified without qualification, by an
independent certified public accounting firm of national standing or otherwise
acceptable to Agent. Such Financial Statements shall be accompanied by (i) a
statement prepared in reasonable detail showing the calculations used in
determining compliance with each of the financial covenants set forth on Annex
-----
H, (ii) the annual letters to such accountants in connection with their audit
- -
examination detailing contingent liabilities and material litigation matters,
and (iii) the certification of the Chief Executive Officer or Chief Financial
Officer of Borrower that all such Financial Statements present fairly in
accordance with GAAP the financial position, results of operations and
statements of cash flows of Borrower and its Subsidiaries on a consolidated and
consolidating basis, as at the end of such year and for the period then ended,
and that there was no Default or Event of Default in existence as of such time
or, if a Default or Event of Default shall have occurred and be continuing,
describing the nature thereof and all efforts undertaken to cure such Default or
Event of Default;
(e) Management Letters. To Agent and Lenders, within five (5) Business
------------------
Days after receipt thereof by any Credit Party, copies of all management
letters, exception reports or similar letters or reports received by such Credit
Party from its independent certified public accountants;
E-2
(f) Default Notices. To Agent and Lenders, as soon as practicable, and in
---------------
any event within five (5) Business Days after an executive officer of Borrower
has actual knowledge of the existence of any Default, Event of Default or other
event which has had a Material Adverse Effect, telephonic or telecopied notice
specifying the nature of such Default or Event of Default or other event,
including the anticipated effect thereof, which notice, if given telephonically,
shall be promptly confirmed in writing on the next Business Day;
(g) SEC Filings and Press Releases. To Agent and Lenders, promptly upon
------------------------------
their becoming available, copies of: (i) all Financial Statements, reports,
notices and proxy statements made publicly available by any Credit Party to its
security holders; (ii) all regular and periodic reports and all registration
statements and prospectuses, if any, filed by any Credit Party with any
securities exchange or with the Securities and Exchange Commission or any
governmental or private regulatory authority; and (iii) all press releases and
other statements made available by any Credit Party to the public concerning
material changes or developments in the business of any such Person;
(h) Subordinated Debt and Equity Notices. To Agent, as soon as
------------------------------------
practicable, copies of all material written notices given or received by any
Credit Party with respect to any Subordinated Debt or Stock of such Person, and,
within two (2) Business Days after any Credit Party obtains knowledge of any
matured or unmatured event of default with respect to any Subordinated Debt,
notice of such event of default;
(i) Supplemental Schedules. To Agent, supplemental disclosures, if any,
----------------------
required by Section 5.6 of the Agreement;
-----------
(j) Litigation. To Agent in writing, promptly upon learning thereof,
----------
notice of any Litigation commenced or threatened against any Credit Party that
(i) seeks damages in excess of $500,000, (ii) seeks injunctive relief, (iii) is
asserted or instituted against any Plan, its fiduciaries or its assets or
against any Credit Party or ERISA Affiliate in connection with any Plan, (iv)
alleges criminal misconduct by any Credit Party, (v) alleges the violation of
any law regarding, or seeks remedies in connection with, any Environmental
Liabilities; or (vi) involves any product recall;
(k) Insurance Notices. To Agent, disclosure of losses or casualties
-----------------
required by Section 5.4 of the Agreement;
-----------
(l) Lease Default Notices. To Agent, copies of (i) any and all default
---------------------
notices received under or with respect to any leased location or public
warehouse where Collateral is located, and (ii) such other notices or documents
as Agent may request in its reasonable discretion; and
(m) Lease Amendments. To Agent, copies of all material amendments to real
----------------
estate leases for 2081 Faraday Avenue, Carlsbad, California.
E-3
(n) Reports Under Receivables Purchase Agreement. To Agent and Lenders,
--------------------------------------------
promptly after delivery thereof pursuant to the Receivables Purchase Agreement,
copies of the Monthly Report (as defined in the Receivables Purchase Agreement)
and any notices delivered pursuant to clause (f) of Annex 5.02(a) or clause (d)
---------- ------------- ----------
of Annex 7.07 (or any comparable or successor provision) of the Receivables
----------
Purchase Agreement.
(0) Other Documents. To Agent and Lenders, such other financial and other
---------------
information respecting any Credit Party's business or financial condition as
Agent or any Lender shall, from time to time, request.
E-4
ANNEX F (SECTION 4.1(B))
--------------
TO
CREDIT AGREEMENT
----------------
COLLATERAL REPORTS
------------------
Borrower shall deliver or cause to be delivered the following:
(a) To Agent, upon its request, and in no event less frequently than five
(5) Business Days after the end of each Fiscal Month (together with a copy of
all or any part of such delivery requested by any Lender in writing after the
Effective Date), each of the following:
(i) a Borrowing Base Certificate with respect to Borrower,
accompanied by such supporting detail and documentation as shall be
requested by Agent in its reasonable discretion;
(ii) with respect to Borrower, a summary of Inventory by location and
type with a supporting perpetual Inventory report, in each case accompanied
by such supporting detail and documentation as shall be requested by Agent
in its reasonable discretion; and
(iii) with respect to Borrower, a monthly trial balance showing
Receivables outstanding aged from invoice due date as follows: 1 to 30
days, 31 to 60 days, 61 to 90 days and 91 days or more, accompanied by such
supporting detail and documentation as shall be requested by Agent in its
reasonable discretion;
(b) To Agent, at the time of delivery of each of the monthly Financial
Statements delivered pursuant to Annex E, a reconciliation of the Receivables
-------
trial balance and month-end Inventory reports of Borrower to Borrower's general
ledger and monthly Financial Statements delivered pursuant to such Annex E, in
-------
each case accompanied by such supporting detail and documentation as shall be
requested by Agent in its reasonable discretion;
(c) To Agent, at the time of delivery of each of the annual Financial
Statements delivered pursuant to Annex E, (i) a listing of government contracts
-------
of Borrower subject to the Federal Assignment of Claims Act of 1940; (ii) a
list of any applications for the registration of any Patent, Trademark or
Copyright with the United States Patent and Trademark Office, the United States
Copyright Office or any similar office or agency which any Credit Party thereof
has filed in the prior Fiscal Quarter, and (iii) a summary of all Equipment and
sales thereof by department and type, accompanied by such supporting detail and
documentation as shall be requested by Agent in its reasonable discretion;
F-1
(d) To Agent, the results of each physical verification, if any, which
Borrower or any of its Subsidiaries may in their discretion have made, or caused
any other Person to have made on their behalf, of all or any portion of their
Inventory (and, if a Default or an Event of Default shall have occurred and be
continuing, Borrower shall, upon the request of Agent, conduct, and deliver the
results of, such physical verifications as Agent may require);
(e) To Agent, within five (5) Business Days after entering into an
agreement to consummate an Eligible Real Estate Transaction as a result of
which, when considered together with all other Eligible Real Estate Transactions
entered into by Borrower since the date of the most recent notice delivered
pursuant to this clause (e), (or, if no such notice has been delivered, since
----------
the Effective Date) the aggregate fair market value of all Eligible Real Estate
is reasonably expected to be reduced by at least $1,000,000, notice describing
the applicable Eligible Real Estate Transactions, the Eligible Real Estate
affected thereby and the anticipated change in fair market value of such
Eligible Real Estate;
(f) To Agent, as promptly as practicable after consummation of the Eligible
Real Estate Transaction which triggered the requirement to deliver notice to
Agent pursuant to clause (e) of this Annex F, an appraisal of the fair market
---------- -------
value of, (i) all Eligible Real Estate required to be described in the notice
and (ii) if identified in the notice and so requested by Borrower, all other
Eligible Real Estate whose then fair market value is either greater or less than
the Appraised Value then in effect, which appraisal shall be conducted by an
appraiser, and be in form and substance, satisfactory to Agent;
(g) To Agent, within five (5) Business Days after a sale of Equipment
which, when considered together with all other sales of Equipment by all Credit
Parties since the date of the most recent notice delivered pursuant to this
clause (g) (or, if no such notice has been delivered, since the Effective Date),
- ----------
has a value (measured, for each item of Equipment which is the subject of such
sales, at the greater of the sales price therefor, the net book value thereof or
(if known) the orderly liquidation value thereof at the time of sale) of at
least $1,000,000, notice describing the Equipment affected thereby and the
consideration received therefor, provided that if the Appraised Value of
--------
Eligible Real Estate of Borrower located at 2180 Rutherford Road, Carlsbad,
California, is at least $20,000,000, then no notice shall be required to be
delivered pursuant to this clause (f) until the aggregate value of all Equipment
----------
sold since the Effective Date is at least $5,000,000;
(h) To Agent, if requested by Agent, as promptly as practicable after
Agent's request therefor, an appraisal of the orderly liquidation value of all
Eligible Equipment, which appraisal shall be conducted by an appraiser, and be
in form and substance, satisfactory to Agent;
(i) To Agent, such appraisals of its assets as Agent may request at any
time after the occurrence and during the continuance of a Default or an Event of
Default, such appraisals to be conducted by an appraiser, and in form and
substance, satisfactory to Agent; and
F-2
(j) Such other reports, statements and reconciliations with respect to the
Borrowing Base or Collateral of any or all Credit Parties as Agent shall from
time to time request in its reasonable discretion.
F-3
ANNEX G (SECTION 6.10)
------------
TO
CREDIT AGREEMENT
----------------
MORTGAGED PROPERTY INSURANCE
----------------------------
With respect to each Mortgaged Property, Borrower shall maintain such
insurance, with carriers at all times satisfactory to Agent and in such amounts
and for such periods as Agent shall require, including, but not limited to, (i)
comprehensive general public liability insurance in an amount not less than
$1,000,000 per occurrence and $2,000,000 in the aggregate covering personal
injury and death; and (ii) property insurance regarding loss or damage by fire,
lightning, windstorm, explosion, and loss or damage by flood, if the Mortgaged
Property is in an area designated by the Secretary of Housing and Urban
Development as an area having special flood hazards, in form complying with the
"insurance purchase requirement" of the Flood Disaster Protection Act of 1973,
as amended and such other hazards, casualties and contingencies (including broad
form boiler and machinery insurance, as applicable) as are normally and usually
covered by extended coverage policies in effect where such Mortgaged Property is
located, on a replacement cost basis, with a waiver of depreciation, in an
amount not less than 100 percent of the insurable value (based upon replacement
cost) of the Mortgaged Property with a deductible clause, if any, not exceeding
$10,000 and containing an "Ordinance of Law Coverage" endorsement for no less
than 10% of the full replacement cost of such Mortgaged Property (collectively
for each Mortgaged Property, a "Mortgaged Property Insurance Policy"); provided,
that each Mortgaged Property Insurance Policy shall provide by way of
endorsement, rider or otherwise that no such Mortgaged Property Insurance Policy
shall be canceled, endorsed, altered, or reissued to effect a change in coverage
unless such insurer shall have first given Agent 30 days prior written notice
thereof.
Each Mortgaged Property Insurance Policy and renewals thereof shall be in
a form acceptable to Agent and shall include a standard mortgagee clause in
favor of and in form acceptable to Agent. Agent shall have the right to hold
each Mortgaged Property Insurance Policy, and Borrower shall promptly furnish to
Agent all renewal notices and all receipts of paid premiums. At least 30 days
prior to the expiration date of any Mortgaged Property Insurance Policy,
Borrower shall deliver to Agent a renewal policy in form satisfactory to Agent.
Notwithstanding Section 5.4(c), above, in the event of loss to any
Mortgaged Property, (i) Borrower shall give immediate written notice to the
insurance carrier and to Agent; (ii) Borrower hereby authorizes and empowers
Agent as attorney-in-fact for Borrower to make proof of loss, to adjust and
compromise any claim, and to appear in and prosecute any action arising under,
any Mortgaged Property Insurance Policy; to collect and receive applicable
proceeds, and to deduct therefrom Agent's expenses incurred in the collection of
such proceeds; provided however, that nothing contained in this Section 5.4(d)
shall require Agent to incur any expense or take any action hereunder; (iii)
Borrower authorizes Agent, at Agent's option, (x) to hold any Mortgaged
G-1
Property Insurance Policy proceeds to be used to reimburse Borrower for the cost
of reconstruction or repair of the Mortgaged Property, or (y) subject to the
immediately following paragraph, to apply such proceeds to the payment of the
Obligations.
In the event of loss to any Mortgaged Property, Agent shall not exercise
Agent's option to apply Mortgaged Property Insurance Policy proceeds to the
payment of the Obligations if all of the following conditions are met: (i) no
Event of Default is occurring; (ii) Agent determines that there will be
sufficient funds to restore and repair the Mortgaged Property to the Pre-
existing Condition (as hereinafter defined); (iii) Agent determines that
restoration and repair of the Mortgaged Property to the Pre-existing Condition
will be completed within one year of the date of the loss or casualty to the
Mortgaged Property, (iv) Borrower furnishes to Agent evidence satisfactory to
Agent that Borrower will continue to successfully operate its business
notwithstanding the occurrence of any such fire or other casualty; and (v) Agent
is reasonably satisfied that the Mortgaged Property can be restored and repaired
as nearly as possible to the condition it was in immediately prior to such
casualty and in compliance with all applicable zoning, building and other laws
and codes (the "Pre-existing Condition").
If the Mortgaged Property Insurance Policy proceeds are held by Agent to
reimburse Borrower for the cost of restoration and repair of the Mortgaged
Property, then Borrower shall restore the Mortgaged Property to its Pre-Existing
Condition or such other condition as Agent may approve in writing, and Borrower
shall promptly begin such restoration and at all times thereafter diligently
prosecute such restoration to completion. Agent may, at Agent's option,
condition disbursement of said proceeds to Borrower on Agent's approval of such
plans and specifications of an architect satisfactory to Agent, contractor's
cost estimates, architect's certificates, waivers of liens, sworn statements of
mechanics and materialmen and such other evidence of costs, percentage
completion of construction, application of payments, and satisfaction of liens
as Agent may reasonably require. If the Mortgaged Property Insurance Policy
proceeds are applied to the payment of any of the Obligations, any such
application of proceeds shall not extend or postpone the due dates of any
payment of any of the Obligations. If any Mortgaged Property is sold at
foreclosure or pursuant to power of sale or if Agent or any Lender acquires
title to the Mortgaged Property, such Agent or Lender shall have all of the
right, title and interest of Borrower in and to any Mortgaged Property Insurance
Policy and unearned premiums thereon and in and to the proceeds resulting from
any damage to the Mortgaged Property prior to such sale or acquisition.
If Borrower at any time or times hereafter shall fail to obtain or maintain
any Mortgaged Property Insurance Policy required in this Section 5.4(d) or to
pay all premiums relating thereto, Agent may at any time or times thereafter
obtain and maintain any such Mortgaged Property Insurance Policy and pay such
premiums and take any other action with respect thereto which Agent deems
advisable. Agent shall have no obligation to obtain such insurance or pay any
premiums therefor. By doing so, Agent shall not be deemed to have waived any
Default or Event of Default arising from Borrower's failure to maintain such
insurance or pay any premiums
G-2
[Execution Copy]
therefor. All sums so disbursed, including attorneys' fees, court costs and
other charges related thereto, shall be payable on demand by Borrower to Agent
and shall be additional Obligations hereunder secured by the Collateral.
G-3
ANNEX H (SECTION 6.10)
------------
TO
CREDIT AGREEMENT
----------------
FINANCIAL COVENANTS
-------------------
Borrower shall not breach or fail to comply with any of the following
financial covenants, each of which shall be calculated in accordance with GAAP
consistently applied:
(a) Tangible Net Worth. Borrower and its Subsidiaries on a consolidated
------------------
basis shall maintain at all times Tangible Net Worth equal to or greater than
the sum of (i) $275,000,000, plus (ii) fifty percent (50%) of cumulative net
----
income (but without subtracting net losses for any Fiscal Quarter for which
there was no net income) for each Fiscal Quarter from January 1, 1999 to the
date of determination, plus (iii) fifty percent (50%) of the net cash proceeds
----
of Stock issued by Borrower after January 1, 1999.
(b) Minimum EBITDA. Borrower and its Subsidiaries shall have on a
--------------
consolidated basis EBITDA for the Fiscal Quarter ending March 31, 1999 of no
less than $10,000,000.
(c) Minimum Fixed Charge Coverage Ratio. Borrower and its Subsidiaries shall
-----------------------------------
have on a consolidated basis at the end of each Fiscal Quarter set forth below,
a Fixed Charge Coverage Ratio for the 12-month period then ended (or with
respect to the Fiscal Quarters ending on or before September 30, 1999, the
period commencing on January 1, 1999 and ending on the last day of such Fiscal
Quarter) of not less than the following:
1.00 for the Fiscal Quarter ending June 30, 1999;
1.00 for the Fiscal Quarter ending September 30, 1999;
1.00 for the Fiscal Quarter ending December 31, 1999;
1.00 for the Fiscal Quarter ending March 31, 2000;
1.00 for the Fiscal Quarter ending June 30, 2000;
1.25 for each Fiscal Quarter thereafter.
Unless otherwise specifically provided herein, any accounting term used in
the Agreement shall have the meaning customarily given such term in accordance
with GAAP, and all financial computations hereunder shall be computed in
accordance with GAAP consistently applied. That certain items or computations
are explicitly modified by the phrase "in accordance with GAAP" shall in no way
be construed to limit the foregoing. If any "Accounting Changes" (as defined
below) occur and such changes result in a change in the calculation of the
financial covenants, standards or terms used in the Agreement or any other Loan
Document, then Borrower, Agent and Lenders agree to enter into negotiations in
order to amend such provisions of the Agreement so as to equitably reflect such
Accounting Changes with the desired result that the criteria for evaluating
Borrower's and its Subsidiaries' financial condition shall be the same after
such
H-1
Accounting Changes as if such Accounting Changes had not been made; provided,
--------
however, that the agreement of Requisite Lenders to any required amendments of
such provisions shall be sufficient to bind all Lenders. "Accounting Changes"
------------------
means (a) changes in accounting principles required by the promulgation of any
rule, regulation, pronouncement or opinion by the Financial Accounting Standards
Board of the American Institute of Certified Public Accountants (or successor
thereto or any agency with similar functions), (b) changes in accounting
principles concurred in by Borrower's certified public accountants; (c) purchase
accounting adjustments under A.P.B. 16 and/or 17 and EITF 88-16, and the
application of the accounting principles set forth in FASB 109, including the
establishment of reserves pursuant thereto and any subsequent reversal (in whole
or in part) of such reserves; and (d) the reversal of any reserves established
as a result of purchase accounting adjustments. All such adjustments resulting
from expenditures made subsequent to the Effective Date (including
capitalization of costs and expenses or payment of pre-Effective Date
liabilities) shall be treated as expenses in the period the expenditures are
made and deducted as part of the calculation of EBITDA in such period. If Agent,
Borrower and Requisite Lenders agree upon the required amendments, then after
appropriate amendments have been executed and the underlying Accounting Change
with respect thereto has been implemented, any reference to GAAP contained in
the Agreement or in any other Loan Document shall, only to the extent of such
Accounting Change, refer to GAAP, consistently applied after giving effect to
the implementation of such Accounting Change. If Agent, Borrower and Requisite
Lenders cannot agree upon the required amendments within thirty (30) days
following the date of implementation of any Accounting Change, then all
Financial Statements delivered and all calculations of financial covenants and
other standards and terms in accordance with the Agreement and the other Loan
Documents shall be prepared, delivered and made without regard to the underlying
Accounting Change.
H-2
ANNEX I (SECTION 9.9(D))
------------------------
TO
--
CREDIT AGREEMENT
----------------
LENDERS' WIRE TRANSFER INFORMATION
----------------------------------
For General Electric Capital Corporation:
Banker's Trust
1 Banker's Trust Place
New York, NY 10006
Account Name: GECC/CAF Depository
Account Number: 50232854
ABA Number: 021001033
Reference: CFW3273
For American National Bank and Trust Company of Chicago:
American National Bank
120 South LaSalle Street, 8th Floor
Chicago, IL 60603
Account Number: 103103007
ABA Number: 071000770
Reference: Callaway Golf
Attention: Team 2
For BankAmerica Business Credit, Inc.:
Bank of America
555 California Street
San Francisco, CA 94104
Account Name: BankAmerica Business Credit, Inc.
Account Number: 12575-03561
ABA Number: 121000358
Reference: Callaway golf
I-1
For Key Corporate Capital Inc.:
Key Bank
127 Public Square, 6th Floor
Cleveland, OH 44114
Account Number: G/L 114010305700
ABA Number: 041001039
Reference: Callaway
Attention: Commercial Loans - Specialty
For National City Commercial Finance, Inc.:
National City Bank,
Cleveland, Ohio
Account Number: 3790116
ABA Number: 041000124
Reference: Callaway
Attention: National City Commercial Finance, Kate George
For National Westminster Bank Plc:
Chase Manhattan Bank
New York
Account Name: NatWest Plc - Commercial Lending
Account Number: 0011012440
ABA Number: 021000021
Reference: Callaway golf
LIBOR Loans
Chase Manhattan Bank
New York
Account Name: NatWest Global financial Markets
Account Number: 0011008505
Chips ABA Number: 0002
Reference: Callaway Golf
I-2
ANNEX J (SECTION 11.10)
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TO
CREDIT AGREEMENT
----------------
NOTICE ADDRESSES
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(A) If to Agent or GE Capital, at
General Electric Capital Corporation
350 South Beverly Drive, Suite 200
Beverly Hills, CA 90212
Attention: Portfolio Manager, Callaway Golf Company
Telecopier No.: (310) 785-0664
Telephone No.: (310) 203-0335
With copies to:
General Electric Capital Corporation
201 High Ridge Road
Stamford, Connecticut 06927-5100
Attention: Corporate Counsel-Commercial Finance
Telecopier No.: (203) 316-7889
Telephone No.: (203) 316-7552
and
Sidley & Austin
555 West Fifth Street
Los Angeles, CA 90013
Attention: Edward D. Eddy, III
Telecopier No.: (213) 896-6600
Telephone No.: (213) 896-6000
(B) If to Borrower, at
Callaway Golf Company
2285 Rutherford Road
Carlsbad, CA 92008
Attention: David A. Rane, Chief Financial Officer
Telecopier No.: (760) 929-8120
Telephone No.: (760) 930-5897
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With copies to:
Callaway Golf Company
2285 Rutherford Road
Carlsbad, CA 92008
Attention: Steven C. McCracken, General Counsel
Telecopier No.: (760) 929-8120
Telephone No.: (760) 930-5590
and
Gibson, Dunn & Crutcher LLP
333 South Grand Avenue
Los Angeles, CA 90071-3197
Attention: Dennis B. Arnold
Telecopier No.: (213) 229-6864
Telephone No.: (213) 229-7864
(C) If to Lenders, at
American National Bank and Trust Company of Chicago
120 South LaSalle Street, 8th Floor
Chicago, IL 60603
Attention: Richard Jonscher
Telecopier No.: (312) 661-5736
Telephone No.: (312) 661-6929
BankAmerica Business Credit, Inc.
55 South Lake Avenue, Suite 900
Pasadena, CA 91101
Attention: Richard Burke
Telecopier No.: (626) 578-6143
Telephone No.: (626) 578-6095
Key Corporate Capital Inc.
127 Public Square, 6th Floor
Cleveland, OH 44114-1306
Attention: Jeff Evans
Telecopier No.: (216) 689-4077
Telephone No.: (216) 689-4392
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National City Commercial Finance, Inc.
1965 E. Sixth Street, Suite 400
Cleveland, OH 44114-2214
Attention: Jim Jaworski
Telecopier No.: (216) 575-2516
Telephone No.: (216) 575-9555
National Westminster Bank Plc
Global Financial Markets Operations
Commercial Loans
Kings Cross House
200 Pentonville Road
London N1 9HL
England
Attention: Karl Salessel / Eileen Harper
Telecopier No.: 011-44-171-239-8623 ./ 8041
Telephone No.: 011-44-171-239-8257
and
National Westminster Bank Plc
Global Financial Markets Operations
Commercial Loans
65 East 55th Street, 24th Floor
New York, NY 10022
Attention: Evonne Wearing/Sheila Shaw/L. Rivera
Telecopier No.: (212) 401-1407/1406/1404
Telephone No.: (212) 401-1494
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ANNEX K (FROM ANNEX A -COMMITMENTS DEFINITION)
TO
CREDIT AGREEMENT
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Lender Revolving Loan Pro Rata Share
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Commitment
----------
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General Electric Capital $42,000,000 35.0000%
Corporation (including a Swing Line
Commitment of $5,000,000)
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American National Bank and $21,250,000 17.7083%
Trust Company of Chicago
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BankAmerica Business $17,000,000 14.1667%
Credit, Inc.
- ----------------------------------------------------------------------------------------------------------
Key Corporate Capital, Inc. $17,000,000 14.1667%
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National Westminster Bank $12,750,000 10.6250%
Plc
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National City Commercial $10,000,000 8.3333%
Finance, Inc.
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