-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Rv4EZ+k60GRq9nBQj/RGgBCpowoz0nTMWUzJUmWo9bQoty6F9Qyf9dkc4KjS6uJ1 jHXIDte41hIZLz5BmZXnyA== 0000891618-99-004160.txt : 19990915 0000891618-99-004160.hdr.sgml : 19990915 ACCESSION NUMBER: 0000891618-99-004160 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19990731 FILED AS OF DATE: 19990914 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GYMBOREE CORP CENTRAL INDEX KEY: 0000786110 STANDARD INDUSTRIAL CLASSIFICATION: APPAREL & OTHER FINISHED PRODS OF FABRICS & SIMILAR MATERIAL [2300] IRS NUMBER: 942615258 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-21250 FILM NUMBER: 99711161 BUSINESS ADDRESS: STREET 1: 700 AIRPORT BLVD STE 200 CITY: BURLINGAME STATE: CA ZIP: 94010 BUSINESS PHONE: 4155790600 MAIL ADDRESS: STREET 2: 700 AIRPORT BLVD #200 CITY: BURLINGAME STATE: CA ZIP: 94010 10-Q 1 FORM 10-Q 1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-Q ------------------------ (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. FOR THE QUARTERLY PERIOD ENDED JULY 31, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. FOR THE TRANSITION PERIOD FROM ____________ TO ____________ . COMMISSION FILE NUMBER 000-21250 ------------------------ THE GYMBOREE CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 94-2615258 (STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) 700 AIRPORT BOULEVARD, BURLINGAME, CALIFORNIA 94010-1912 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(650) 579-0600 REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE ------------------------ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Number of shares of common stock outstanding at August 28, 1999: 24,344,252 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 TABLE OF CONTENTS
PAGE NUMBER ------ PART I. FINANCIAL INFORMATION Item 1. Financial Statements........................................ Condensed Consolidated Statements of Operations............. 3 Condensed Consolidated Balance Sheets....................... 4 Condensed Consolidated Statements of Cash Flows............. 5 Notes to Condensed Consolidated Financial Statements........ 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................... 8 Item 3. Quantitative and Qualitative Disclosures about Market Risk........................................................ 13 PART II. OTHER INFORMATION Item 1. Legal Proceedings........................................... 14 Item 2. Changes in Securities and Use of Proceeds................... 14 Item 3. Defaults Upon Senior Securities............................. 14 Item 4. Submission of Matters to a Vote of Security Holders......... 14 Item 5. Other Information........................................... 14 Item 6. Exhibits and Reports on Form 8-K............................ 14 Signatures............................................................ 15 Exhibit Index......................................................... 16
2 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS THE GYMBOREE CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AND STORE DATA) (UNAUDITED)
13 WEEKS ENDED 26 WEEKS ENDED --------------------- ---------------------- JULY 31, AUGUST 1, JULY 31, AUGUST 1, 1999 1998 1999 1998 -------- --------- --------- --------- Net sales..................................... $ 99,922 $ 99,789 $ 225,633 $ 202,895 Cost of goods sold, including buying and occupancy expenses.......................... (70,230) (66,455) (146,754) (128,082) -------- -------- --------- --------- Gross profit........................ 29,692 33,334 78,879 74,813 Selling, general and administrative expenses.................................... (51,832) (35,048) (94,215) (70,835) Play and music income, net.................... 569 369 1,159 761 -------- -------- --------- --------- Operating income (loss)..................... (21,571) (1,345) (14,177) 4,739 Foreign exchange gains (loss), net............ (42) (126) 47 145 Net interest income........................... 97 147 209 376 -------- -------- --------- --------- Income (loss) before income taxes........... (21,516) (1,324) (13,921) 5,260 Income tax (expense) benefit.................. 7,961 493 5,151 (1,943) -------- -------- --------- --------- Net income (loss)........................... $(13,555) $ (831) $ (8,770) $ 3,317 ======== ======== ========= ========= Income (loss) per share: Basic....................................... $ (0.56) $ (0.03) $ (0.36) $ 0.14 Diluted..................................... (0.56) (0.03) (0.36) 0.14 Weighted average shares outstanding: Basic....................................... 24,294 24,163 24,276 24,144 Diluted..................................... 24,294 24,163 24,276 24,221 Number of stores at end of period............. 588 495 588 495
See notes to condensed consolidated financial statements. 3 4 THE GYMBOREE CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA) (UNAUDITED) ASSETS
JULY 31, JANUARY 30, AUGUST 1, 1999 1999 1998 -------- ----------- --------- Current Assets Cash and cash equivalents................................ $ 41,846 $ 27,810 $ 19,247 Accounts receivable...................................... 5,400 7,811 8,583 Merchandise inventories.................................. 55,013 74,396 91,355 Prepaid expenses and other............................... 8,759 8,068 5,966 -------- -------- -------- Total current assets............................. 111,018 118,085 125,151 -------- -------- -------- Property and Equipment Land and buildings....................................... 9,943 9,943 9,949 Leasehold improvements................................... 87,436 79,832 70,218 Furniture, fixtures and equipment........................ 94,326 91,551 80,014 -------- -------- -------- 191,705 181,326 160,181 Less accumulated depreciation and amortization........... (56,939) (46,886) (37,702) -------- -------- -------- 134,766 134,440 122,479 Lease Rights and Other Assets.............................. 4,492 4,180 3,778 -------- -------- -------- Total Assets..................................... $250,276 $256,705 $251,408 ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Current portion of long term debt, short-term borrowings............................................ $ 561 $ 540 $ 10,000 Accounts payable......................................... 23,029 21,842 34,712 Accrued liabilities...................................... 22,185 17,424 15,967 Income taxes payable..................................... 1,275 1,965 2,466 -------- -------- -------- Total current liabilities........................ 47,050 41,771 63,145 -------- -------- -------- Long Term Liabilities Long term debt, net of current portion................... 11,130 11,460 -- Deferred rent and other liabilities...................... 31,920 35,102 24,663 -------- -------- -------- Total Liabilities................................ 90,100 88,333 87,808 -------- -------- -------- Stockholders' Equity Common stock, including excess paid-in capital ($.001 par value: 100,000,000 shares authorized 24,337,452, 24,240,763 and 24,172,135 shares outstanding at July 31, 1999, January 30, 1999 and August 1, 1998, respectively)......................................... 27,509 26,855 25,058 Retained earnings........................................ 132,667 141,517 138,542 -------- -------- -------- Total stockholders' equity....................... 160,176 168,372 163,600 -------- -------- -------- Total Liabilities and Stockholders' Equity....... $250,276 $256,705 $251,408 ======== ======== ========
See notes to condensed consolidated financial statements. 4 5 THE GYMBOREE CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
26 WEEKS ENDED --------------------- JULY 31, AUGUST 1, 1999 1998 -------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss)........................................... $ (8,770) $ 3,317 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities Depreciation and amortization.......................... 11,370 8,755 Impairment reserve and other write offs................ 7,000 -- Provision for deferred income tax...................... (3,501) 204 Tax benefit from exercise of stock options............. -- 240 Loss on disposal of property and equipment............. 644 985 Change in assets and liabilities: Accounts receivable.................................. 2,411 (3,400) Merchandise inventories.............................. 19,303 (15,748) Prepaid expenses and other assets.................... (1,090) (1,846) Accounts payable..................................... 1,188 8,665 Income tax payable................................... (689) (5,573) Other liabilities.................................... 389 3,105 Accrued liabilities.................................. 4,776 (141) -------- -------- Net cash provided by (used in) operating activities.... 33,031 (1,437) -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures........................................ (19,340) (27,871) Proceeds from sale of assets................................ -- 24 Proceeds from sale of investments........................... -- 18,614 -------- -------- Net cash used in investing activities.................. (19,340) (9,233) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock...................... 654 2,047 Proceeds from (payments on) debt borrowings................. (309) 10,000 -------- -------- Net cash provided by financing activities.............. 345 12,047 -------- -------- Net Increase in Cash and Cash Equivalents................... 14,036 1,377 Cash and Cash Equivalents at Beginning of Period............ 27,810 17,870 -------- -------- Cash and Cash Equivalents at End of Period.................. $ 41,846 $ 19,247 ======== ======== OTHER CASH FLOW INFORMATION: Cash paid during the year for income taxes................ $ 80 $ 7,850 Cash paid during the year for interest expense............ $ 743 $ 20
See notes to condensed consolidated financial statements. 5 6 THE GYMBOREE CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION The unaudited interim condensed consolidated financial statements of The Gymboree Corporation and our wholly-owned subsidiaries as of and for the periods ended July 31, 1999 and August 1, 1998 have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to such rules and regulations, although we believe that the disclosures are adequate to make the information presented not misleading. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended January 30, 1999. The accompanying interim condensed consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented and necessary to present fairly the results of operations, the financial position and cash flows for the periods presented. All such adjustments are of a normal and recurring nature except as discussed in Notes 3 and 8. Certain prior year amounts have been reclassified to conform with the current year presentation. 2. MERCHANDISE INVENTORIES Merchandise inventories are recorded under the retail method of accounting and are stated at the lower of cost or market. 3. IMPAIRMENT OF LONG-LIVED ASSETS During the second quarter of 1999, management identified a group of 12 underperforming stores and established an impairment reserve equal to the carrying value of the leasehold improvements and fixtures used in the stores. Additionally, during the second quarter of 1999, we wrote off a software application that was not Year 2000 compliant and did not meet our current needs. The total charge related to these items was $3.9 million and is included in selling, general and administrative expenses within the Statements of Operations. Merchandise inventories are recorded under the retail method of accounting and are stated at the lower of cost or market. 4. INCOME TAXES Our effective tax rate in the second quarters of fiscal 1999 and 1998 was 37%. 5. COMPREHENSIVE INCOME Comprehensive income and its components are as follows:
13 WEEKS ENDED 26 WEEKS ENDED --------------------- --------------------- JULY 31, AUGUST 1, JULY 31, AUGUST 1, 1999 1998 1999 1998 -------- --------- -------- --------- (IN 000'S) Net income (loss).......................... $(13,555) $(831) $(8,770) $3,317 Other comprehensive income (loss).......... 345 327 (80) 287 -------- ----- ------- ------ Total comprehensive income (loss).......... $(13,210) $(504) $(8,850) $3,604 ======== ===== ======= ======
6. FOREIGN CURRENCIES As of July 31, 1999, we had forward foreign contracts of $13.2 million and $10.7 million to hedge Canadian dollars and British pound sterling, respectively. The amounts represent the U.S. dollar equivalent to buy or sell foreign currencies. 6 7 THE GYMBOREE CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (UNAUDITED) 7. RECENTLY ISSUED ACCOUNTING STANDARDS In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS 133 requires companies to record derivatives on the balance sheet as assets or liabilities at fair value and is effective for financial statements for fiscal years beginning after June 15, 2000. Management does not believe that the adoption of this statement will have a significant effect on the consolidated financial statements of Gymboree. 8. SPECIAL CHARGES During the second quarter of 1999, Gymboree incurred special charges of $13.5 million, $2.0 million of which is included in cost of goods sold. These charges, which primarily resulted from the implementation of a brand improvement strategy, include the write off and expense for the modifications of all store interiors and removal of proprietary signage bearing the old trademark, the impairment reserve for store assets and software write off discussed in Note 3, and the disposal of inventory which does not meet Gymboree's new fashion direction. 7 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, (i) selected statement of operations data expressed as a percentage of net sales, (ii) the percentage change from the same period of the prior year in such selected statement of operations data and (iii) the number of stores open at the end of each such period:
AS A PERCENTAGE OF NET SALES ------------------------------------------- PERCENTAGE CHANGE THIRTEEN TWENTY-SIX IN DOLLAR AMOUNTS WEEKS ENDED WEEKS ENDED FROM 1998 TO 1999 -------------------- -------------------- ------------------- JULY 31, AUGUST 1, JULY 31, AUGUST 1, 1999 1998 1999 1998 13 WEEKS 26 WEEKS -------- --------- -------- --------- -------- -------- Net sales............................. 100.0% 100.0% 100.0% 100.0% 0% 11% Cost of goods sold, including buying and occupancy expenses.............. (70.3) (66.6) (65.0) (63.1) 6 15 ----- ----- ----- ----- ---- ---- Gross profit........................ 29.7 33.4 35.0 36.9 (11) 5 Selling, general and administrative expenses............................ (51.9) (35.1) (41.8) (34.9) 48 33 Play and music income, net............ 0.6 0.4 0.5 0.3 54 52 ----- ----- ----- ----- ---- ---- Operating income (loss)............. (21.6) (1.3) (6.3) 2.3 1504 (399) Foreign exchange gains (loss), net.... (0.0) (0.1) 0.0 0.1 (67) (68) Net interest income................... 0.1 0.1 0.1 0.2 (34) (44) ----- ----- ----- ----- ---- ---- Income (loss) before income taxes... (21.5) (1.3) (6.2) 2.6 1525 (365) Income tax (expense) benefit.......... 7.9 0.5 2.3 (1.0) 1515 365 ----- ----- ----- ----- ---- ---- Net income (loss)................... (13.6)% (0.8)% (3.9)% 1.6% 1531% (364)% ===== ===== ===== ===== ==== ==== Number of stores at end of period..... 588 495 588 495
THIRTEEN WEEKS ENDED JULY 31, 1999 COMPARED TO THIRTEEN WEEKS ENDED AUGUST 1, 1998 NET SALES Net sales in the second quarter of 1999 were $99.9 million as compared to $99.8 million for the same period last year. Sales for the 25 stores opened in 1999, in addition to the 14 stores that have relocated or expanded in 1999, provided incremental sales of $3.9 million. Stores opened, relocated or expanded in 1998, but not qualifying as comparable stores, increased $10.5 million from the prior year. Comparable store sales decreased 16% or $14.3 million in the second quarter. The decline in comparable store sales was primarily due to a large clearance sale held in June 1998 to clear excess inventory. GROSS PROFIT Gross profit for the thirteen weeks ended July 31, 1999 decreased 11% to $29.7 million from $33.3 million in the same period last year. As a percentage of net sales, the second quarter gross profit was 29.7% compared to 33.4% in the same period last year. Included in cost of goods sold for the second quarter of 1999 was $2 million relating to the disposal of inventory which does not meet Gymboree's new fashion direction. Additionally, the decrease in gross profit as a percentage of net sales was due to the increase in the number of European stores which have a lower gross profit than the U.S. due to higher occupancy expense, and the buying expense associated with our recently launched Zutopia stores. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses ("SG&A") principally consists of non-occupancy store expenses, corporate overhead and distribution expenses. For the second quarter of 1999, SG&A expenses increased to 40.4% of net sales (excluding the special charges), compared to 35.1% of net sales in the same period last year. Special charges totaled $11.5 million including the write off and expense for the modifications of all store interiors and removal of proprietary signage bearing the old trademark and the impairment reserve for store assets and software write off discussed in note 3 of the Notes to Condensed Consolidated Financial 8 9 Statements. Excluding the special charges, the increase in total SG&A expenses, as a percentage of net sales, was primarily attributable to the loss of leverage caused by lower average store sales related to the comparable sales decline as well as increased selling expenses associated with the opening of the Zutopia stores. PLAY AND MUSIC INCOME Play and music income increased 54% to $569,000 during the second quarter of 1999 from $369,000 for the same period last year. The increase is largely due to new franchise sales, enrollment growth in both franchised and corporate centers and increased play product sales. FOREIGN EXCHANGE LOSSES Net foreign exchange losses totaled $42,000 for the second quarter of 1999 compared to a loss of $126,000 in the second quarter of 1998. These losses resulted from currency fluctuations in intercompany transactions between our U.S. operations and foreign subsidiaries. NET INTEREST INCOME Interest income increased to $499,000 for the second quarter of 1999 from $167,000 for the second quarter of 1998. Interest expense of $402,000 was incurred during the second quarter of 1999 while interest expense of $20,000 was incurred for the same period last year. The interest expense relates to long term debt incurred in 1998. INCOME TAX Our effective tax rate for the second quarters of fiscal 1999 and 1998 was 37%. TWENTY-SIX WEEKS ENDED JULY 31, 1999 COMPARED TO TWENTY-SIX WEEKS ENDED AUGUST 1, 1998 NET SALES Net sales for the twenty-six weeks ended July 31, 1999 increased 11% to $225.6 million compared to $202.9 million in the same period last year. Sales for the 25 stores opened in 1999, in addition to the 14 stores that have relocated or expanded in 1999, provided incremental sales of $6.0 million. Stores opened, relocated or expanded in 1998, but not qualifying as comparable stores, increased $29.5 million from the prior year. Comparable store sales decreased 7% or $12.8 million in the twenty-six weeks ended July 31, 1999. The decline in comparable store sales was primarily due to a large clearance sale held in June 1998 to clear excess inventory. GROSS PROFIT Gross profit for the twenty-six weeks ended July 31, 1999 increased 5% to $78.9 million from $74.8 million in the same period last year. As a percentage of net sales, gross profit was 35.0% for the first six months of 1999 compared to 36.9% in the same period last year. Included in cost of goods sold for the twenty-six week period ended July 31, 1999 was $2 million relating to the disposal of inventory which does not meet Gymboree's new fashion direction. Additionally, the decrease in gross profit as a percentage of net sales was due to the increase in the number of European stores which have a lower gross profit than the U.S. due to higher occupancy expense, and the buying expense associated with our recently launched Zutopia stores. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses ("SG&A") principally consists of non-occupancy store expenses, corporate overhead and distribution expenses. For the twenty-six weeks ended July 31, 1999, SG&A expenses increased to 36.7% of net sales (excluding the special charges), compared to 34.9% of net sales in the same period last year. Special charges totaled $11.5 million including the write off and expense for the modifications of all store interiors and removal of proprietary signage bearing the old trademark and the impairment reserve for store assets and software write off discussed in note 3 of the Notes to Condensed 9 10 Consolidated Financial Statements. Excluding the special charges, the increase in total SG&A expenses, as a percentage of net sales, was primarily attributable to the loss of leverage caused by lower average store sales related to the comparable sales decline as well as increased selling expenses associated with the opening of the Zutopia stores and the new initiatives. PLAY AND MUSIC INCOME Play and music income increased 52% to $1,159,000 for the first six months of 1999 from $761,000 for the same period last year. The increase is largely due to new franchise sales, enrollment growth in both franchised and corporate centers and increased play product sales. FOREIGN EXCHANGE GAINS Net foreign exchange gains totaled $47,000 for the first six months of 1999 compared to $145,000 for the same period last year. These gains resulted from currency fluctuations in intercompany transactions between our U.S. operations and foreign subsidiaries. NET INTEREST INCOME Interest income increased to $952,000 for the twenty-six weeks ended July 31, 1999 from $396,000 for the same period last year. Interest expense of $743,000 was incurred for the first twenty-six weeks of 1999, compared to $20,000 for the same period last year. The interest expense relates to long term debt incurred in 1998. INCOME TAX Our effective tax rate for the first six months of 1999 and 1998 was 37%. FINANCIAL CONDITION LIQUIDITY AND CAPITAL RESOURCES Cash provided by operating activities was $33.0 million compared to a cash outflow of $1.4 million in the prior year. The increase in cash provided by operating activities was primarily due to a decrease in inventory levels. Cash used in investing activities increased to $19.3 million in 1999 as compared to $9.2 million in 1998. This increase resulted from the liquidation of securities in 1998, offset by a decrease in capital expenditures in 1999. As a result of the brand improvement strategy previously discussed, Gymboree expects to incur incremental capital expenditures of approximately $10.3 million over the next 9 to 12 months, which will be funded through internally generated funds. Including the brand improvement strategy, we estimate that capital expenditures for fiscal 1999 will be between $40.0 and $45.0 million, and will primarily be used to open 40 to 45 new domestic and international stores and to expand approximately 20 to 25 existing stores. Cash and cash equivalents were $41.8 million at July 31, 1999, an increase of $14.0 million from January 30, 1999. Working capital as of July 31, 1999 was $64.0 million compared to $76.3 million at January 30, 1999. At the end of the second quarter of 1999, we had a line of credit with Bank of America that allowed up to $60 million in unsecured letters of credit, of which $8 million can be used for standby letters of credit. As of July 31, 1999, approximately $9.8 million was available pursuant to such lines. The facility also provided a line of up to $50 million for foreign exchange contracts. As of July 30, 1999, Gymboree and its primary bank had agreed to the terms for a new unsecured credit facility. The new agreement dated August 25, 1999 extends the facility to May 31, 2000. The revised terms also provide for an overall credit line of $60 million at inception then reducing to $50 million from January 1, 2000 to the facility's expiration that may be used for issuance of commercial letters of credit, cash advances up to $15 million and standby letters of credit up to $8 million. Included within these terms is a continuation of the foreign exchange facility. The interest rate will be based 10 11 on the bank's Reference Rate or LIBOR (London Interbank Offered Rate) plus a pre-determined spread. The credit facility contains quarterly and annual financial covenants, which requires us to maintain minimum tangible net worth, meet certain ratios and restricts capital expenditures. We anticipate that cash generated from operations, together with our existing cash resources and funds available from our current letters of credit and line of credit facilities, will be sufficient to satisfy our cash needs through at least fiscal 1999. OTHER FACTORS THAT MAY AFFECT FUTURE PERFORMANCE This Form 10-Q contains certain forward-looking statements reflecting our current expectations, including statements regarding anticipated store openings, and future comparable store net sales, inventory, expense, earnings and liquidity levels. There can be no assurance that actual results will not vary materially from results projected in such forward-looking statements as a result of a number of factors, including competitive market conditions, levels of discretionary consumer spending, general economic conditions, the degree of promotional pricing activity by Gymboree, inventory levels, and our ability to successfully identify and respond to emerging children's fashion trends, to effectively monitor and control costs, and to effectively manage anticipated international and domestic growth. Other factors that may cause actual results to differ materially include those set forth in the reports that we file from time to time with the Securities and Exchange Commission. Other factors that may affect future performance include the following: COMPETITION The children's apparel segment of the specialty retail business is highly competitive. We compete on a national level with GapKids (a division of The Gap, Inc.) and certain leading department stores as well as certain discount retail chains such as Kids 'R' Us (a division of Toys 'R' Us, Inc.). We also compete with a wide variety of local and regional specialty stores and with certain other retail chains. Many of these competitors are larger and have substantially greater financial, marketing and other resources than we do. Increased competition may reduce sales and gross margins, increase operating expenses and decrease profit margins. We may not be able to compete successfully in the future. INVENTORY LEVELS The inventory level at the end of the second quarter of 1999 was down from the prior year. We believe that with tight inventory management we will be able to mitigate the risk that inventory overages will result in markdown activity exceeding our plan. However, a substantial decline in our sales or in business conditions in general could negatively impact our ability to move merchandise through our stores and result in excess inventory on hand. FOREIGN OPERATIONS During the second quarter of 1999, we continued to expand our operations by opening two additional stores in Canada. This brings the total number of stores in Canada and Europe to 18 and 28, respectively. As a result, our business is subject to the risks generally associated with doing business abroad, such as foreign governmental regulations, foreign consumer preferences, currency fluctuations, political unrest, disruptions or delays in shipments and changes in economic conditions in countries in which we operate our stores. These factors, among others, could influence our ability to sell our products in these international markets. If any such factors were to render the conduct of business in a particular country undesirable or impractical, there could be a material and adverse effect on our results of operations and financial condition. ZUTOPIA During 1999, Gymboree launched a new retail concept, Zutopia, which introduced certain new products, and is targeted for children ages 6 to 12 years. Zutopia represents a significant shift in concept, design and 11 12 target market demographics from our traditional products. These products may have shorter life cycles, thereby requiring more frequent product introductions than Gymboree's traditional product line. Further, these products and the introduction of more products could dilute Gymboree's image as a leading supplier of children's apparel in the newborn to 7 years age range and lead to a reduced demand for our existing products. E-COMMERCE Gymboree sells products over the Internet, at www.gymboree.com. We devote management and systems resources to support and expand this business. Our success depends on our ability to offer desirable products and to fulfill web orders efficiently. Failure on our part to conduct this business efficiently could result in missed sales or consumer complaints. YEAR 2000 Most companies could face a potentially serious information systems problem because many software applications and operational programs written in the past were designed to handle date formats with two-digit years and thus may not properly recognize calendar dates beginning in the Year 2000. This problem could result in computers either outputting incorrect data or shutting down altogether when attempting to process a date such as "01/01/00". Our Year 2000 initiative extends throughout our entire organization and includes all operating functions. Managing this effort on a regular basis is our Year 2000 Project Office, which reports to a member of the Executive Committee. It is through this office that various roles and accountabilities regarding Year 2000 readiness have been established. Each of Gymboree's business units has been directed to work on Year 2000 projects and assemble teams to identify and implement plans to help mitigate potential problems. STATE OF READINESS All of Gymboree's mission critical information technology and non-information technology systems have been inventoried, ranked in terms of risk, and analyzed as to their Year 2000 readiness. We have completed an Enterprise Master Plan, Enterprise Test Plan, Configuration Management Plan, and Quality Assurance Plan. A Test Data Center has been constructed and is being used to remediate and test all mission critical systems. Our business processes are organized into eighteen groups of applications. The Plans call for completing the remediation and testing phase for all groups by the end of the third quarter 1999. We currently expect material Year 2000 problems, if any, to be corrected prior to December 1999. COSTS Based on best estimates, the total cost of the Year 2000 readiness initiative which covers fiscal years 1998 and 1999 is approximately $2.0 - $3.0 million, of which $2.1 million has been expensed to date. $0.5 million was expensed for the second quarter ended July 31, 1999. There can be no assurance that these estimates will not be exceeded. All costs will be paid from Gymboree's operating funds. RISKS OF YEAR 2000 ISSUES The area of greatest risk to our business operations is ensuring the readiness of our critical trading partners. We have surveyed all of our critical trading partners to ascertain their Year 2000 readiness. To date, a majority of our trading partners have responded with a formal plan to be Year 2000 compliant. Failure of Year 2000 compliance by our trading partners could result in a delay in the receipt of inventory, potential lost sales, and an inability to operate stores. There can be no assurance that the Year 2000 problem will not have a material adverse effect on our business, operating results or financial condition. CONTINGENCY PLANS Contingency plans have been developed for each mission critical application. The contingency plan for trading partners that were not Year 2000 compliant by January 1999 was to obtain alternate suppliers that are 12 13 Year 2000 compliant. This plan was communicated to our trading partners during the surveying process. As of the end of the second quarter of fiscal 1999, we have continued implementation of our contingency plan for trading partners that are not Year 2000 compliant. However, there can be no assurance that such contingency plans will remediate all Year 2000 issues which we might ultimately encounter. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Gymboree enters into forward foreign exchange contracts to hedge certain inter-company loans denominated in foreign currencies (principally British pounds sterling and Canadian dollars). The term of the forward exchange contracts is generally less than 90 days. The purpose of our foreign currency hedging activities is to protect us from the risk that the eventual dollar net cash inflow resulting from the repayment of certain inter-company loans from our foreign subsidiaries will be adversely affected by changes in exchange rates. The table below summarizes by major currency the contractual amounts of our forward exchange contracts in U.S. dollars. Foreign currency amounts are translated at rates current at the reported date. The amounts represent the U.S. dollar equivalent of commitments to buy or sell foreign currencies.
JULY 31, 1999 ------------- (IN MILLIONS) British pounds sterling.................................. 10.7 Canadian dollars......................................... 13.2 ----- Total.................................................... $23.9 =====
13 14 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Gymboree has agreed to settle two lawsuits brought against it relating to sourcing of products from Saipan (Commonwealth of Northern Mariana Islands). The settlement is subject to court approval which has not yet been granted. Under the terms of the settlement, Gymboree will make payments for several purposes, including to class members, and to fund an independent monitoring program in Saipan. The new monitoring program includes the implementation of an independent monitoring organization to ensure that factories comply with all applicable laws. Gymboree's payment to establish the monitoring fund is partially covered by insurance, and is not expected to have an adverse material effect on the company. ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS Not applicable. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. ITEM 5. OTHER INFORMATION On September 2, 1999, the Board of Directors updated and amended certain provisions of The Gymboree Corporation's bylaws. A copy of the Amended and Restated Bylaws is attached hereto as Exhibit 3.2. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS 3.2 Amended and Restated Bylaws of The Gymboree Corporation 10.32 Credit Agreement 11 Computation of Net Income (Loss) per Share 27 Financial Data Schedule
(b) REPORTS ON FORM 8-K No reports on Form 8-K were filed during the quarter ended July 31, 1999. 14 15 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE GYMBOREE CORPORATION (Registrant) Date: September 14, 1999 By: /s/ LAWRENCE H. MEYER ------------------------------------ Lawrence H. Meyer Chief Financial Officer (Principal financial and accounting officer of the registrant) 15 16 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 3.2 Amended and Restated Bylaws of The Gymboree Corporation 10.32 Credit Agreement 11 Computation of Net Income (Loss) per Share 27 Financial Data Schedule
16 EX-3.2 2 AMENDED & RESTATED BYLAWS OF THE GYMBOREE CORP. 1 EXHIBIT 3.2 AMENDED AND RESTATED BYLAWS OF THE GYMBOREE CORPORATION (A DELAWARE CORPORATION) 2 TABLE OF CONTENTS
PAGE ---- ARTICLE I CORPORATE OFFICES......................................................................1 1.1 REGISTERED OFFICE.................................................................1 1.2 OTHER OFFICES.....................................................................1 ARTICLE II MEETINGS OF STOCKHOLDERS..............................................................1 2.1 PLACE OF MEETINGS.................................................................1 2.2 ANNUAL MEETING; NOTICE............................................................1 2.3 SPECIAL MEETING...................................................................3 2.4 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE......................................4 2.5 QUORUM............................................................................5 2.6 ADJOURNED MEETING; NOTICE.........................................................5 2.7 VOTING............................................................................5 2.8 VALIDATION OF MEETINGS; WAIVER OF NOTICE; CONSENT.................................6 2.9 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING...........................6 2.10 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS.......................7 2.11 PROXIES...........................................................................8 2.12 INSPECTORS OF ELECTION............................................................8 ARTICLE III DIRECTORS............................................................................9 3.1 POWERS............................................................................9 3.2 NUMBER AND TERM OF OFFICE.........................................................9 3.3 CLASSES OF DIRECTORS..............................................................9 3.4 RESIGNATION AND VACANCIES........................................................10 3.5 REMOVAL..........................................................................11 3.6 PLACE OF MEETINGS; MEETINGS BY TELEPHONE.........................................11 3.7 FIRST MEETINGS...................................................................11 3.8 REGULAR MEETINGS.................................................................11 3.9 SPECIAL MEETINGS; NOTICE.........................................................11 3.10 QUORUM...........................................................................12 3.11 WAIVER OF NOTICE.................................................................12 3.12 ADJOURNMENT......................................................................12 3.13 NOTICE OF ADJOURNMENT............................................................12 3.14 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING................................13 3.15 FEES AND COMPENSATION OF DIRECTORS...............................................13 3.16 APPROVAL OF LOANS TO OFFICERS....................................................13 ARTICLE IV COMMITTEES...........................................................................14
-i- 3 TABLE OF CONTENTS (CONTINUED)
PAGE ---- 4.1 COMMITTEES OF DIRECTORS..........................................................14 4.2 MEETINGS AND ACTION OF COMMITTEES................................................14 ARTICLE V OFFICERS..............................................................................15 5.1 OFFICERS.........................................................................15 5.2 ELECTION OF OFFICERS.............................................................15 5.3 SUBORDINATE OFFICERS.............................................................15 5.4 REMOVAL AND RESIGNATION OF OFFICERS..............................................15 5.5 VACANCIES IN OFFICES.............................................................15 5.6 CHAIRMAN OF THE BOARD............................................................15 5.7 PRESIDENT........................................................................16 5.8 VICE PRESIDENTS..................................................................16 5.9 SECRETARY........................................................................16 5.10 CHIEF FINANCIAL OFFICER..........................................................17 ARTICLE VI INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND OTHER AGENTS..................17 6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS........................................17 6.2 INDEMNIFICATION OF OTHERS........................................................17 6.3 INSURANCE........................................................................18 ARTICLE VII RECORDS AND REPORTS.................................................................18 7.1 MAINTENANCE AND INSPECTION OF RECORDS............................................18 7.2 INSPECTION BY DIRECTORS..........................................................19 7.3 ANNUAL STATEMENT TO STOCKHOLDERS.................................................19 7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS...................................19 ARTICLE VIII GENERAL MATTERS....................................................................20 8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING............................20 8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS........................................20 8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED...............................20 8.4 STOCK CERTIFICATES; PARTLY PAID SHARES...........................................20 8.5 SPECIAL DESIGNATION ON CERTIFICATES..............................................21 8.6 LOST CERTIFICATES................................................................21 8.7 CONSTRUCTION; DEFINITIONS........................................................22 8.8 RESTRICTIONS ON TRANSFER OF SHARES...............................................22 ARTICLE IX AMENDMENTS...........................................................................23 ARTICLE X DISSOLUTION...........................................................................23
-ii- 4 TABLE OF CONTENTS (CONTINUED)
PAGE ---- ARTICLE XI CUSTODIAN............................................................................24 11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES......................................24 11.2 DUTIES OF CUSTODIAN..............................................................24
-iii- 5 AMENDED AND RESTATED BYLAWS OF THE GYMBOREE CORPORATION (a Delaware Corporation) ARTICLE I. CORPORATE OFFICES 1.1 REGISTERED OFFICE The registered office of the Corporation shall be fixed in the Certificate of Incorporation of the Corporation. 1.2 OTHER OFFICES The Board of Directors may at any time establish branch or subordinate offices at any place or places where the Corporation is qualified to do business. ARTICLE II MEETINGS OF STOCKHOLDERS 2.1 PLACE OF MEETINGS Meetings of stockholders shall be held at any place within or outside the State of Delaware designated by the Board of Directors. In the absence of any such designation, stockholders' meetings shall be held at the registered office of the Corporation. 2.2 ANNUAL MEETING; NOTICE (a) The annual meeting of stockholders shall be held each year on a date and at a time designated by the Board of Directors. In the absence of such designation, the annual meeting of stockholders shall be held on the third Tuesday of May in each year at 10:00 a.m. However, if such day falls on a legal holiday, then the meeting shall be held at the same time and place on the next succeeding full business day. At the meeting, Directors shall be elected, and any other proper business may be transacted. (b) At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual 6 meeting, business must be: (A) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (B) otherwise properly brought before the meeting by or at the direction of the Board of Directors, or (C) otherwise properly brought before the meeting by a stockholder. For business to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the Corporation not less than one hundred twenty (120) calendar days in advance of the date specified in the Corporation's proxy statement released to stockholders in connection with the previous year's annual meeting of stockholders; provided, however, that in the event that no annual meeting was held in the previous year or the date of the annual meeting has been changed by more than thirty (30) days from the date contemplated at the time of the previous year's proxy statement, notice by the stockholder to be timely must be so received a reasonable time before the solicitation is made. Any business not proposed by the Board of Directors of the Corporation may be taken by written consent of the stockholders only if timely notice thereof is given by a stockholder to the Secretary of the Corporation, such notice to be timely if delivered to or mailed and received at the principal offices of the Corporation not less than one hundred twenty (120) days prior to the proper delivery to the Corporation of a sufficient number of signed written consents to take such action. A stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting or to take by written consent: (i) a brief description of the business desired to be brought before the annual meeting or taken by written consent and the reasons for conducting such business at the annual meeting or for taking such action, (ii) the name and address, as they appear on the Corporation's books, of the stockholder proposing such business, (iii) the class and number of shares of the Corporation which are beneficially owned by the stockholder, (iv) any material interest of the stockholder in such business and (v) any other information that is required to be provided by the stockholder pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "1934 Act"), in his capacity as a proponent to a stockholder proposal. Notwithstanding the foregoing, in order to include information with respect to a stockholder proposal in the proxy statement and form of proxy for a stockholder's meeting, stockholders must provide notice as required by the regulations promulgated under the 1934 Act. Notwithstanding anything in these Bylaws to the contrary, no business shall be conducted at any annual meeting or by the written consent of stockholders except in accordance with the procedures set forth in this paragraph (b). The chairman of the annual meeting shall, if the facts warrant, determine and declare at the meeting that business was not properly brought before the meeting and in accordance with the provisions of this paragraph (b), and, if he should so determine, he shall so declare at the meeting that any such business not properly brought before the meeting shall not be transacted. The Board of Directors shall, with respect to any action taken by written consent of stockholders, determine whether or not proper notice was given in connection therewith and, if the Board of Directors shall determine that proper notice was not given, shall declare that such written consent was not made in accordance with these Bylaws. (c) Only persons who are nominated in accordance with the procedures set forth in this paragraph (c) or Section 2.3 of these Bylaws shall be eligible for election or appointment as Directors. Nominations of persons for election or appointment to the Board of Directors of the -2- 7 Corporation may be made at a meeting of stockholders by or at the direction of the Board of Directors or by any stockholder of the Corporation entitled to vote in the election of Directors at the meeting who complies with the notice procedures set forth in this paragraph (c) or Section 2.3 of these Bylaws, or in connection with action by written consent of stockholders, by the Board of Directors or any stockholder who complies with this paragraph (c). Such nominations, other than those made by or at the direction of the Board of Directors, shall be made pursuant to timely notice in writing to the Secretary of the Corporation in accordance with the provisions of paragraph (b) of this Section 2.2 or Section 2.3 of these Bylaws. Such stockholder's notice shall set forth (i) as to each person, if any, whom the stockholder proposes to nominate for election or re-election as a Director: (A) the name, age, business address and residence address of such person, (B) the principal occupation or employment of such person, (C) the class and number of shares of the Corporation which are beneficially owned by such person, (D) a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nominations are to be made by the stockholder, and (E) any other information relating to such person that is required to be disclosed in solicitations of proxies for elections of Directors, or is otherwise required, in each case pursuant to Regulation 14A under the 1934 Act (including without limitation such person's written consent to being named in the proxy statement, if any, as a nominee and to serving as a Director if elected); and (ii) as to such stockholder giving notice, the information required to be provided pursuant to paragraph (b) of this Section 2.2. At the request of the Board of Directors, any person nominated by a stockholder for election as a Director shall furnish to the Secretary of the Corporation that information required to be set forth in the stockholder's notice of nomination which pertains to the nominee. No person shall be eligible for election or appointment as a Director of the Corporation unless nominated in accordance with the procedures set forth in this paragraph (c). The chairman of the meeting shall, if the facts warrant, determine and declare at the meeting that a nomination was not made in accordance with the procedures prescribed by these Bylaws, and if he should so determine, he shall so declare at the meeting, and the defective nomination shall be disregarded. The Board of Directors shall, with respect to any election or appointment of Directors effected by written consent of stockholders, determine whether or not proper notice was given in connection with such election or appointment and, if the Board of Directors shall determine that proper notice was not given, shall declare that such action by written consent was not made in accordance with these Bylaws. 2.3 SPECIAL MEETING A special meeting of the stockholders may be called at any time by the Board of Directors, or by the chairman of the board, by the president or by the chief executive officer, or by one or more stockholders holding shares in the aggregate entitled to cast not less than ten percent of the votes at that meeting. If a special meeting is called by any person or persons other than the Board of Directors, the request shall be in writing and shall specify the general nature of the business proposed to be transacted, and shall be delivered personally or sent by registered mail or by telegraphic or other facsimile transmission to the chairman of the board, the president, chief executive officer, or the -3- 8 Secretary of the Corporation. If the general nature of the business proposed to be transacted includes the election or appointment of Directors, the request shall be accompanied by the notice required by paragraph (c) of Section 2.2 of these Bylaws. No business may be transacted at such special meeting otherwise than specified in such request, and no director may be nominated at such special meeting by a stockholder who has requested such a meeting or who has acted in concert with any stockholder making such request unless the request contains the information required by paragraph (c) of Section 2.2 of these Bylaws with respect to such person. Upon such request, the Board of Directors shall determine a place and time for such meeting, which time shall be not less than ninety (90) nor more than one hundred (100) days after the receipt and determination of the validity of such request, and a record date for the determination of stockholders entitled to vote at such meeting in the manner set forth in Section 2.11 hereof. Following such receipt and determination, it shall be the duty of the Secretary to cause notice to be given to the stockholders entitled to vote at such meeting, in the manner set forth in Sections 2.4 and 2.5 hereof, that a meeting will be held at the time and place so determined. Nothing contained in this paragraph of this Section 2.3 shall be construed as limiting, fixing, or affecting the time when a meeting of stockholders called by action of the Board of Directors may be held. Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the Corporation's notice of meeting. Nominations of persons for election or appointment to the Board of Directors may be made at a special meeting of stockholders at which Directors are to be elected pursuant to the Corporation's notice of meeting (a) by or at the direction of the Board of Directors or (b) by any stockholder of the Corporation who is a stockholder at the time of giving of notice provided for in this paragraph, who shall be entitled to vote at the meeting and who complies with the notice procedures set forth in this Section 2.3. Nominations by stockholders of persons for election to the Board of Directors may be made at such a special meeting of stockholders if the stockholder's notice required by paragraph (c) of Section 2.2 of these Bylaws shall be delivered to or mailed and received by the Secretary at the principal executive offices of the Corporation not later than the close of business on the later of the 90th day prior to such special meeting or the 10th day following the day on which public announcement is first made of the date of the special meeting and the election of Directors thereof; provided, however, that no such stockholder who has requested a meeting as permitted by this Section 2.3, or who has acted in concert with any stockholder making such a request, may make such nomination unless such notice was delivered together with such request. The chairman of the meeting shall, if the facts warrant, determine and declare at the meeting that a nomination was not made in accordance with the procedures prescribed by these Bylaws, and if he should so determine, he shall so declare at the meeting, and the defective nomination shall be disregarded. For purposes of this section, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or a comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act. 2.4 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE -4- 9 Written notice of any meeting of stockholders shall be given either personally or by first-class mail or by telegraphic or other written communication. Notices not personally delivered shall be sent charges prepaid and shall be addressed to the stockholder at the address of that stockholder appearing on the books of the Corporation or given by the shareholder to the Corporation for the purpose of notice. If no such address appears on the Corporation's books or is given, notice shall be deemed to have been given if sent to that stockholder by mail or telegraphic or other written communication to the Corporation's principal executive office, or if published at least once in a newspaper of general circulation in the county where that office is located. Notice shall be deemed to have been given at the time when delivered personally or deposited in the mail or sent by telegram or other means of written communication. If any notice addressed to a stockholder at the address of that stockholder appearing on the books of the Corporation is returned to the Corporation by the United States Postal Service marked to indicate that the United States Postal service is unable to deliver the notice to the stockholder at that address, then all future notices or reports shall be deemed to have been duly given without further mailing if the same shall be available to the stockholder on written demand of the stockholder at the principal executive office of the Corporation for a period of one (1) year from the date of the giving of the notice. An affidavit of the mailing or other means of giving any notice of any stockholders' meeting, executed by the Secretary, assistant Secretary or any transfer agent of the Corporation giving the notice, shall be prima facie evidence of the giving of such notice. 2.5 QUORUM The presence in person or by proxy of the holders of a majority of the shares entitled to vote thereat constitutes a quorum for the transaction of business at all meetings of stockholders. The stockholders present at a duly called or held meeting at which a quorum is present may continue to do business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum, if any action taken (other than adjournment) is approved by at least a majority of the shares required to constitute a quorum. 2.6 ADJOURNED MEETING; NOTICE Any stockholders' meeting, annual or special, whether or not a quorum is present, may be adjourned from time to time by the vote of the majority of the shares represented at that meeting, either in person or by proxy. In the absence of a quorum, no other business may be transacted at that meeting except as provided in Section 2.6 of these Bylaws. When any meeting of stockholders, either annual or special, is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place are announced at the meeting at which the adjournment is taken. However, if a new record date for the adjourned meeting is fixed or if the adjournment is for more than thirty (30) days from the date set for the original meeting, then notice of the adjourned meeting shall be given. Notice of any such adjourned meeting -5- 10 shall be given to each stockholder of record entitled to vote at the adjourned meeting in accordance with the provisions of Sections 2.4 and 2.5 of these Bylaws. At any adjourned meeting the Corporation may transact any business which might have been transacted at the original meeting. 2.7 VOTING The stockholders entitled to vote at any meeting of stockholders shall be determined in accordance with the provisions of Section 2.11 of these Bylaws, subject to the provisions of Sections 217 and 218 of the General Corporation Law of Delaware (relating to voting rights of fiduciaries, pledgors and joint owners, and to voting trusts and other voting agreements). Except as may be otherwise provided in the Certificate of Incorporation, each outstanding share, regardless of class, shall be entitled to one vote on each matter submitted to a vote of the stockholders. Any stockholder entitled to vote on any matter may vote part of the shares in favor of the proposal and refrain from voting the remaining shares or, except when the matter is the election of Directors, may vote them against the proposal; but, if the stockholder fails to specify the number of shares which the stockholder is voting affirmatively, it will be conclusively presumed that the stockholder's approving vote is with respect to all shares which the stockholder is entitled to vote. If a quorum is present, the affirmative vote of the majority of the shares represented and voting at a duly held meeting (which shares voting affirmatively also constitute at least a majority of the required quorum) shall be the act of the stockholders, unless the vote of a greater number or a vote by classes is required by law or by the Certificate of Incorporation or by the Bylaws. 2.8 VALIDATION OF MEETINGS; WAIVER OF NOTICE; CONSENT The transactions of any meeting of stockholders, either annual or special, however called and noticed, and wherever held, shall be as valid as though they had been taken at a meeting duly held after regular call and notice, if a quorum be present either in person or by proxy, and if, either before or after the meeting, each person entitled to vote, who was not present in person or by proxy, signs a written waiver of notice or a consent to the holding of the meeting or an approval of the minutes thereof. The waiver of notice or consent or approval need not specify either the business to be transacted or the purpose of any annual or special meeting of stockholders. All such waivers, consents, and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Attendance by a person at a meeting shall also constitute a waiver of notice of and presence at that meeting, except when the person objects at the beginning of the meeting to the transaction of any business because the meeting is not lawfully called or convened. Attendance at a meeting is not a waiver of any right to object to the consideration of matters required by law to be included in the notice of the meeting but not so included, if that objection is expressly made at the meeting. 2.9 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING -6- 11 Unless otherwise provided in the Certificate of Incorporation, any action which may be taken at any annual or special meeting of stockholders may be taken without a meeting and without prior notice, if a consent in writing, setting forth the action so taken, is signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take that action at a meeting at which all shares entitled to vote on that action were present and voted, but only if such written consent is otherwise made in accordance with these Bylaws. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. If the action which is consented to is such as would have required the filing of a certificate under any section of the General Corporation Law of Delaware if such action had been voted on by stockholders at a meeting thereof, then the certificate filed under such section shall state, in lieu of any statement required by such section concerning any vote of stockholders, that written notice and written consent have been given as provided in Section 228 of the General Corporation Law of Delaware. 2.10 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS For purposes of determining the stockholders entitled to notice of any meeting or to vote thereat or entitled to give consent to corporate action without a meeting, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty (60) days nor less than ten (10) days before the date of any such meeting nor more than sixty (60) days before any such action without a meeting, and in such event only stockholders of record on the date so fixed are entitled to notice and to vote or to give consents, as the case may be, notwithstanding any transfer of any shares on the books of the Corporation after the record date. In the event that a notice of nominations of persons for election or appointment to the Board of Directors by written consent is given in accordance with paragraph (c) of Section 2.3 of these Bylaws, the Board of Directors shall, not more than sixty-five (65) days and not less than sixty (60) days after the delivery of such notice, adopt a resolution fixing the record date for the taking of such action, which record date shall not be more than ten (10) days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. If the Board of Directors does not so fix a record date: (a) the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the business day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the business day next preceding the day on which the meeting is held; and (b) the record date for determining stockholders entitled to given consent to corporate action in writing without a meeting, (i) when no prior action by the board has been taken, shall be the day on which the first written consent is given, or (ii) when prior action by the board has been taken, shall be at the close of business on the day on which the board adopts the resolution relating to that action. -7- 12 The record date for any other purpose shall be as provided in Article VIII of these Bylaws. 2.11 PROXIES Every person entitled to vote for Directors, or on any other matter, shall have the right to do so either in person or by one or more agents authorized by a written proxy signed by the person and filed with the Secretary of the Corporation, but no such proxy shall be voted or acted upon after three (3) years from its date, unless the proxy provides for a longer period. A proxy shall be deemed signed if the stockholder's name is placed on the proxy (whether by manual signature, typewriting, telegraphic transmission or otherwise) by the stockholder or the stockholder's attorney-in-fact. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Section 212(c) of the General Corporation Law of Delaware. 2.12 INSPECTORS OF ELECTION Before any meeting of stockholders, the Board of Directors may appoint an inspector or inspectors of election to act at the meeting or its adjournment. If no inspector of election is so appointed, then the chairman of the meeting may, and on the request of any stockholder or a stockholder's proxy shall, appoint an inspector or inspectors of election to act at the meeting. The number of inspectors shall be either one (1) or three (3). If inspectors are appointed at a meeting pursuant to the request of one (1) or more stockholders or proxies, then the holders of a majority of shares or their proxies present at the meeting shall determine whether one (1) or three (3) inspectors are to be appointed. If any person appointed as inspector fails to appear or fails or refuses to act, then the chairman of the meeting may, and upon the request of any stockholder or a stockholder's proxy shall, appoint a person to fill that vacancy. Such inspectors shall: (a) determine the number of shares outstanding and the voting power of each, the number of shares represented at the meeting, the existence of a quorum, and the authenticity, validity, and effect of proxies; (b) receive votes, ballots or consents; (c) hear and determine all challenges and questions in any way arising in connection with the right to vote; (d) count and tabulate all votes or consents; (e) determine when the polls shall close; (f) determine the result; and (g) do any other acts that may be proper to conduct the election or vote with fairness to all stockholders. -8- 13 ARTICLE III DIRECTORS 3.1 POWERS Subject to the provisions of the General Corporation Law of Delaware and to any limitations in the Certificate of Incorporation or these Bylaws relating to action required to be approved by the stockholders or by the outstanding shares, the business and affairs of the Corporation shall be managed and all corporate powers shall be exercised by or under the direction of the Board of Directors. 3.2 NUMBER AND TERM OF OFFICE The exact number of Directors shall be seven (7) until changed by a bylaw amending this Section 3.2, duly adopted by the Board of Directors or by the stockholders. No reduction of the authorized number of Directors shall have the effect of removing any director before that director's term of office expires. If for any cause, the Directors shall not have been elected at an annual meeting, they may be elected as soon thereafter as convenient at a special meeting of the stockholders called for that purpose in the manner provided in these Bylaws. 3.3 CLASSES OF DIRECTORS Following the closing of the Corporation's initial public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended (the "1933 Act"), covering the offer and sale of Common Stock of the Corporation (the "Initial Public Offering") the Directors shall be divided into three classes designated as Class I, Class II and Class III, respectively. Directors shall be assigned to each class in accordance with a resolution or resolutions adopted by the Board of Directors. At the first annual meeting of stockholders following the closing of the Initial Public Offering, the term of office of the Class I Directors shall expire and Class I Directors shall be elected for a full term of three years. At the second annual meeting of stockholders following the closing of the Initial Public Offering, the term of office of the Class II Directors shall expire and Class II Directors shall be elected for a full term of three years. At the third annual meeting of stockholders following the closing of the Initial Public Offering, the term of office of the Class III Directors shall expire and Class III Directors shall be elected for a full term of three years. At each succeeding annual meeting of stockholders, Directors shall be elected for a full term of three years to succeed the Directors of the class whose terms expire at such annual meeting. Notwithstanding the foregoing provisions of this Article, each Director shall serve until his successor is duly elected and qualified or until his earlier death, resignation or removal. No decrease in the number of Directors constituting the Board of Directors shall shorten the term of any incumbent Director. -9- 14 3.4 RESIGNATION AND VACANCIES Any director may resign effective on giving written notice to the chairman of the board, the president, the Secretary or the Board of Directors, unless the notice specifies a later time for that resignation to become effective. If the resignation of a director is effective at a future time, the Board of Directors may elect a successor to take office when the resignation becomes effective. Vacancies in the Board of Directors may be filled by a majority of the remaining Directors, even if less than a quorum, or by a sole remaining director; however, a vacancy created by the removal of a director by the vote or written consent of the stockholders or by court order may be filled only by the affirmative vote of a majority of the shares represented and voting at a duly held meeting at which a quorum is present (which shares voting affirmatively also constitute a majority of the required quorum), or by the unanimous written consent of all shares entitled to vote thereon. Each director so elected shall hold office until the next annual meeting of the stockholders and until a successor has been elected and qualified. Unless otherwise provided in the Certificate of Incorporation or these Bylaws: (i) Vacancies and newly created Directorships resulting from any increase in the authorized number of Directors elected by all of the stockholders having the right to vote as a single class may be filled by a majority of the Directors then in office, although less than a quorum, or by a sole remaining director. (ii) Whenever the holders of any class or classes of stock or series thereof are entitled to elect one or more Directors by the provisions of the certificate of incorporation, vacancies and newly created Directorships of such class or classes or series may be filled by a majority of the Directors elected by such class or classes or series thereof then in office, or by a sole remaining director so elected. If at any time, by reason of death or resignation or other cause, the Corporation should have no Directors in office, then any officer or any stockholder or an executor, administrator, trustee or guardian of a stockholder, or other fiduciary entrusted with like responsibility for the person or estate of a stockholder, may call a special meeting of stockholders in accordance with the provisions of the certificate of incorporation or these Bylaws, or may apply to the Court of Chancery for a decree summarily ordering an election as provided in Section 211 of the General Corporation Law of Delaware. If, at the time of filling any vacancy or any newly created Directorship, the Directors then in office constitute less than a majority of the whole board (as constituted immediately prior to any such increase), then the Court of Chancery may, upon application of any stockholder or stockholders holding at least ten (10) percent of the total number of the shares at the time outstanding having the right to vote for such Directors, summarily order an election to be held to fill any such vacancies or newly created Directorships, or to replace the Directors chosen by the Directors then in office as -10- 15 aforesaid, which election shall be governed by the provisions of Section 211 of the General Corporation Law of Delaware as far as applicable. 3.5 REMOVAL Subject to any limitations imposed by law or the Certificate of Incorporation, the Board of Directors, or any individual Director, may be removed from office at any time (a) with cause by the affirmative vote of the holders of at least a majority of the then outstanding shares of the capital stock of the Corporation entitled to vote at an election of Directors or (b) without cause by an affirmative vote of the holders of at least sixty-six and two-thirds percent (66-2/3%) of such outstanding shares. 3.6 PLACE OF MEETINGS; MEETINGS BY TELEPHONE Regular meetings of the Board of Directors may be held at any place within or outside the State of Delaware that has been designated from time to time by resolution of the board. In the absence of such a designation, regular meetings shall be held at the principal executive office of the Corporation. Special meetings of the board may be held at any place within or outside the State of Delaware that has been designated in the notice of the meeting or, if not stated in the notice or if there is no notice, at the principal executive office of the Corporation. Any meeting, regular or special, may be held by conference telephone or similar communication equipment, so long as all Directors participating in the meeting can hear one another; and all such Directors shall be deemed to be present in person at the meeting. 3.7 FIRST MEETINGS The first meeting of each newly elected Board of Directors shall be held at such time and place as shall be fixed by the vote of the stockholders at the annual meeting and no notice of such meeting shall be necessary to the newly elected Directors in order legally to constitute the meeting, provided a quorum shall be present. In the event of the failure of the stockholders to fix the time or place of such first meeting of the newly elected Board of Directors, or in the event such meeting is not held at the time and place so fixed by the stockholders, the meeting may be held at such time and place as shall be specified in a notice given as herein-after provided for special meetings of the Board of Directors, or as shall be specified in a written waiver signed by all of the Directors. 3.8 REGULAR MEETINGS Regular meetings of the Board of Directors may be held without notice if the times of such meetings are fixed by the Board of Directors. 3.9 SPECIAL MEETINGS; NOTICE -11- 16 Special meetings of the Board of Directors for any purpose or purposes may be called at any time by the chairman of the board, the president, any vice president, the Secretary or any two Directors. Notice of the time and place of special meetings shall be delivered personally or by telephone to each director or sent by first-class mail or telegram, charges prepaid, addressed to each director at that director's address as it is shown on the records of the Corporation. If the notice is mailed, it shall be deposited in the United States mail at least four (4) days before the time of the holding of the meeting. If the notice is delivered personally or by telephone or telegram, it shall be delivered personally or by telephone or to the telegraph company at least forty-eight (48) hours before the time of the holding of the meeting. Any oral notice given personally or by telephone may be communicated either to the director or to a person at the office of the director who the person giving the notice has reason to believe will promptly communicate it to the director. The notice need not specify the purpose or the place of the meeting, if the meeting is to be held at the principal executive office of the Corporation. 3.10 QUORUM A majority of the authorized number of Directors shall constitute a quorum for the transaction of business, except to adjourn as provided in Section 3.12 of these Bylaws. Every act or decision done or made by a majority of the Directors present at a duly held meeting at which a quorum is present shall be regarded as the act of the Board of Directors, subject to the provisions of the Certificate of Incorporation and applicable law. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of Directors, if any action taken is approved by at least a majority of the required quorum for that meeting. 3.11 WAIVER OF NOTICE Notice of a meeting need not be given to any director (i) who signs a waiver of notice or a consent to holding the meeting or an approval of the minutes thereof, whether before or after the meeting, or (ii) who attends the meeting without protesting, prior thereto or at its commencement, the lack of notice to such Directors. All such waivers, consents, and approvals shall be filed with the corporate records or made part of the minutes of the meeting. A waiver of notice need not specify the purpose of any regular or special meeting of the Board of Directors. 3.12 ADJOURNMENT A majority of the Directors present, whether or not constituting a quorum, may adjourn any meeting to another time and place. 3.13 NOTICE OF ADJOURNMENT -12- 17 Notice of the time and place of holding an adjourned meeting need not be given unless the meeting is adjourned for more than twenty-four (24) hours. If the meeting is adjourned for more than twenty-four (24) hours, then notice of the time and place of the adjourned meeting shall be given before the adjourned meeting takes place, in the manner specified in Section 3.8 of these Bylaws, to the Directors who were not present at the time of the adjournment. 3.14 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING Any action required or permitted to be taken by the Board of Directors may be taken without a meeting, provided that all members of the board individually or collectively consent in writing to that action. Such action by written consent shall have the same force and effect as a unanimous vote of the Board of Directors. Such written consent and any counterparts thereof shall be filed with the minutes of the proceedings of the board. 3.15 FEES AND COMPENSATION OF DIRECTORS Directors and members of committees may receive such compensation, if any, for their services and such reimbursement of expenses as may be fixed or determined by resolution of the Board of Directors. This Section 3.15 shall not be construed to preclude any director from serving the Corporation in any other capacity as an officer, agent, employee or otherwise and receiving compensation for those services. 3.16 APPROVAL OF LOANS TO OFFICERS The Corporation may lend money to, or guarantee any obligation of, or otherwise assist any officer or other employee of the Corporation or of its subsidiary, including any officer or employee who is a director of the Corporation or its subsidiary, whenever, in the judgment of the Directors, such loan, guaranty or assistance may reasonably be expected to benefit the Corporation. The loan, guaranty or other assistance may be with or without interest and may be unsecured, or secured in such manner as the Board of Directors shall approve, including, without limitation, a pledge of shares of stock of the Corporation. Nothing contained in this section shall be deemed to deny, limit or restrict the powers of guaranty or warranty of the Corporation at common law or under any statute. -13- 18 ARTICLE IV COMMITTEES 4.1 COMMITTEES OF DIRECTORS The Board of Directors may, by resolution adopted by a majority of the authorized number of Directors, designate one (1) or more committees, each consisting of two or more Directors, to serve at the pleasure of the board. The board may designate one (1) or more Directors as alternate members of any committee, who may replace any absent member at any meeting of the committee. The appointment of members or alternate members of a committee requires the vote of a majority of the authorized number of Directors. Any committee, to the extent provided in the resolution of the board, shall have all the authority of the board, but no such committee shall have the power or authority to (i) amend the Certificate of Incorporation (except that a committee may, to the extent authorized in the resolution or resolutions providing for the issuance of shares of stock adopted by the Board of Directors as provided in Section 151(a) of the General Corporation Law of Delaware, fix any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the Corporation or the conversion into, or the exchange of such shares for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the Corporation), (ii) adopt an agreement of merger or consolidation under Sections 251 or 252 of the General Corporation Law of Delaware, (iii) recommend to the stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, (iv) recommend to the stockholders a dissolution of the Corporation or a revocation of a dissolution, or (v) amend the Bylaws of the Corporation; and, unless the board resolution establishing the committee, the Bylaws or the Certificate of Incorporation expressly so provide, no such committee shall have the power or authority to declare a dividend, to authorize the issuance of stock, or to adopt a certificate of ownership and merger pursuant to Section 253 of the General Corporation Law of Delaware. 4.2 MEETINGS AND ACTION OF COMMITTEES Meetings and actions of committees shall be governed by, and held and taken in accordance with, the provisions of Article III of these Bylaws, Section 3.6 (place of meetings), Section 3.8 (regular meetings), Section 3.9 (special meetings and notice), Section 3.10 (quorum), Section 3.11 (waiver of notice), Section 3.12 (adjournment), Section 3.13 (notice of adjournment), and Section 3.14 (action without meeting), with such changes in the context of those Bylaws as are necessary to substitute the committee and its members for the Board of Directors and its members; provided, however, that the time of regular meetings of committees may be determined either by resolution of the Board of Directors or by resolution of the committee, that special meetings of committees may also be called by resolution of the Board of Directors, and that notice of special meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings of the committee. The Board of Directors may adopt rules for the government of any committee not inconsistent with the provisions of these Bylaws. ARTICLE V -14- 19 OFFICERS 5.1 OFFICERS The officers of the Corporation shall be a president, a Secretary and a chief financial officer. The Corporation may also have, at the discretion of the Board of Directors, a chairman of the board, one or more vice presidents, one or more assistant secretaries, one or more assistant treasurers, and such other officers as may be appointed in accordance with the provisions of Section 5.3 of these Bylaws. Any number of offices may be held by the same person. 5.2 ELECTION OF OFFICERS The officers of the Corporation, except such officers as may be appointed in accordance with the provisions of Section 5.3 or Section 5.5 of these Bylaws, shall be chosen by the board, subject to the rights, if any, of an officer under any contract of employment. 5.3 SUBORDINATE OFFICERS The Board of Directors may appoint, or may empower the president to appoint, such other officers as the business of the Corporation may require, each of whom shall hold office for such period, have such authority, and perform such duties as are provided in these Bylaws or as the Board of Directors may from time to time determine. 5.4 REMOVAL AND RESIGNATION OF OFFICERS Subject to the rights, if any, of an officer under any contract of employment, any officer may be removed, either with or without cause, by the Board of Directors at any regular or special meeting of the board or, except in case of an officer chosen by the Board of Directors, by any officer upon whom such power of removal may be conferred by the Board of Directors. Any officer may resign at any time by giving written notice to the Corporation. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice; and, unless otherwise specified in that notice, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the Corporation under any contract to which the officer is a party. 5.5 VACANCIES IN OFFICES A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in these Bylaws for regular appointments to that office. 5.6 CHAIRMAN OF THE BOARD The chairman of the board, if such an officer be elected, shall, if present, preside at meetings of the Board of Directors and exercise and perform such other powers and duties as may from time to -15- 20 time be assigned to him by the Board of Directors or as may be prescribed by these Bylaws. If there is no president, then the chairman of the board shall also be the chief executive officer of the Corporation and shall have the powers and duties prescribed in Section 5.7 of these Bylaws. 5.7 PRESIDENT Subject to such supervisory powers, if any, as may be given by the Board of Directors to the chairman of the board, if there be such an officer, the president shall be the chief executive officer of the Corporation and shall, subject to the control of the Board of Directors, have general supervision, direction, and control of the business and the officers of the Corporation. He or she shall preside at all meetings of the stockholders and, in the absence or nonexistence of a chairman of the board, at all meetings of the Board of Directors. He or she shall have the general powers and duties of management usually vested in the office of president of a Corporation, and shall have such other powers and duties as may be prescribed by the Board of Directors or these Bylaws. 5.8 VICE PRESIDENTS In the absence or disability of the president, the vice presidents, if any, in order of their rank as fixed by the Board of Directors or, if not ranked, a vice president designated by the Board of Directors, shall perform all the duties of the president and when so acting shall have all the powers of, and be subject to all the restrictions upon, the president. The vice presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the Board of Directors, these Bylaws, the president or the chairman of the board. 5.9 SECRETARY The Secretary shall keep or cause to be kept, at the principal executive office of the Corporation or such other place as the Board of Directors may direct, a book of minutes of all meetings and actions of Directors, committees of Directors and stockholders. The minutes shall show the time and place of each meeting, whether regular or special (and, if special, how authorized and the notice given), the names of those present at Directors' meetings or committee meetings, the number of shares present or represented at stockholders' meetings, and the proceedings thereof. The Secretary shall keep, or cause to be kept, at the principal executive office of the Corporation or at the office of the Corporation's transfer agent or registrar, as determined by resolution of the Board of Directors, a share register, or a duplicate share register, showing the names of all stockholders and their addresses, the number and classes of shares held by each, the number and date of certificates evidencing such shares, and the number and date of cancellation of every certificate surrendered for cancellation. The Secretary shall give, or cause to be given, notice of all meetings of the stockholders and of the Board of Directors required to be given by law or by these Bylaws. He or she shall keep the seal of the Corporation, if one be adopted, in safe custody and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or by these Bylaws. -16- 21 5.10 CHIEF FINANCIAL OFFICER The chief financial officer shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of the Corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital, retained earnings and shares. The books of account shall at all reasonable times be open to inspection by any director. The chief financial officer shall deposit all money and other valuables in the name and to the credit of the Corporation with such depositaries as may be designated by the Board of Directors. He or she shall disburse the funds of the Corporation as may be ordered by the Board of Directors, shall render to the president and Directors, whenever they request it, an account of all of his or her transactions as chief financial officer and of the financial condition of the Corporation, and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or these Bylaws. ARTICLE VI INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND OTHER AGENTS 6.1. INDEMNIFICATION OF DIRECTORS AND OFFICERS The Corporation shall, to the maximum extent and in the manner permitted by the General Corporation Law of Delaware, indemnify each of its Directors and officers against expenses (including attorneys' fees), judgments, fines, settlements and other amounts actually and reasonably incurred in connection with any proceeding, arising by reason of the fact that such person is or was an agent of the Corporation. For purposes of this Section 6.1, a "director" or "officer" of the Corporation includes any person (i) who is or was a director or officer of the Corporation, (ii) who is or was serving at the request of the Corporation as a director or officer of another Corporation, partnership, joint venture, trust or other enterprise, or (iii) who was a director or officer of a Corporation which was a predecessor Corporation of the Corporation or of another enterprise at the request of such predecessor Corporation. 6.2 INDEMNIFICATION OF OTHERS The Corporation shall have the power, to the maximum extent and in the manner permitted by the General Corporation Law of Delaware, to indemnify each of its employees and agents (other than Directors and officers) against expenses (including attorneys' fees), judgments, fines, settlements and other amounts actually and reasonably incurred in connection with any proceeding, arising by reason of the fact that such person is or was an agent of the Corporation. For purposes of this Section 6.2, an "employee" or "agent" of the Corporation (other than a director or officer) -17- 22 includes any person (i) who is or was an employee or agent of the Corporation, (ii) who is or was serving at the request of the Corporation as an employee or agent of another Corporation, partnership, joint venture, trust or other enterprise, or (iii) who was an employee or agent of a Corporation which was a predecessor Corporation of the Corporation or of another enterprise at the request of such predecessor Corporation. 6.3 INSURANCE The Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another Corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him or her and incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the Corporation would have the power to indemnify him or her against such liability under the provisions of the General Corporation Law of Delaware. ARTICLE VII RECORDS AND REPORTS 7.1 MAINTENANCE AND INSPECTION OF RECORDS The Corporation shall, either at its principal executive office or at such place or places as designated by the Board of Directors, keep a record of its stockholders listing their names and addresses and the number and class of shares held by each stockholder, a copy of these Bylaws as amended to date, accounting books and other records. Any stockholder of record, in person or by attorney or other agent, shall, upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose the Corporation's stock ledger, a list of its stockholders, and its other books and records and to make copies or extracts therefrom. A proper purpose shall mean a purpose reasonably related to such person's interest as a stockholder. In every instance where an attorney or other agent is the person who seeks the right to inspection, the demand under oath shall be accompanied by a power of attorney or such other writing that authorizes the attorney or other agent to so act on behalf of the stockholder. The demand under oath shall be directed to the Corporation at its registered office in Delaware or at its principal place of business. The officer who has charge of the stock ledger of a Corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city -18- 23 where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. 7.2 INSPECTION BY DIRECTORS Any director shall have the right to examine the Corporation's stock ledger, a list of its stockholders and its other books and records for a purpose reasonably related to his or her position as a director. The Court of Chancery is hereby vested with the exclusive jurisdiction to determine whether a director is entitled to the inspection sought. The Court may summarily order the Corporation to permit the director to inspect any and all books and records, the stock ledger, and the stock list and to make copies or extracts therefrom. The Court may, in its discretion, prescribe any limitations or conditions with reference to the inspection, or award such other and further relief as the Court may deem just and proper. 7.3 ANNUAL STATEMENT TO STOCKHOLDERS The Board of Directors shall present at each annual meeting, and at any special meeting of the stockholders when called for by vote of the stockholders, a full and clear statement of the business and condition of the Corporation. 7.4 REPRESENTATION OF SHARES OF OTHER CORPORATIONS The chairman of the board, the president, any vice president, the chief financial officer, the Secretary or assistant Secretary of this Corporation, or any other person authorized by the Board of Directors or the president or a vice president, is authorized to vote, represent, and exercise on behalf of this Corporation all rights incident to any and all shares of any other Corporation or Corporations standing in the name of this Corporation. The authority herein granted may be exercised either by such person directly or by any other person authorized to do so by proxy or power of attorney duly executed by such person having the authority. -19- 24 ARTICLE VIII GENERAL MATTERS 8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING For purposes of determining the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any other lawful action (other than action by stockholders by written consent without a meeting), the Board of Directors may fix, in advance, a record date, which shall not be more than sixty (60) days before any such action. In that case, only stockholders of record at the close of business on the date so fixed are entitled to receive the dividend, distribution or allotment of rights, or to exercise such rights, as the case may be, notwithstanding any transfer of any shares on the books of the Corporation after the record date so fixed, except as otherwise provided by law. If the Board of Directors does not so fix a record date, then the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the board adopts the applicable resolution or the sixtieth (60th) day before the date of that action, whichever is later. 8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS From time to time, the Board of Directors shall determine by resolution which person or persons may sign or endorse all checks, drafts, other orders for payment of money, notes or other evidences of indebtedness that are issued in the name of or payable to the Corporation, and only the persons so authorized shall sign or endorse those instruments. 8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED The Board of Directors, except as otherwise provided in these Bylaws, may authorize any officer or officers, or agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the Corporation; such authority may be general or confined to specific instances. Unless so authorized or ratified by the Board of Directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the Corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount. 8.4 STOCK CERTIFICATES; PARTLY PAID SHARES The shares of a Corporation shall be represented by certificates, provided that the Board of Directors of the Corporation may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the Corporation. Notwithstanding the adoption of such a resolution by the Board of Directors, every holder of stock -20- 25 represented by certificates and upon request every holder of uncertificated shares shall be entitled to have a certificate signed by, or in the name of the Corporation by, the chairman or vice-chairman of the Board of Directors, or the president or vice-president, and by the chief financial officer, the Secretary or an assistant Secretary of such Corporation representing the number of shares registered in certificate form. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate has ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he or she were such officer, transfer agent or registrar at the date of issue. The Corporation may issue the whole or any part of its shares as partly paid and subject to call for the remainder of the consideration to be paid therefor. Upon the face or back of each stock certificate issued to represent any such partly paid shares, upon the books and records of the Corporation in the case of uncertificated partly paid shares, the total amount of the consideration to be paid therefor and the amount paid thereon shall be stated. Upon the declaration of any dividend on fully paid shares, the Corporation shall declare a dividend upon partly paid shares of the same class, but only upon the basis of the percentage of the consideration actually paid thereon. 8.5 SPECIAL DESIGNATION ON CERTIFICATES If the Corporation is authorized to issue more than one class of stock or more than one series of any class, then the powers, the designations, the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate that the Corporation shall issue to represent such class or series of stock; provided, however, that, except as otherwise provided in Section 202 of the General Corporation Law of Delaware, in lieu of the foregoing requirements there may be set forth on the face or back of the certificate that the Corporation shall issue to represent such class or series of stock a statement that the Corporation will furnish without charge to each stockholder who so requests the powers, the designations, the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. 8.6 LOST CERTIFICATES Except as provided in this Section 8.6, no new certificates for shares shall be issued to replace a previously issued certificate unless the latter is surrendered to the Corporation and canceled at the same time. The Board of Directors may, in case any share certificate or certificate for any other security is lost, stolen or destroyed, authorize the issuance of replacement certificates on such terms and conditions as the board may require; the board may require indemnification of the Corporation secured by a bond or other adequate security sufficient to protect the Corporation against any claim that may be made against it, including any expense or liability, on account of the alleged loss, theft or destruction of the certificate or the issuance of the replacement certificate. -21- 26 8.7 CONSTRUCTION; DEFINITIONS Unless the context requires otherwise, the general provisions, rules of construction, and definitions in the General Corporation Law of Delaware shall govern the construction of these Bylaws. Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular, and the term "person" includes both a Corporation and a natural person. 8.8 RESTRICTIONS ON TRANSFER OF SHARES Before there can be a valid sale or transfer for consideration of any of the Common Stock or Series E Preferred Stock of the Corporation by any holder thereof, such holder shall first offer those shares to the Corporation in the manner set forth in this Section 8.8: (a) The offering stockholder shall deliver a notice in writing by mail or otherwise to the Secretary of the Corporation stating the price, terms, and conditions of such proposed sale or transfer, the number of shares to be sold or transferred, and such stockholder's intention so to sell or transfer the shares. (b) If the Corporation desires to acquire all or any of the shares subject to the said notice, then within fifteen (15) days after receipt of the notice of intent to sell or transfer the shares, the Corporation shall mail or deliver to the stockholder a written offer of the Corporation to acquire a specified number of the shares offered at the price and upon the terms and conditions stated in the notice. Within the limitations herein provided, the Corporation may purchase the shares of this Corporation from any offering stockholder; provided, however, that at no time shall the Corporation be permitted to purchase all of its outstanding voting shares. (c) The right of the Corporation to purchase all or any part of the shares subject to the notice may be assigned in whole or in part to any stockholder or stockholders of the Corporation or to other persons or organizations. (d) If none or only a part of the shares in the offering stockholder's notice to the Secretary is purchased by the Corporation or its assignee within a sixty (60) day period from the date of delivery of the notice by the offering stockholder, the offering stockholder may sell or transfer to any person or persons all shares of stock referred to in his notice to the Secretary that were not purchased by the Corporation or its assignee but only within a period of one hundred twenty (120) days from the date of his first notice; provided, however, that he shall not sell or transfer such shares at a lower price or on terms more favorable to the purchaser or transferee than those specified in his notice to the Secretary. After said 120-day period, the foregoing procedure for first offering shares to the Corporation shall again apply. (e) Any sale or transfer or purported sale or transfer of the shares of the Corporation shall be null and void unless the terms, conditions, and provisions of this Section 8.8 are strictly observed and followed. -22- 27 (f) The Corporation shall place the following legend on each certificate of its Common Stock and Series E Preferred Stock: "Transfer of the shares represented by this certificate is restricted by Section 8.8 of the Bylaws of this Corporation." (g) Notwithstanding the foregoing, the restrictions on transfer contained in this Section 8.8 shall expire upon the closing of the Corporation's Initial Public Offering. ARTICLE IX AMENDMENTS The original or other Bylaws of the Corporation may be adopted, amended or repealed by the stockholders entitled to vote; provided, however, that the Corporation may, in its Certificate of Incorporation, confer the power to adopt, amend or repeal Bylaws upon the Directors. The fact that such power has been so conferred upon the Directors shall not divest the stockholders of the power, nor limit their power to adopt, amend or repeal Bylaws. Notwithstanding any other provision of these Bylaws, (1) whenever any provision of these Bylaws shall require for action by the stockholders, the affirmative vote of a greater number of stockholders than would otherwise be required to amend these Bylaws, such provision of shall not be altered, amended or repealed by the stockholders, and the stockholders shall not adopt any bylaw inconsistent therewith, except by such greater vote or by the written consent of such greater number of stockholders; and (2) whenever any provision of these Bylaws shall require for action by written consent of the stockholders, the consent of a greater number of stockholders than would otherwise be required to amend these Bylaws by written consent of the stockholders, such provision shall not be altered, amended or repealed by the stockholders by written consent and the stockholders shall not, by written consent, adopt any bylaw inconsistent therewith, except by the written consent of such greater number of stockholders. ARTICLE X DISSOLUTION If it should be deemed advisable in the judgment of the Board of Directors of the Corporation that the Corporation should be dissolved, the board, after the adoption of a resolution to that effect by a majority of the whole board at any meeting called for that purpose, shall cause notice to be mailed to each stockholder entitled to vote thereon of the adoption of the resolution and of a meeting of stockholders to take action upon the resolution. At the meeting a vote shall be taken for and against the proposed dissolution. If a majority of the outstanding stock of the Corporation entitled to vote thereon votes for the proposed dissolution, then a certificate stating that the dissolution has been authorized in accordance with the provisions of Section 275 of the General Corporation Law of Delaware and setting forth the names and residences of the Directors and officers shall be executed, acknowledged, and filed and shall become effective -23- 28 in accordance with Section 103 of the General Corporation Law of Delaware. Upon such certificate's becoming effective in accordance with Section 103 of the General Corporation Law of Delaware, the Corporation shall be dissolved. Whenever all the stockholders entitled to vote on a dissolution consent in writing, either in person or by duly authorized attorney, to a dissolution, no meeting of Directors or stockholders shall be necessary. The consent shall be filed and shall become effective in accordance with Section 103 of the General Corporation Law of Delaware. Upon such consent's becoming effective in accordance with Section 103 of the General Corporation Law of Delaware, the Corporation shall be dissolved. If the consent is signed by an attorney, then the original power of attorney or a photocopy thereof shall be attached to and filed with the consent. The consent filed with the Secretary of State shall have attached to it the affidavit of the Secretary or some other officer of the Corporation stating that the consent has been signed by or on behalf of all the stockholders entitled to vote on a dissolution; in addition, there shall be attached to the consent a certification by the Secretary or some other officer of the Corporation setting forth the names and residences of the Directors and officers of the Corporation. ARTICLE XI CUSTODIAN 11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES The Court of Chancery, upon application of any stockholder, may appoint one or more persons to be custodians and, if the Corporation is insolvent, to be receivers, of and for the Corporation when: (i) at any meeting held for the election of Directors the stockholders are so divided that they have failed to elect successors to Directors whose terms have expired or would have expired upon qualification of their successors; or (ii) the business of the Corporation is suffering or is threatened with irreparable injury because the Directors are so divided respecting the management of the affairs of the Corporation that the required vote for action by the Board of Directors cannot be obtained and the stockholders are unable to terminate this division; or (iii) the Corporation has abandoned its business and has failed within a reasonable time to take steps to dissolve, liquidate or distribute its assets. 11.2 DUTIES OF CUSTODIAN The custodian shall have all the powers and title of a receiver appointed under Section 291 of the General Corporation Law of Delaware, but the authority of the custodian shall be to continue the -24- 29 business of the Corporation and not to liquidate its affairs and distribute its assets, except when the Court of Chancery otherwise orders and except in cases arising under Sections 226(a)(3) or 352(a)(2) of the General Corporation Law of Delaware. -25- 30 CERTIFICATE OF ADOPTION OF AMENDED AND RESTATED BYLAWS OF THE GYMBOREE CORPORATION The undersigned hereby certifies that he is the duly elected, qualified, and acting Secretary of The Gymboree Corporation and that the foregoing Amended and Restated Bylaws were adopted as the Bylaws of the Corporation by this Corporation's Board of Directors effective on September 2, 1999. IN WITNESS WHEREOF, the undersigned has hereunto set his hand and affixed the corporate seal this 8th day of September 1999. /s/ Jeffrey D. Saper ---------------------------------------- Jeffrey D. Saper Secretary -26- EX-10.32 3 CREDIT AGREEMENT 1 EXHIBIT 10.32 CREDIT AGREEMENT Dated as of August 25, 1999 among THE GYMBOREE CORPORATION THE FINANCIAL INSTITUTIONS PARTY HERETO and BANK OF AMERICA, N.A., as Agent, Lead Arranger, and Sole Book Manager 2 TABLE OF CONTENTS ARTICLE I DEFINITIONS.......................................................................1 1.01 Certain Defined Terms...............................................................1 1.02 Other Interpretive Provisions......................................................17 1.03 Accounting Principles..............................................................18 1.04 Currency Equivalents Generally.....................................................19 ARTICLE II THE CREDITS.....................................................................19 2.01 Amounts and Terms of Commitments...................................................19 2.02 Loan Accounts......................................................................19 2.03 Procedure for Borrowing............................................................20 2.04 Conversion and Continuation Elections..............................................21 2.05 Voluntary Termination or Reduction of Commitments..................................22 2.06 Optional Prepayments...............................................................22 2.07 Mandatory Prepayments of Loans.....................................................23 2.08 Repayment..........................................................................23 2.09 Interest...........................................................................23 2.11 Fees...............................................................................24 2.12 Computation of Fees and Interest...................................................24 2.13 Payments by the Company............................................................25 2.14 Payments by the Banks to the Agent.................................................25 2.15 Sharing of Payments, Etc...........................................................26 2.16 Subsidiary Co-Borrowers............................................................26 ARTICLE III THE LETTERS OF CREDIT..........................................................27 3.01 The Letter of Credit Subfacility...................................................27 3.02 Issuance, Amendment and Renewal of Letters of Credit...............................28 3.03 Existing Letters of Credit; Risk Participations, Drawings and Reimbursements.......30 3.04 Repayment of Participations........................................................32 3.05 Role of the Issuing Bank...........................................................32 3.06 Obligations Absolute...............................................................33 3.07 Cash Collateral Pledge.............................................................34 3.08 Letter of Credit Fees..............................................................34 3.09 Uniform Customs and Practice.......................................................35 ARTICLE IV TAXES, YIELD PROTECTION AND ILLEGALITY..........................................35 4.01 Taxes..............................................................................35 4.02 Illegality.........................................................................37 4.03 Increased Costs and Reduction of Return............................................37 4.04 Funding Losses.....................................................................38 4.05 Inability to Determine Rates.......................................................38 4.06 Reserves on Eurodollar Rate Loans..................................................39 4.07 Certificates of Banks..............................................................39
i 3 4.08 Substitution of Banks..............................................................39 4.09 Survival...........................................................................39 ARTICLE V CONDITIONS PRECEDENT.............................................................40 5.01 Conditions of Initial Loans........................................................40 5.02 Conditions to All Borrowings.......................................................41 ARTICLE VI REPRESENTATIONS AND WARRANTIES..................................................42 6.01 Corporate Existence and Power......................................................42 6.02 Corporate Authorization; No Contravention..........................................42 6.03 Governmental Authorization.........................................................43 6.04 Binding Effect.....................................................................43 6.05 Litigation.........................................................................43 6.06 No Default.........................................................................43 6.07 ERISA Compliance...................................................................44 6.08 Use of Proceeds; Margin Regulations................................................44 6.09 Title to Properties................................................................44 6.10 Taxes..............................................................................44 6.11 Financial Condition................................................................45 6.12 Environmental Matters..............................................................45 6.13 Regulated Entities.................................................................45 6.14 No Burdensome Restrictions.........................................................45 6.15 Copyrights, Patents, Trademarks and Licenses, etc..................................45 6.16 Subsidiaries.......................................................................46 6.17 Insurance..........................................................................46 6.18 Swap Obligations...................................................................46 6.19 Subsidiary Guaranty................................................................46 6.20 Full Disclosure....................................................................46 ARTICLE VII AFFIRMATIVE COVENANTS..........................................................47 7.01 Financial Statements...............................................................47 7.02 Certificates; Other Information....................................................48 7.03 Notices............................................................................48 7.04 Preservation of Corporate Existence, Etc...........................................49 7.05 Maintenance of Property............................................................50 7.06 Insurance..........................................................................50 7.07 Payment of Obligations.............................................................50 7.08 Compliance with Laws...............................................................50 7.09 Compliance with ERISA..............................................................51 7.10 Inspection of Property and Books and Records.......................................51 7.11 Environmental Laws.................................................................51 7.12 Use of Proceeds....................................................................51 7.13 Subsidiary Guaranty................................................................51 7.14 Pari-Passu Obligations.............................................................51
ii 4 ARTICLE VIII NEGATIVE COVENANTS............................................................52 8.01 Limitation on Liens................................................................52 8.02 Disposition of Assets..............................................................53 8.03 Consolidations and Mergers.........................................................54 8.04 Loans and Investments..............................................................54 8.05 Limitation on Indebtedness.........................................................55 8.06 Transactions with Affiliates.......................................................56 8.07 Use of Proceeds....................................................................56 8.08 Contingent Obligations.............................................................56 8.09 Joint Ventures.....................................................................57 8.10 Operating Lease Obligations........................................................57 8.11 Restricted Payments................................................................57 8.12 ERISA..............................................................................58 8.13 Change in Business.................................................................58 8.14 Accounting Changes.................................................................58 8.15 LiquidityRatio......................................................................58 8.16 Tangible Net Worth..................................................................58 8.17 Capital Expenditures................................................................58 8.18 Restrictive Agreements..............................................................58 ARTICLE IX EVENTS OF DEFAULT...............................................................58 9.01 Event of Default...................................................................58 9.02 Remedies...........................................................................61 9.03 Rights Not Exclusive...............................................................61 ARTICLE X THE AGENT........................................................................61 10.01 Appointment and Authorization;....................................................61 10.02 Delegation of Duties..............................................................62 10.03 Liability of Agent................................................................62 10.04 Reliance by Agent.................................................................62 10.05 Notice of Default.................................................................63 10.06 Credit Decision...................................................................63 10.07 Indemnification of Agent..........................................................64 10.08 Agent in Individual Capacity......................................................64 10.09 Successor Agent...................................................................64 10.10 Withholding Tax...................................................................65 ARTICLE XI MISCELLANEOUS...................................................................66 11.01 Amendments and Waivers............................................................66 11.02 Notices...........................................................................67 11.03 No Waiver; Cumulative Remedies....................................................68 11.04 Costs and Expenses................................................................68 11.05 Company Indemnification...........................................................68 11.06 Payments Set Aside................................................................69 11.07 Successors and Assigns............................................................69
iii 5 11.08 Assignments, Participations, etc..................................................69 11.09 Confidentiality...................................................................70 11.10 Set-off...........................................................................71 11.11 Automatic Debits of Fees..........................................................71 11.12 Notification of Addresses, Lending Offices, Etc...................................72 11.13 Counterparts......................................................................72 11.14 Severability......................................................................72 11.15 No Third Parties Benefitted.......................................................72 11.16 Governing Law and Jurisdiction....................................................72 11.17 Waiver of Jury Trial..............................................................73 11.18 Joint and Several Liability of the Company and the Subsidiary Co-Borrowers; Waiver of Certain Defenses......................................................73 11.19 Judgment..........................................................................74 11.20 Entire Agreement..................................................................75
iv 6 SCHEDULES Schedule 1.01 Pricing Schedule Schedule 2.01 Commitments Schedule 3.03 Existing Letters of Credit Schedule 11.02 Lending Offices; Addresses for Notices EXHIBITS Exhibit A Notice of Borrowing Exhibit B Notice of Conversion/Continuation Exhibit C Compliance Certificate Exhibit D Legal Opinion of Company's Counsel Exhibit E Assignment and Acceptance Exhibit F Promissory Note Exhibit G Subsidiary Guaranty Exhibit H Subsidiary Co-Borrower Agreement v 7 This CREDIT AGREEMENT, dated as of August 25, 1999, is among THE GYMBOREE CORPORATION, a Delaware corporation (the "Company"), the several financial institutions from time to time party to this Agreement (collectively, the "Banks"; individually, a "Bank"), and BANK OF AMERICA, N.A., as letter of credit issuing bank and agent for the Banks. In consideration of the mutual agreements, provisions and covenants contained herein, the parties agree as follows: ARTICLE I DEFINITIONS 1.01 Certain Defined Terms. The following terms have the following meanings: "Acquisition" means any transaction or series of related transactions for the purpose of or resulting, directly or indirectly, in (a) the acquisition of all or substantially all of the assets of a Person, or of any business or division of a Person, (b) the acquisition of in excess of 50% of the capital stock, partnership interests, membership interests or equity of any Person, or otherwise causing any Person to become a Subsidiary, or (c) a merger or consolidation or any other combination with another Person (other than a Person that is a Subsidiary) provided that the Company or the Subsidiary is the surviving entity. "Affiliate" means, as to any Person, any other Person which, directly or indirectly, is in control of, is controlled by, or is under common control with, such Person. A Person shall be deemed to control another Person if the controlling Person possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of the other Person, whether through the ownership of voting securities, membership interests, by contract, or otherwise. "Agent" means Bank of America in its capacity as agent for the Banks hereunder, and any successor agent arising under Section 10.09. "Agent-Related Persons" means Bank of America, any successor agent arising under Section 10.09, any subagents or other delegatees under Section 10.02, and any replacement Issuing Bank, together with their respective Affiliates, and the officers, directors, employees, agents and attorneys-in-fact of such Persons and Affiliates. "Agent's Payment Office" means the office for payments set forth on Schedule 11.02 or such other address as the Agent may from time to time notify to the Company and the Banks. "Agreement" means this Credit Agreement. 1 8 "Applicable Margin" means (a) with respect to Base Rate Loans, 0%; (b) with respect to Eurodollar Rate Loans, (A) 0.750% during any Level I Period, (B) 1.000% during any Level II Period, and (C) 1.500% during any Level III Period; and (c) with respect to Commercial Letters of Credit, (A) 0.100% during any Level I Period, (B) 0.125% during any Level II Period, and (C) 0.150% during any Level III Period "Assignee" has the meaning specified in subsection 11.08(a). "Attorney Costs" means and includes all fees and disbursements of any law firm or other external counsel, the allocated cost of internal legal services and all disbursements of internal counsel. "Bank" has the meaning specified in the introductory clause hereto. References to the "Banks" shall include references to Bank of America in its capacity as Issuing Bank; for purposes of clarification only, to the extent that Bank of America may have any rights or obligations in addition to those of the Banks due to its status as Issuing Bank, its status as such will be specifically referenced. "Bankruptcy Code" means the Federal Bankruptcy Reform Act of 1978 (11 U.S.C. '101, et seq.). "Base Rate" means, for any day the higher of: (i) 0.50% per annum above the latest Federal Funds Rate; and (ii) the Reference Rate. "Base Rate Loan" means a Loan that bears interest based on the Base Rate. "Bank of America" means Bank of America, N.A. "Borrowing" means a borrowing hereunder consisting of Revolving Loans of the same Type made to the Company on the same day by the Banks under Article II, and, other than in the case of Base Rate Loans, having the same Interest Period. "Borrowing Date" means any date on which a Borrowing occurs under Section 2.03. "Business Day" means any day other than a Saturday, Sunday or other day on which commercial banks in New York City or San Francisco are authorized or required by law to close and with respect to Eurodollar Rate Loans, a day on which dealings are carried on in the applicable Eurodollar Dollar interbank market. 2 9 "Capital Adequacy Regulation" means any guideline, request or directive of any central bank or other Governmental Authority, or any other law, rule or regulation, whether or not having the force of law, in each case, regarding capital adequacy of any bank or of any corporation controlling a bank. "Capital Expenditures" means, for any period, the capital expenditures of the Company and its Subsidiaries for such period, as the same are (or would in accordance with GAAP be) set forth in a consolidated statement of changes in financial position or cash flows of the Company and its Subsidiaries for such period. "Cash Collateralize" means to pledge and deposit with or deliver to the Agent, for the benefit of the Agent, the Issuing Bank and the Banks, as collateral for the L/C Obligations, cash or deposit account balances pursuant to documentation in form and substance satisfactory to the Agent and the Issuing Bank (which documents are hereby consented to by the Banks). Derivatives of such term shall have corresponding meaning. The Company hereby grants the Agent, for the benefit of the Agent, the Issuing Bank and the Banks, a security interest in all such cash and deposit account balances. Cash collateral shall be maintained in blocked, deposit accounts at Bank of America, which, unless otherwise agreed between the Company and Bank of America, shall bear interest at the overnight corporate deposit rate generally offered by Bank of America for overnight corporate deposits of equivalent amounts. "Cash Equivalents" means (a) securities issued or directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof (provided that the full faith and credit of the United States of America is pledged in support thereof) having maturities of not more than one year from the date of acquisition, (b) U.S. dollar denominated time deposits, certificates of deposits and bankers' acceptances of (i) any Bank or (ii) any bank whose short term commercial paper rating from S&P is at least A-1 or the equivalent thereof or from Moody's is at least P-1 or the equivalent thereof (any such bank, an "Approved Lender"), in each case with maturities of note more than 270 days from the date of acquisition, (c) commercial paper issued by any Bank or any Approved Lender or by the parent company of any Bank or any Approved Lender and commercial paper issued by, or guaranteed by, any company with a short-term commercial paper rating of at least A-1 or the equivalent thereof by S&P or at least P-1 or the equivalent by Moody's, or guaranteed by a company with a long term unsecured debt rating of at least A or A2 or the equivalent thereof from S&P or Moody's, as the case may be, in each case maturing not more than 270 days after the date of acquisition, and (d) investments in money market funds substantially all of the assets of which are comprised of the securities of the types described in clauses (a) through (c) above. "Change of Control" means that any Person or two or more Persons acting in concert shall have acquired beneficial ownership (within the meaning of Rule 13d-3 of the SEC under the Exchange Act) of 50% or more of the outstanding shares of voting 3 10 stock of the Company and shall have the right to elect or designate a majority of the directors of the Company. "Closing Date" means the date on which all conditions precedent set forth in Section 5.01 are satisfied or waived by all Banks (or, in the case of subsection 5.01(f), waived by the Person entitled to receive such payment). "Commercial Letter of Credit" means a letter of credit used in connection with the purchase of inventory by the Company or its Subsidiaries. "Commitment", as to each Bank, has the meaning specified in Section 2.01. "Compliance Certificate" means a certificate substantially in the form of Exhibit C. "Contingent Obligation" means, as to any Person, any direct or indirect liability of that Person, whether or not contingent, with or without recourse, (a) with respect to any Indebtedness, lease, dividend, letter of credit or other obligation (the "primary obligations") of another Person (the "primary obligor"), including any obligation of that Person (i) to purchase, repurchase or otherwise acquire such primary obligations or any security therefor, (ii) to advance or provide funds for the payment or discharge of any such primary obligation, or to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency or any balance sheet item, level of income or financial condition of the primary obligor, (iii) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation, or (iv) otherwise to assure or hold harmless the holder of any such primary obligation against loss in respect thereof (each, a "Guaranty Obligation"); (b) with respect to any Surety Instrument (other than a Letter of Credit) issued for the account of that Person or as to which that Person is otherwise liable for reimbursement of drawings or payments; (c) to purchase any materials, supplies or other property from, or to obtain the services of, another Person if the relevant contract or other related document or obligation requires that payment for such materials, supplies or other property, or for such services, shall be made regardless of whether delivery of such materials, supplies or other property is ever made or tendered, or such services are ever performed or tendered, or (d) in respect of any Swap Contract. The amount of any Contingent Obligation shall, in the case of Guaranty Obligations, be deemed equal to the stated or determinable amount of the primary obligation in respect of which such Guaranty Obligation is made or, if not stated or if indeterminable, the maximum reasonably anticipated liability in respect thereof, and in the case of other Contingent Obligations other than in respect of Swap Contracts, shall be equal to the maximum reasonably anticipated liability in respect thereof and, in the case of Contingent Obligations in respect of Swap Contracts, shall be equal to the Swap Termination Value. 4 11 "Contractual Obligation" means, as to any Person, any provision of any security issued by such Person or of any agreement, undertaking, contract, indenture, mortgage, deed of trust or other instrument, document or agreement to which such Person is a party or by which it or any of its property is bound. "Conversion/Continuation Date" means any date on which, under Section 2.04, the Company (a) converts Loans of one Type to another Type, or (b) continues as Loans of the same Type, but with a new Interest Period, Loans having Interest Periods expiring on such date. "Credit Extension" means and includes (a) the making of any Loans hereunder, and (b) the Issuance of any Letters of Credit. "Default" means any Event of Default or any event or circumstance which, with the giving of notice, the lapse of time, or both, would (if not cured or otherwise remedied during such time) constitute an Event of Default. "Disclosure Letter" means the letter from the Company to the Agent dated as of the Closing Date and disclosing certain information concerning the Company in form and substance acceptable to the Banks in their sole and absolute discretion. "Dollars", "dollars" and "$" each mean lawful money of the United States. "Eligible Assignee" means (i) a Bank; (ii) an Affiliate of a Bank; and (iii) any other Person approved by the Agent and, unless an Event of Default has occurred and is continuing at the time any assignment is effected in accordance with Section 11.8, the Company, such approval not to be unreasonably withheld or delayed by the Company and such approval to be deemed given by the Company if no objection is received by the assigning Bank and the Agent from the Company within two Business Days after notice of such proposed assignment has been provided by the assigning Bank to the Company; provided that neither the Company nor an affiliate of the Company shall qualify as an Eligible Assignee. "Environmental Claims" means all claims, however asserted, by any Governmental Authority or other Person alleging potential liability or responsibility for violation of any Environmental Law, or for release or injury to the environment. "Environmental Laws" means all federal, state or local laws, statutes, common law duties, rules, regulations, ordinances and codes, together with all administrative orders, directed duties, requests, licenses, authorizations and permits of, and agreements with, any Governmental Authorities, in each case relating to environmental, health, safety and land use matters. "ERISA" means the Employee Retirement Income Security Act of 1974, and regulations promulgated thereunder. 5 12 "ERISA Affiliate" means any trade or business (whether or not incorporated) under common control with the Company within the meaning of Section 414(b) or (c) of the IRC (and Sections 414(m) and (o) of the IRC for purposes of provisions relating to Section 412 of the IRC). "ERISA Event" means (a) a Reportable Event with respect to a Pension Plan; (b) a withdrawal by the Company or any ERISA Affiliate from a Pension Plan subject to Section 4063 of ERISA during a plan year in which it was a substantial employer (as defined in Section 4001(a)(2) of ERISA) or a cessation of operations which is treated as such a withdrawal under Section 4062(e) of ERISA; (c) a complete or partial withdrawal by the Company or any ERISA Affiliate from a Multiemployer Plan or notification that a Multiemployer Plan is in reorganization; (d) the filing of a notice of intent to terminate, the treatment of a Plan amendment as a termination under Section 4041 or 4041A of ERISA, or the commencement of proceedings by the PBGC to terminate a Pension Plan or Multiemployer Plan; (e) an event or condition which might reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan or Multiemployer Plan; or (f) the imposition of any liability under Title IV of ERISA, other than PBGC premiums due but not delinquent under Section 4007 of ERISA, upon the Company or any ERISA Affiliate. "Eurodollar Rate" means, for any Eurodollar Rate Loan for any Interest Period therefor, the rate per annum (rounded upwards if necessary, to the nearest 1/100 of 1%) appearing on Telerate Page 3750 (or any successor page) as the London interbank offered rate for deposits in Dollars at approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period. If for any reason such rate is not available, the term "Eurodollar Rate" shall mean, for any Eurodollar Rate Loan for any Interest Period therefor, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on Reuters Screen LIBO Page as the London interbank offered rate for deposits in Dollars at approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period; provided that, if more than one rate is specified on Reuters Screen LIBO Page, the applicable rate shall be the arithmetic mean of all such rates (rounded upwards, if necessary, to the nearest 1/100 of 1%). "Eurodollar Rate Loan" means a Loan that bears interest based on the Eurodollar Rate. "Event of Default" means any of the events or circumstances specified in Section 9.01. "Exchange Act" means the Securities Exchange Act of 1934, and regulations promulgated thereunder. "Existing Letters of Credit" means the letters of credit described in Schedule 3.03. 6 13 "FDIC" means the Federal Deposit Insurance Corporation, and any Governmental Authority succeeding to any of its principal functions. "Federal Funds Rate" means, for any day, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day; provided that (a) if such day is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (b) if no such rate is so published on such next succeeding Business Day, the Federal Funds Rate for such day shall be the average rate charged to the Agent (in its individual capacity) on such day on such transactions as determined by the Agent. "Fee Letter" has the meaning specified in subsection 2.11(a). "Financial Projections" means, with respect to any period, the Company's and its consolidated Subsidiaries' consolidated financial plan and projected results of operations for such period prepared in summary form showing on a fiscal year basis, beginning and ending balance sheets, projected source and application of funds, projected expenses and sales and other revenues, a statement of the assumptions on which such projections are based, anticipated compliance levels with respect to the financial tests of Sections 8.15, 8.16, and 8.17, and such other matters and in such detail as Agent shall reasonably request, all prepared on a basis consistent with the financial statements most recently delivered to Lender pursuant to Section 7.01 and in form and substance satisfactory to Agent. "FX Trading Office" means the Foreign Exchange Trading Center #5193, San Francisco, California, of Bank of America, or such other of Bank of America's offices as Bank of America may designate from time to time. "Further Taxes" means any and all present or future taxes, levies, assessments, imposts, duties, deductions, fees, withholdings or similar charges (including, without limitation, net income taxes and franchise taxes), and all liabilities with respect thereto, imposed by any jurisdiction on account of Taxes or Other Taxes payable or paid pursuant to Section 4.01. "GAAP" means generally accepted accounting principles set forth from time to time in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board (or agencies with similar functions of comparable stature and authority within the U.S. accounting profession). 7 14 "Governmental Authority" means any nation or government, any state or other political subdivision thereof, any central bank (or similar monetary or regulatory authority) thereof, any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, and any corporation or other entity owned or controlled, through stock or capital ownership or otherwise, by any of the foregoing. "Guarantor" means any Subsidiary Guarantor and any other guarantor under any Guaranty. "Guaranty" means the Subsidiary Guaranty and any other guaranty of all or any part of the Obligations. "Guaranty Obligation" has the meaning specified in the definition of "Contingent Obligation." "Honor Date" has the meaning specified in subsection 3.03(c). "Indebtedness" of any Person means, without duplication, (a) all indebtedness for borrowed money; (b) all obligations issued, undertaken or assumed as the deferred purchase price of property or services (other than trade payables entered into in the ordinary course of business on ordinary terms); (c) all non-contingent reimbursement or payment obligations with respect to Surety Instruments; (d) all obligations evidenced by notes, bonds, debentures or similar instruments, including obligations so evidenced incurred in connection with the acquisition of property, assets or businesses; (e) all indebtedness created or arising under any conditional sale or other title retention agreement, or incurred as financing, in either case with respect to property acquired by the Person (even though the rights and remedies of the seller or bank under such agreement in the event of default are limited to repossession or sale of such property); (f) all obligations with respect to capital leases; (g) all indebtedness referred to in clauses (a) through (f) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien upon or in property (including accounts and contracts rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness; and (h) all Guaranty Obligations in respect of indebtedness or obligations of others of the kinds referred to in clauses (a) through (g) above. For all purposes of this Agreement, the Indebtedness of any Person shall include all recourse Indebtedness of any partnership or joint venture (which is a partnership) in which such Person is a general partner or a joint venturer. "Indemnified Liabilities" has the meaning specified in Section 11.05. "Indemnified Person" has the meaning specified in Section 11.05. "Independent Auditor" has the meaning specified in subsection 7.01(a). 8 15 "Insolvency Proceeding" means, with respect to any Person, (a) any case, action or proceeding with respect to such Person before any court or other Governmental Authority relating to bankruptcy, reorganization, insolvency, liquidation, receivership, dissolution, winding-up or relief of debtors, or (b) any general assignment for the benefit of creditors, composition, marshalling of assets for creditors, or other, similar arrangement in respect of its creditors generally or any substantial portion of its creditors; undertaken under U.S. Federal, state or foreign law, including the Bankruptcy Code. "Interest Payment Date" means, as to any Loan other than a Base Rate Loan, the last day of each Interest Period applicable to such Loan and, as to any Base Rate Loan, the last Business Day of each calendar month; provided that if any Interest Period exceeds three months, the date that falls three months after the beginning of such Interest Period and after each Interest Payment Date thereafter is also an Interest Payment Date. "Interest Period" means: (a) as to any Eurodollar Rate Loan, the period commencing on the Borrowing Date of such Loan or on the Conversion/Continuation Date on which the Loan is converted (in the case of a Loan in Dollars) into or continued as an Eurodollar Rate Loan, and ending on the date two weeks or one, two, three or six months thereafter (and any other period that is 12 months or less and is consented to by the Majority Banks in the given instance) as selected by the Company in its Notice of Borrowing or Notice of Conversion/Continuation; provided that: (i) if any Interest Period would otherwise end on a day that is not a Business Day, that Interest Period shall be extended to the following Business Day unless, in the case of an Eurodollar Rate Loan, the result of such extension would be to carry such Interest Period into another calendar month, in which event such Interest Period shall end on the preceding Business Day; (ii) any Interest Period longer than two weeks pertaining to an Eurodollar Rate Loan that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the calendar month at the end of such Interest Period; and (iii) no Interest Period for any Loan shall extend beyond the Revolving Termination Date as in effect on the date such Interest Period is determined. "IRC" means the Internal Revenue Code of 1986, and regulations promulgated thereunder. "IRS" means the Internal Revenue Service, and any Governmental Authority succeeding to any of its principal functions under the IRC. 9 16 "Issuance Date" has the meaning specified in subsection 3.01(a). "Issue" means, with respect to any Letter of Credit, to incorporate the Existing Letters of Credit into this Agreement, or to issue or to extend the expiry of, or to renew or increase the amount of, such Letter of Credit; and the terms "Issued," "Issuing" and "Issuance" have corresponding meanings. "Issuing Bank" means Bank of America in its capacity as issuer of one or more Letters of Credit hereunder, together with any replacement letter of credit issuer arising under subsection 10.01(b) or Section 10.09. "Joint Venture" means a partnership, limited liability company, joint venture or other similar legal arrangement (whether created by contract or conducted through a separate legal entity) now or hereafter formed by the Company or any of its Subsidiaries with another Person in order to conduct a common venture or enterprise with such Person. "L/C Advance" means each Bank's participation in any L/C Borrowing in accordance with its Pro Rata Share. "L/C Amendment Application" means an application form for amendment of an outstanding Letter of Credit as shall at any time be in use at the Issuing Bank, as the Issuing Bank shall request. "L/C Application" means an application form for the issuance of a Letter of Credit as shall at any time be in use at the Issuing Bank, as the Issuing Bank shall request. "L/C Borrowing" means an extension of credit resulting from a drawing under any Letter of Credit which shall not have been reimbursed on the date when made nor converted into a Borrowing of Revolving Loans under subsection 3.03(c). "L/C Commitment" means the commitment of the Issuing Bank to Issue, and the commitment of the Banks severally to participate in, Letters of Credit (including the Existing Letters of Credit) from time to time Issued or outstanding under Article III, in an aggregate amount not to exceed on any date the amounts set forth in Section 3.01, as the same shall be reduced as a result of a reduction in the Commitments pursuant to Section 2.05; provided that the L/C Commitment is a part of the combined Commitments, rather than a separate, independent commitment. "L/C Obligations" means with respect to all Letters of Credit or any category thereof at any time the sum of (a) the aggregate undrawn amount of all such Letters of Credit then outstanding, plus (b) the amount of all unreimbursed drawings under all such Letters of Credit, including all outstanding L/C Borrowings. 10 17 "L/C-Related Documents" means the Letters of Credit, the L/C Applications, the L/C Amendment Applications and any other document relating to any Letter of Credit, including any of the Issuing Bank's standard form documents for letter of credit issuances. "Lending Office" means, as to any Bank, the office or offices of such Bank specified as its "Lending Office" or "Domestic Lending Office" in the case of Base Rate Loans and its "Eurodollar Lending Office" in the case of Eurodollar Rate Loans, as the case may be, on Schedule 11.02. "Letters of Credit" means the Existing Letters of Credit and any letters of credit (whether a Standby Letter of Credit, Usance Letter of Credit, or Commercial Letter of Credit, each being a "Class" of Letter of Credit) Issued by the Issuing Bank pursuant to Article III. "Level I Period" means a period commencing (x) on the Closing Date or (y) five days after the Agent has received a Compliance Certificate pursuant to Section 7.02(b) which shows a Tangible Net Worth for the preceding fiscal quarter which equals or exceeds the correlative amount set forth below for such fiscal quarter on Schedule 1.01 and, in the case of (x) or (y), continuing until the earlier of (A) five days after the next such Compliance Certificate is received by the Agent and (B) five days after the next such Compliance Certificate and accompanying financial statements are required to be delivered to the Agent under Sections 7.01(a) or (b) (as applicable) and 7.02(b). "Level II Period" means a period (i) commencing five days after the Agent has received a Compliance Certificate pursuant to Section 6.02(b) which shows a Tangible Net Worth for the preceding fiscal quarter which equals or exceeds the correlative amount set forth below for such fiscal quarter on Schedule 1.01 continuing until the earlier of (A) five days after the next such Compliance Certificate is received by the Agent and (B) five days after the next such Compliance Certificate and accompanying financial statements are required to be delivered to the Agent under Sections 7.01(a) or (b) (as applicable) and 7.02(b) and (ii) which is not a Level I Period. "Level III Period" means any period which is not a Level I Period or a Level II Period. "Lien" means any security interest, mortgage, deed of trust, pledge, hypothecation, assignment, charge or deposit arrangement, encumbrance, lien (statutory or other) or preferential arrangement of any kind or nature whatsoever in respect of any property (including those created by, arising under or evidenced by any conditional sale or other title retention agreement, the interest of a lessor under a capital lease, any financing lease having substantially the same economic effect as any of the foregoing, or the filing of any financing statement naming the owner of the asset to which such lien relates as debtor, under the Uniform Commercial Code or any comparable law) and any contingent or other agreement to provide any of the foregoing, but not including the interest of a lessor under an operating lease. 11 18 "Liquidity Ratio" means at any time the ratio of (a) the cash, readily marketable securities, and credit card receivables (but not exceeding $5,000,000 with respect to such receivables) of the Company on a consolidated basis to (b) the total of all outstanding L/C Obligations and Revolving Loans. "Loan" means an extension of credit by a Bank to the Company under Article II or Article III in the form of a Revolving Loan or L/C Advance. "Loan Documents" means this Agreement, any Notes, the Fee Letters, the Disclosure Letter, the Subsidiary Co-Borrower Agreements, the L/C-Related Documents, the Subsidiary Guaranty and all other documents delivered to the Agent or any Bank in connection herewith. "Majority Banks" means at any time (a) if there is just one Bank, then that Bank or (b) if there is more than one Bank, then at least two Banks then holding at least 66-2/3% of the then aggregate unpaid principal amount of the Loans, or, if no such principal amount is then outstanding, at least two Banks then having at least 66-2/3% of the Commitments. "Margin Stock" means "margin stock" as such term is defined in Regulation T, U or X of the FRB. "Material Adverse Effect" means (a) a material adverse change in, or a material adverse effect upon, the operations, business, properties, condition (financial or otherwise) or prospects of the Company or the Company and its Subsidiaries taken as a whole; (b) a material impairment of the ability of the Company or any Subsidiary to perform under any Loan Document and to avoid any Event of Default; or (c) a material adverse effect upon the legality, validity, binding effect or enforceability against the Company or any Subsidiary of any Loan Document. "Material Subsidiary" means, at any time, any Subsidiary of the Company designated as a "Subsidiary Guarantor" on Schedule 6.16 to the Disclosure Letter and any other Subsidiary having at such time (on a sub-consolidated basis, i.e., for such Subsidiary and its Subsidiaries) either (i) total net revenues for the preceding four fiscal quarter period equal to or greater than 5% of the Company's consolidated total net revenues for the same period or (ii) total assets, as of the last day of the preceding fiscal quarter, equal to or greater than 5% of the Company's consolidated total assets on the same date, in each case, based upon the Company's most recent annual or quarterly financial statements delivered under Section 7.01. "Minimum Tranche" means, in respect of Revolving Loans comprising part of the same Borrowing, or to be converted or continued under Section 2.04, (a) in the case of Base Rate Loans, $1,000,000 or any multiple of $100,000 in excess thereof, and (b) in the case of Eurodollar Rate Loans, $2,000,000 or any multiple of $100,000 in excess thereof. 12 19 "Moody's" means Moody's Investors Service, Inc., and its successors. "Multiemployer Plan" means a "multiemployer plan", within the meaning of Section 4001(a)(3) of ERISA, to which the Company or any ERISA Affiliate makes, is making, or is obligated to make contributions or, during the preceding three calendar years, has made, or been obligated to make, contributions. "Note" means a promissory note executed by the Company in favor of a Bank pursuant to subsection 2.02(b), in substantially the form of Exhibit F. "Notice of Borrowing" means a notice in substantially the form of Exhibit A. "Notice of Conversion/Continuation" means a notice in substantially the form of Exhibit B. "Obligations" means all Loans, L/C Obligations and other advances, debts, liabilities, obligations, covenants and duties arising under any Loan Document owing by the Company to any Bank, the Agent, or any Indemnified Person, whether direct or indirect (including those acquired by assignment), absolute or contingent, due or to become due, now existing or hereafter arising. "Organization Documents" means, for any corporation, the certificate or articles of incorporation, the bylaws, any certificate of determination or instrument relating to the rights of preferred shareholders of such corporation, any shareholder rights agreement, and all applicable resolutions of the board of directors (or any committee thereof) of such corporation. "Other Taxes" means any present or future stamp, court or documentary taxes or any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or from the execution, delivery, performance, enforcement or registration of, or otherwise with respect to, this Agreement or any other Loan Documents, excluding, in the case of each Bank and the Agent, respectively, taxes imposed on or measured by its net income by the jurisdiction (or any political subdivision thereof) under the laws of which such Bank or the Agent, as the case may be, is organized or maintains a Lending Office. "PBGC" means the Pension Benefit Guaranty Corporation, or any Governmental Authority succeeding to any of its principal functions under ERISA. "Pension Plan" means a pension plan (as defined in Section 3(2) of ERISA) subject to Title IV of ERISA which the Company sponsors, maintains, or to which it makes, is making, or is obligated to make contributions, or in the case of a multiple employer plan (as described in Section 4064(a) of ERISA) has made contributions at any time during the immediately preceding five (5) plan years. 13 20 "Permitted Liens" has the meaning specified in Section 8.01. "Permitted Swap Obligations" means all obligations (contingent or otherwise) of the Company or any Subsidiary existing or arising under Swap Contracts, provided that each of the following criteria is satisfied: (a) such obligations are (or were) entered into by such Person in the ordinary course of business for the purpose of directly mitigating risks associated with liabilities, commitments or assets held or reasonably anticipated by such Person, or changes in the value of securities issued by such Person in conjunction with a securities repurchase program not otherwise prohibited hereunder, and not for purposes of speculation or taking a "market view"; and (b) such Swap Contracts do not contain any provision ("walk-away" provision) exonerating the non-defaulting party from its obligation to make payments on outstanding transactions to the defaulting party. "Person" means an individual, partnership, corporation, limited liability company, business trust, joint stock company, trust, unincorporated association, joint venture or Governmental Authority. "Plan" means an employee benefit plan (as defined in Section 3(3) of ERISA) which the Company sponsors or maintains or to which the Company makes, is making, or is obligated to make contributions and includes any Pension Plan. "Pro Rata Share" means, as to any Bank at any time, the percentage equivalent (expressed as a decimal, rounded to the ninth decimal place) at such time of such Bank's Commitment divided by the combined Commitments of all Banks. "Quarterly Date" means the last Business Day of each January, April, July, and October. "Reference Rate" means the rate of interest in effect for such day as publicly announced from time to time by Bank of America in San Francisco, California, as its "reference rate." (The "reference rate" is a rate set by Bank of America based upon various factors including Bank of America's costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above, or below such announced rate.) Any change in the reference rate announced by Bank of America shall take effect at the opening of business on the day specified in the public announcement of such change. "Replacement Bank" has the meaning specified in Section 4.08. "Reportable Event" means, any of the events set forth in Section 4043(b) of ERISA or the regulations thereunder, other than any such event for which the 30-day notice requirement under ERISA has been waived in regulations issued by the PBGC. 14 21 "Requirement of Law" means, as to any Person, any law (statutory or common), treaty, rule or regulation or determination of an arbitrator or of a Governmental Authority, in each case applicable to or binding upon the Person or any of its property or to which the Person or any of its property is subject. "Responsible Officer" means the chief executive officer or the president of the Company, any other officer having substantially the same authority and responsibility, or any officer having the title of senior or executive vice president; or, with respect to compliance with financial covenants, the chief financial officer, the treasurer, or the chief accounting officer of the Company, or any other officer having substantially the same authority and responsibility. "Revolving Loan" has the meaning specified in Section 2.01 whether an Eurodollar Rate Loan or Base Rate Loan. "Revolving Termination Date" means the earlier to occur of: (a) May 31, 2000; and (b) the date on which the Commitments otherwise terminate in accordance with the provisions of this Agreement. "S&P" means Standard & Poor's Ratings Group, a division of McGraw-Hill, Inc., and its successors. "SEC" means the Securities and Exchange Commission, or any Governmental Authority succeeding to any of its principal functions. "Spot Rate" for a currency means the rate quoted by Bank of America as the spot rate for the purchase by Bank of America of such currency with another currency through its FX Trading Office at approximately 8:00 a.m. (San Francisco time) on the date two Banking Days prior to the date as of which the foreign exchange computation is made. "Standby Letter of Credit" means a letter of credit, other than a Commercial Letter of Credit, given to provide assurances of payment or performance. "Subsidiary" of a Person means any corporation, association, partnership, limited liability company, joint venture or other business entity of which more than 50% of the voting stock, membership interests or other equity interests (in the case of Persons other than corporations), is owned or controlled directly or indirectly by the Person, or one or more of the Subsidiaries of the Person, or a combination thereof. Unless the context otherwise clearly requires, references herein to a "Subsidiary" refer to a Subsidiary of the Company. 15 22 "Subsidiary Co-Borrower" means any Subsidiary of the Company designated as a "Subsidiary Co-Borrower" on Schedule 6.16 to the Disclosure Letter which has executed and delivered a Subsidiary Co-Borrower Agreement pursuant to Section 2.16. "Subsidiary Co-Borrower Agreement" means a Subsidiary Co-Borrower Agreement in the form of Exhibit H, with such changes as the Agent shall have approved. "Subsidiary Guarantor" means any Subsidiary of the Company which has become a party to the Subsidiary Guaranty. "Subsidiary Guaranty" means the Guaranty by certain Subsidiaries of the Company substantially in the form of Exhibit G with such changes as the Agent shall have approved or otherwise acceptable to Majority Banks. "Surety Instruments" means all letters of credit, banker's acceptances, bank guaranties, shipside bonds, surety bonds and similar instruments. "Swap Contract" means any agreement, whether or not in writing, relating to any transaction that is a rate swap, basis swap, forward rate transaction, commodity swap, commodity option, equity or equity index swap or option, bond, note or bill option, interest rate option, forward foreign exchange transaction, cap, collar or floor transaction, currency swap, cross-currency rate swap, swaption, currency option or any other, similar transaction (including any option to enter into any of the foregoing) or any combination of the foregoing, and, unless the context otherwise clearly requires, any master agreement relating to or governing any or all of the foregoing. "Swap Termination Value" means, in respect of any one or more Swap Contracts, after taking into account the effect of any legally enforceable netting agreement relating to such Swap Contracts, (a) for any date on or after the date such Swap Contracts have been closed out and termination value(s) determined in accordance therewith, such termination value(s), and (b) for any date prior to the date referenced in clause (a) the amount(s) determined as the mark-to-market value(s) for such Swap Contracts, as determined by the Company based upon one or more mid-market or other readily available quotations provided by any recognized dealer in such Swap Contracts (which may include any Bank.) "Tangible Net Worth" means at any time, on a consolidated basis, the gross book value of the Company's assets (excluding goodwill, patents, trademarks, trade names, organization expense, treasury stock, unamortized debt discount and expense, capitalized or deferred research and development costs, deferred marketing expenses, deferred receivables, and other like intangibles, and monies due from affiliates, officers, directors, or shareholders of the Company) less total liabilities (including but not limited to accrued and deferred income taxes and excluding liabilities related to redeemable preferred stock) and any reserves against assets; in calculating the Company's Tangible Net Worth in accordance with the foregoing definition, the gross book value of the Company's assets 16 23 shall include the aggregate gross book value of the Company's lease rights up to a maximum aggregate value of $2,500,000 for all such lease rights; provided that Tangible Net Worth shall not include any amount received by the Company with respect to the issuance of its equity securities after the end of the 1998 fiscal year. "Taxes" means any and all present or future taxes, levies, assessments, imposts, duties, deductions, fees, withholdings or similar charges, and all liabilities with respect thereto, excluding, in the case of each Bank and the Agent, respectively, taxes imposed on or measured by its net income by the jurisdiction (or any political subdivision thereof) under the laws of which such Bank or the Agent, as the case may be, is organized or maintains a Lending Office. "Type" of Loan means a Base Rate Loan or an Eurodollar Rate Loan. "UCC" means the California Uniform Commercial Code. "Unfunded Pension Liability" means the excess of a Plan's benefit liabilities under Section 4001(a)(16) of ERISA, over the current value of that Plan's assets, determined in accordance with the assumptions used for funding the Pension Plan pursuant to Section 412 of the IRC for the applicable plan year. "Unused Commitments" means at any time, the amount by which the total of the Commitments exceeds the sum of the outstanding principal balance of the Revolving Loans and the L/C Obligations. "Usance Letter of Credit" means a Commercial Letter of Credit under which the drafts are payable other than at sight. "United States" and "U.S." each means the United States of America. "Wholly-Owned Subsidiary" means any corporation in which (other than directors' qualifying shares required by law) 100% of the capital stock of each class having ordinary voting power, and 100% of the capital stock of every other class, in each case, at the time as of which any determination is being made, is owned, beneficially and of record, by the Company, or by one or more of the other Wholly-Owned Subsidiaries, or both. 1.02 Other Interpretive Provisions. (a) The meanings of defined terms are equally applicable to the singular and plural forms of the defined terms. (b) The words "hereof", "herein", "hereunder" and similar words refer to this Agreement as a whole and not to any particular provision of this Agreement; and subsection, Section, Schedule and Exhibit references are to this Agreement unless otherwise specified. 17 24 (c) (i) The term "documents" includes any and all instruments, documents, agreements, certificates, indentures, notices and other writings, however evidenced. (ii) The term "including" is not limiting and means "including without limitation." (iii) In the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including"; the words "to" and "until" each mean "to but excluding", and the word "through" means "to and including." (d) Unless otherwise expressly provided herein, (i) references to agreements (including this Agreement) and other contractual instruments shall be deemed to include all subsequent amendments and other modifications thereto, but only to the extent such amendments and other modifications are not prohibited by the terms of any Loan Document, and (ii) references to any statute or regulation are to be construed as including all statutory and regulatory provisions consolidating, amending, replacing, supplementing or interpreting the statute or regulation. (e) The captions and headings of this Agreement are for convenience of reference only and shall not affect the interpretation of this Agreement. (f) This Agreement and other Loan Documents may use several different limitations, tests or measurements to regulate the same or similar matters. All such limitations, tests and measurements are cumulative and shall each be performed in accordance with their terms. Unless otherwise expressly provided, any reference to any action of the Agent or the Banks by way of consent, approval or waiver shall be deemed modified by the phrase "in its/their sole discretion." (g) This Agreement and the other Loan Documents are the result of negotiations among, and have been reviewed by counsel to, the Agent, the Company and the other parties, and are the products of all parties. Accordingly, they shall not be construed against the Banks or the Agent merely because of the Agent's or Banks' involvement in their preparation. 1.03 Accounting Principles. (a) Unless the context otherwise clearly requires, all accounting terms not expressly defined herein shall be construed, and all financial computations required under this Agreement shall be made, in accordance with GAAP, consistently applied. (b) References herein to "fiscal year" and "fiscal quarter" refer to such fiscal periods of the Company. References to a fiscal year are based on the calendar year in which the first day of the fiscal year occurs (e.g., a fiscal year which begins on January 31, 1999, is the "1999 fiscal year"). (c) If GAAP changes during the term of this Agreement such that the covenants contained in Article VIII would then be calculated in a different manner or with different components (i) the parties to this Agreement will amend this Agreement in such respects as are 18 25 necessary to conform those covenants as criteria for evaluating the Company's financial condition to substantially the same criteria as were effective prior to such change in GAAP and (ii) the Company will be deemed to be in compliance with the covenant contained in such sections following any such change in GAAP until such amendment is entered into if and to the extent that the Company would have been in compliance therewith under GAAP as in effect immediately prior to such change. 1.04 Currency Equivalents Generally. For all purposes of this Agreement (but not for purposes of the preparation of any financial statements delivered pursuant hereto), the equivalent in any non-Dollar currency of an amount in Dollars, and the equivalent in Dollars of an amount in any non-Dollar currency, shall be determined at the Spot Rate. ARTICLE II THE CREDITS 2.01 Amounts and Terms of Commitments. Each Bank severally agrees, on the terms and conditions set forth herein, to make loans to the Company (each such loan, a "Revolving Loan") from time to time on any Business Day during the period from the Closing Date to the Revolving Termination Date and to participate in the L/C Obligations, in an aggregate principal amount not to exceed at any time outstanding the amount set forth opposite the Bank's name with respect to such time in Schedule 2.01 under the heading "Commitment" (such amount as the same may be reduced pursuant to Section 2.05 or as a result of one or more assignments pursuant to Section 11.08, the Bank's "Commitment"); provided that, after giving effect to any Borrowing of Revolving Loans, (x) the amount of all outstanding Revolving Loans, and the amount of all L/C Obligations at any time shall not exceed the combined Commitments as in effect at such time, and (y) the amount of all outstanding Revolving Loans and the amount of all L/C Obligations in respect of Usance Letters of Credit shall not at any time exceed $15,000,000. Within the limits of each Bank's Commitment, and subject to the other terms and conditions hereof, the Company may borrow under this Section 2.01, prepay pursuant to Section 2.06 and reborrow pursuant to this Section 2.01. 2.02 Loan Accounts. (a) The Loans made by each Bank and Letters of Credit Issued by the Issuing Bank shall be evidenced by one or more loan accounts or records maintained by such Bank or Issuing Bank, as the case may be, in the ordinary course of business. The loan accounts or records maintained by the Agent, the Issuing Bank, and each Bank shall be conclusive absent manifest error of the amount of the Loans made by the Banks to the Company and the Letters of Credit Issued for the account of the Company, and the interest and payments thereon. Any failure so to record or any error in doing so shall not, however, limit or otherwise affect the obligation of the Company hereunder to pay any amount owing with respect to the Loans or the Letters of Credit. (b) Upon the request of any Bank made through the Agent, the Loans made by such Bank may be evidenced by one or more Notes, instead of or in addition to loan accounts. Each such Bank shall endorse on the schedules annexed to its Note(s) the date, amount and maturity of each Loan made by it and the amount of each payment of principal made by the 19 26 Company with respect thereto. Each such Bank is irrevocably authorized by the Company to endorse its Note(s) and each Bank's record shall be conclusive absent manifest error; provided that the failure of a Bank to make, or an error in making, a notation thereon with respect to any Loan shall not limit or otherwise affect the obligations of the Company hereunder or under any such Note to such Bank. 2.03 Procedure for Borrowing. (a) Each Borrowing shall be made upon the Company's notice to the Agent in the form of a Notice of Borrowing (which notice must be received by the Agent prior to 11:00 a.m. (San Francisco time) (i) three Business Days prior to the requested Borrowing Date, in the case of Eurodollar Rate Loans; and (ii) one Business Day prior to the requested Borrowing Date, in the case of Base Rate Loans (provided that if a Notice of Borrowing is given in respect of Base Rate Loans in Dollars by 9:00 a.m. San Francisco time on any Business Day, such Loans shall be made on the same day), specifying: (A) the amount of the Borrowing, which shall be in an aggregate amount not less than the Minimum Tranche; (B) the requested Borrowing Date, which shall be a Business Day; (C) the Type of Loans comprising the Borrowing; (D) other than in the case of Base Rate Loans, the duration of the requested Interest Period; and (E) the name of the Subsidiary Co-Borrower, if any, with respect to such Borrowing. Each such Notice of Borrowing shall be irrevocable. (b) Upon receipt of the Notice of Borrowing, the Agent will promptly notify each Bank thereof and of the amount of such Bank's Pro Rata Share of the Borrowing. (c) Each Bank will make the amount of its Pro Rata Share of each Borrowing available to the Agent for the account of the Company at the Agent's Payment Office on the Borrowing Date requested by the Company in immediately available funds by 11:00 a.m. (San Francisco time). The proceeds of all such Loans will then be made available to the Company or the Subsidiary Co-Borrower, as the case may be, by the Agent at such office by crediting the account of the Company (or the Subsidiary Co-Borrower, as the case may be) on the books of Bank of America with, or by wire transfer in accordance with written instructions provided to the Agent by the Company at the time of giving the relevant Notice of Borrowing of, the aggregate of the amounts made available to the Agent by the Banks and in like funds as received by the Agent. (d) After giving effect to any Borrowing, unless the Agent and Majority Banks shall otherwise consent, there may not be more than 7 different Interest Periods in effect. 20 27 2.04 Conversion and Continuation Elections. (a) The Company may, upon irrevocable written notice to the Agent in accordance with subsection 2.04(b): (i) elect, as of any Business Day, in the case of Base Rate Loans other than L/C Advances, or as of the last day of the applicable Interest Period, in the case of Eurodollar Rate Loans, to convert any such Loans (or any part thereof in an amount not less than the Minimum Tranche) into Loans of another Type; or (ii) elect, as of the last day of the applicable Interest Period, to continue any Loans other than L/C Advances having Interest Periods expiring on such day as Eurodollar Rate Loans (or any part thereof in an amount not less than the Minimum Tranche); provided that if at any time the aggregate amount of Eurodollar Rate Loans in respect of any Borrowing is reduced, by payment, prepayment, or conversion of part thereof to be less than $2,000,000, such Eurodollar Rate Loans shall automatically convert into Base Rate Loans, and on and after such date the right of the Company to continue such Loans as, and convert such Loans into, Eurodollar Rate Loans shall terminate; the Agent will promptly notify the Company and the Banks of any such automatic conversion and provided further so long as any Event of Default has occurred and is continuing, Loans may be converted or continued only into or as Base Rate Loans. (b) The Company shall deliver a Notice of Conversion/Continuation to be received by the Agent not later than 11:00 a.m. (or 10:00 a.m. in the case of clause (i) below)(San Francisco time) at least (i) three Business Days in advance of the Conversion/Continuation Date, if the Loans are to be converted into or continued as Eurodollar Rate Loans; and (ii) one Business Day in advance of the Conversion/Continuation Date, if the Loans are to be converted into Base Rate Loans (provided that if a Notice of Conversion/Continuation is given in respect of Base Rate Loans by 9:00 a.m. San Francisco time on any Business Day, such Loans shall be made on the same day), specifying: (A) the proposed Conversion/Continuation Date; (B) the aggregate amount of Loans to be converted or continued; (C) the Type of Loans resulting from the proposed conversion or continuation; (D) other than in the case of conversions into Base Rate Loans, the duration of the requested Interest Period; and (E) the Subsidiary Co-Borrower, if any, with respect to such Borrowing. 21 28 (c) If upon the expiration of any Interest Period applicable to Eurodollar Rate Loans in Dollars, the Company has failed to select timely a new Interest Period to be applicable to such Eurodollar Rate Loans, or if any Event of Default then exists, the Company shall be deemed to have elected to continue such Eurodollar Rate Loans as Eurodollar Rate Loans with an Interest Period of one month. The Agent, on a courtesy basis, shall notify the Company of the expiration of each Interest Period, but shall have no liability for its failure to do so. (d) The Agent will promptly notify each Bank of its receipt of a Notice of Conversion/Continuation, or, if no timely notice is provided by the Company, the Agent will promptly notify each Bank and the Company of the details of any automatic conversion. All conversions and continuations shall be made ratably among the Banks according to the respective outstanding principal amounts of the Loans with respect to which the notice was given. (e) After giving effect to any conversion or continuation of Loans, unless the Agent and Majority Banks shall otherwise consent, there may not be more than 7 different Interest Periods in effect. 2.05 Voluntary Termination or Reduction of Commitments. The Company may, upon not less than five Business Days' prior notice to the Agent, terminate the Commitments or permanently reduce the Commitments by an aggregate minimum amount of $1,000,000 or any multiple of $1,000,000 in excess thereof; unless, after giving effect thereto and to any prepayments of Loans made on the effective date thereof, the amount of all Loans and L/C Obligations would exceed the amount of the combined Commitments then in effect. Any reduction of the Commitments shall be applied to each Bank according to its Pro Rata Share. All accrued but unpaid commitment and letter of credit fees to, but not including the effective date of any reduction or termination of Commitments and any termination fee associated therewith, shall be paid on the effective date of such reduction or termination. 2.06 Optional Prepayments. Subject to Section 4.04, the Company may, at any time or from time to time, ratably prepay Loans in whole or in part, in minimum amounts of $1,000,000 or any multiple of $100,000 in excess thereof, or in other amounts with the consent of Majority Banks. The Company shall deliver a notice of prepayment in accordance with Section 11.02 to be received by the Agent not later than 11:00 a.m. (San Francisco time) (i) at least three Business Days in advance of the prepayment date if the Loans to be prepaid are Eurodollar Rate Loans, and (ii) at least one Business Day in advance of the prepayment date if the Loans to be prepaid are Base Rate Loans (provided that if a notice of prepayment is given in respect of Base Rate Loans in Dollars by 9:00 a.m. San Francisco time on any Business Day, such Loans may be prepaid on the same day). Such notice of prepayment shall specify the date and amount of such prepayment and whether such prepayment is of Base Rate Loans, Eurodollar Rate Loans, or any combination thereof. Such notice shall not thereafter be revocable by the Company and the Agent will promptly notify each Bank thereof and of such Bank's Pro Rata Share of such prepayment. If such notice is given by the Company, the Company shall make such prepayment and the payment amount specified in such notice shall be due and payable on the date specified therein, together with accrued interest to each such date on the amount prepaid and any amounts required pursuant to Section 4.04. 22 29 2.07 Mandatory Prepayments of Loans. If on any date the amount of L/C Obligations of any Class exceeds the L/C Commitment of that Class, the Company shall Cash Collateralize on such date the outstanding Letters of Credit in an amount equal to the excess of the maximum amount then available to be drawn under such Letters of Credit over such L/C Commitment until such excess no longer exists. Subject to Section 4.04, if on any date after giving effect to any Cash Collateralization made on such date pursuant to the preceding sentence, the amount of all Loans then outstanding plus the amount of all L/C Obligations exceeds the combined Commitments, the Company shall upon demand by the Agent made at the request of any Bank, prepay the outstanding principal amount of the Loans, by an amount equal to the applicable excess. 2.08 Repayment. The Company shall repay to the Banks on the Revolving Termination Date the aggregate principal amount of Revolving Loans outstanding on such date. 2.09 Interest. (a) Each Revolving Loan shall bear interest on the outstanding principal amount thereof from the applicable Borrowing Date to the date repaid or prepaid at a rate per annum equal to the Eurodollar Rate or the Base Rate, as the case may be, plus the Applicable Margin. (b) Interest on each Revolving Loan shall be paid in arrears on each Interest Payment Date. Interest shall also be paid on the date of any prepayment of Loans under Section 2.06, 2.07 or 2.10 for the portion of the Loans so prepaid and upon payment (including prepayment) in full thereof and, during the existence of any Event of Default, interest shall be paid on demand of the Agent at the request or with the consent of the Majority Banks. Notwithstanding subsection (a) of this Section, while any Event of Default exists or after acceleration, the Borrower shall pay interest (after as well as before entry of judgment thereon to the extent permitted by law) on the principal amount of all outstanding Obligations, at a rate per annum which is determined by adding 2% per annum to the Applicable Margin then in effect for such Loans and, in the case of Obligations not subject to an Applicable Margin, at a rate per annum equal to the Base Rate plus 2%; provided that, on and after the expiration of any Interest Period applicable to any Eurodollar Rate Loan outstanding on the date of occurrence of such Event of Default or acceleration, the principal amount of such Loan shall, during the continuation of such Event of Default or after acceleration, bear interest at a rate per annum equal to the Base Rate plus 2%. (c) Anything herein to the contrary notwithstanding, the obligations of the Company to any Bank hereunder shall be subject to the limitation that payments of interest shall not be required for any period for which interest is computed hereunder, to the extent (but only to the extent) that contracting for or receiving such payment by such Bank would be contrary to the provisions of any law applicable to such Bank limiting the highest rate of interest that may be lawfully contracted for, charged or received by such Bank, and in such event the Company shall pay such Bank interest at the highest rate permitted by applicable law. 23 30 2.11 Fees. In addition to the fees specified in Section 3.08: (a) Arrangement, Agency Fees. The Company shall pay an agency fee to the Agent for the Agent's own account, as required by the letter agreement ("Fee Letter") between the Company and the Agent dated August 25, 1999. (b) Commitment Fees. Upon the occurrence and during the continuance of an Event of Default, the Company shall pay to the Agent for the ratable account of the Banks in proportion to their Pro Rata Shares, a commitment fee on the average daily Unused Commitments equal to 0.50% per annum. Such commitment fee shall be due and payable quarterly in arrears on each Quarterly Date after the Closing Date and before the Revolving Termination Date, with the final payment to be made on the Revolving Termination Date; provided that, in connection with any reduction or termination of Commitments under Section 2.05, the accrued commitment fee calculated for the period ending on such date shall also be paid on the date of such reduction or termination, with the following quarterly payment being calculated on the basis of the period from such reduction or termination date to the next Quarterly Date. The commitment fees under this subsection accrue and are payable without regard to whether one or more conditions in Article V are not met. (c) Termination Fee. Upon any termination or reduction of the Commitments pursuant to Section 2.05, the Company shall, on the effective date of such reduction or termination, pay to the Agent for the ratable account of the Banks a termination fee equal to 0.250 % of the amount of the Commitments being so terminated or reduced. (d) Non-Renewal Fee. On the Revolving Termination Date, the Company shall pay to the Agent for the ratable account of the Banks a termination fee equal to 0.250 % of the amount of the Commitments as in effect immediately prior to the Revolving Termination Date; provided that such fee shall not be payable if (a) the Revolving Termination Date has been extended to on or after May 31, 2001, or (b) the Company has obtained a fully committed replacement credit facility of not less than $50,000,000 from Bank of America or its Affiliates; provided further that neither Bank of America nor any of its Affiliates shall be under any obligation to make any such replacement facility available to the Company. (e) Accrual. All fees, including fees under Section 3.08 are fully-earned when due and non-refundable when paid. 2.12 Computation of Fees and Interest. (a) All computations of fees and of interest for Base Rate Loans when the Base Rate is determined by Bank of America's "reference rate" shall be made on the basis of a year of 365 or 366 days, as the case may be, and actual days elapsed. All other computations of interest shall be made on the basis of a 360-day year and actual days elapsed (which results in more interest being paid than if computed on the basis of a 365-day year). Interest and fees shall accrue during each period during which interest or such fees are computed from the first day thereof to the last day thereof. 24 31 (b) Each determination of an interest rate by the Agent shall be conclusive and binding on the Company and the Banks in the absence of manifest error. 2.13 Payments by the Company. (a) All payments to be made by the Company shall be made without set-off, recoupment or counterclaim. Except as otherwise expressly provided herein, all payments by the Company shall be made to the Agent for the account of the Banks at the Agent's Payment Office. Such payments shall be made in immediately available funds no later than 11:00 a.m. (San Francisco time) on the date specified herein. The Agent will promptly distribute to each Bank its Pro Rata Share (or other applicable share as expressly provided herein) of such principal, interest, fees or other amounts, in like funds as received. Any payment which is received by the Agent later than 11:00 a.m. (San Francisco time) shall be deemed to have been received on the following Business Day and any applicable interest or fee shall continue to accrue. (b) All payments to be made by the Company to any Issuing Bank on account of drawings, interest, fees and other amounts required hereunder with respect to any Letter of Credit issued by it shall be made without set-off or counterclaim and shall be made to the Agent for the account of such Issuing Bank in accordance with Article III, except in each case to the extent that a Bank is entitled to share in any such payment as a result of its participation therein in accordance with the provisions of Section 2.10 or 3.03, as the case may be. (c) Subject to the provisions set forth in the definition of "Interest Period" herein, whenever any payment is due on a day other than a Business Day, such payment shall be made on the following Business Day, and such extension of time shall in such case be included in the computation of interest or fees, as the case may be. (d) Unless the Agent receives notice from the Company prior to the date on which any payment is due to the Banks that the Company will not make such payment in full as and when required, the Agent may assume that the Company has made such payment in full to the Agent on such date in immediately available funds and the Agent may (but shall not be so required), in reliance upon such assumption, distribute to each Bank on such due date an amount equal to the amount then due such Bank. If and to the extent the Company has not made such payment in full to the Agent, each Bank shall repay to the Agent on demand such amount distributed to such Bank, together with interest thereon at the Federal Funds Rate for each day from the date such amount is distributed to such Bank until the date repaid. 2.14 Payments by the Banks to the Agent. (a) Unless the Agent receives notice from a Bank on or prior to the Closing Date or, with respect to any Borrowing after the Closing Date, at least one Business Day prior to the date of such Borrowing, that such Bank will not make available as and when required hereunder to the Agent for the account of the Company the amount of that Bank's Pro Rata Share of the Borrowing, the Agent may assume that each Bank has made such amount available to the Agent in immediately available funds on the Borrowing Date and the Agent may (but shall not be so required), in reliance upon such assumption, make available to the Company on such date a corresponding amount. If and to the extent any Bank shall not have made its full amount available to the Agent in immediately available funds and the 25 32 Agent in such circumstances has made available to the Company such amount, that Bank shall on the Business Day following such Borrowing Date make such amount available to the Agent, together with interest at the Federal Funds Rate for each day during such period. A notice of the Agent submitted to any Bank with respect to amounts owing under this subsection (a) shall be conclusive, absent manifest error. If such amount is so made available, such payment to the Agent shall constitute such Bank's Loan on the date of Borrowing for all purposes of this Agreement. If such amount is not made available to the Agent on the Business Day following the Borrowing Date, the Agent will notify the Company of such failure to fund and, upon demand by the Agent, the Company shall pay such amount to the Agent for the Agent's account, together with interest thereon for each day elapsed since the date of such Borrowing, at a rate per annum equal to the interest rate applicable at the time to the Loans comprising such Borrowing. (b) The failure of any Bank to make any Loan on any Borrowing Date shall not relieve any other Bank of any obligation hereunder to make a Loan on such Borrowing Date, but no Bank shall be responsible for the failure of any other Bank to make the Loan to be made by such other Bank on any Borrowing Date. 2.15 Sharing of Payments, Etc. If, other than as expressly provided elsewhere herein, any Bank shall obtain on account of its Loans, any payment (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise) in excess of its ratable share (or other share contemplated hereunder), such Bank shall immediately (a) notify the Agent of such fact, and (b) purchase from the other Banks such participations in the Loans made by them as shall be necessary to cause such purchasing Bank to share the excess payment pro rata with each of them; provided that if all or any portion of such excess payment is thereafter recovered from the purchasing Bank, such purchase shall to that extent be rescinded and each other Bank shall repay to the purchasing Bank the purchase price paid therefor, together with an amount equal to such paying Bank's ratable share (according to the proportion of (i) the amount of such paying Bank's required repayment to (ii) the total amount so recovered from the purchasing Bank) of any interest or other amount paid or payable by the purchasing Bank in respect of the total amount so recovered. The Company agrees that any Bank so purchasing a participation from another Bank may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of set-off, but subject to Section 10.10) with respect to such participation as fully as if such Bank were the direct creditor of the Company in the amount of such participation. The Agent will keep records (which shall be conclusive and binding in the absence of manifest error) of participations purchased under this Section and will in each case notify the Banks following any such purchases or repayments. 2.16 Subsidiary Co-Borrowers. (a) Subject to the terms and conditions of subsection (b) of this Section, the Company may, upon giving any Notice of Borrowing or request for Issuance, designate as a part thereof, one of the Subsidiary Co-Borrowers to be a co-borrower with the Company with respect to such Borrowing or Issuance, as the case may be. A Subsidiary Co-Borrower in respect of a Borrowing or Letter of Credit shall be jointly and severally liable with the Company for the 26 33 payment of all principal, interest, L/C Obligations, and other sums (including amounts owing under Articles IV and XI) in connection with such Borrowing or Letter of Credit. (b) No Person shall become a Subsidiary Co-Borrower with respect to any Borrowing or Letter of Credit unless the Agent has received counterparts of a Subsidiary Co-Borrower Agreement, signed by each of the Company and such Subsidiary Guarantor (or, in the case of any party as to which an executed counterpart shall have been received, receipt by the Agent in form satisfactory to it of telegraphic, telex, facsimile transmission or other written confirmation from such party of execution of a counterpart hereof by such party). (c) The Company shall from time to time provide to the Agent, with sufficient copies for each Bank, all documents, if any, the Majority Banks may reasonably request relating to the existence, status, and capacity of the Subsidiary Co-Borrowers and the corporate authority for, and the validity, force, and effect of the Subsidiary Co-Borrower Agreement and other Loan Documents and any other matters relevant hereto or thereto, all in form and substance satisfactory to the Majority Banks. ARTICLE III THE LETTERS OF CREDIT 3.01 The Letter of Credit Subfacility. (a) On the terms and conditions set forth herein (i) the Issuing Bank agrees, (A) from time to time on any Business Day during the period from the Closing Date to the Revolving Termination Date to issue Letters of Credit for the account of the Company, and to amend or renew Letters of Credit previously issued by it, in accordance with subsections 3.02(c) and 3.02(d), and (B) to honor drafts under the Letters of Credit; and (ii) the Banks severally agree to participate in Letters of Credit Issued for the account of the Company; provided that the Issuing Bank shall not be obligated to Issue, and no Bank shall be obligated to participate in, any Letter of Credit if as of the Issuance Date of such Letter of Credit (the "Issuance Date"): (1) the amount of all L/C Obligations plus the amount of all Revolving Loans exceeds the combined Commitments, (2) the participation of any Bank in the amount of all L/C Obligations plus the amount of the Revolving Loans of such Bank exceeds such Bank's Commitment, (3) the amount of L/C Obligations in respect of Usance Letters of Credit plus the amount of Revolving Loans exceeds $15,000,000, or (4) the amount of L/C Obligations in respect of Standby Letters of Credit exceeds $8,000,000. Within the foregoing limits, and subject to the other terms and conditions hereof, the Company's ability to obtain Letters of Credit shall be fully revolving, and, accordingly, the Company may, during the foregoing period, obtain Letters of Credit to replace Letters of Credit which have expired or which have been drawn upon and reimbursed. (b) The Issuing Bank is under no obligation to Issue any Letter of Credit if: (i) any order, judgment or decree of any Governmental Authority or arbitrator shall by its terms purport to enjoin or restrain the Issuing Bank from Issuing such Letter of Credit, or any Requirement of Law applicable to the Issuing Bank or any request or directive (whether or not having the force of law) from any Governmental 27 34 Authority with jurisdiction over the Issuing Bank shall prohibit, or request that the Issuing Bank refrain from, the Issuance of letters of credit generally or such Letter of Credit in particular or shall impose upon the Issuing Bank with respect to such Letter of Credit any restriction, reserve or capital requirement (for which the Issuing Bank is not otherwise compensated hereunder) not in effect on the Closing Date, or shall impose upon the Issuing Bank any unreimbursed loss, cost or expense which was not applicable on the Closing Date and which the Issuing Bank in good faith deems material to it; (ii) the Issuing Bank has received written notice from any Bank, the Agent or the Company, on or prior to the Business Day prior to the requested Issuance Date of such Letter of Credit, that one or more of the applicable conditions contained in Article V is not then satisfied; (iii) the expiry date of any requested Letter of Credit, (A) if a Standby Letter of Credit, is more than one year after the Revolving Termination Date or from its Issuance Date, or (B) if a Commercial Letter of Credit (including a Usance Letter of Credit), is more than six months after its Issuance Date; (iv) any requested Letter of Credit does not provide for drafts, provides for drafts payable other than at sight (except that Usance Letters of Credit may provide for drafts payable up to 180 days after the earlier of sight or the Revolving Termination Date) or is not otherwise in form and substance acceptable to the Issuing Bank, or the Issuance of a Letter of Credit shall violate any applicable policies of the Issuing Bank; (v) any Standby Letter of Credit is for the purpose of supporting the issuance of any letter of credit by any other Person other than, in the case of Letters of Credit as to which there is a Subsidiary Co-Borrower, trade finance and performance guaranty letters of credit, bonds, guarantees and indemnities; or (vi) such Letter of Credit is in a face amount less than $100,000 or more than $10,000,000 or to be denominated in a currency other than Dollars unless Issuing Bank has otherwise agreed. 3.02 Issuance, Amendment and Renewal of Letters of Credit. (a) Each Letter of Credit shall be issued upon the irrevocable written request of the Company received by the Issuing Bank (with a copy sent by the Issuing Bank to the Agent) at least four days (or such shorter time as the Issuing Bank may agree in a particular instance in its sole discretion) prior to the proposed Issuance Date. Each such request for issuance of a Letter of Credit shall be by facsimile, confirmed promptly in an original writing, in the form of an L/C Application, and shall specify in form and detail satisfactory to the Issuing Bank: (i) the proposed date of issuance of the Letter of Credit (which shall be a Business Day); (ii) the face amount of the Letter of Credit; (iii) the expiry date of the Letter of Credit; (iv) the name and address of the beneficiary thereof; (v) the documents to be presented by the beneficiary of the Letter of Credit in case of any drawing thereunder; (vi) the full text of any certificate to be presented by the beneficiary in case of any drawing thereunder; and (vii) such other matters as the Issuing Bank may require. 28 35 (b) Unless on or before the Business Day immediately preceding the requested Issuance Date, the Issuing Bank has received notice from the Agent directing the Issuing Bank not to issue such Letter of Credit because such issuance is not then permitted under Section 3.01, then, subject to the terms and conditions hereof, the Issuing Bank shall, on the requested date, issue a Letter of Credit for the account of the Company in accordance with the Issuing Bank's usual and customary business practices. (c) From time to time while a Letter of Credit is outstanding and prior to the Revolving Termination Date, the Issuing Bank will, upon the written request of the Company received by the Issuing Bank (with a copy sent by the Issuing Bank to the Agent) at least four days (or such shorter time as the Issuing Bank may agree in a particular instance in its sole discretion) prior to the proposed date of amendment, amend any Letter of Credit issued by it. Each such request for amendment of a Letter of Credit shall be made by facsimile, confirmed promptly in an original writing, made in the form of an L/C Amendment Application and shall specify in form and detail satisfactory to the Issuing Bank: (i) the Letter of Credit to be amended; (ii) the proposed date of amendment of the Letter of Credit (which shall be a Business Day); (iii) the nature of the proposed amendment; and (iv) such other matters as the Issuing Bank may require. The Issuing Bank shall be under no obligation to amend any Letter of Credit if: (A) the Issuing Bank would have no obligation at such time to issue such Letter of Credit in its amended form under the terms of this Agreement; or (B) the beneficiary of any such Letter of Credit does not accept the proposed amendment to the Letter of Credit. The Agent will promptly notify the Banks of the receipt by it of notice by the Issuing Bank of the Issuance of any amendment. (d) The Issuing Bank and the Banks agree that, while a Letter of Credit is outstanding and prior to the Revolving Termination Date, at the option of the Company and upon the written request of the Company received by the Issuing Bank (with a copy sent by the Issuing Bank to the Agent) at least four days (or such shorter time as the Issuing Bank may agree in a particular instance in its sole discretion) prior to the proposed date of notification of renewal, the Issuing Bank shall be entitled to authorize the automatic renewal of any Letter of Credit issued by it. Each such request for renewal of a Letter of Credit shall be made by facsimile, confirmed promptly in an original writing, in the form of an L/C Amendment Application, and shall specify in form and detail satisfactory to the Issuing Bank: (i) the Letter of Credit to be renewed; (ii) the revised expiry date of the Letter of Credit; and (iii) such other matters as the Issuing Bank may require. The Issuing Bank shall be under no obligation so to renew any Letter of Credit if: (A) the Issuing Bank would have no obligation at such time to issue or amend such Letter of Credit in its renewed form under the terms of this Agreement; or (B) the beneficiary of any such Letter of Credit does not accept the proposed renewal of the Letter of Credit. If any outstanding Letter of Credit shall provide that it shall be automatically renewed unless the beneficiary thereof receives notice from the Issuing Bank that such Letter of Credit shall not be renewed, and if at the time of renewal the Issuing Bank would be entitled to authorize the automatic renewal of such Letter of Credit in accordance with this subsection 3.02(d) upon the request of the Company but the Issuing Bank shall not have received any L/C Amendment Application from the Company with respect to such renewal or other written direction by the Company with respect thereto, the Issuing Bank shall nonetheless be permitted to allow such Letter of Credit to renew, 29 36 and the Company and the Banks hereby authorize such renewal, and, accordingly, the Issuing Bank shall be deemed to have received an L/C Amendment Application from the Company requesting such renewal. (e) The Issuing Bank may, at its election (or as required by the Agent at the direction of the Majority Banks), deliver any notices of termination or other communications to any Letter of Credit beneficiary or transferee, and take any other action, subject to the provisions of such Letter of Credit, as necessary or appropriate, at any time and from time to time, in order to cause the expiry date of such Letter of Credit to be a date not later than the Revolving Termination Date or such later date in respect of such Letter of Credit as shall have been approved under Section 3.01(b)(iii). (f) This Agreement shall control in the event of any conflict with any L/C-Related Document (other than any Letter of Credit). (g) The Issuing Bank will also deliver to the Agent, concurrently or promptly following its delivery of a Letter of Credit, or amendment to or renewal of a Letter of Credit, to an advising bank or a beneficiary, a true and complete copy of each such Letter of Credit or amendment to or renewal of a Letter of Credit. 3.03 Existing Letters of Credit; Risk Participations, Drawings and Reimbursements. (a) On and after the Closing Date, the Existing Letters of Credit shall be deemed for all purposes, including for purposes of the fees to be collected pursuant to subsections 3.08(a) and 3.08(b), and reimbursement of costs and expenses to the extent provided herein, Letters of Credit outstanding under this Agreement and entitled to the benefits of this Agreement and the other Loan Documents, and shall be governed by the applications and agreements pertaining thereto and by this Agreement. Each Bank shall be deemed to, and hereby irrevocably and unconditionally agrees to, purchase from the Issuing Bank on the Closing Date a participation in each such Letter of Credit and each drawing thereunder in an amount equal to the product of (i) such Bank's Pro Rata Share times (ii) the maximum amount available to be drawn under such Letter of Credit and the amount of such drawing, respectively. For purposes of Section 2.01 and subsection 2.11(b), the Existing Letters of Credit shall be deemed to utilize pro rata the Commitment of each Bank. With respect to any Existing Letter of Credit issued for the account of any Subsidiary of the Company (and whether or not such Subsidiary is or becomes a Subsidiary Co-Borrower hereunder), the Company agrees that from and after the Closing Date, the Company hereby assumes, and shall be jointly and severally liable with respect to, all obligations of the account party under such Existing Letter of Credit, and that such obligations shall be part of the Obligations hereunder and shall be subject to the provisions hereof. (b) Immediately upon the Issuance of each Letter of Credit in addition to those described in subsection 3.03(a), each Bank shall be deemed to, and hereby irrevocably and unconditionally agrees to, purchase from the Issuing Bank a participation in such Letter of Credit and each drawing thereunder in an amount equal to the product of (i) the Pro Rata Share of such Bank, times (ii) the maximum amount available to be drawn under such Letter of Credit and the amount of such drawing, respectively. For purposes of Section 2.01, each Issuance of a Letter of 30 37 Credit shall be deemed to utilize the Commitment of each Bank by an amount equal to the amount of such participation. (c) In the event of any request for a drawing under a Letter of Credit by the beneficiary or transferee thereof, the Issuing Bank will promptly, and in any case within one Business Day prior to payment unless presentment and payment are required to be made on the same day, notify the Company; provided that the failure of the Issuing Bank to give such notice shall not excuse the Company or any Subsidiary Co-Borrower from any of its obligations hereunder. The Company shall reimburse the Issuing Bank prior to 11:00 a.m. (San Francisco time), on each date that any amount is paid by the Issuing Bank under any Letter of Credit (each such date, an "Honor Date"), in an amount equal to the amount so paid by the Issuing Bank. In the event the Company fails to reimburse the Issuing Bank for the full amount of any drawing under any Letter of Credit by 11:00 a.m. (San Francisco time) on the Honor Date, the Issuing Bank will promptly notify the Agent and the Agent will promptly notify each Bank thereof, and the Company shall be deemed to have requested that Base Rate Loans in the amount of such drawing be made by the Banks, which shall be disbursed on the Honor Date under such Letter of Credit, subject to the amount of the unutilized portion of the Revolving Commitment and subject to the conditions set forth in Section 5.02. Any notice given by the Issuing Bank or the Agent pursuant to this subsection 3.03(c) may be oral if immediately confirmed in writing (including by facsimile); provided that the lack of such an immediate confirmation shall not affect the conclusiveness or binding effect of such notice. (d) Each Bank shall upon any notice pursuant to subsection 3.03(c) make available to the Agent for the account of the relevant Issuing Bank an amount in Dollars and in immediately available funds equal to its Pro Rata Share of the amount of the drawing, whereupon the participating Banks shall (subject to subsection 3.03(e)) each be deemed to have made a Revolving Loan consisting of a Base Rate Loan to the Company in that amount. If any Bank so notified fails to make available to the Agent for the account of the Issuing Bank the amount of such Bank's Pro Rata Share of the amount of the drawing by no later than 12:00 noon (San Francisco time) on the Honor Date, then interest shall accrue on such Bank's obligation to make such payment, from the Honor Date to the date such Bank makes such payment, at a rate per annum equal to the Federal Funds Rate, as applicable, in effect from time to time during such period. The Agent will promptly give notice of the occurrence of the Honor Date, but failure of the Agent to give any such notice on the Honor Date or in sufficient time to enable any Bank to effect such payment on such date shall not relieve such Bank from its obligations under this Section 3.03. (e) With respect to any unreimbursed drawing that is not converted into Revolving Loans to the Company in whole or in part, because of the Company's failure to satisfy the conditions set forth in Section 5.02 or for any other reason, the Company shall be deemed to have incurred from the Issuing Bank an L/C Borrowing in the amount of such drawing, which L/C Borrowing shall be due and payable on demand (together with interest) and shall bear interest at a rate per annum equal to the Base Rate plus 2% per annum, and each Bank's payment to the Issuing Bank pursuant to subsection 3.03(d) shall be deemed payment in respect of its 31 38 participation in such L/C Borrowing and shall constitute an L/C Advance from such Bank in satisfaction of its participation obligation under this Section 3.03. (f) Each Bank's obligation in accordance with this Agreement to make the Revolving Loans or L/C Advances, as contemplated by this Section 3.03, as a result of a drawing under a Letter of Credit, shall be absolute and unconditional and without recourse to the Issuing Bank and shall not be affected by any circumstance, including (i) any set-off, counterclaim, recoupment, defense or other right which such Bank may have against the Issuing Bank, the Company or any other Person for any reason whatsoever; (ii) the occurrence or continuance of a Default or a Material Adverse Effect; or (iii) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing; provided that each Bank's obligation to make Revolving Loans under this Section 3.03 is subject to the conditions set forth in Section 5.02. 3.04 Repayment of Participations. (a) Upon (and only upon) receipt by the Agent for the account of the Issuing Bank of immediately available funds from the Company (i) in reimbursement of any payment made by the Issuing Bank under the Letter of Credit with respect to which any Bank has paid the Agent for the account of the Issuing Bank for such Bank's participation in the Letter of Credit pursuant to Section 3.03 or (ii) in payment of interest thereon, the Agent will pay to each Bank, in the same funds as those received by the Agent for the account of the Issuing Bank, the amount of such Bank's Pro Rata Share of such funds, and the Issuing Bank shall receive the amount of the Pro Rata Share of such funds of any Bank that did not so pay the Agent for the account of the Issuing Bank. (b) If the Agent or the Issuing Bank is required at any time to return to the Company, or to a trustee, receiver, liquidator, custodian, or any official in any Insolvency Proceeding, any portion of the payments made by the Company to the Agent for the account of the Issuing Bank pursuant to subsection 3.04(a) in reimbursement of a payment made under the Letter of Credit or interest or fee thereon, each Bank shall, on demand of the Agent, forthwith return to the Agent or the Issuing Bank the amount of its Pro Rata Share of any amounts so returned by the Agent or the Issuing Bank plus interest thereon from the date such demand is made to the date such amounts are returned by such Bank to the Agent or the Issuing Bank, at a rate per annum equal to the Federal Funds Rate in effect from time to time. 3.05 Role of the Issuing Bank. (a) Each Bank and the Company agree that, in paying any drawing under a Letter of Credit, the Issuing Bank shall not have any responsibility to obtain any document (other than any sight draft and certificates expressly required by the Letter of Credit) or to ascertain or inquire as to the validity or accuracy of any such document or the authority of the Person executing or delivering any such document. (b) No Agent-Related Person nor any of the respective correspondents, participants or assignees of the Issuing Bank shall be liable to any Bank for: (i) any action taken or omitted in connection herewith at the request or with the approval of the Banks (including the Majority Banks, as applicable); (ii) any action taken or omitted in the absence of gross negligence 32 39 or willful misconduct; or (iii) the due execution, effectiveness, validity or enforceability of any L/C-Related Document. (c) The Company hereby assumes all risks of the acts or omissions of any beneficiary or transferee with respect to its use of any Letter of Credit; provided that this assumption is not intended to, and shall not, preclude the Company's pursuing such rights and remedies as it may have against the beneficiary or transferee at law or under any other agreement. No Agent-Related Person, nor any of the respective correspondents, participants or assignees of the Issuing Bank, shall be liable or responsible for any of the matters described in clauses (i) through (vii) of Section 3.06; provided further anything in such clauses to the contrary notwithstanding, that the Company may have a claim against the Issuing Bank, and the Issuing Bank may be liable to the Company, to the extent, but only to the extent, of any direct, as opposed to consequential or exemplary, damages suffered by the Company which the Company proves were caused by the Issuing Bank's willful misconduct or gross negligence or the Issuing Bank's willful failure to pay under any Letter of Credit after the presentation to it by the beneficiary of a sight draft and certificate(s) strictly complying with the terms and conditions of a Letter of Credit. In furtherance and not in limitation of the foregoing: (i) the Issuing Bank may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary (except for actual knowledge of fraud); and (ii) the Issuing Bank shall not be responsible for the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign a Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason. 3.06 Obligations Absolute. The obligations of the Company under this Agreement and any L/C-Related Document to reimburse the Issuing Bank for a drawing under a Letter of Credit, and to repay any L/C Borrowing and any drawing under a Letter of Credit converted into Revolving Loans, shall be unconditional and irrevocable, and shall be paid strictly in accordance with the terms of this Agreement and each such other L/C-Related Document under all circumstances, including the following: (i) any lack of validity or enforceability of this Agreement or any L/C-Related Document; (ii) any change in the time, manner or place of payment of, or in any other term of, all or any of the obligations of the Company in respect of any Letter of Credit or any other amendment or waiver of or any consent to departure from all or any of the L/C-Related Documents; (iii) the existence of any claim, set-off, defense or other right that the Company may have at any time against any beneficiary or any transferee of any Letter of Credit (or any Person for whom any such beneficiary or any such transferee may be acting), the Issuing Bank or any other Person, whether in connection with this Agreement, the transactions contemplated hereby or by the L/C-Related Documents or any unrelated transaction; 33 40 (iv) any draft, demand, certificate or other document presented under any Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect (except for actual knowledge of fraud by the Issuing Bank under circumstances where the Issuing Bank would be authorized to dishonor the presentation under UCC Section 5109(a)(2)); or any loss or delay in the transmission or otherwise of any document required in order to make a drawing under any Letter of Credit; (v) any payment by the Issuing Bank under any Letter of Credit against presentation of a draft or certificate that does not strictly comply with the terms of any Letter of Credit; or any payment made by the Issuing Bank under any Letter of Credit to any Person purporting to be a trustee in bankruptcy, debtor-in-possession, assignee for the benefit of creditors, liquidator, receiver or other representative of or successor to any beneficiary or any transferee of any Letter of Credit, including any arising in connection with any Insolvency Proceeding; (vi) any exchange, release or non-perfection of any collateral, or any release or amendment or waiver of or consent to departure from any other guarantee, for all or any of the obligations of the Company in respect of any Letter of Credit; or (vii) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing, including any other circumstance that might otherwise constitute a defense available to, or a discharge of, the Company or a guarantor. 3.07 Cash Collateral Pledge. Upon (a) the request of the Agent, (i) if the Issuing Bank has honored any full or partial drawing request on any Letter of Credit and such drawing has resulted in an L/C Borrowing hereunder, or (ii) if, as of the Revolving Termination Date, any Letters of Credit may for any reason remain outstanding and partially or wholly undrawn, or (b) the occurrence of the circumstances described in subsection 2.07(a) requiring the Company to Cash Collateralize Letters of Credit, then, the Company shall immediately Cash Collateralize the L/C Obligations in an amount equal to (x) such L/C Obligations in the case of clause (a) above or (y) the amount required by Section 2.07(a) in the case of clause (b) above. 3.08 Letter of Credit Fees. (a) The Company shall pay to the Agent a letter of credit fee with respect to Standby Letters of Credit at the rate of 1.000% per annum on the aggregate maximum amount available for drawings under each such Standby Letter of Credit from time to time, and such fee shall (i) commence to accrue on the Issuance Date as to any Standby Letter of Credit other than Existing Letters of Credit and on the Closing Date as to Existing Letters of Credit which are Standby Letters of Credit, (ii) be payable for the account of each of the Banks ratably in proportion to its Pro Rata Share, and (iii) be payable (A) as to each Standby Letter of Credit other than Existing Letters of Credit, in advance on the Issuance Date of such Letter of Credit, with respect to the period from the Issuance Date to the first Quarterly Date thereafter, and quarterly in advance on each Quarterly Date after the Issuance Date so long as such Letter of Credit is outstanding, and (B) as to each Existing Letter of Credit which is a Standby Letter of 34 41 Credit, in advance on the Closing Date, with respect to the period from the Closing Date to the first Quarterly Date thereafter, and quarterly in advance on each Quarterly Date after the Closing Date so long as such Existing Letter of Credit is outstanding; provided that the minimum fee in respect of any Standby Letter of Credit shall be $500 and provided further that while any Event of Default exists or after acceleration, such letter of credit fee shall be increased by an adding 1.00% per annum to the rate otherwise applicable. (b) The Company shall pay to the Agent a letter of credit fee with respect to Commercial Letters of Credit at a rate per annum equal to the Applicable Margin on the aggregate maximum amount available for drawings under each such Commercial Letter of Credit from time to time, and such fee shall (i) commence to accrue on the Issuance Date as to any Commercial Letter of Credit other than Existing Letters of Credit and on the Closing Date as to Existing Letters of Credit which are Commercial Letters of Credit, (ii) be payable for the account of each of the Banks ratably in proportion to its Pro Rata Share, and (iii) be payable (A) as to each Commercial Letter of Credit other than Existing Letters of Credit, in advance on the Issuance Date of such Letter of Credit, with respect to the period from the Issuance Date to the first Quarterly Date thereafter, and quarterly in advance on each Quarterly Date after the Issuance Date so long as such Letter of Credit is outstanding, and (B) as to each Existing Letter of Credit which is a Commercial Letter of Credit, in advance on the Closing Date, with respect to the period from the Closing Date to the first Quarterly Date thereafter, and quarterly in advance on each Quarterly Date after the Closing Date so long as such Existing Letter of Credit is outstanding; provided that while any Event of Default exists or after acceleration, such letter of credit fee shall be 0.500% per annum. (c) Other fees for Usance Letters of Credit and other Commercial Letters of Credit shall be on a negotiated basis between the Company and the Issuing Bank. (d) The Company shall pay to the Issuing Bank from time to time on demand the normal issuance, presentation, amendment and other processing fees, and other standard costs and charges, of the Issuing Bank relating to letters of credit as from time to time in effect and shall pay the Issuing Bank the fronting fees specified in the Fee Letter. 3.09 Uniform Customs and Practice. The Uniform Customs and Practice for Documentary Credits as published by the International Chamber of Commerce most recently at the time of issuance of any Letter of Credit shall (unless otherwise expressly provided in the Letters of Credit) apply to the Letters of Credit. ARTICLE IV TAXES, YIELD PROTECTION AND ILLEGALITY 4.01 Taxes. (a) Any and all payments by the Company to each Bank or the Agent under this Agreement and any other Loan Document shall be made free and clear of, and without deduction or withholding for, any Taxes. In addition, the Company shall pay all Other Taxes. 35 42 (b) If the Company shall be required by law to deduct or withhold any Taxes, Other Taxes or Further Taxes from or in respect of any sum payable hereunder to any Bank or the Agent, then: (i) the sum payable shall be increased as necessary so that, after making all required deductions and withholdings (including deductions and withholdings applicable to additional sums payable under this Section), such Bank or the Agent, as the case may be, receives and retains an amount equal to the sum it would have received and retained had no such deductions or withholdings been made; (ii) the Company shall make such deductions and withholdings; (iii) the Company shall pay the full amount deducted or withheld to the relevant taxing authority or other authority in accordance with applicable law; and (iv) the Company shall also pay to each Bank or the Agent for the account of such Bank, at the time interest is paid, Further Taxes in the amount that the respective Bank specifies as necessary to preserve the after-tax yield the Bank would have received if such Taxes, Other Taxes or Further Taxes had not been imposed. (c) The Company agrees to indemnify and hold harmless each Bank and the Agent for the full amount of i) Taxes, ii) Other Taxes, and iii) Further Taxes in the amount that the respective Bank specifies as necessary to preserve the after-tax yield the Bank would have received if such Taxes, Other Taxes or Further Taxes had not been imposed, and any liability (including penalties, interest, additions to tax and expenses) arising therefrom or with respect thereto, whether or not such Taxes, Other Taxes or Further Taxes were correctly or legally asserted. Payment under this indemnification shall be made within 30 days after the date the Bank or the Agent makes written demand therefor. (d) Within 30 days after the date of any payment by the Company of Taxes, Other Taxes or Further Taxes pursuant to this Section 4.01, the Company shall furnish to each Bank or the Agent the original or a certified copy of a receipt evidencing payment thereof, or other evidence of payment satisfactory to such Bank or the Agent. (e) If the Company is required to pay any amount to any Bank or the Agent pursuant to subsection (b) or (c) of this Section, then such Bank shall use reasonable efforts (consistent with legal and regulatory restrictions) to change the jurisdiction of its Lending Office so as to eliminate any such additional payment by the Company which may thereafter accrue, if such change in the sole judgment of such Bank is not otherwise disadvantageous to such Bank. (f) In the event any Bank or the Agent shall receive any refund with respect to any Taxes, Other Taxes, or Further Taxes paid by the Company for the account of such Bank or the Agent, as the case may be, such Bank or the Agent shall pay the amount of such refund to the Company within 90 days after the receipt thereof. The determination of the existence and amount (including any methods of allocation or apportionment used to determine any such 36 43 amount) shall be made in good faith by such Bank or the Agent, as the case may be, but otherwise shall be in the sole and absolute discretion of such Bank or the Agent. 4.02 Illegality. (a) If any Bank determines that the introduction of any applicable Requirement of Law, or any change in any applicable Requirement of Law, or in the interpretation or administration of any Requirement of Law, has made it unlawful, or that any central bank or other Governmental Authority has asserted that it is unlawful, for any Bank or its applicable Lending Office to make Eurodollar Rate Loans, then, on notice thereof by the Bank to the Company through the Agent, any obligation of that Bank to make Eurodollar Rate Loans shall be suspended until the Bank notifies the Agent and the Company that the circumstances giving rise to such determination no longer exist. (b) If a Bank determines that it is unlawful to maintain any Eurodollar Rate Loan, the Company shall, upon its receipt of notice of such fact and demand from such Bank (with a copy to the Agent), prepay in full such Eurodollar Rate Loans of that Bank then outstanding, together with interest accrued thereon and amounts required under Section 4.04, either on the last day of the Interest Period thereof, if the Bank may lawfully continue to maintain such Eurodollar Rate Loans to such day, or immediately, if the Bank may not lawfully continue to maintain such Eurodollar Rate Loan. If the Company is required to so prepay any Eurodollar Rate Loan, then concurrently with such prepayment, the Company shall borrow from the affected Bank, in the amount of such repayment, a Base Rate Loan in the amount of such prepaid Loan. (c) Before giving any notice to the Agent under this Section, the affected Bank shall designate a different Lending Office with respect to its Eurodollar Rate Loans if such designation will avoid the need for giving such notice or making such demand and will not, in the judgment of the Bank, be illegal or otherwise disadvantageous to the Bank. 4.03 Increased Costs and Reduction of Return. (a) If any Bank determines that, due to either (i) the introduction of or any change (other than any change by way of imposition of or increase in reserve requirements included in the calculation of the Eurodollar Rate or in respect of the assessment rate payable by any Bank to the FDIC for insuring U.S. deposits) in or in the interpretation of any law or regulation or (ii) the compliance by that Bank with any guideline or request from any central bank or other Governmental Authority (whether or not having the force of law), there shall be any increase in the cost to such Bank of agreeing to make or making, funding or maintaining any Eurodollar Rate Loans or participating in Letters of Credit, or, in the case of the Issuing Bank, any increase in the cost to the Issuing Bank of agreeing to issue, issuing or maintaining any Letter of Credit or of agreeing to make or making, funding or maintaining any unpaid drawing under any Letter of Credit, then the Company shall be liable for, and shall from time to time, upon demand (with a copy of such demand to be sent to the Agent), pay to the Agent for the account of such Bank, additional amounts as are sufficient to compensate such Bank for such increased costs. (b) If any Bank shall have determined that (i) the introduction of any Capital Adequacy Regulation, (ii) any change in any Capital Adequacy Regulation, (iii) any change in the interpretation or administration of any Capital Adequacy Regulation by any central bank or 37 44 other Governmental Authority charged with the interpretation or administration thereof, or (iv) compliance by the Bank (or its Lending Office) or any corporation controlling the Bank with any Capital Adequacy Regulation, affects or would affect the amount of capital required or expected to be maintained by the Bank or any corporation controlling the Bank and (taking into consideration such Bank's or such corporation's policies with respect to capital adequacy and such Bank's desired return on capital) determines that the amount of such capital is increased as a consequence of its Commitment, loans, credits or obligations under this Agreement, then, upon demand of such Bank to the Company through the Agent, the Company shall pay to the Bank, from time to time as specified by the Bank, additional amounts sufficient to compensate the Bank for such increase. 4.04 Funding Losses. The Company shall reimburse (through the Agent) each Bank and hold each Bank harmless from any loss or expense which the Bank may sustain or incur as a consequence of: (a) the failure of the Company to make on a timely basis any payment of principal of any Eurodollar Rate Loan; (b) the failure of the Company to borrow, continue or convert a Loan after the Company has given (or is deemed to have given) a Notice of Borrowing or a Notice of Conversion/ Continuation; (c) the failure of the Company to make any prepayment in accordance with any notice delivered under Section 2.06; (d) the prepayment (including pursuant to Section 2.06 or 2.07) or other payment (including after acceleration thereof) of an Eurodollar Rate Loan on a day that is not the last day of the relevant Interest Period; or (e) the automatic conversion under Section 2.04 of any Eurodollar Rate Loan to a Base Rate Loan on a day that is not the last day of the relevant Interest Period; including any such loss or expense arising from the liquidation or reemployment of funds obtained by it to maintain its Eurodollar Rate Loans bearing interest at a fixed rate or from fees payable to terminate the deposits from which such funds were obtained. 4.05 Inability to Determine Rates. If the Agent determines that for any reason adequate and reasonable means do not exist for determining the Eurodollar Rate for any requested Interest Period with respect to a proposed Eurodollar Rate Loan, or that the Eurodollar Rate applicable pursuant to subsection 2.09(a) for any requested Interest Period with respect to a proposed Eurodollar Rate Loan does not adequately and fairly reflect the cost to the Banks of funding such Loan, the Agent will promptly so notify the Company and each Bank. Thereafter, the obligation of the Banks to make or maintain Eurodollar Rate Loans, as the case may be, hereunder shall be suspended until the Agent upon the instruction of the Majority Banks revokes such notice in writing. Upon receipt of such notice, the Company may revoke any Notice of Borrowing or 38 45 Notice of Conversion/Continuation then submitted by it. If the Company does not revoke such Notice, then the Banks shall make, convert or continue the Loans, as proposed by the Company, in the amount specified in the applicable notice submitted by the Company, but such Loans shall be made, converted or continued as Base Rate Loans instead of Eurodollar Rate Loans. 4.06 Reserves on Eurodollar Rate Loans. The Company shall pay to each Bank, as long as such Bank shall be required under any applicable regulations of the central bank or other relevant Governmental Authority to maintain any reserves in respect of any Eurodollar Rate Loan, additional costs on the unpaid principal amount of each Eurodollar Rate Loan equal to the actual costs of such reserves allocated to such Loan by the Bank (as determined by the Bank in good faith, which determination shall be conclusive), payable on each date on which interest is payable on such Loan, provided the Company shall have received at least 15 days' prior written notice (with a copy to the Agent) of such additional interest from the Bank. If a Bank fails to give notice 15 days prior to the relevant Interest Payment Date, such additional interest shall be payable 15 days from receipt of such notice. 4.07 Certificates of Banks. Any Bank claiming reimbursement or compensation under this Article IV shall deliver to the Agent (who shall notify the Company) a certificate setting forth in reasonable detail the amount payable to the Bank hereunder and such certificate shall be conclusive and binding on the Company in the absence of manifest error. If such Bank fails to notify the Company that the Bank intends to claim any such reimbursement or compensation within six months after the Bank has knowledge of its claim therefor, the Company will not be obligated to compensate the Bank for the amount of the Bank's claim accruing prior to the date which is six months before the date on which the Bank first notifies the Company that it intends to make such claim; it being understood that the calculation of the actual amounts may not be possible within such period and the Bank may provide such calculation as soon as reasonably practicable thereafter without affecting or limiting the Company's payment obligations hereunder. 4.08 Substitution of Banks. Upon the receipt by the Company from any Bank or from the Agent on behalf of any Bank (an "Affected Bank") of a claim for compensation or other payments under Sections 4.01, 4.02, 4.03, or 4.06 the Company may: (i) request the Affected Bank to use its best efforts to obtain a replacement bank or financial institution satisfactory to the Company to acquire and assume all or a ratable part of all of such Affected Bank's Loans and Commitment (a "Replacement Bank"); (ii) request one or more of the other Banks to acquire and assume all or part of such Affected Bank's Loans and Commitment; or (iii) designate a Replacement Bank. Any such designation of a Replacement Bank under clause (i) or (iii) shall be subject to the prior written consent of the Agent and Issuing Bank, which consent shall not be unreasonably withheld or delayed. Notwithstanding the foregoing provisions of this Section, however, the Company shall not have the right to remove a Bank that is the Issuing Bank at such time unless such Bank shall also simultaneously be replaced as "Issuing Bank" pursuant to documentation in form and substance reasonably satisfactory to such Issuing Bank. 4.09 Survival. The agreements and obligations of the Company in this Article IV shall survive the payment of all other Obligations. 39 46 ARTICLE V CONDITIONS PRECEDENT 5.01 Conditions of Initial Loans. The obligation of each Bank to make its initial Credit Extension hereunder is subject to the condition that the Agent shall have received on or before the date of the initial Credit Extension all of the following, in form and substance satisfactory to the Agent and each Bank, and in sufficient copies for each Bank: (a) Credit Agreement. This Agreement executed by each party thereto; (b) Subsidiary Guaranty. The Subsidiary Guaranty executed by each Material Subsidiary as of the Closing Date; (c) Resolutions; Incumbency. (i) Copies of the resolutions of the board of directors of the Company and each Subsidiary that may become party to a Loan Document authorizing the transactions contemplated hereby, certified as of the Closing Date by the Secretary or an Assistant Secretary of such Person; and (ii) A certificate of the Secretary or Assistant Secretary of the Company, and each Subsidiary that may become party to a Loan Document certifying the names and true signatures of the officers of the Company or such Subsidiary authorized to execute, deliver and perform, as applicable, this Agreement, and all other Loan Documents to be delivered by it hereunder; (d) Organization Documents; Good Standing. Each of the following documents: (i) the articles or certificate of incorporation and the bylaws of the Company and each Subsidiary party to any Loan Document as in effect on the Closing Date, certified by the Secretary or Assistant Secretary of the Company or such Subsidiary as of the Closing Date; and (ii) a good standing certificate for the Company and each Subsidiary party to any Loan Document from the Secretary of State (or similar, applicable Governmental Authority) of its state of incorporation and for the Company from the Secretary of State of the State of California as to the qualification of the Company to do business as a foreign corporation in California, all as of a recent date; (e) Legal Opinions. The opinion of Wilson, Sonsini, Goodrich & Rosati, Professional Corporation, counsel to the Company, addressed to the Agent and the Banks, substantially in the form of Exhibit D; 40 47 (f) Payment of Fees. Evidence of payment by the Company of all accrued and unpaid fees, costs and expenses to the extent then due and payable on the Closing Date, together with Attorney Costs of Bank of America to the extent invoiced prior to or on the Closing Date, plus such additional amounts of Attorney Costs as shall constitute Bank of America's reasonable estimate of Attorney Costs incurred or to be incurred by it through the closing proceedings (provided that such estimate shall not thereafter preclude final settling of accounts between the Company and Bank of America); including any such costs, fees and expenses arising under or referenced in Sections 2.11 and 11.04; (g) Certificate. A certificate signed by a Responsible Officer, dated as of the Closing Date, stating that: (i) the representations and warranties contained in Article V are true and correct on and as of such date, as though made on and as of such date (except to the extent such representations and warranties expressly refer to an earlier date in which case they shall be true and correct as of such earlier date); and (ii) no Default exists or would result from the initial Credit Extension; (i) Indebtedness and Liens. Receipt by the Agent (or it being established to Agent's reasonable satisfaction that immediately upon the making of the first Credit Extension, the Agent will be in receipt) of evidence reasonably satisfactory to it that any Indebtedness, Contingent Obligation, commitment, or Lien with respect to the Company, its Subsidiaries or their respective assets, the existence of which would violate Sections 8.01, 8.05, or 8.08 shall have been repaid, terminated, or released, as the case may be; (j) Disclosure Letter. Receipt by the Agent of the Disclosure Letter; (k) Subsidiary Co-Borrower Agreements. A Subsidiary Co-Borrower Agreement for each Subsidiary of the Borrower which is an account party under any Existing Letter of Credit; and (l) Other Documents. Such other approvals, opinions, documents or materials as the Agent or any Bank may request. 5.02 Conditions to All Borrowings. The obligation of each Bank to make any Credit Extension to be made by it (including its initial Credit Extension) is subject to the satisfaction of the following conditions precedent on the relevant Borrowing Date or Issuance Date: (a) Notice of Borrowing. The Agent shall have received a Notice of Borrowing or in the case of any Issuance of any Letter of Credit, the Issuing Bank and the Agent shall have received an L/C Application or L/C Amendment Application, as required under Section 3.02; 41 48 (b) Continuation of Representations and Warranties. The representations and warranties in Article V shall be true and correct on and as of such Borrowing Date or Issuance Date with the same effect as if made on and as of such Borrowing Date or Issuance Date (except to the extent such representations and warranties expressly refer to an earlier date, in which case they shall be true and correct as of such earlier date); (c) No Existing Default. No Default shall exist or shall result from such Borrowing or Issuance; and (d) No Overadvance. After giving effect to such Borrowing or Issuance, the Revolving Loans and L/C Obligations shall be within the limits specified by Sections 2.01 and 3.01. Each Notice of Borrowing and L/C Application or L/C Amendment Application submitted by the Company hereunder shall constitute a representation and warranty by the Company hereunder, as of the date of each such notice and as of each Borrowing Date or Issuance Date that the conditions in Section 5.02 are satisfied. ARTICLE VI REPRESENTATIONS AND WARRANTIES The Company represents and warrants to the Agent and each Bank that: 6.01 Corporate Existence and Power. The Company and each of its Subsidiaries: (a) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation; (b) has the power and authority and all governmental licenses, authorizations, consents and approvals to own its assets, carry on its business and to execute, deliver, and perform its obligations under the Loan Documents; (c) is duly qualified as a foreign corporation and is licensed and in good standing under the laws of each jurisdiction where its ownership, lease or operation of property or the conduct of its business requires such qualification or license except where the failure to be so qualified or licensed could not reasonable be expected to have a Material Adverse Effect; and (d) is in compliance with all applicable Requirements of Law; except, in each case referred to in clause (c) or clause (d), to the extent that the failure to do so could not reasonably be expected to have a Material Adverse Effect. 6.02 Corporate Authorization; No Contravention. The execution, delivery and performance by the Company and its Subsidiaries of this Agreement and each other Loan Document to which such Person is party, have been duly authorized by all necessary corporate action, and do not and will not: 42 49 (a) contravene the terms of any of such Person's Organization Documents; (b) conflict with or result in any breach or contravention of, or the creation of any Lien under, any document evidencing any Contractual Obligation to which such Person is a party or any order, injunction, writ or decree of any Governmental Authority to which such Person or its property is subject; or (c) violate any applicable Requirement of Law. 6.03 Governmental Authorization. No approval, consent, exemption, authorization, or other action by, or notice to, or filing with, any Governmental Authority is necessary or required in connection with the execution, delivery or performance by, or enforcement against, the Company or any of its Subsidiaries of the Agreement or any other Loan Document. 6.04 Binding Effect. This Agreement and each other Loan Document to which the Company or any of its Subsidiaries is a party constitute the legal, valid and binding obligations of the Company and any of its Subsidiaries to the extent it is a party thereto, enforceable against such Person in accordance with their respective terms, except as enforceability may be limited by applicable bankruptcy, insolvency, or similar laws affecting the enforcement of creditors' rights generally or by equitable principles relating to enforceability (regardless of whether enforcement is sought in equity or at law). 6.05 Litigation. Except as specifically disclosed in Schedule 6.05 to the Disclosure Letter, there are no actions, suits, proceedings, claims or disputes pending, or to the best knowledge of the Company, threatened or contemplated, at law, in equity, in arbitration or before any Governmental Authority, against the Company, or its Subsidiaries or any of their respective properties which: (a) purport to affect or pertain to this Agreement or any other Loan Document, or any of the transactions contemplated hereby or thereby; or (b) if determined adversely to the Company or its Subsidiaries, would reasonably be expected to have a Material Adverse Effect. No injunction, writ, temporary restraining order or any order of any nature has been issued by any court or other Governmental Authority purporting to enjoin or restrain the execution, delivery or performance of this Agreement or any other Loan Document, or directing that the transactions provided for herein or therein not be consummated as herein or therein provided. 6.06 No Default. No Default exists or would result from the incurring of any Obligations by the Company. Neither the Company nor any Subsidiary is in default under or with respect to any Contractual Obligation in any respect which, individually or together with all such defaults, could reasonably be expected to have a Material Adverse Effect. 43 50 6.07 ERISA Compliance. Except as specifically disclosed in Schedule 6.07 to the Disclosure Letter: (a) Each Plan is in compliance in all material respects with the applicable provisions of ERISA, the IRC and other federal or state law. Each Plan which is intended to qualify under Section 401(a) of the IRC has received a favorable determination letter from the IRS and to the best knowledge of the Company, nothing has occurred which would cause the loss of such qualification. The Company and each ERISA Affiliate has made all required contributions to any Plan subject to Section 412 of the IRC, and no application for a funding waiver or an extension of any amortization period pursuant to Section 412 of the IRC has been made with respect to any Plan. (b) There are no pending or, to the best knowledge of Company, threatened claims, actions or lawsuits, or action by any Governmental Authority, with respect to any Plan which has resulted or could reasonably be expected to result in a Material Adverse Effect. There has been no prohibited transaction or violation of the fiduciary responsibility rules with respect to any Plan which has resulted or could reasonably be expected to result in a Material Adverse Effect. (c) (i) No ERISA Event has occurred or is reasonably expected to occur; (ii) no Pension Plan has any Unfunded Pension Liability; (iii) neither the Company nor any ERISA Affiliate has incurred, or reasonably expects to incur, any liability under Title IV of ERISA with respect to any Pension Plan (other than premiums due and not delinquent under Section 4007 of ERISA); (iv) neither the Company nor any ERISA Affiliate has incurred, or reasonably expects to incur, any liability (and no event has occurred which, with the giving of notice under Section 4219 of ERISA, would result in such liability) under Section 4201 or 4243 of ERISA with respect to a Multiemployer Plan; and (v) neither the Company nor any ERISA Affiliate has engaged in a transaction that could be subject to Section 4069 or 4212(c) of ERISA. 6.08 Use of Proceeds; Margin Regulations. The proceeds of the Loans are to be used solely for the purposes set forth in and permitted by Section 7.12 and Section 8.07. Neither the Company nor any Subsidiary is generally engaged in the business of purchasing or selling Margin Stock or extending credit for the purpose of purchasing or carrying Margin Stock. 6.09 Title to Properties. The Company and each Subsidiary have good record and marketable title in fee simple to, or valid leasehold interests in, all real property necessary or used in the ordinary conduct of their respective businesses, except for such defects in title as could not, individually or in the aggregate, have a Material Adverse Effect. As of the Closing Date, the property of the Company and its Subsidiaries is subject to no Liens, other than Permitted Liens. 6.10 Taxes. The Company and its Subsidiaries have filed all Federal and other material tax returns and reports required to be filed, and have paid all Federal and other material taxes, assessments, fees and other governmental charges levied or imposed upon them or their properties, income or assets otherwise due and payable, except those which are being contested in good faith by appropriate proceedings and for which adequate reserves have been provided in 44 51 accordance with GAAP. There is no proposed tax assessment against the Company or any Subsidiary that would, if made, have a Material Adverse Effect. 6.11 Financial Condition. (a) The audited consolidated financial statements of the Company and its Subsidiaries dated January 30, 1999, and the related consolidated statements of income or operations, shareholders' equity and cash flows for the 12 month fiscal period ended on that date: (i) were prepared in accordance with GAAP consistently applied throughout the period covered thereby, except as otherwise expressly noted therein; (ii) fairly present in all material respects the financial condition of the Company and its Subsidiaries as of the date thereof and results of operations for the period covered thereby; and (iii) except as specifically disclosed in Schedule 6.11 to the Disclosure Letter, show all material indebtedness and other liabilities, direct or contingent, of the Company and its consolidated Subsidiaries as of the date thereof, including liabilities for taxes, material commitments and Contingent Obligations. (b) Since January 30, 1999, there has been no Material Adverse Effect. 6.12 Environmental Matters. The Company conducts in the ordinary course of business a review of the effect of existing Environmental Laws and existing Environmental Claims on its business, operations and properties, and as a result thereof the Company has reasonably concluded that, except as specifically disclosed in Schedule 6.12 to the Disclosure Letter, such Environmental Laws and Environmental Claims could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. 6.13 Regulated Entities. None of the Company, any Person controlling the Company, or any Subsidiary, is an "Investment Company" within the meaning of the Investment Company Act of 1940. The Company is not subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act, the Interstate Commerce Act, any state public utilities code, or any other Federal or state statute or regulation limiting its ability to incur Indebtedness. 6.14 No Burdensome Restrictions. Neither the Company nor any Subsidiary is a party to or bound by any Contractual Obligation, or subject to any restriction in any Organization Document, or any Requirement of Law, which could reasonably be expected to have a Material Adverse Effect. 6.15 Copyrights, Patents, Trademarks and Licenses, etc. The Company or its Subsidiaries own or are licensed or otherwise have the right to use all of the patents, trademarks, service marks, trade names, copyrights, contractual franchises, authorizations and other rights that are reasonably necessary for the operation of their respective businesses, without conflict with the rights of any other Person. To the best knowledge of the Company, no slogan or other 45 52 advertising device, product, process, method, substance, part or other material now employed, or now contemplated to be employed, by the Company or any Subsidiary infringes upon any rights held by any other Person. Except as specifically disclosed in Schedule 6.05 to the Disclosure Letter, no claim or litigation regarding any of the foregoing is pending or threatened, and no patent, invention, device, application, principle or any statute, law, rule, regulation, standard or code is pending or, to the knowledge of the Company, proposed, which, in either case, could reasonably be expected to have a Material Adverse Effect. 6.16 Subsidiaries. As of the Closing Date, the Company (a) has no Subsidiaries other than those specifically disclosed in part (a) of Schedule 6.16 to the Disclosure Letter hereto, (b) has no equity investments in any other corporation or entity other than those specifically disclosed in part (b) of Schedule 6.16 to the Disclosure Letter, and (c) has no Material Subsidiaries except as noted on part (a) of Schedule 6.16 to the Disclosure Letter. 6.17 Insurance. Except as specifically disclosed in Schedule 6.17 to the Disclosure Letter, the properties of the Company and its Subsidiaries are insured with financially sound and reputable insurance companies not Affiliates of the Company, in such amounts, with such deductibles and covering such risks as are customarily carried by companies engaged in similar businesses and owning similar properties in localities where the Company or such Subsidiary operates. 6.18 Swap Obligations. Neither the Company nor any of its Subsidiaries has incurred any outstanding obligations under any Swap Contracts, other than Permitted Swap Obligations. The Company has undertaken its own independent assessment of its consolidated assets, liabilities and commitments and has considered appropriate means of mitigating and managing risks associated with such matters and has not relied on any swap counterparty or any Affiliate of any swap counterparty in determining whether to enter into any Swap Contract. 6.19 Subsidiary Guaranty. Every Material Subsidiary is a Subsidiary Guarantor under, and bound pursuant to the provisions of, the Subsidiary Guaranty. 6.20 Full Disclosure. None of the representations or warranties made by the Company or any Subsidiary in the Loan Documents as of the date such representations and warranties are made or deemed made, and none of the statements contained in any exhibit, report, statement or certificate furnished by or on behalf of the Company or any Subsidiary in connection with the Loan Documents (including the offering and disclosure materials delivered by or on behalf of the Company to the Banks prior to the Closing Date), contains any untrue statement of a material fact or omits any material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances under which they are made, not misleading as of the time when made or delivered. 46 53 ARTICLE VII AFFIRMATIVE COVENANTS So long as any Bank shall have any Commitment, or the Issuing Bank shall have any L/C Commitment, or any Loan or other Obligation (other than inchoate indemnity obligations) shall remain unpaid or unsatisfied or any Letter of Credit shall remain outstanding, unless the Majority Banks waive compliance in writing: 7.01 Financial Statements. The Company shall deliver to the Agent, in form and detail satisfactory to the Agent and the Majority Banks, with sufficient copies for each Bank: (a) as soon as available, but not later than 120 days after the end of each fiscal year, a copy of the audited consolidated balance sheet of the Company and its Subsidiaries as at the end of such year and the related consolidated statements of income or operations, shareholders' equity and cash flows for such year, setting forth in each case in comparative form the figures for the previous fiscal year, and accompanied by the opinion of Deloitte & Touche LLP or another nationally-recognized independent public accounting firm ("Independent Auditor") which report shall state that such consolidated financial statements present fairly in all material respects the financial position for the periods indicated in conformity with GAAP applied on a basis consistent with prior years. Such opinion shall not be qualified or limited because of a restricted or limited examination by the Independent Auditor of any material portion of the Company's or any Subsidiary's records; (b) as soon as available, but not later than 45 days after the end of each of the first three fiscal quarters of each fiscal year, a copy of the unaudited consolidated balance sheet of the Company and its Subsidiaries as of the end of such quarter and the related consolidated statements of income, shareholders' equity and cash flows for the period commencing on the first day and ending on the last day of such quarter, and certified by a Responsible Officer as fairly presenting in all material respects, in accordance with GAAP (subject to ordinary, good faith year-end audit adjustments and the absence of footnotes), the financial position and the results of operations of the Company and the Subsidiaries; (c) as soon as available, but not later than 30 days after the end of each of the first eleven months of each fiscal year and not later than 60 days after the end of the last month of each fiscal year, a copy of the unaudited consolidated balance sheet of the Company and its Subsidiaries as of the end of such month and the related consolidated statements of income, shareholders' equity and cash flows for the period commencing on the first day and ending on the last day of such month; (d) as soon as available, but not later than 120 days after the end of each fiscal year, a copy of an unaudited consolidating balance sheet of the Company and its Subsidiaries as at the end of such year and the related consolidating statement of income for such fiscal year; (e) as soon as available, but not later than 45 days after the end of each of the first three fiscal quarters of each fiscal year, a copy of the unaudited consolidating balance sheets of 47 54 the Company and its Subsidiaries, and the related consolidating statements of income for such fiscal quarter; (f) by November 30 of each year, a budget detailing sources and uses of funds for projected Capital Expenditures for the following fiscal year; and (g) within 60 days after the beginning of each fiscal year, Financial Projections for such fiscal year, certified by a Responsible Officer as being prepared in good faith and based on assumptions believed to be reasonable. 7.02 Certificates; Other Information. The Company shall furnish to the Agent, with sufficient copies for each Bank: (a) concurrently with the delivery of the financial statements referred to in subsections 7.01(a) and (b), a Compliance Certificate executed by a Responsible Officer; (b) promptly, copies of all financial statements and reports that the Company sends to its shareholders, and copies of all financial statements and regular, periodical or special reports (including Forms 10K, 10Q and 8K) that the Company or any Subsidiary may make to, or file with, the SEC (other than exhibits thereto and any registration statement on Form S-8 or its equivalent); and (c) promptly upon receipt thereof, copies of each report submitted to the Board of Directors (or the Audit Committee thereof) of the Company by independent public accountants in connection with any annual, interim, or special audit made by them of the consolidated financial statements of the Company and its consolidated Subsidiaries including each report submitted to the Board of Directors (or the Audit Committee thereof) of the Company concerning its accounting practices and systems and any final "management letter" submitted by such accountants to management in connection with the annual audit of the Company and its consolidated Subsidiaries; (d) promptly, such additional information regarding the business, financial or corporate affairs of the Company or any Subsidiary as the Agent, at the reasonable request of any Bank, may from time to time request. 7.03 Notices. The Company shall promptly notify the Agent: (a) of the occurrence of any Default; (b) of any matter that has resulted or could reasonably be expected to result in a Material Adverse Effect, including (i) breach or non-performance of, or any default under, a Contractual Obligation of the Company or any Subsidiary; (ii) any dispute, litigation, investigation, proceeding or suspension between the Company or any Subsidiary and any Governmental Authority; or (iii) the commencement of, or any material development in, any 48 55 litigation or proceeding affecting the Company or any Subsidiary; including any litigation involving a claim of $1,000,000 or more or pursuant to any applicable Environmental Laws; (c) of the occurrence of any of the following events affecting the Company or any ERISA Affiliate (but in no event more than 10 days after such event), and deliver to the Agent and each Bank a copy of any notice with respect to such event that is filed with a Governmental Authority and any notice delivered by a Governmental Authority to the Company or any ERISA Affiliate with respect to such event: (i) an ERISA Event; (ii) a material increase in the Unfunded Pension Liability of any Pension Plan; (iii) the adoption of, or the commencement of contributions to, any Plan subject to Section 412 of the IRC by the Company or any ERISA Affiliate; or (iv) the adoption of any amendment to a Plan subject to Section 412 of the IRC, if such amendment results in a material increase in contributions or Unfunded Pension Liability; (d) of any material change in accounting policies or financial reporting practices by the Company or any of its consolidated Subsidiaries; (e) upon the request from time to time of the Agent, the Swap Termination Values, together with a description of the method by which such values were determined, relating to any then-outstanding Swap Contracts to which the Company or any of its Subsidiaries is party; (f) of any change of the location of the corporate headquarters of the Company; and (g) any Investments of the type described in Section 8.04(d), if the amount of such Investments in any Person in any transaction or related series of transactions exceeds $1,000,000. Each notice under this Section shall be accompanied by a written statement by a Responsible Officer setting forth details of the occurrence referred to therein, and stating what action the Company or any affected Subsidiary proposes to take with respect thereto and at what time such action is proposed to be taken. Each notice under subsection 7.03(a) shall describe with particularity any and all clauses or provisions of this Agreement or other Loan Document that have been (or foreseeably will be) breached or violated. 7.04 Preservation of Corporate Existence, Etc. The Company shall, and shall cause each Subsidiary and Subsidiary Co-Borrower to: 49 56 (a) preserve and maintain in full force and effect its corporate existence and good standing under the laws of its state or jurisdiction of incorporation; (b) preserve and maintain in full force and effect all governmental rights, privileges, qualifications, permits, licenses and franchises necessary or desirable in the normal conduct of its business except in connection with transactions permitted by Section 8.03 and sales of assets permitted by Section 8.02; (c) use reasonable efforts, in the ordinary course of business, to preserve its business organization and goodwill; and (d) preserve or renew all of its registered patents, trademarks, trade names and service marks, the non-preservation of which could reasonably be expected to have a Material Adverse Effect. 7.05 Maintenance of Property. The Company shall maintain, and shall cause each Subsidiary to maintain, and preserve all its property which is used or useful in its business in good working order and condition, ordinary wear and tear and obsolescence excepted. The Company and each Subsidiary shall use the standard of care typical in the industry in the operation and maintenance of its facilities. 7.06 Insurance. The Company shall maintain, and shall cause each Subsidiary to maintain, with financially sound and reputable independent insurers, insurance with respect to its properties and business against loss or damage of the kinds customarily insured against by Persons engaged in the same or similar business, of such types and in such amounts as are customarily carried under similar circumstances by such other Persons. 7.07 Payment of Obligations. The Company shall, and shall cause each Subsidiary to, pay and discharge as the same shall become due and payable, all their respective obligations and liabilities, including: (a) all tax liabilities, assessments and governmental charges or levies upon it or its properties or assets, unless the same are being contested in good faith by appropriate proceedings and adequate reserves in accordance with GAAP are being maintained by the Company or such Subsidiary; and (b) all lawful claims which, if unpaid, would by law become a Lien (other than a Permitted Lien) upon its property. 7.08 Compliance with Laws. The Company shall comply, and shall cause each Subsidiary to comply, in all material respects with all applicable Requirements of Law of any Governmental Authority having jurisdiction over it or its business (including the Federal Fair Labor Standards Act), except such as may be contested in good faith or as to which a bona fide dispute may exist. 50 57 7.09 Compliance with ERISA. The Company shall, and shall cause each of its ERISA Affiliates to: (a) maintain each Plan in compliance in all material respects with the applicable provisions of ERISA, the IRC and other federal or state law; (b) cause each Plan which is qualified under Section 401(a) of the IRC to maintain such qualification; and (c) make all required contributions to any Plan subject to Section 412 of the IRC. 7.10 Inspection of Property and Books and Records. The Company shall maintain and shall cause each Subsidiary to maintain proper books of record and account, in which full, true and correct entries in conformity with GAAP consistently applied shall be made of all financial transactions and matters involving the assets and business of the Company and such Subsidiary. The Company shall permit, and shall cause each Subsidiary to permit, representatives and independent contractors of the Agent or any Bank to visit and inspect any of their respective properties, to examine their respective corporate, financial and operating records, and make copies thereof or abstracts therefrom, and to discuss their respective affairs, finances and accounts with their respective directors, officers, and independent public accountants (provided that an officer of the Company is provided an opportunity to be present), all at such reasonable times during normal business hours and as often as may be reasonably desired, upon reasonable advance notice to the Company; provided when an Event of Default exists the Agent or any Bank may do any of the foregoing without advance notice and without an officer of the Company being present. 7.11 Environmental Laws. The Company shall, and shall cause each Subsidiary to, conduct its operations and keep and maintain its property in compliance with all applicable Environmental Laws. 7.12 Use of Proceeds. The Company shall use the proceeds of the Loans for working capital and other general corporate purposes other than for purposes of undertaking an Acquisition in contravention of any Requirement of Law or of any Loan Document. 7.13 Subsidiary Guaranty. The Company shall cause (a) each Material Subsidiary in existence on the Closing Date to become a party to the Subsidiary Guaranty as a Subsidiary Guarantor on the Closing Date, and (b) with respect to the period after the Closing Date, immediately upon any of the Subsidiaries of the Company becoming a Material Subsidiary or upon the acquisition by the Company of a Material Subsidiary, the Company shall cause such Subsidiary to become a party to the Subsidiary Guaranty as a Subsidiary Guarantor. 7.14 Pari-Passu Obligations. The Company shall, and shall cause the Material Subsidiaries to, at all times maintain the Obligations on a pari-passu basis with all other Indebtedness of the Company or the Material Subsidiaries. 51 58 ARTICLE VIII NEGATIVE COVENANTS So long as any Bank shall have any Commitment, or the Issuing Bank shall have any L/C Commitment, or any Loan or other Obligation (other than inchoate indemnity obligations) shall remain unpaid or unsatisfied or any Letter of Credit shall remain outstanding, unless the Majority Banks waive compliance in writing: 8.01 Limitation on Liens. The Company shall not, and shall not suffer or permit any Subsidiary to, directly or indirectly, make, create, incur, assume or suffer to exist any Lien upon or with respect to any part of its property, whether now owned or hereafter acquired, other than the following ("Permitted Liens"): (a) any Lien existing on property of the Company or any Subsidiary on the Closing Date and set forth in Schedule 8.01 to the Disclosure Letter securing Indebtedness outstanding on such date; (b) any Lien created under any Loan Document; (c) Liens for taxes, fees, assessments or other governmental charges (including customs and regulatory charges) which are not delinquent or remain payable without penalty, or to the extent that non-payment thereof is permitted by Section 6.07; provided that no notice of lien has been filed or recorded under the IRC; (d) carriers', warehousemen's, mechanics', landlords', materialmen's, repairmen's or other similar Liens arising in the ordinary course of business which are not delinquent or remain payable without penalty or which are being contested in good faith and by appropriate proceedings, which proceedings have the effect of preventing the forfeiture or sale of the property subject thereto; (e) Liens (other than any Lien imposed by ERISA) consisting of pledges or deposits required in the ordinary course of business in connection with workers' compensation, unemployment insurance and other social security legislation; (f) Liens on the property of the Company or its Subsidiary securing (i) the non-delinquent performance of bids, trade contracts (other than for borrowed money), leases, statutory obligations, (ii) contingent obligations on surety and appeal bonds, and (iii) other non-delinquent obligations of a like nature; in each case, incurred in the ordinary course of business; provided that all such Liens in the aggregate would not (even if enforced) cause a Material Adverse Effect and that none of such Liens secure Indebtedness; (g) Liens consisting of judgment or judicial attachment liens, provided that the enforcement of such Liens is effectively stayed and all such liens in the aggregate at any time outstanding for the Company and its Subsidiaries do not exceed $500,000; 52 59 (h) easements, rights-of-way, restrictions and other similar encumbrances incurred in the ordinary course of business which, in the aggregate, are not substantial in amount, and which do not in any case materially detract from the value of the property subject thereto or interfere with the ordinary conduct of the businesses of the Company and its Subsidiaries; (i) Liens on assets acquired after the Closing Date (including assets of corporations which become Subsidiaries after Closing Date); provided that such Liens existed at the time such assets were respectively acquired or such corporations respectively became Subsidiaries and were not created in anticipation thereof; provided that any Indebtedness secured by such Liens shall not exceed that permitted by Section 8.05(e). (j) purchase money security interests on any property acquired or held by the Company or any of its Subsidiaries in the ordinary course of business, securing Indebtedness incurred or assumed for the purpose of financing all or any part of the cost of acquiring such property; provided that (i) any such Lien attaches to such property concurrently with or within 20 days after the acquisition thereof, (ii) such Lien attaches solely to the property so acquired in such transaction, (iii) the principal amount of the debt secured thereby does not exceed 100% of the cost of such property, and (iv) the principal amount of the Indebtedness secured by any and all such purchase money security interests shall not at any time exceed that permitted by Section 8.05(e); (k) Liens securing obligations in respect of capital leases on assets subject to such leases; provided that such capital leases are otherwise permitted hereunder and that the Indebtedness secured by such Liens shall not exceed that permitted by Section 8.05(e); (l) Liens arising solely by virtue of any statutory or common law provision relating to banker's liens, rights of set-off or similar rights and remedies as to deposit accounts or other funds maintained with a creditor depository institution; provided that (i) such deposit account is not a dedicated cash collateral account and is not subject to restrictions against access by the Company in excess of those set forth by regulations promulgated by the FRB, and (ii) such deposit account is not intended by the Company or any Subsidiary to provide collateral to the depository institution; (m) Liens to secure Indebtedness permitted under Section 8.05(f), provided that such Lien does not extend to any property other than the property securing the Indebtedness being refinanced pursuant to Section 8.05(f); and (n) Liens on the proceeds of insurance granted to insurance carriers solely to secure the payment of financed premiums due to that carrier; 8.02 Disposition of Assets. The Company shall not, and shall not suffer or permit any Subsidiary to, directly or indirectly, sell, assign, lease, convey, transfer or otherwise dispose of (whether in one or a series of transactions) any property (including accounts and notes receivable, with or without recourse) or enter into any agreement to do any of the foregoing, except: 53 60 (a) dispositions of inventory, or used, worn-out or surplus equipment, all in the ordinary course of business; (b) the sale of equipment to the extent that such equipment is exchanged for credit against the purchase price of similar replacement equipment, or the proceeds of such sale are reasonably promptly applied to the purchase price of such replacement equipment; (c) disposition of fixed assets in connection with sale and leaseback transactions; provided that (i) such transactions are on reasonable business terms, and (ii) such transactions, taken together, do not involve all or substantially all of the unconsolidated fixed assets of the Company or any of its subsidiaries; and (d) dispositions of insignificant Subsidiaries or minor assets not exceeding $1,000,000 in aggregate book value for all such dispositions in any fiscal year. 8.03 Consolidations and Mergers. The Company shall not, and shall not suffer or permit any Subsidiary to, merge, consolidate with or into, or convey, transfer, lease or otherwise dispose of (whether in one transaction or in a series of transactions all or substantially all of its assets (whether now owned or hereafter acquired) to or in favor of any Person, except: (a) (i) the Company may consolidate with or merge within or into another Person, so long as the Company is the surviving corporation and (ii) any Subsidiary of the Company may consolidate with or merge with or into another Person so long as a Wholly-Owned Subsidiary of the Company is the surviving corporation; provided that, in the case of (i) or (ii), (x) no Default shall have occurred and be continuing after giving effect to such merger or consolidation, and (y) to the extent such merger or consolidation is with a Person other than the Company and its Subsidiaries, such Person is in the same line of business as the Company and its Subsidiaries; and (b) any Subsidiary may sell all or substantially all of its assets (upon voluntary liquidation or otherwise), to the Company or a Wholly-Owned Subsidiary. 8.04 Loans and Investments. The Company shall not purchase or acquire, or suffer or permit any Subsidiary to purchase or acquire, or make any commitment therefor, any capital stock, equity interest, or any obligations or other securities of, or any interest in, any Person, or make or commit to make any Acquisitions, or make or commit to make any advance, loan, extension of credit or capital contribution to or any other investment in, any Person including any Affiliate of the Company (together, "Investments"), except for: (a) Investments held by the Company or Subsidiary in the form of cash, Cash Equivalents, or readily marketable securities in accordance with investment policies acceptable to Majority Banks; (b) extensions of credit in the nature of accounts receivable or notes receivable arising from the sale or lease of goods or services in the ordinary course of business; 54 61 (c) extensions of credit by the Company to any of its Wholly-Owned Subsidiaries or by any of its Wholly-Owned Subsidiaries to the Company or to another of its Wholly-Owned Subsidiaries to the extent permitted by Sections 8.05 and 8.06; (d) Investments incurred in order to consummate Acquisitions for a total consideration not exceeding $5,000,000 in any fiscal year and otherwise permitted herein, provided that (i) such Acquisitions are undertaken in accordance with all applicable Requirements of Law; and (ii) the prior, effective written consent or approval to such Acquisition of the board of directors or equivalent governing body of the acquisition target is obtained; (e) Investments constituting Permitted Swap Obligations or payments or advances under Swap Contracts relating to Permitted Swap Obligations; (f) Investments consisting of loans and advances to employees for business-related travel expenses, moving expenses, costs of replacement homes and other similar expenses, in each case incurred in the ordinary course of business and not at any time exceeding $1,000,000 in total amount outstanding for all such loans and advances; (g) Existing Investments in Subsidiaries set forth on Schedule 6.16 to the Disclosure Letter; (h) Existing Investments described on Schedule 8.04 to the Disclosure Letter; (i) Investments acquired by the Company or any of its Subsidiaries (i) in exchange for any other Investment held by the Company or any such Subsidiary and permitted hereunder in connection with or as a result of a bankruptcy, workout, reorganization or recapitalization of the issuer of such other Investment, or (ii) as a result of a foreclosure by the Company or any of its Subsidiaries with respect to any secured Investment permitted hereunder or other transfer of title with respect to any such Investment which is in default; (j) Any endorsement of a check or other medium of payment for deposit or collection or other similar transaction in the ordinary course of business; and (k) Investments consisting of loans and advances to manufacturers of apparel for sale by the Company or any of its Subsidiaries to enable such manufacturer to purchase supplies to manufacture such apparel and not at any time exceeding $500,000 in total amount outstanding for all such loans and advances and all Contingent Obligations of the type described in Section 8.08(e). 8.05 Limitation on Indebtedness. The Company shall not, and shall not suffer or permit any Subsidiary to, create, incur, assume, suffer to exist, or otherwise become or remain directly or indirectly liable with respect to, or acquire or maintain any Commitment from any Person to extend financial accommodations which if extended would result in, any Indebtedness, except: 55 62 (a) Indebtedness incurred pursuant to this Agreement; (b) Indebtedness consisting of Contingent Obligations permitted pursuant to Section 8.08; (c) Indebtedness existing on the Closing Date and set forth in Schedule 8.05 to the Disclosure Letter; (d) Indebtedness secured by Liens permitted by subsection 8.1(i), (j) and (m) which do not require total payments to be made by the Company and its Subsidiaries in excess of $2,000,000 in any fiscal year; (e) Indebtedness incurred in connection with leases permitted pursuant to Section 8.10; (f) any refinancing, extension, renewal or refunding of any Indebtedness under clause (c) above not involving an increase in the principal amount thereof or a reduction of more than 10% in the remaining weighted average life to maturity thereof (computed in accordance with standard financial practice); and (g) Indebtedness of the Company to any Subsidiary Guarantor and Indebtedness of any Wholly-Owned Subsidiary to the Company or to another Wholly-Owned Subsidiary, in each case to the extent permitted by Section 8.04(c). 8.06 Transactions with Affiliates. The Company shall not, and shall not suffer or permit any Subsidiary to, enter into any transaction with any Affiliate of the Company except upon prudent and reasonable business terms. 8.07 Use of Proceeds. The Company shall not, and shall not suffer or permit any Subsidiary to, use any portion of the Loan proceeds, directly or indirectly, (a) to purchase or carry Margin Stock, (b) to repay or otherwise refinance indebtedness of the Company or others incurred to purchase or carry Margin Stock, (c) to extend credit for the purpose of purchasing or carrying any Margin Stock, or (d) to acquire any security in any transaction that is subject to Section 13 or 14 of the Exchange Act unless, prior to the time such transaction becomes subject to Section 13 or 14, the board of directors or other applicable governing body of the Person that is the issuer of such securities has adopted a resolution approving such transaction. 8.08 Contingent Obligations. The Company shall not, and shall not suffer or permit any Subsidiary to, create, incur, assume or suffer to exist any Contingent Obligations except: (a) endorsements for collection or deposit in the ordinary course of business; (b) Permitted Swap Obligations; 56 63 (c) Contingent Obligations of the Company and its Subsidiaries existing as of the Closing Date and listed in Schedule 8.08 to the Disclosure Letter; (d) Contingent Obligations with respect to Surety Instruments incurred in the ordinary course of business in the aggregate in respect of the Company and its Subsidiaries together; and (e) Contingent Obligations incurred with respect to manufacturers of apparel for sale by the Company or any of its Subsidiaries to enable such manufacturer to purchase supplies to manufacture such apparel and not at any time exceeding $500,000 in total amount outstanding for all such Contingent Obligations and all loans and advances of the type described in Section 8.04(k). 8.09 Joint Ventures. The Company shall not, and shall not suffer or permit any Subsidiary to enter into any Joint Venture, other than in the ordinary course of business. 8.10 Operating Lease Obligations. The Company shall not, and shall not suffer or permit any Subsidiary to, create or suffer to exist any obligations for the payment of rent for any property under an operating lease or an agreement to enter into an operating lease, except for: (a) leases of the Company and of Subsidiaries in existence on the Closing Date and any renewal or extension thereof; and (b) operating leases entered into by the Company or any Subsidiary after the Closing Date in the ordinary course of business, including leases for retail selling venues, distribution centers, and office space. 8.11 Restricted Payments. The Company shall not, and shall not suffer or permit any Subsidiary to, declare or make any dividend payment or other distribution of assets, properties, cash, rights, obligations or securities on account of any shares of any class of its capital stock, or purchase, redeem or otherwise acquire for value any shares of its capital stock or any warrants, rights or options to acquire such shares, now or hereafter outstanding; except that the Company and any Wholly-Owned Subsidiary may: (a) declare and make dividend payments or other distributions payable solely in its common stock; (b) purchase, redeem or otherwise acquire shares of its common stock or warrants or options to acquire any such shares (i) with the proceeds received from the substantially concurrent issue of new shares of its common stock or (ii) in connection with employee benefit or executive compensation plans approved by the Company's Board of Directors; and (c) purchase, redeem or otherwise acquire shares of its capital stock or warrants, rights or options to acquire any such shares for cash; provided that (i) the total of all payments do 57 64 not exceed $3,000,000 in any fiscal year and (ii) immediately after giving effect to such proposed action, no Default would exist. 8.12 ERISA. The Company shall not, and shall not suffer or permit any of its ERISA Affiliates to: (a) engage in a prohibited transaction or violation of the fiduciary responsibility rules with respect to any Plan; or (b) engage in a transaction that could be subject to Section 4069 or 4212(c) of ERISA. 8.13 Change in Business. The Company shall not, and shall not suffer or permit any Subsidiary to, engage in any material line of business substantially different from those lines of business carried on by the Company and its Subsidiaries on the date hereof. 8.14 Accounting Changes. The Company shall not, and shall not suffer or permit any Subsidiary to, make any significant change in accounting treatment or reporting practices, except as required by GAAP, or change the fiscal year of the Company or of any Subsidiary. 8.15 Liquidity Ratio. The Company shall not permit its Liquidity Ratio to be less than (a) 0.50 to 1.00 at any time during the periods from August 1, 1999 through November 30, 1999, or from April 1, 2000, through the Revolving Termination Date or (b) 1.00 to 1.00 at any time during the period from December 1, 1999, through March 31, 2000. 8.16 Tangible Net Worth. The Company shall not permit its Tangible Net Worth to be less than: (a) $156,000,000 as at its July 31, 1999, fiscal quarter end, (b) $158,000,000 as at its October 31, 1999, fiscal quarter end, and (c) $168,000,000 as at its January 31, 2000, fiscal quarter end, and each fiscal quarter end thereafter. 8.17 Capital Expenditures. Capital Expenditures shall not exceed (a) $40,000,000 in the 1999 fiscal year and (b) $20,000,000 in the 2000 fiscal year. 8.18 Restrictive Agreements. The Company will not, and will not permit any Subsidiary of the Company to, agree to restrict or otherwise limit or condition (a) the payment of dividends by any Subsidiary of the Company to the Company or to a Wholly-Owned Subsidiary of the Company, or (b) the grant of Liens by the Company or any Subsidiary of the Company to secure the Obligations. ARTICLE IX EVENTS OF DEFAULT 9.01 Event of Default. Any of the following shall constitute an "Event of Default": (a) Non-Payment. The Company fails to pay, within 10 days after the same becomes due, any principal, interest, fee or any other amount payable hereunder or under any other Loan Document; or (b) Representation or Warranty. Any representation or warranty by the Company or any Subsidiary made or deemed made herein, in any other Loan Document, or which is 58 65 contained in any certificate, document or financial or other statement by the Company, any Subsidiary, or any Responsible Officer, furnished at any time under this Agreement, or in or under any other Loan Document, is incorrect in any material respect on or as of the date made or deemed made; or (c) Specific Defaults. The Company fails to perform or observe any term, covenant or agreement (i) contained in Article VIII or (ii) contained in any of Sections 7.01, 7.02, 7.03, 7.04, or 7.12, for 10 days after notice thereof has been given to the Company by the Agent at the request of any Bank; or (d) Other Defaults. The Company or any Subsidiary party thereto fails to perform or observe any other term or covenant contained in this Agreement or any other Loan Document, and such default shall continue unremedied for a period of 30 days after the earlier of (i) the date upon which a Responsible Officer knew or reasonably should have known of such failure or (ii) the date upon which written notice thereof is given to the Company by the Agent at the request of any Bank; or (e) Cross-Default. The Company or any Subsidiary (i) fails to make any payment in respect of any Indebtedness or Contingent Obligation, having an aggregate principal amount (including undrawn committed or available amounts and including amounts owing to all creditors under any combined or syndicated credit arrangement) of more than $1,000,000 when due (whether by scheduled maturity, required prepayment, acceleration, demand, or otherwise) and such failure continues after the applicable grace or notice period, if any, specified in the relevant document on the date of such failure; or (ii) fails to perform or observe any other condition or covenant, or any other event shall occur or condition exist, under any agreement or instrument relating to any such Indebtedness or Contingent Obligation, and such failure continues after the applicable grace or notice period, if any, specified in the relevant document on the date of such failure if the effect of such failure, event or condition is to cause, or to permit the holder or holders of such Indebtedness or beneficiary or beneficiaries of such Indebtedness (or a trustee or agent on behalf of such holder or holders or beneficiary or beneficiaries) to cause such Indebtedness to be declared to be due and payable prior to its stated maturity, or such Contingent Obligation to become payable or cash collateral in respect thereof to be demanded; or (f) Insolvency; Voluntary Proceedings. The Company or any Subsidiary (i) ceases or fails to be solvent, or generally fails to pay, or admits in writing its inability to pay, its debts as they become due, subject to applicable grace periods, if any, whether at stated maturity or otherwise; (ii) voluntarily ceases to conduct its business in the ordinary course; (iii) commences any Insolvency Proceeding with respect to itself; or (iv) takes any action to effectuate or authorize any of the foregoing; or (g) Involuntary Proceedings. (i) Any involuntary Insolvency Proceeding is commenced or filed against the Company or any Subsidiary, or any writ, judgment, warrant of attachment, execution or similar process, is issued or levied against a substantial part of the Company's or any Subsidiary's properties, and any such proceeding or petition shall not be dismissed, or such writ, judgment, warrant of attachment, execution or similar process shall not 59 66 be released, vacated or fully bonded within 60 days after commencement, filing or levy; (ii) the Company or any Subsidiary admits the material allegations of a petition against it in any Insolvency Proceeding, or an order for relief (or similar order under non-U.S. law) is ordered in any Insolvency Proceeding; or (iii) the Company or any Subsidiary acquiesces in the appointment of a receiver, trustee, custodian, conservator, liquidator, mortgagee in possession (or agent therefor), or other similar Person for itself or a substantial portion of its property or business; or (h) ERISA. (i) An ERISA Event shall occur with respect to a Pension Plan or Multiemployer Plan which has resulted or could reasonably be expected to result in liability of the Company under Title IV of ERISA to the Pension Plan, Multiemployer Plan or the PBGC in an aggregate amount in excess of $1,000,000; (ii) the aggregate amount of Unfunded Pension Liability among all Pension Plans at any time exceeds $1,000,000; or (iii) the Company or any ERISA Affiliate shall fail to pay when due, after the expiration of any applicable grace period, any installment payment with respect to its withdrawal liability under Section 4201 of ERISA under a Multiemployer Plan in an aggregate amount in excess of $1,000,000, unless in the case of (i), (ii), or (iii) the Majority Banks determine that such event or condition does not constitute, and cannot result in, a Material Adverse Change; or (i) Monetary Judgment. One or more non-interlocutory judgments, non-interlocutory orders, decrees or arbitration awards is entered against the Company or any Subsidiary involving in the aggregate a liability (to the extent not covered by independent third-party insurance as to which the insurer does not dispute coverage) as to any single or related series of transactions, incidents or conditions, of $1,000,000 or more, and the same shall remain unsatisfied, unvacated and unstayed pending appeal for a period of 10 days after the entry thereof, unless the Majority Banks determine that any such non-interlocutory judgments, non-interlocutory orders, decrees or arbitration awards, taken together, do not constitute, and cannot result in, a Material Adverse Change; or (j) Non-Monetary Judgments. Any non-monetary judgment, order or decree is entered against the Company or any Subsidiary which does or would reasonably be expected to have a Material Adverse Effect, and there shall be any period of 10 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or (k) Change of Control. There occurs any Change of Control; or (l) Guarantor Defaults. Any Guarantor fails in any material respect to perform or observe any term, covenant or agreement in any Guaranty; or any Guaranty is for any reason partially (including with respect to future advances) or wholly revoked or invalidated, or otherwise ceases to be in full force and effect, or any Guarantor or any other Person contests in any manner the validity or enforceability thereof or denies that it has any further liability or obligation thereunder; or any event described at subsections (f) or (g) of this Section occurs with respect to any Guarantor. 60 67 9.02 Remedies. If any Event of Default occurs, the Agent shall, at the request of, or may, with the consent of, the Majority Banks, (a) declare the Commitments and L/C Commitment to be terminated, whereupon such commitments shall be terminated; (b) declare an amount equal to the maximum aggregate amount that is or at any time thereafter may become available for drawing under any outstanding Letters of Credit (whether or not any beneficiary shall have presented, or shall be entitled at such time to present, the drafts or other documents required to draw under such Letters of Credit) to be immediately due and payable, and declare the unpaid principal amount of all outstanding Loans, all interest accrued and unpaid thereon, and all other amounts owing or payable hereunder or under any other Loan Document to be immediately due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by the Company; and (c) exercise on behalf of itself and the Banks all rights and remedies available to it and the Banks under the Loan Documents or applicable law; provided that upon the occurrence of any event specified in subsection (f) or (g) of Section 9.01 (in the case of clause (i) of subsection (g) upon the expiration of the 60-day period mentioned therein), the obligation of each Bank to make Loans and any obligation of the Issuing Bank to Issue Letters of Credit shall automatically terminate and the unpaid principal amount of all outstanding Loans and all interest and other amounts as aforesaid shall automatically become due and payable without further act of the Agent, Issuing Bank or any Bank. 9.03 Rights Not Exclusive. The rights provided for in this Agreement and the other Loan Documents are cumulative and are not exclusive of any other rights, powers, privileges or remedies provided by law or in equity, or under any other instrument, document or agreement now existing or hereafter arising. ARTICLE X THE AGENT 10.01 Appointment and Authorization; "Agent". (a) Each Bank hereby irrevocably (subject to Section 10.09) appoints, designates and authorizes the Agent to take such action on its behalf under the provisions of this Agreement and each other Loan Document and to exercise such powers and perform such duties as are expressly delegated to it by the terms of this Agreement or any other Loan Document, together with such powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary contained elsewhere in this Agreement or in any other Loan Document, the Agent shall not have any duties or responsibilities, except those expressly set forth herein, nor shall the Agent have or be deemed to have any fiduciary relationship with any Bank, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against the Agent. Without limiting the generality of the foregoing sentence, the use of the term "agent" in this Agreement with reference to the Agent is not intended to connote 61 68 any fiduciary or other implied (or express) obligations arising under agency doctrine of any applicable law. Instead, such term is used merely as a matter of market custom, and is intended to create or reflect only an administrative relationship between independent contracting parties. (b) The Issuing Bank shall act on behalf of the Banks with respect to any Letters of Credit Issued by it and the documents associated therewith until such time and except for so long as the Agent may agree at the request of the Majority Lenders to act for such Issuing Bank with respect thereto; provided that the Issuing Bank shall have all of the benefits and immunities (i) provided to the Agent in this Article X with respect to any acts taken or omissions suffered by the Issuing Bank in connection with Letters of Credit Issued by it or proposed to be Issued by it and the application and agreements for letters of credit pertaining to the Letters of Credit as fully as if the term "Agent", as used in this Article X, included the Issuing Bank with respect to such acts or omissions, and (ii) as additionally provided in this Agreement with respect to the Issuing Bank. 10.02 Delegation of Duties. The Agent may execute any of its duties under this Agreement or any other Loan Document by or through agents, employees or attorneys-in-fact, and shall be entitled to advice of counsel concerning all matters pertaining to such duties. The Agent shall not be responsible for the negligence or misconduct of any agent or attorney-in-fact that it selects with reasonable care. 10.03 Liability of Agent. None of the Agent-Related Persons shall (i) be liable for any action taken or omitted to be taken by any of them under or in connection with this Agreement or any other Loan Document or the transactions contemplated hereby (except for its own gross negligence or willful misconduct), or (ii) be responsible in any manner to any of the Banks for any recital, statement, representation or warranty made by the Company or any Subsidiary or Affiliate of the Company, or any officer thereof, contained in this Agreement or in any other Loan Document, or in any certificate, report, statement or other document referred to or provided for in, or received by the Agent under or in connection with, this Agreement or any other Loan Document, or the validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document, or for any failure of the Company or any other party to any Loan Document to perform its obligations hereunder or thereunder. No Agent-Related Person shall be under any obligation to any Bank to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this Agreement or any other Loan Document, or to inspect the properties, books or records of the Company or any of the Company's Subsidiaries or Affiliates. 10.04 Reliance by Agent. (a) The Agent shall be entitled to rely, and shall be fully protected in relying, upon any writing, resolution, notice, consent, certificate, affidavit, letter, telegram, facsimile, telex or telephone message, statement or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons, and upon advice and statements of legal counsel (including counsel to the Company), independent accountants and other experts selected by the Agent. The Agent shall be fully justified in failing or refusing to take any action under this Agreement or any other Loan Document unless it shall first receive such advice or concurrence of the Majority Banks as it 62 69 deems appropriate and, if it so requests, it shall first be indemnified to its satisfaction by the Banks against any and all liability and expense which may be incurred by it by reason of taking or continuing to take any such action. The Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement or any other Loan Document in accordance with a request or consent of the Majority Banks and such request and any action taken or failure to act pursuant thereto shall be binding upon all of the Banks. (b) For purposes of determining compliance with the conditions specified in Section 5.01, each Bank that has executed this Agreement shall be deemed to have consented to, approved or accepted or to be satisfied with, each document or other matter either sent by the Agent to such Bank for consent, approval, acceptance or satisfaction, or required thereunder to be consented to or approved by or acceptable or satisfactory to the Bank. 10.05 Notice of Default. The Agent shall not be deemed to have knowledge or notice of the occurrence of any Default, except with respect to defaults in the payment of principal, interest and fees required to be paid to the Agent for the account of the Banks, unless the Agent shall have received written notice from a Bank or the Company referring to this Agreement, describing such Default and stating that such notice is a "notice of default". The Agent will notify the Banks of its receipt of any such notice. The Agent shall take such action with respect to such Default as may be requested by the Majority Banks in accordance with Article IX; provided that unless and until the Agent has received any such request, the Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default as it shall deem advisable or in the best interest of the Banks. 10.06 Credit Decision. Each Bank acknowledges that none of the Agent-Related Persons has made any representation or warranty to it, and that no act by the Agent hereinafter taken, including any review of the affairs of the Company and its Subsidiaries, shall be deemed to constitute any representation or warranty by any Agent-Related Person to any Bank. Each Bank represents to the Agent that it has, independently and without reliance upon any Agent-Related Person and based on such documents and information as it has deemed appropriate, made its own appraisal of and investigation into the business, prospects, operations, property, financial and other condition and creditworthiness of the Company and its Subsidiaries, and all applicable bank regulatory laws relating to the transactions contemplated hereby, and made its own decision to enter into this Agreement and to extend credit to the Company and its Subsidiaries hereunder. Each Bank also represents that it will, independently and without reliance upon any Agent-Related Person and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, appraisals and decisions in taking or not taking action under this Agreement and the other Loan Documents, and to make such investigations as it deems necessary to inform itself as to the business, prospects, operations, property, financial and other condition and creditworthiness of the Company. Except for notices, reports and other documents expressly herein required to be furnished to the Banks by the Agent, the Agent shall not have any duty or responsibility to provide any Bank with any credit or other information concerning the business, prospects, operations, property, financial and other condition or creditworthiness of the Company which may come into the possession of any of the Agent-Related Persons. 63 70 10.07 Indemnification of Agent. Whether or not the transactions contemplated hereby are consummated, the Banks shall indemnify upon demand the Agent-Related Persons (to the extent not reimbursed by or on behalf of the Company and without limiting the obligation of the Company to do so), pro rata, from and against any and all Indemnified Liabilities; provided that no Bank shall be liable for the payment to the Agent-Related Persons of any portion of such Indemnified Liabilities resulting solely from such Person's gross negligence or willful misconduct. Without limitation of the foregoing, each Bank shall reimburse the Agent upon demand for its ratable share of any costs or out-of-pocket expenses (including Attorney Costs) incurred by the Agent in connection with the preparation, execution, delivery, administration, modification, amendment or enforcement (whether through negotiations, legal proceedings or otherwise) of, or legal advice in respect of rights or responsibilities under, this Agreement, any other Loan Document, or any document contemplated by or referred to herein, to the extent that the Agent is not reimbursed for such expenses by or on behalf of the Company. The undertaking in this Section shall survive the payment of all Obligations hereunder and the resignation or replacement of the Agent. 10.08 Agent in Individual Capacity. Bank of America and its Affiliates may make loans to, issue letters of credit for the account of, accept deposits from, acquire equity interests in and generally engage in any kind of banking, trust, financial advisory, underwriting or other business with the Company and its Subsidiaries and Affiliates as though Bank of America were not the Agent hereunder and without notice to or consent of the Banks. The Banks acknowledge that, pursuant to such activities, Bank of America or its Affiliates may receive information regarding the Company or its Affiliates (including information that may be subject to confidentiality obligations in favor of the Company or such Subsidiary) and acknowledge that the Agent shall be under no obligation to provide such information to them. With respect to its Loans, Bank of America shall have the same rights and powers under this Agreement as any other Bank and may exercise the same as though it were not the Agent or Issuing Bank, and the terms "Bank" and "Banks" include Bank of America in its individual capacity as a Bank. 10.09 Successor Agent. The Agent may, and at the request of the Majority Banks shall, resign as Agent upon 30 days' notice to the Banks. If the Agent resigns under this Agreement, the Majority Banks shall appoint from among the Banks a successor agent for the Banks. If no successor agent is appointed prior to the effective date of the resignation of the Agent, the Agent may appoint, after consulting with the Banks and the Company, a successor agent from among the Banks. Upon the acceptance of its appointment as successor agent hereunder, such successor agent shall succeed to all the rights, powers and duties of the retiring Agent and the term "Agent" shall mean such successor agent and the retiring Agent's appointment, powers and duties as Agent shall be terminated. After any retiring Agent's resignation hereunder as Agent, the provisions of this Article X and Sections 11.04 and 11.05 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. If no successor agent has accepted appointment as Agent by the date which is 30 days following a retiring Agent's notice of resignation, the retiring Agent's resignation shall nevertheless thereupon become effective and the Banks shall perform all of the duties of the Agent hereunder until such time, if any, as the Majority Banks appoint a successor agent as provided for above. Notwithstanding the foregoing, however, Bank of America may not be removed as the Agent at 64 71 the request of the Majority Banks unless Bank of America shall also simultaneously be replaced as Issuing Bank hereunder pursuant to documentation in form and substance reasonably satisfactory to Bank of America. 10.10 Withholding Tax. (a) If any Bank is a "foreign corporation, partnership or trust" within the meaning of the IRC and such Bank claims exemption from, or a reduction of, U.S. withholding tax under Sections 1441 or 1442 of the IRC, such Bank agrees with and in favor of the Agent, to deliver to the Agent: (i) if such Bank claims an exemption from, or a reduction of, withholding tax under a United States tax treaty, two properly completed and executed copies of IRS Form 1001 before the payment of any interest in the first calendar year and before the payment of any interest in each third succeeding calendar year during which interest may be paid under this Agreement; (ii) if such Bank claims that interest paid under this Agreement is exempt from United States withholding tax because it is effectively connected with a United States trade or business of such Bank, two properly completed and executed copies of IRS Form 4224 before the payment of any interest is due in the first taxable year of such Bank and in each succeeding taxable year of such Bank during which interest may be paid under this Agreement; and (iii) such other form or forms as may be required under the IRC or other laws of the United States as a condition to exemption from, or reduction of, United States withholding tax. Such Bank agrees to promptly notify the Agent of any change in circumstances which would modify or render invalid any claimed exemption or reduction. (b) If any Bank claims exemption from, or reduction of, withholding tax under a United States tax treaty by providing IRS Form 1001 and such Bank sells, assigns, grants a participation in, or otherwise transfers all or part of the Obligations of the Company to such Bank, such Bank agrees to notify the Agent of the percentage amount in which it is no longer the beneficial owner of Obligations of the Company to such Bank. To the extent of such percentage amount, the Agent will treat such Bank's IRS Form 1001 as no longer valid. (c) If any Bank claiming exemption from United States withholding tax by filing IRS Form 4224 with the Agent sells, assigns, grants a participation in, or otherwise transfers all or part of the Obligations of the Company to such Bank, such Bank agrees to undertake sole responsibility for complying with the withholding tax requirements imposed by Sections 1441 and 1442 of the IRC. (d) If any Bank is entitled to a reduction in the applicable withholding tax, the Agent may withhold from any interest payment to such Bank an amount equivalent to the applicable withholding tax after taking into account such reduction. However, if the forms or 65 72 other documentation required by subsection (a) of this Section are not delivered to the Agent, then the Agent may withhold from any interest payment to such Bank not providing such forms or other documentation an amount equivalent to the applicable withholding tax imposed by Sections 1441 and 1442 of the IRC, without reduction. (e) If the IRS or any other Governmental Authority of the United States or other jurisdiction asserts a claim that the Agent did not properly withhold tax from amounts paid to or for the account of any Bank (because the appropriate form was not delivered or was not properly executed, or because such Bank failed to notify the Agent of a change in circumstances which rendered the exemption from, or reduction of, withholding tax ineffective, or for any other reason) such Bank shall indemnify the Agent fully for all amounts paid, directly or indirectly, by the Agent as tax or otherwise, including penalties and interest, and including any taxes imposed by any jurisdiction on the amounts payable to the Agent under this Section, together with all costs and expenses (including Attorney Costs). The obligation of the Banks under this subsection shall survive the payment of all Obligations and the resignation or replacement of the Agent. ARTICLE XI MISCELLANEOUS 11.01 Amendments and Waivers. No amendment or waiver of any provision of this Agreement or any other Loan Document, and no consent with respect to any departure by the Company or any applicable Subsidiary therefrom, shall be effective unless the same shall be in writing and signed by the Majority Banks (or by the Agent at the written request of the Majority Banks) and the Company and acknowledged by the Agent, and then any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided that no such waiver, amendment, or consent shall, unless in writing and signed by all the Banks and the Company and acknowledged by the Agent, do any of the following: (a) increase or extend the Commitment of any Bank (or reinstate any Commitment terminated pursuant to Section 9.02); (b) postpone or delay any date fixed by this Agreement or any other Loan Document for any payment of principal, interest, fees or other amounts due to the Banks (or any of them) hereunder or under any other Loan Document; (c) reduce the principal of, or the rate of interest specified herein on any Loan, or (subject to clause (ii) below) any fees or other amounts payable hereunder or under any other Loan Document; (d) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Loans which is required for the Banks or any of them to take any action hereunder; or 66 73 (e) amend this Section, or Section 2.13, or any provision herein providing for consent or other action by all Banks; and, provided further that (i) no amendment, waiver or consent shall, unless in writing and signed by the Issuing Bank in addition to the Majority Banks or all the Banks, as the case may be, affect the rights or duties of the Issuing Bank under this Agreement or any L/C-Related Document relating to any Letter of Credit Issued or to be Issued by it, (ii) no amendment, waiver or consent shall, unless in writing and signed by the Agent in addition to the Majority Banks or all the Banks, as the case may be, affect the rights or duties of the Agent under this Agreement or any other Loan Document, and (iii) the Fee Letters may be amended, or rights or privileges thereunder waived, in a writing executed by the parties thereto. 11.02 Notices. (a) All notices, requests, consents, approvals, waivers and other communications shall be in writing (including, unless the context expressly otherwise provides, by facsimile transmission, provided that any matter transmitted by the Company by facsimile (i) shall be immediately confirmed by a telephone call to the recipient at the number specified on Schedule 11.02, and (ii) shall be followed promptly by delivery of a hard copy original thereof) and mailed, faxed or delivered, to the address or facsimile number specified for notices on Schedule 11.02; or, as directed to the Company or the Agent, to such other address as shall be designated by such party in a written notice to the other parties, and as directed to any other party, at such other address as shall be designated by such party in a written notice to the Company and the Agent. (b) All such notices, requests and communications shall, when transmitted by overnight delivery, or faxed, be effective when delivered for overnight (next-day) delivery, or transmitted in legible form by facsimile machine, respectively, or if mailed, upon the third Business Day after the date deposited into the U.S. mail certified or registered mail, return receipt requested, or if delivered, upon delivery; except that notices pursuant to Article II, III, or X to the Agent shall not be effective until actually received by the Agent and notices pursuant to Article III to the Issuing Bank shall not be effective until actually received by the Issuing Bank at the address specified for the "Issuing Bank" on the applicable signature page hereof. (c) Any agreement of the Agent and the Banks herein to receive certain notices by telephone or facsimile is solely for the convenience and at the request of the Company. The Agent and the Banks shall be entitled to rely on the authority of any Person purporting to be a Person authorized by the Company to give such notice and the Agent and the Banks shall not have any liability to the Company or other Person on account of any action taken or not taken by the Agent or the Banks in reliance upon such telephonic or facsimile notice. The obligation of the Company to repay the Loans and L/C Obligations shall not be affected in any way or to any extent by any failure by the Agent and the Banks to receive written confirmation of any telephonic or facsimile notice or the receipt by the Agent and the Banks of a confirmation which is at variance with the terms understood by the Agent and the Banks to be contained in the telephonic or facsimile notice. 67 74 11.03 No Waiver; Cumulative Remedies. No failure to exercise and no delay in exercising, on the part of the Agent or any Bank, any right, remedy, power or privilege hereunder, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. 11.04 Costs and Expenses. The Company shall: (a) whether or not the transactions contemplated hereby are consummated, pay or reimburse Bank of America (including in its capacity as Agent and Issuing Bank ) within five Business Days after demand (subject to subsection 5.01(f)) for all reasonable costs and expenses incurred by Bank of America (including in its capacity as Agent and Issuing Bank) in connection with the development, preparation, delivery, administration and execution of, and any amendment, supplement, waiver or modification to (in each case, whether or not consummated), this Agreement, any Loan Document and any other documents prepared in connection herewith or therewith, and the consummation of the transactions contemplated hereby and thereby, including reasonable Attorney Costs incurred by Bank of America (including in its capacity as Agent and Issuing Bank) with respect thereto; and (b) pay or reimburse the Agent and each Bank within five Business Days after demand (subject to subsection 5.01(f)) for all costs and expenses (including Attorney Costs) incurred by them in connection with the enforcement, attempted enforcement, or preservation of any rights or remedies under this Agreement or any other Loan Document during the existence of an Event of Default or after acceleration of the Loans (including in connection with any "workout" or restructuring regarding the Loans, and including in any Insolvency Proceeding or appellate proceeding). 11.05 Company Indemnification. Whether or not the transactions contemplated hereby are consummated, the Company shall indemnify, defend and hold the Agent-Related Persons, and each Bank and each of its respective officers, directors, employees, counsel, agents and attorneys-in-fact (each, an "Indemnified Person") harmless from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, charges, expenses and disbursements (including Attorney Costs) of any kind or nature whatsoever which may at any time (including at any time following repayment of the Loans, the termination of the Letter of Credit and the termination, resignation or replacement of the Agent or replacement of any Bank) be imposed on, incurred by or asserted against any such Person in any way relating to or arising out of this Agreement or any document contemplated by or referred to herein, or the transactions contemplated hereby, or any action taken or omitted by any such Person under or in connection with any of the foregoing, including with respect to any investigation, litigation or proceeding (including any Insolvency Proceeding or appellate proceeding) related to or arising out of this Agreement or the Loans or Letters of Credit or the use of the proceeds thereof, whether or not any Indemnified Person is a party thereto (all the foregoing, collectively, the "Indemnified Liabilities"); provided that the Company shall have no obligation hereunder to any Indemnified Person with respect to Indemnified Liabilities resulting solely from the gross 68 75 negligence or willful misconduct of such Indemnified Person. The agreements in this Section shall survive payment of all other Obligations. 11.06 Payments Set Aside. To the extent that the Company makes a payment to the Agent or the Banks, or the Agent or the Banks exercise their right of set-off, and such payment or the proceeds of such set-off or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside or required (including pursuant to any settlement entered into by the Agent or such Bank in its discretion) to be repaid to a trustee, receiver or any other party, in connection with any Insolvency Proceeding or otherwise, then (a) to the extent of such recovery the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such set-off had not occurred, and (b) each Bank severally agrees to pay to the Agent upon demand its pro rata share of any amount so recovered from or repaid by the Agent. 11.07 Successors and Assigns. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns, except that the Company may not assign or transfer any of its rights or obligations under this Agreement without the prior written consent of the Agent and each Bank. 11.08 Assignments, Participations, etc. (a) Each Bank may assign to one or more Eligible Assignees all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Loans, its Note, and its Commitment); provided that (i) each such assignment shall be to an Eligible Assignee; (ii) except in the case of an assignment to another Bank or an assignment of all of a Bank's rights and obligations under this Agreement, any such partial assignment shall be in an amount at least equal to $5,000,000 or an integral multiple of $1,000,000 in excess thereof; (iii) each such assignment by a Bank shall be of a constant, and not varying, percentage of all of its rights and obligations under this Agreement and the Note; and (iv) the parties to such assignment shall execute and deliver to the Agent for its acceptance an Assignment and Acceptance in the form of Exhibit E hereto, together with any Note subject to such assignment and a processing fee of $3,500. Upon execution, delivery, and acceptance of such Assignment and Acceptance, the assignee thereunder shall be a party hereto and, to the extent of such assignment, have the obligations, rights, and benefits of a Bank hereunder and the assigning Bank shall, to the extent of such assignment, relinquish its rights and be released from its obligations under this Agreement. Upon the consummation of any assignment pursuant to this Section, the assignor, the Agent and the Company shall make appropriate arrangements so that if required, new Notes are issued to the assignor and the assignee. If the assignee is not incorporated under the laws of the United States of America or a state thereof, it shall deliver to the Company and the Agent certification as to exemption from deduction or withholding of Taxes in accordance with Section 10.10. 69 76 (b) The Agent shall maintain at its address referred to in Section 11.02 a copy of each Assignment and Acceptance delivered to and accepted by it and a register for the recordation of the names and addresses of the Banks and the Commitment of, and principal amount of the Loans owing to, each Bank from time to time (the "Register"). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and the Company, the Agent and the Banks may treat each Person whose name is recorded in the Register as a Bank hereunder for all purposes of this Agreement. The Register shall be available for inspection by the Company or any Bank at any reasonable time and from time to time upon reasonable prior notice. (c) Upon its receipt of an Assignment and Acceptance executed by the parties thereto, together with any Note subject to such assignment and payment of the processing fee, the Agent shall, if such Assignment and Acceptance has been completed and is in substantially the form of Exhibit E hereto, (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the parties thereto. (d) Each Bank may sell participations to one or more Persons in all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and its Loans); provided that (i) such Bank's obligations under this Agreement shall remain unchanged, (ii) such Bank shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) the participant shall be entitled to the benefit of the yield protection provisions contained in Article IV and the right of set-off contained in Section 11.10, and (iv) the Company shall continue to deal solely and directly with such Bank in connection with such Bank's rights and obligations under this Agreement, and such Bank shall retain the sole right to enforce the obligations of the Company relating to its Loans and its Note and to approve any amendment, modification, or waiver of any provision of this Agreement (other than amendments, modifications, or waivers decreasing the amount of principal of or the rate at which interest is payable on such Loans or Note, extending any scheduled principal payment date or date fixed for the payment of interest on such Loans or Note, or extending its Commitment). (e) Notwithstanding any other provision set forth in this Agreement, any Bank may at any time assign and pledge all or any portion of its Loans and its Note to any Federal Reserve Bank as collateral security pursuant to Regulation A and any Operating Circular issued by such Federal Reserve Bank. No such assignment shall release the assigning Bank from its obligations hereunder. (f) Any Bank may furnish any information concerning the Company or any of its Subsidiaries in the possession of such Bank from time to time to assignees and participants (including prospective assignees and participants), subject, however, to the provisions of Section 11.09. 11.09 Confidentiality. Each Bank agrees to take and to cause its Affiliates to take normal and reasonable precautions and exercise due care to maintain the confidentiality of all information either identified as "confidential" or "secret" by the Company, or known in fact by such Bank to be confidential, and provided to it by the Company or any Subsidiary, or by the 70 77 Agent on the Company's or such Subsidiary's behalf, under this Agreement or any other Loan Document, and neither it nor any of its Affiliates shall use any such information other than in connection with or in enforcement of this Agreement and the other Loan Documents or in connection with other business now or hereafter existing or contemplated with the Company or any Subsidiary; except to the extent such information (i) was or becomes generally available to the public other than as a result of disclosure by the Bank, or (ii) was or becomes available on a non-confidential basis from a source other than the Company, provided that such source is not bound by a confidentiality agreement with the Company known to the Bank; provided that any Bank may disclose such information (A) at the request or pursuant to any requirement of any Governmental Authority to which the Bank is subject or in connection with an examination of such Bank by any such authority; (B) pursuant to subpoena or other court process; (C) when required to do so in accordance with the provisions of any applicable Requirement of Law; (D) to the extent reasonably required in connection with any litigation or proceeding to which the Agent, any Bank or their respective Affiliates may be party; (E) to the extent reasonably required in connection with the exercise of any remedy hereunder or under any other Loan Document; (F) to such Bank's independent auditors and other professional advisors; (G) to any participant or Assignee, actual or potential, provided that such Person agrees in writing to keep such information confidential to the same extent required of the Banks hereunder; (H) as to any Bank or its Affiliate, as expressly permitted under the terms of any other document or agreement regarding confidentiality to which the Company or any Subsidiary is party or is deemed party with such Bank or such Affiliate; and (I) to its Affiliates. 11.10 Set-off. In addition to any rights and remedies of the Banks provided by law, if an Event of Default exists or the Loans have been accelerated, each Bank is authorized at any time and from time to time, without prior notice to the Company, any such notice being waived by the Company to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held by, and other indebtedness at any time owing by, such Bank to or for the credit or the account of the Company against any and all Obligations owing to such Bank, now or hereafter existing, irrespective of whether or not the Agent or such Bank shall have made demand under this Agreement or any Loan Document and although such Obligations may be contingent or unmatured. Each Bank agrees promptly to notify the Company and the Agent after any such set-off and application made by such Bank; provided that the failure to give such notice shall not affect the validity of such set-off and application or affect any rights and remedies of the Company with respect thereto. 11.11 Automatic Debits of Fees. With respect to any commitment fee, arrangement fee, letter of credit fee, or other fee, or any other cost or expense (including Attorney Costs) due and payable to the Agent, Issuing Bank, or Bank of America under the Loan Documents, the Company hereby irrevocably authorizes Bank of America to debit any deposit account of the Company with Bank of America in an amount such that the aggregate amount debited from all such deposit accounts does not exceed such fee or other cost or expense. If there are insufficient funds in such deposit accounts to cover the amount of the fee or other cost or expense then due, such debits will be reversed (in whole or in part, in Bank of America's sole discretion) and such amount not debited shall be deemed to be unpaid. No such debit under this Section shall be deemed a set-off. 71 78 11.12 Notification of Addresses, Lending Offices, Etc. Each Bank shall notify the Agent in writing of any changes in the address to which notices to the Bank should be directed, of addresses of any Lending Office, of payment instructions in respect of all payments to be made to it hereunder and of such other administrative information as the Agent shall reasonably request. 11.13 Counterparts. This Agreement may be executed in any number of separate counterparts, each of which, when so executed, shall be deemed an original, and all of said counterparts taken together shall be deemed to constitute but one and the same instrument. Delivery of an executed counterpart of the signature page to this Agreement by telecopier shall be effective as delivery of a manually executed counterpart of this Agreement. Any party delivering an executed counterpart of the signature page to this Agreement by telecopier shall thereafter also promptly deliver a manually executed counterpart of this Agreement, but the failure to deliver such manually executed counterpart shall not affect the validity, enforceability, and binding effect of this Agreement. 11.14 Severability. The illegality or unenforceability of any provision of this Agreement or any instrument or agreement required hereunder shall not in any way affect or impair the legality or enforceability of the remaining provisions of this Agreement or any instrument or agreement required hereunder. 11.15 No Third Parties Benefitted. This Agreement is made and entered into for the sole protection and legal benefit of the Company, the Banks, the Agent and the Agent-Related Persons, and their permitted successors and assigns, and no other Person shall be a direct or indirect legal beneficiary of, or have any direct or indirect cause of action or claim in connection with, this Agreement or any of the other Loan Documents. 11.16 Governing Law and Jurisdiction. (a) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF CALIFORNIA; PROVIDED THAT THE AGENT AND THE BANKS SHALL RETAIN ALL RIGHTS ARISING UNDER FEDERAL LAW. (b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF CALIFORNIA OR OF THE UNITED STATES FOR THE NORTHERN DISTRICT OF CALIFORNIA, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE COMPANY, THE AGENT AND THE BANKS CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF THOSE COURTS. EACH OF THE COMPANY, THE AGENT AND THE BANKS IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO. THE COMPANY, THE AGENT AND THE BANKS EACH WAIVE PERSONAL SERVICE OF ANY 72 79 SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY CALIFORNIA LAW. 11.17 Waiver of Jury Trial. THE COMPANY, THE BANKS AND THE AGENT EACH WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR ANY AGENT-RELATED PERSON, PARTICIPANT OR ASSIGNEE, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. THE COMPANY, THE BANKS AND THE AGENT EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS. 11.18 Joint and Several Liability of the Company and the Subsidiary Co-Borrowers; Waiver of Certain Defenses. (a) The Company acknowledges and agrees that its obligations to pay all the Obligations under this Agreement is a direct, primary, separate, and independent obligation, is not in whole or in part a surety relationship, is absolute and unconditional, and is not dependent in whole or in part upon the obligations of any Subsidiary Co-Borrower. The Company agrees that it is liable to the Agent and the Banks for the entire amount of the Obligations, and that a separate action may be brought against the Company whether such action is brought against any Subsidiary Co-Borrower or any guarantor or whether any Subsidiary Co-Borrower or any such guarantor is jointed in such action. The Company agrees that its liability hereunder shall be immediate and shall not be contingent upon the exercise or enforcement by the Agents or the Banks of whatever remedies they may have against Subsidiary Co-Borrower or any guarantor, or the enforcement of any lien or realization upon any security the Agent or the Banks may at any time possess. The Company agrees that any release which may be given by the Agent and the Banks to any Subsidiary Co-Borrower or any guarantor shall not release the Company. The Company consents and agrees that the Agents and the Banks shall be under no obligation to marshall any assets of any Subsidiary Co-Borrower or any guarantor in favor of the Company or against or in payment of any or all of the Obligations. (b) To the maximum extent permitted by applicable law, the Company hereby waives, solely in respect of any claims or defenses which the Company might otherwise have by 73 80 reason of being determined to be a surety for or guarantor of the obligations of the Subsidiary Co-Borrowers with respect to the Obligations: (i) any rights to assert against the Agent or the Banks any defense (legal or equitable), set-off, counterclaim, or claim which the Company may now or at any time hereafter have against any Subsidiary Co-Borrower; (ii) any defense, set-off, counterclaim, or claim, or any kind or nature, arising directly or indirectly from the present or future lack of perfection, sufficiency, validity, or enforceability of the Obligations or any security therefor or the legal liability of any Subsidiary Co-Borrower therefor; (iii) any defense arising by reason of any claim or defense based upon an election of remedies by the Agent or the Banks, including any defense based upon an election of remedies by the Agent or the Banks under the provisions of Section 580d and 726 of the California Code of Civil Procedure, or any similar law of California or any other jurisdiction; (iv) any defense based on any alteration, impairment or release of the Obligations or any security therefor, whether or not resulting from any act or failure to act by the Agent or the Banks; and (v) any right to require the Agent or the Banks to institute suit against any Subsidiary Co-Borrower or to exhaust any rights and remedies which the Agent or the Banks has or may have against any Subsidiary Co-Borrower; (c) The Company consents and agrees that, without notice to or by the Company and without affecting or impairing the obligations of the Company hereunder, the Agent and the Banks may, by action or inaction, compromise or settle, extend the period of duration or time for the payment, or discharge the performance of, or may refuse to, or otherwise not enforce, or may, by action or inaction, release all or any one or more parties to, any one or more of the Loan Documents or may grant other indulgences to any Subsidiary Co-Borrower in respect thereof, or may agree to amend or modify in any manner and at any time (or from time to time) any one or more of the Loan Documents, or may, by action or inaction, release or substitute any guarantor, if any, of the Obligations, or may enforce, exchange, release, or waive, by action or inaction, any security for the Obligations or any guaranty of the Obligations, or any portion thereof. 11.19 Judgment. If, for the purposes of obtaining judgment in any court, it is necessary to convert a sum due hereunder or any other Loan Document in one currency into another currency, the rate of exchange used shall be that at which in accordance with normal banking procedures the Agent could purchase the first currency with such other currency on the Business Day preceding that on which final judgment is given. The obligation of the Company in respect of any such sum due from it to the Agent hereunder or under the other Loan Documents shall, notwithstanding any judgment in a currency (the "Judgment Currency") other than that in which 74 81 such sum is denominated in accordance with the applicable provisions of this Agreement (the "Agreement Currency"), be discharged only to the extent that on the Business Day following receipt by the Agent of any sum adjudged to be so due in the Judgment Currency, the Agent may in accordance with normal banking procedures purchase the Agreement Currency with the Judgment Currency. If the amount of the Agreement Currency so purchased is less than the sum originally due to the Agent in the Agreement Currency, the Company agrees, as a separate obligation and notwithstanding any such judgment, to indemnify the Agent or the Person to whom such obligation was owing against such loss. If the amount of the Agreement currency so purchased is greater than the sum originally due to the Agent in such currency, the Agent agrees to return the amount of any excess to the Company (or to any other Person who may be entitled thereto under applicable law). 11.20 Entire Agreement. This Agreement, together with the other Loan Documents, embodies the entire agreement and understanding among the Company, the Banks and the Agent, and supersedes all prior or contemporaneous agreements and understandings of such Persons, verbal or written, relating to the subject matter hereof and thereof. 75 82 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered in San Francisco, California, by their proper and duly authorized officers as of the day and year first above written. COMPANY: THE GYMBOREE CORPORATION By /s/ F. Mario Petrocco -------------------------------------- Title: Vice President ---------------------------------- By -------------------------------------- Title: ---------------------------------- AGENT: BANK OF AMERICA, N.A., as Agent By /s/ Henry P. Rogers -------------------------------------- Title: Vice President ---------------------------------- BANKS: BANK OF AMERICA, N.A., as a Bank and as Issuing Bank By /s/ Henry P. Rogers -------------------------------------- Title: Vice President ---------------------------------- 76 83 Schedule 1.01 -- Pricing Schedule
- ---------------------------------------------------------------------------------------------- Fiscal Quarter ending Level I Period amount Level II Period amount - ---------------------------------------------------------------------------------------------- 07/31/1999 $173,000,000 $171,000,000 - ---------------------------------------------------------------------------------------------- 10/31/1999 $176,000,000 $172,000,000 - ---------------------------------------------------------------------------------------------- 01/31/2000 $187,000,000 $183,000,000 - ---------------------------------------------------------------------------------------------- 04/30/2000 $191,000,000 $187,000,000 - ---------------------------------------------------------------------------------------------- 07/31/2000 $191,000,000 $187,000,000 - ----------------------------------------------------------------------------------------------
84 Schedule 2.01 -- Commitments
- ---------------------------------------------------------------------------------------------- Commitment during period Commitment during period from January 1, 2000, Pro from the Closing Date through the Revolving Rata Bank through December 31, 1999 Termination Date Share - ---------------------------------------------------------------------------------------------- Bank of America, N.A. $60,000,000 $50,000,000 100% - ---------------------------------------------------------------------------------------------- Total $60,000,000 $50,000,000 100% - ----------------------------------------------------------------------------------------------
85 Schedule 11.02 -- Lending Offices; Addresses for Notices BANK OF AMERICA, N.A., as Agent Agency Management #10831 Attn: Patrick Zetzman 1455 Market Street, 12th Floor San Francisco, California 94103 Tel: 415.436.2776 Fax: 415.436.3425 Agent's Payment Office: Agency Administrative Services #5596 1850 Gateway Boulevard, Fifth Floor Concord, California 94520 BANK OF AMERICA, N.A., as a Bank Domestic and Offshore Lending Office: 1850 Gateway Boulevard, Fourth Floor Concord, California 94520 Notices (other than Borrowing notices and Notices of Conversion/Continuation): Attn: Henry Rogers San Francisco Regional Commercial Banking Office (#1499) 345 Montgomery Street Concourse Level San Francisco, CA 94104 Tel: 415.953.9023 Fax: 415.622.1878 EX-11 4 COMPUTATION OF NET INCOME PER SHARE 1 EXHIBIT 11 THE GYMBOREE CORPORATION COMPUTATION OF NET INCOME (LOSS) PER SHARE (IN THOUSANDS, EXCEPT PER SHARE DATA)
13 Weeks Ended 26 Weeks Ended --------------------------- ------------------------ July 31, Aug 1, July 31, Aug 1, 1999 1998 1999 1998 --------- --------- --------- ------- NET INCOME (LOSS) $ (13,555) $ (831) $ (8,770) $ 3,317 ========= ========= ========= ======= Weighted average number of shares outstanding during the period: Common Stock 24,294 24,163 24,276 24,144 Add incremental shares from assumed exercise of stock options(1) -- -- -- 77 --------- --------- --------- ------- Weighted average common and common equivalent shares outstanding 24,294 24,163 24,276 24,221 ========= ========= ========= ======= BASIC NET INCOME (LOSS) PER SHARE $ (0.56) $ (0.03) $ (0.36) $ 0.14 ========= ========= ========= ======= DILUTED NET INCOME (LOSS) PER SHARE $ (0.56) $ (0.03) $ (0.36) $ 0.14 ========= ========= ========= =======
(1) Options to purchase weighted average shares totaling 209, 33, and 185 for the 13 weeks ended July 31, 1999 and August 1, 1998 and the 26 weeks ended July 31, 1999, respectively, were not included in the computation of diluted income per share because to do so would have been antidilutive. EX-27 5 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS JAN-29-2000 MAY-02-1999 JUL-31-1999 41,846 0 5,400 0 55,013 111,018 191,705 56,939 250,276 47,050 0 0 0 27,509 132,667 250,276 99,922 99,922 70,230 122,062 0 0 0 (21,516) (7,961) (13,555) 0 0 0 (13,555) (.56) (.56)
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