Document:

Exhibit 10.10

 

EXECUTION VERSION

 

GUARANTY

 

GUARANTY (this “Guaranty”), dated as of October 9, 2007, by each of the Persons listed on Schedule I hereto (each such Person, individually, a “Facility Guarantor” and, collectively, the “Facility Guarantors”) in favor of (a) JPMorgan Chase Bank, N.A., a national banking association, as administrative agent (in such capacity, the “Administrative Agent”) for its own benefit and the benefit of the other Credit Parties (as defined in the Credit Agreement referred to below), (b) JPMorgan Chase Bank, N.A., a national banking association, as collateral agent (in such capacity, the “Collateral Agent”, and together with the Administrative Agent, collectively, the “Agents” and individually, each an “Agent”) for its own benefit and the benefit of the other Secured Parties, and (c) the Secured Parties.

 

W I T N E S S E T H

 

WHEREAS, reference is made to that certain Credit Agreement, dated as of October 9, 2007 (as amended, modified, supplemented or restated and in effect from time to time, the “Credit Agreement”), by and among, among others (i) VH MergerSub, Inc. (“Merger Sub” and, prior to the Merger (as defined below), the “Lead Borrower”), to be merged (the “Merger”) with and into Guitar Center, Inc. (“Guitar Center” and, after the Merger, the “Lead Borrower”), in each case for itself and in conjunction with its capacity as Lead Borrower as agent for the other Borrowers party thereto (collectively, with the Lead Borrower, the “Borrowers”), (ii) the other Borrowers party thereto, (iii) the Facility Guarantors, as Loan Parties, (iv) the Administrative Agent, (v) the Collateral Agent,  and (vi) the Lenders party thereto (collectively, the “Lenders”).  Capitalized terms used herein and not defined herein shall have the meanings assigned to such terms in the Credit Agreement.

 

WHEREAS, the Lenders have agreed to make Revolving Credit Loans to the Borrowers, and the Issuing Banks have agreed to issue Letters of Credit for the account of the Borrowers, pursuant to, and upon the terms and subject to the conditions specified in, the Credit Agreement.

 

WHEREAS, each Facility Guarantor hereby acknowledges that it is an integral part of a consolidated enterprise and that it will derive substantial direct and indirect benefits from the availability of the credit facility provided for in the Credit Agreement, from the making of the Revolving Credit Loans by the Lenders, and the issuance of the Letters of Credit by the Issuing Banks.

 

WHEREAS, the obligations of the Lenders to make Revolving Credit Loans and of the Issuing Banks to issue Letters of Credit are each conditioned upon, among other things, the execution and delivery by the Facility Guarantors of a Guaranty in the form hereof.  As consideration therefor, and in order to induce the Lenders to make Revolving Credit Loans and the Issuing Banks to issue Letters of Credit, the Facility Guarantors are willing to execute this Guaranty.

 

Accordingly, the parties hereto agree as follows:

 

Section 1.               Guaranty.  Each Facility Guarantor irrevocably and unconditionally guarantees, jointly with the other Facility Guarantors and severally, as a primary obligor and not merely as a surety, the due and punctual payment when due (whether at the stated maturity, by 

 

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required prepayment, by acceleration or otherwise) of, and the performance by each of the Borrowers of, all Obligations (collectively, the “Guaranteed Obligations”), including all such Guaranteed Obligations which would otherwise become due but for the operation of the Bankruptcy Code.  Each Facility Guarantor further agrees that the Guaranteed Obligations may be extended or renewed, in whole or in part, without notice to or further assent from it, and that it will remain bound upon this Guaranty notwithstanding any extension or renewal of any Guaranteed Obligation.

 

Section 2.               Guaranteed Obligations Not Affected.  To the fullest extent permitted by Applicable Law, each Facility Guarantor waives presentment to, demand of payment from, and protest to, any Loan Party of any of the Guaranteed Obligations, and also waives notice of acceptance of this Guaranty, notice of protest for nonpayment and all other notices of any kind.  To the fullest extent permitted by Applicable Law, the obligations of each Facility Guarantor hereunder shall not be affected by (a) the failure of any Agent or any other Secured Party to assert any claim or demand or to enforce or exercise any right or remedy against any Loan Party under the provisions of the Credit Agreement, any other Loan Document or otherwise or against any other party with respect to any of the Guaranteed Obligations, (b) any rescission, waiver, amendment or modification of, or any release from, any of the terms or provisions of this Guaranty, any other Loan Document or any other agreement, with respect to any Loan Party or with respect to the Guaranteed Obligations, (c) the failure to perfect any security interest in, or the release of, any of the Collateral held by or on behalf of the Collateral Agent or any other Secured Party, or (d) the lack of legal existence of any Loan Party or legal obligation to discharge any of the Guaranteed Obligations by any Loan Party for any reason whatsoever, including, without limitation, in any insolvency, bankruptcy or reorganization of any Loan Party.

 

Section 3.               Security.  Each Facility Guarantor hereby acknowledges and agrees that the Collateral Agent and each of the other Secured Parties may (a) take and hold security for the payment of this Guaranty and the Guaranteed Obligations and exchange, enforce, waive and release any such security, (b) apply such security and direct the order or manner of sale thereof as they in their sole discretion may determine, and (c) release or substitute any one or more endorsees, Borrowers, other Facility Guarantors or other obligors, in each case without affecting or impairing in any way the liability of any Facility Guarantor hereunder.

 

Section 4.               Guaranty of Payment.  Each of the Facility Guarantors further agrees that this Guaranty constitutes a guarantee of payment and performance when due of all Guaranteed Obligations and not of collection and, to the extent permitted by Applicable Law, waives any right to require that any resort be had by the Collateral Agent or any other Secured Party to any of the Collateral or other security held for payment of the Guaranteed Obligations or to any balance of any deposit account or credit on the books of any Agent or any other Secured Party in favor of any Loan Party or any other Person or to any other guarantor of all or part of the Guaranteed Obligations.  Any payment required to be made by the Facility Guarantors hereunder may be required by any Agent or any other Secured Party on any number of occasions and shall be payable to the Administrative Agent, for the benefit of the Agents and the other Secured Parties, in the manner provided in the Credit Agreement.

 

Section 5.               Indemnification.  Without limiting any of their indemnification obligations under the Credit Agreement or the other Loan Documents, and without duplication of any fees, expenses or indemnification under the Credit Agreement or the other Loan Documents, each Facility Guarantor, jointly and severally, shall indemnify each Agent and each Secured Party and 

 

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each of their respective Subsidiaries and Affiliates, and each of the respective directors, officers, employees, agents, and controlling persons of any of the foregoing Persons (each such Person being called an “Indemnitee”), against, and hold each Indemnitee harmless from, any and all damages, actual out-of-pocket losses, claims, actions, causes of action, settlement payments, obligations, liabilities and related expenses, including the reasonable fees, charges and disbursements of one counsel for the Agents and one counsel for all the Indemnitees (plus, in each case, one local counsel in any other jurisdiction to the extent reasonably necessary) (provided  that in the case of a conflict of interest the affected Indemnitee may engage and shall be reimbursed for one additional counsel, plus one local counsel in any other jurisdiction to the extent reasonably necessary), incurred, suffered, sustained or required to be paid by, or asserted against, any Indemnitee arising out of, in any way connected with, or as a result of, (i) the execution or delivery of this Guaranty, the Credit Agreement or any other Loan Document or any other agreement or instrument contemplated hereby, the performance by the Facility Guarantors of their respective obligations thereunder, or the consummation of the transactions contemplated by the Credit Agreement and the other Loan Documents or any other transactions contemplated hereby or thereby, or (ii) any actual or prospective claim, litigation, investigation or proceeding relating to or arising from any of the foregoing, whether based on contract, tort or any other theory and regardless of whether any Indemnitee is a party thereto or whether such claim, litigation, investigation or proceeding is brought by a third party or any Loan Party or any Affiliate thereof; provided, however, that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses are determined by a court of competent jurisdiction or another independent tribunal having jurisdiction to have resulted from (i) the gross negligence, bad faith, fraud or willful misconduct of such Indemnitee (or any of its Affiliates or Related Parties), (ii) such Indemnitee’s (or any of its Affiliates’ or Related Parties’) material breach of its obligations under this Guaranty or any other Loan Document or (iii) any dispute solely among the Indemnitees other than claims against the Administrative Agent in its capacity or in fulfilling its role as an agent or arranger or any other similar role under this Guaranty or any other Loan Document and any claims arising out of any act or omission by the Lead Borrower or any of its Affiliates.  Notwithstanding anything to the contrary contained herein, the Loan Parties shall have no obligation to reimburse any Indemnitee for fees and expenses unless such Indemnitee provides the Loan Parties with an executed undertaking in which such Indemnitee agrees to refund and return any and all amounts paid by the Loan Parties to such Indemnitee to the extent any of the foregoing items described in clauses (i) through (iii) occurs.

 

Section 6.               No Discharge or Diminishment of Guaranty.  The obligations of each Facility Guarantor hereunder shall not be subject to any reduction, limitation, impairment or termination for any reason (other than the payment in full in cash of the Guaranteed Obligations (other than contingent indemnity obligations with respect to then unasserted claims) subject, in all events, to Section 11 hereof), including any claim of waiver, release, surrender, alteration or compromise of any of the Guaranteed Obligations, and shall not be subject to any defense or set-off, counterclaim, recoupment or termination whatsoever by reason of the invalidity, illegality or unenforceability of the Guaranteed Obligations or otherwise.  Without limiting the generality of the foregoing, the Guaranteed Obligations of each Facility Guarantor hereunder shall not be discharged or impaired or otherwise affected by the failure of any Agent or any other Secured Party to assert any claim or demand or to enforce any remedy under this Guaranty, the Credit Agreement, any other Loan Document or any other agreement, by any waiver or modification of any provision of any thereof, by any default, failure or delay, willful or otherwise, in the 

 

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performance of the Guaranteed Obligations, or by any other act or omission that may or might in any manner or to any extent vary the risk of any Facility Guarantor or that would otherwise operate as a discharge of any Facility Guarantor as a matter of law or equity (other than the payment in full in cash of all of the Guaranteed Obligations (other than contingent indemnity obligations with respect to then unasserted claims) subject, in all events, to Section 11 hereof).

 

Section 7.               Defenses of Loan Parties Waived.  To the fullest extent permitted by Applicable Law, each of the Facility Guarantors waives any defense based on or arising out of any defense of any Loan Party or the unenforceability of the Guaranteed Obligations or any part thereof from any cause, or the cessation from any cause of the liability of any Loan Party, other than the payment in full in cash of the Guaranteed Obligations (other than contingent indemnity obligations with respect to then unasserted claims) subject, in all events, to Section 11 hereof.  Each Facility Guarantor hereby acknowledges that the Agents and the other Secured Parties may, at their election, foreclose on any security held by one or more of them by one or more judicial or non-judicial sales, accept an assignment of any such security in lieu of foreclosure, compromise or adjust any part of the Guaranteed Obligations, make any other accommodation with any Loan Party, or exercise any other right or remedy available to them against any Loan Party, without affecting or impairing in any way the liability of any Facility Guarantor hereunder except to the extent that the Guaranteed Obligations have been paid in full in cash (other than contingent indemnity obligations with respect to then unasserted claims) subject, in all events, to Section 11 hereof).  Pursuant to, and to the extent permitted by, Applicable Law, each of the Facility Guarantors waives any defense arising out of any such election and waives any benefit of and right to participate in any such foreclosure action, even though such election operates, pursuant to Applicable Law, to impair or to extinguish any right of reimbursement or subrogation or other right or remedy of such Facility Guarantor against any Loan Party, as the case may be, or any security.  Each Facility Guarantor agrees that it shall not assert any claim in competition with any Agent or any other Secured Party in respect of any payment made hereunder in any bankruptcy, insolvency, reorganization, or any other proceeding.

 

Section 8.               Agreement to Pay; Subordination.  In furtherance of the foregoing and not in limitation of any other right that the Agents or any other Secured Party has at law or in equity against any Facility Guarantor by virtue hereof, upon the failure of any Loan Party to pay any Guaranteed Obligation when and as the same shall become due, whether at maturity, by acceleration, after notice of prepayment or otherwise, each of the Facility Guarantors hereby promises to and will forthwith pay, or cause to be paid, to the Agents or such other Secured Party as designated thereby in cash the amount of such unpaid Guaranteed Obligations.  Upon payment by any Facility Guarantor of any sums to any Agent or any other Secured Party as provided above, all rights of such Facility Guarantor against any Loan Party arising as a result thereof by way of right of subrogation, contribution, reimbursement, indemnity or otherwise shall in all respects be subordinate and junior in right of payment to the prior payment in full in cash of all the Guaranteed Obligations (other than contingent indemnity obligations with respect to then unasserted claims).  In addition, any indebtedness of any Borrower or any other Loan Party now or hereafter held by any Facility Guarantor is hereby subordinated in right of payment to the prior payment in full of all of the Guaranteed Obligations (other than contingent indemnity obligations with respect to then unasserted claims).  If any amount shall erroneously be paid to any Facility Guarantor on account of such subrogation, contribution, reimbursement, indemnity or similar right, such amount shall be held in trust for the benefit of the Secured Parties and shall

 

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forthwith be paid to the Administrative Agent to be credited against the payment of the Guaranteed Obligations in accordance with the terms of the Credit Agreement.

 

Section 9.               Limitation on Guaranty of Guaranteed Obligations.  In any action or proceeding with respect to any Facility Guarantor involving any state corporate law, the Bankruptcy Code or any other state or federal bankruptcy, insolvency, reorganization or other law affecting the rights of creditors generally, if the obligations of such Facility Guarantor under Section 1 hereof would otherwise be held or determined to be void, invalid or unenforceable, or subordinated to the claims of any other creditors, on account of the amount of its liability under said Section 1, then, notwithstanding any other provision hereof to the contrary, the amount of such liability shall, without any further action by such Facility Guarantor, any Secured Party, any Agent or any other Person, be automatically limited and reduced to the highest amount which is valid and enforceable and not subordinated to the claims of other creditors as determined in such action or proceeding.

 

Section 10.             Information.  Each of the Facility Guarantors assumes all responsibility for being and keeping itself informed of each Loan Party’s financial condition and assets, and of all other circumstances bearing upon the risk of nonpayment of the Guaranteed Obligations and the nature, scope and extent of the risks that such Facility Guarantor assumes and incurs hereunder, and agrees that none of the Agents or the other Secured Parties will have any duty to advise any of the Facility Guarantors of information known to it or any of them regarding such circumstances or risks.

 

Section 11.             Termination.  This Guaranty (a) shall terminate (except for provisions of this Guaranty which survive termination pursuant to the terms hereof) when (i) the Commitments have expired or been terminated, (ii) all of the Guaranteed Obligations (other than contingent indemnity obligations with respect to then unasserted claims) have been paid in full in cash, (iii) all Letters of Credit have expired or been terminated (or fully cash collateralized in a manner reasonably satisfactory to the applicable Issuing Bank and the Administrative Agent to the extent provided in the Credit Agreement), (iv) all Letter of Credit Outstandings have been reduced to zero (or fully cash collateralized in a manner reasonably satisfactory to the applicable Issuing Bank and the Administrative Agent to the extent provided in the Credit Agreement), and (v) the Issuing Banks have no further obligation to issue Letters of Credit under the Credit Agreement, at which time the Agents shall execute and deliver to the Facility Guarantors, at the Facility Guarantors’ expense, all releases and similar documents that the Facility Guarantors shall reasonably request to evidence such release; provided, however, that in connection with the termination of this Guaranty, the Agents may require such indemnities as it shall reasonably deem necessary or appropriate to protect the Credit Parties against (x) loss on account of credits previously applied to the Guaranteed Obligations that may subsequently be reversed or revoked, and (y) any obligations that may thereafter arise with respect to the Other Liabilities, and provided further that this Guaranty shall be reinstated if at any time payment, or any part thereof, of any Guaranteed Obligation is rescinded or must otherwise be restored by any Credit Party upon the bankruptcy or reorganization of any Facility Guarantor or any other Loan Party.  Any execution and delivery of releases or other documents pursuant to this Section 11 shall be without recourse to, or warranty by, the Agents or any other Credit Party.

 

Section 12.             Costs of Enforcement.  Without limiting any of their obligations under the Credit Agreement or the other Loan Documents, and without duplication of any fees or expenses provided for under the Credit Agreement and the other Loan Documents, the Facility Guarantors,

 

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jointly and severally, agree to pay all Credit Party Expenses (on demand on the Closing Date and, thereafter, within thirty (30) days after receipt of a written invoice therefor setting forth such expenses in reasonable detail), in connection with (i) the administration, negotiation, documentation or amendment of this Guaranty, and (ii) any Agent’s or any other Secured Party’s efforts to collect and/or to enforce any of the Guaranteed Obligations of the Facility Guarantors hereunder and/or to enforce any of the rights, remedies, or powers of any Agent or any other Secured Party against or in respect of the Facility Guarantors (whether or not suit is instituted by or against any Agent or any other Secured Party); provided that in the event a Facility Guarantor has a bona fide dispute with any such expenses, payment of such disputed amounts shall not be required until the earlier of the date such dispute is resolved to the reasonable satisfaction of the Facility Guarantor or thirty (30) days after receipt of any such invoice (and any such disputed amount which is so paid shall be subject to a reservation of the Facility Guarantor’s rights with respect thereto).

 

Section 13.             Binding Effect; Several Agreement; Assignments.  Whenever in this Guaranty any of the parties hereto is referred to, such reference shall be deemed to include the successors and permitted assigns of such party, and all covenants, promises and agreements by or on behalf of the Facility Guarantors that are contained in this Guaranty shall bind and inure to the benefit of each of the Facility Guarantors and its respective successors and permitted assigns.  This Guaranty shall be binding upon each of the Facility Guarantors and their respective successors and permitted assigns, and shall inure to the benefit of the Agents and the other Secured Parties, and their respective successors and permitted assigns, except that no Facility Guarantor shall have the right to assign or transfer its rights or obligations hereunder or any interest herein (and any such attempted assignment or transfer shall be void).  This Guaranty shall be construed as a separate agreement with respect to each Facility Guarantor and may be amended, modified, supplemented, waived or released with respect to any Facility Guarantor without the approval of any other Facility Guarantor and without affecting the obligations of any other Facility Guarantor hereunder.

 

Section 14.             Waivers; Amendment.

 

(a)           No failure or delay of the Administrative Agent or any Secured Party in exercising any power or right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power.  The rights and remedies of the Administrative Agent and of the other Secured Parties hereunder and under the other Loan Documents are cumulative and are not exclusive of any rights or remedies that they would otherwise have.  No waiver of any provision of this of this Guaranty or any other Loan Document or consent to any departure by any Facility Guarantor therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) below, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given.  No notice to or demand on any Facility Guarantor shall entitle any Facility Guarantor or any other Loan Party to any other or further notice or demand in the same, similar or other circumstances.

 

(b)           Neither this Guaranty nor any provision hereof may be waived, amended or modified except pursuant to a written agreement entered into between the Agents and the Facility Guarantor or Facility Guarantors with respect to whom such waiver,

 

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amendment or modification is to apply, subject to any consent required in accordance with Section 9.02 of the Credit Agreement.

 

Section 15.             Copies and Facsimiles.  This instrument and all documents which have been or may be hereinafter furnished by the Facility Guarantors to any of the Agents may be reproduced by the Agents by any photographic, microfilm, xerographic, digital imaging, or other process. Any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding (whether or not the original is in existence and whether or not such reproduction was made in the regular course of business). Any facsimile which bears proof of transmission shall be binding on the party which or on whose behalf such transmission was initiated and likewise so admissible in evidence as if the original of such facsimile had been delivered to the party which or on whose behalf such transmission was received.

 

Section 16.             Governing Law.  THIS GUARANTY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

 

Section 17.             Notices.  All communications and notices hereunder shall be given as provided in Section 9.01 of the Credit Agreement, provided  that, communications and notices to the Facility Guarantors may be delivered to the Lead Borrower on behalf of each of the Facility Guarantors.

 

Section 18.             Survival of Agreement; Severability.

 

(a)           All covenants, agreements, indemnities, representations and warranties made by the Facility Guarantors herein and in the certificates or other instruments delivered in connection with or pursuant to this Guaranty, the Credit Agreement or any other Loan Document shall be considered to have been relied upon by the Agents and the other Secured Parties and shall survive the execution and delivery of this Guaranty, the Credit Agreement and the other Loan Documents and the making of any Revolving Credit Loans by the Lenders and the issuance of any Letters of Credit by the Issuing Banks, regardless of any investigation made by any Agent or any other Secured Party or on their behalf and notwithstanding that the Administrative Agent or other Secured Party may have had notice or knowledge of any Default or Event of Default or incorrect representation or warranty at the time any credit is extended, and shall continue in full force and effect until (i) the Commitments shall have expired or been terminated, (ii) the principal of and interest on each Revolving Credit Loan and all fees and other Guaranteed Obligations (other than contingent indemnification obligations as to which no claims have been asserted) shall have been paid in full, (iii) all Letters of Credit shall have expired or terminated or been cash collateralized to the reasonable satisfaction of the Administrative Agent and the applicable Issuing Bank to the extent provided in the Credit Agreement, and (iv) all Letter of Credit Disbursements shall have been reimbursed in accordance with the Credit Agreement and, thereafter, shall continue to the extent this Guaranty is reinstated pursuant to Section 11 hereof.  The provisions of Section 5 and Section 12 hereof shall survive and remain in full force and effect regardless of the repayment of the Guaranteed Obligations, the expiration or termination of the Letters of Credit and the Commitments or the termination of this Guaranty or any provision hereof.

 

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(b)           Any provision of this Guaranty held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof, and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction.

 

Section 19.             Counterparts.  This Guaranty may be executed in counterparts, each of which shall constitute an original but all of which, when taken together, shall constitute a single contract.  Delivery of an executed counterpart of a signature page to this Guaranty by facsimile transmission shall be as effective as delivery of a manually executed counterpart of this Guaranty.

 

Section 20.             Rules of Interpretation.  The rules of interpretation specified in Sections 1.02 through 1.07 of the Credit Agreement shall be applicable to this Guaranty.

 

Section 21.             Jurisdiction; Consent to Service of Process.

 

(a)           Each of the Facility Guarantors agrees that any suit for the enforcement of this Guaranty or any other Loan Document may be brought in the courts of the State of New York sitting in the Borough of Manhattan or any federal court sitting therein, as the Agents may elect in their sole discretion, and consents to the non-exclusive jurisdiction of such courts.  Each party to this Guaranty hereby waives any objection which it may now or hereafter have to the venue of any such suit or any such court or that such suit is brought in an inconvenient forum and agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law.  Nothing in this Guaranty shall affect any right that the Agents or any other Secured Party may otherwise have to bring any action or proceeding relating to this Guaranty against a Facility Guarantor or its properties in the courts of any jurisdiction.

 

(b)           Each of the Facility Guarantors agrees that any action commenced by any Facility Guarantor asserting any claim or counterclaim arising under or in connection with this Guaranty or any other Loan Document shall be brought solely in a court of the State of New York sitting in the Borough of Manhattan or any federal court sitting therein, as the Agents may elect in their sole discretion, and consents to the exclusive jurisdiction of such courts with respect to any such action.

 

(c)           Each party to this Guaranty irrevocably consents to service of process in the manner provided for notices in Section 17.  Nothing in this Guaranty or any other Loan Document will affect the right of any party to this Guaranty to serve process in any other manner permitted by law.

 

Section 22.             Waiver of Jury Trial.  EACH FACILITY GUARANTOR HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS GUARANTY, ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY) AND WAIVES THE RIGHT

 

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TO ASSERT ANY SETOFF, COUNTERCLAIM OR CROSS-CLAIM IN RESPECT OF, AND ALL STATUTES OF LIMITATIONS WHICH MAY BE RELEVANT TO, SUCH ACTION OR PROCEEDING; AND WAIVES DUE DILIGENCE, DEMAND, PRESENTMENT AND PROTEST AND ANY NOTICES THEREOF AS WELL AS NOTICE OF NONPAYMENT.  EACH FACILITY GUARANTOR (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS, AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS GUARANTY BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS Section 22.

 

Section 23.             Right of Setoff.  If any Specified Default shall have occurred and be continuing, each Secured Party, each Participant and each of their respective Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to setoff and apply any and all deposits (general or special, time or demand, provisional or final, but excluding any payroll, trust and tax withholding accounts) at any time held and other obligations at any time owing by such Secured Party, Participant or Affiliate to or for the credit or the account of any Facility Guarantor against any and all of the Obligations of such Facility Guarantor now or hereafter existing under this Guaranty or other Loan Document to the extent such are then due and owing, although such Obligations may be otherwise fully secured; provided that such Secured Party shall provide the applicable Facility Guarantor with written notice promptly after its exercise of such right of setoff.  The rights of each Secured Party under this Section 23 are in addition to other rights and remedies (including other rights of setoff) that such Secured Party, Participant or Affiliate may have.  No Secured Party will, or will permit its Participant to, exercise its rights under this Section 23 without the consent of the Administrative Agent or the Required Lenders.  ANY AND ALL RIGHTS TO REQUIRE THE COLLATERAL AGENT TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL WHICH SECURES ANY OF THE OBLIGATIONS PRIOR TO THE EXERCISE BY ANY SECURED PARTY, PARTICIPANT OR AFFILIATE OF ITS RIGHT OF SETOFF UNDER THIS SECTION ARE HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED.

 

[SIGNATURE PAGE FOLLOWS]

 

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IN WITNESS WHEREOF, the Facility Guarantors have duly executed this Guaranty as of the day and year first above written.

 

	
 
    	
GUITAR CENTER HOLDINGS, INC.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ John Tudor
    
	
 
    	
Name: John Tudor
    
	
 
    	
Title: Vice   President
    
	
 
    	
 
    
	
 
    	
GUITAR   CENTER GIFT CARD COMPANY, LLC
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ Leland Smith
    
	
 
    	
Name: Leland Smith
    
	
 
    	
Title: Executive   Vice President, General Counsel and Secretary
    
	
 
    	
 
    
	
 
    	
HARMONY   CENTRAL GROUP, LLC
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ Leland Smith
    
	
 
    	
Name: Leland Smith
    
	
 
    	
Title: Executive   VP of Corporate Development, General Counsel and Secretary
    

 

[Signature page — ABL Guaranty Agreement]

 

 

SCHEDULE I

 

Facility Guarantors

 

Guitar Center Holdings, Inc.

Guitar Center Gift Card Company, LLC

Harmony Central Group, LLC

 

11Exhibit 10.11

 

EXECUTION VERSION

 

PLEDGE AGREEMENT

 

PLEDGE AGREEMENT (this “Agreement”), dated as of October 9, 2007, by and between GUITAR CENTER HOLDINGS, INC., a Delaware corporation, VH MERGERSUB, INC. (“Merger Sub” and, prior to the Merger (as defined below), the “Lead Borrower”), a Delaware corporation, to be merged (the “Merger”) with and into GUITAR CENTER, INC. (“Guitar Center” and, after the Merger, the “Lead Borrower”), a Delaware corporation, in each case for itself and in conjunction with its capacity as Lead Borrower as agent for the Borrowers, GUITAR CENTER STORES, INC., a Delaware corporation, GUITAR CENTER GIFT CARD COMPANY, LLC, a Virginia limited liability company, HARMONY CENTRAL GROUP, LLC, a Delaware limited liability company, MUSICIAN’S FRIEND, INC., a Delaware corporation (hereinafter, individually, a “Pledgor”, and collectively, the “Pledgors”), and JPMORGAN CHASE BANK, N.A., a national banking association, as collateral agent (in such capacity, the “Collateral Agent”) for its own benefit and the benefit of the other Secured Parties (as defined herein), in consideration of the mutual covenants contained herein and benefits to be derived herefrom.

 

WITNESSETH:

 

WHEREAS, reference is made to that certain Credit Agreement, dated as of even date herewith (as amended, modified, supplemented or restated and in effect from time to time, the “Credit Agreement”), by and between, among others, (i) VH MergerSub, Inc., for itself and as agent (in such capacity, the “Lead Borrower”) for the other Borrowers party thereto (collectively, with the Lead Borrower, the “Borrowers”), (ii) the other Borrowers, (iii) the Facility Guarantors party thereto (the “Facility Guarantors”), (iv) JPMorgan Chase Bank, N.A., as administrative agent (in such capacity, the “Administrative Agent”) for its own benefit and the benefit of the other Secured Parties, (v) the Collateral Agent, and (vi) the Lenders party thereto (the “Lenders”), pursuant to which the Lenders have agreed to make Revolving Credit Loans, and the Issuing Banks have agreed to issue Letters of Credit, upon the terms and subject to the conditions specified in the Credit Agreement; and

 

WHEREAS, reference is also made to that certain Guaranty, dated as of even date herewith (as amended, modified, supplemented or restated and in effect from time to time, the “Guaranty”), executed by the Facility Guarantors in favor of the Collateral Agent and the other Secured Parties, pursuant to which each Facility Guarantor guarantees the payment and performance of the Guaranteed Obligations (as defined in the Guaranty); and

 

WHEREAS, reference is also made to the Security Agreement dated as of even date herewith (as amended, modified, supplemented or restated and in effect from time to time, the “Security Agreement”), by, among others, the Pledgors and JPMorgan Chase Bank, N.A., as Collateral Agent for the Secured Parties, pursuant to which the Pledgors and the other Grantors named therein have granted a security interest in the Collateral (as defined in the Security Agreement) to secure the Secured Obligations (as defined in the Security Agreement); and

 

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WHEREAS, the obligations of the Lenders to make Revolving Credit Loans and of the Issuing Banks to issue Letters of Credit are each conditioned upon, among other things, the execution and delivery by the Pledgors of an agreement in the form hereof to secure the Secured Obligations.

 

NOW, THEREFORE, in consideration of the mutual conditions and agreements set forth in this Agreement, and for good and valuable consideration, the receipt of which is hereby acknowledged, each Pledgor and the Collateral Agent, on its own behalf and on behalf of the other Secured Parties (and each of their respective successors or permitted assigns), hereby agree as follows:

 

Definitions

 

1.1           Generally.  All references herein to the UCC shall mean the Uniform Commercial Code as in effect from time to time in the State of New York; provided, however, that if a term is defined in Article 9 of the UCC differently than in another Article thereof, the term shall have the meaning set forth in Article 9; provided  further that, if by reason of mandatory provisions of law, perfection, or the effect of perfection or non-perfection, of the security interest in any Pledged Collateral or the availability of any remedy hereunder is governed by the Uniform Commercial Code as in effect in a jurisdiction other than New York, “UCC” means the Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions hereof relating to such perfection or effect of perfection or non-perfection or availability of such remedy, as the case may be.

 

1.2           Definitions of Certain Terms Used Herein.  Unless the context otherwise requires, all capitalized terms used but not defined herein shall have the meanings set forth in the preliminary statement of this Agreement, in the Credit Agreement or Security Agreement (as applicable).  In addition, as used herein, the following terms shall have the following meanings:

 

“Intercreditor Agreement” means that certain Intercreditor Agreement dated as of the date hereof by and among the Administrative Agent, the Collateral Agent, JPMorgan Chase Bank, N.A., as administrative agent and collateral agent under the Term Loan Financing Facility, and the Loan Parties.

 

“Pledged Collateral” shall have the meaning assigned to such term in Section 2.5 of this Agreement.

 

“Pledged Securities” shall have the meaning assigned to such term in Section 2.1 of this Agreement.

 

“Term Loan Collateral Agent” shall mean JPMorgan Chase Bank, N.A., in its capacity as Collateral Agent under the Term Loan Financing Facility, and its successors and permitted assigns.

 

“Voting Stock” means, with respect to any corporation, the outstanding stock of all classes (or equivalent interests) which ordinarily, in the absence of contingencies, entitles holders thereof to vote for the election of directors (or Persons performing similar functions) of such 

 

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corporation, even though the right so to vote has been suspended by the happening of such contingency.

 

1.3           Rules of Interpretation.  The rules of interpretation specified in Sections 1.02 through 1.07 of the Credit Agreement shall be applicable to this Agreement.

 

SECTION 2

 

Pledge

 

As security for the payment or performance, as the case may be, in full of the Secured Obligations, each Pledgor hereby pledges unto the Collateral Agent, its successors and permitted assigns, and hereby grants to the Collateral Agent, its successors and permitted assigns, for its own benefit and the benefit of the other Secured Parties, a security interest in all of such Pledgor’s right, title and interest in, to and under:

 

2.1           all Capital Stock, owned by the Pledgor in each entity designated as on “Issuer” on Schedule I hereto, and any Capital Stock obtained in the future by the Pledgor, and the stock certificates or other security certificates (as defined in the UCC) representing any such Capital Stock (but excluding (a) Capital Stock in any Immaterial Subsidiary, (b) Capital Stock in any Unrestricted Subsidiary and (c) Capital Stock representing more than 65% of the outstanding shares of Voting Stock of any Foreign Subsidiary (or such greater percentage as is permitted by any change in 26 U.S.C. §1ff or other Applicable Law to be pledged by the Pledgor without such pledge resulting in United States income tax liability with respect to such Foreign Subsidiary)  (the “Pledged Securities”);

 

2.2           all other Investment Property that may be delivered to, and held by, the Collateral Agent pursuant to the terms hereof or to the Term Loan Collateral Agent, as agent for, among others, the Collateral Agent and the Secured Parties, pursuant to the terms of the Intercreditor Agreement;

 

2.3           subject to Section 6, all dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed or distributable, in respect of, or in exchange for, the Pledged Securities referred to in clauses 2.1 and 2.2 above;

 

2.4           subject to Section 6, all rights and privileges of the Pledgor with respect to the Pledged Securities and other Investment Property referred to in clauses 2.1, 2.2, and 2.3 above; and

 

2.5           all proceeds of any of the foregoing (the items referred to in clauses 2.1 through 2.4 being collectively referred to as the “Pledged Collateral”).

 

TO HAVE AND TO HOLD the Pledged Collateral, together with all right, title, interest, powers, privileges and preferences pertaining or incidental thereto, unto the Collateral Agent, its successors and permitted assigns, for its own benefit and the benefit of the other Secured Parties, until (i) the Commitments have expired or been terminated, (ii) all of the Secured Obligations 

 

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(other than contingent indemnity obligations with respect to then unasserted claims) have been paid in full in cash, (iii) all Letters of Credit shall have expired or terminated (or fully cash collateralized in a manner reasonably satisfactory to the applicable Issuing Bank and the Administrative Agent to the extent provided in the Credit Agreement), (iv) all Letter of Credit Outstandings have been reduced to zero (or fully cash collateralized in a manner reasonably satisfactory to the applicable Issuing Bank and the Administrative Agent to the extent provided in the Credit Agreement), and (v) the Issuing Banks have no further obligation to issue Letters of Credit under the Credit Agreement, at which time the Collateral Agent shall execute and deliver to the Pledgors, at the Pledgors’ expense, all UCC termination statements and similar documents that the Pledgors shall reasonably request to evidence such termination; provided, however, this Agreement shall remain in full force and effect with respect to those provisions of this Agreement that expressly survive termination hereof, and provided, further, that in connection with the termination of this Agreement and the release and termination of the security interests in the Pledged Collateral, the Collateral Agent may require such indemnities as it shall reasonably deem necessary or appropriate to protect the Credit Parties against (x) loss on account of credits previously applied to the Obligations that may subsequently be reversed or revoked, and (y) any obligations that may thereafter arise with respect to the Other Liabilities, and provided, further that the Credit Agreement, this Agreement, and the security interest granted herein shall be reinstated if at any time payment, or any part thereof, of any Secured Obligation is rescinded or must otherwise be restored by any Secured Party upon the bankruptcy or reorganization of any Pledgor or any other Loan Party.  Any execution and delivery of termination statements or other documents pursuant to this paragraph shall be without recourse to, or warranty by, the Collateral Agent or any other Secured Party.

 

Upon delivery to the Term Loan Collateral Agent or the Collateral Agent pursuant to Section 3 of this Agreement, (a) all stock certificates or other securities now or hereafter included in the Pledged Securities shall be accompanied by stock powers duly executed in blank or other instruments of transfer reasonably satisfactory to the Collateral Agent and by such other instruments and documents as the Collateral Agent may reasonably request, and (b) all other Investment Property consisting of securities and comprising part of the Pledged Collateral shall be accompanied by proper instruments of assignment duly executed by the Pledgors and such other instruments or documents as the Collateral Agent may reasonably request.  Each delivery of Pledged Securities shall be accompanied by a schedule describing the Pledged Securities theretofore and then being pledged hereunder, which schedule shall be attached hereto as Schedule I and made a part hereof, as the same may be supplemented, amended or otherwise modified from time to time in accordance with the terms of this Agreement.  Each schedule so delivered shall supersede any prior schedules so delivered.

 

SECTION 3

 

Delivery of the Pledged Collateral

 

3.1           On or before the Closing Date, each Pledgor shall deliver or cause to be delivered to the Term Loan Collateral Agent, as agent for, among others, the Collateral Agent and the Secured Parties, with copies to the Collateral Agent, any and all Pledged Securities and any and all Investment Property representing the Pledged Collateral, and any and all certificates or other instruments or documents with an individual face value in excess of $1,000,000, if any.

 

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3.2           After the Closing Date, promptly upon any Pledgor’s acquiring any Pledged Securities representing such Pledged Collateral, and any certificates or other instruments or documents with an individual face value in excess of $1,000,000, such Pledgor shall deliver or cause to be delivered such Pledged Collateral to (i) until such time as the Term Loan Financing Facility has been terminated, the Term Loan Collateral Agent, as agent for, among others, the Collateral Agent and the Secured Parties, with copies to the Collateral Agent, and (ii) after termination of the Term Loan Financing Facility, the Collateral Agent.

 

3.3           Each Pledgor hereby irrevocably authorizes the Collateral Agent, at any time and from time to time prior to termination of this Agreement pursuant to Section 8.14 of the Security Agreement, to sign (if required) and file in any appropriate filing office, wherever located, any Financing Statement that contains any information required by the UCC of the applicable jurisdiction for the sufficiency or filing office acceptance of any Financing Statement.  Each Pledgor also authorizes the Collateral Agent to file a copy of this Agreement in lieu of a Financing Statement, and to take any and all actions required by any earlier versions of the UCC which are still in effect or by any other Applicable Law.  Each Pledgor shall provide the Collateral Agent with any information the Collateral Agent shall reasonably request in connection with any of the foregoing.

 

SECTION 4

 

Representations, Warranties and Covenants

 

Each Pledgor hereby represents, warrants and covenants, as to itself and the Pledged Collateral pledged by it hereunder, to and with the Collateral Agent that:

 

4.1           the Pledged Securities constituting shares of capital stock, limited liability membership interests or other ownership interests represent that percentage of the issued and outstanding shares of each class of the capital stock or other equity interest of the Issuer with respect thereto as set forth on Schedule I, as the same may be supplemented, amended or otherwise modified from time to time in accordance with the terms of this Agreement;

 

4.2           except for the security interest granted hereunder, and except as otherwise permitted in the Credit Agreement and the other Loan Documents, the Pledgor (i) is and will at all times continue to be the direct owner, beneficially and of record, of the Pledged Securities indicated on Schedule I, as the same may be supplemented, amended or otherwise modified from time to time in accordance with the terms of this Agreement, (ii) holds the Pledged Collateral free and clear of all Liens, other than Permitted Encumbrances specified in clauses (a), (e), (i), (k), (l), (r) and (x) of the definition thereof, (iii) will make no assignment, pledge, hypothecation or transfer of, or create or permit to exist any security interest in, or other Lien on, the Pledged Collateral, other than pursuant hereto and other than Permitted Encumbrances or in connection with a Permitted Disposition and (iv) other than as permitted in Section 6, will cause any and all distributions in cash or in kind made on the Pledged Collateral to be forthwith deposited with the Collateral Agent and pledged or assigned hereunder;

 

4.3           except as expressly permitted under the Credit Agreement, the Pledgor will not consent to or approve the issuance of (a) any additional shares of any class of capital stock of any

 

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Issuer of the Pledged Securities, or the issuance of any membership or other ownership interest in any such Person, (b) any securities convertible voluntarily by the holder thereof or automatically upon the occurrence or nonoccurrence of any event or condition into, or exchangeable for, any such shares or interests, or (c) any warrants, options, rights, or other commitments entitling any person to purchase or otherwise acquire any such shares or interests;

 

4.4           the Pledgor (i) has the power and authority to pledge the Pledged Collateral in the manner hereby done or contemplated and (ii) will defend its title or interest thereto or therein against any and all Liens (other than Permitted Encumbrances and the Lien created by this Agreement or the other Loan Documents), however arising, of all Persons whomsoever;

 

4.5           except for consents or approvals already obtained, no consent of any other Person (including stockholders or creditors of the Pledgor), and no consent or approval of any Governmental Authority or any securities exchange, was or is necessary to the validity of the pledge effected hereby or to the disposition of the Pledged Collateral upon an Event of Default in accordance with the terms of this Agreement and the Security Agreement;

 

4.6           by virtue of the execution and delivery by the Pledgor of this Agreement, and the delivery by the Pledgor to the Term Loan Collateral Agent, as agent for, among others, the Collateral Agent and the Secured Parties, or the Collateral Agent, of the stock certificates or other certificates or documents representing or evidencing the Pledged Collateral accompanied by stock powers or endorsements, as applicable, executed in blank in accordance with the terms of this Agreement, the Collateral Agent will obtain a valid and perfected lien upon, and security interest in, the Pledged Collateral as security for the payment and performance of the Secured Obligations;

 

4.7           the pledge effected hereby is effective to vest in the Collateral Agent, on its own behalf and on behalf of the other Secured Parties, the rights of the Collateral Agent in the Pledged Collateral as set forth herein;

 

4.8           all of the Pledged Securities have been duly authorized and validly issued and, to the extent applicable, are fully paid and nonassessable;

 

4.9           all information set forth herein relating to the Pledged Collateral is accurate and complete in all material respects as of the date hereof; and

 

4.10         none of the Pledged Securities constitutes margin stock, as defined in Regulation U of the Board of Governors of the Federal Reserve System.

 

SECTION 5

 

Registration in Nominee Name; Copies of Notices

 

Upon the occurrence and during the continuance of an Event of Default, the Collateral Agent, on its own behalf and on behalf of the other Secured Parties, shall have the right (in its reasonable discretion) to hold the Pledged Securities in its own name as pledgee, the name of its nominee (as pledgee or as sub-agent) or the name of any Pledgor, endorsed or assigned in blank or in favor of the Collateral Agent.  Each Pledgor will promptly give to the Collateral Agent

 

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copies of any written or electronic notices or other written or electronic communications received by it with respect to Pledged Securities registered in the name of such Pledgor.

 

SECTION 6

 

Voting Rights; Dividends and Interest, Etc.

 

6.1           Unless and until a Specified Default has occurred and is continuing, each Pledgor shall be entitled to exercise any and all voting and/or other consensual rights and powers inuring to an owner of the Pledged Securities or any part thereof to the extent, and only to the extent, that such rights are exercised for any purpose consistent with, and not otherwise in violation of, the terms and conditions of this Agreement, the Credit Agreement, the other Loan Documents and Applicable Law; provided, however, that such Pledgor will not be entitled to exercise any such right if the result thereof could reasonably be expected to materially and adversely affect the rights inuring to a holder of the Pledged Securities or the rights and remedies of any of the Secured Parties under this Agreement, the Credit Agreement or any other Loan Document or the ability of the Secured Parties to exercise the same.

 

6.2           Unless and until a Specified Default has occurred and is continuing, each Pledgor shall be entitled to receive and retain any and all cash dividends or other cash distributions paid on the Pledged Collateral (provided, however, that, after the occurrence and during the continuance of a Cash Dominion Event, such Pledgor shall cause all such cash dividends or other cash distributions to be deposited into the Concentration Account in accordance with the provisions of Section 2.18 of the Credit Agreement) to the extent, and only to the extent, that such cash dividends or other cash distributions are permitted by, and otherwise paid in accordance with, the terms and conditions of this Agreement, the Credit Agreement, the other Loan Documents and Applicable Law.  All noncash dividends, and all dividends paid or payable in cash or otherwise in connection with a partial or total liquidation or dissolution, return of capital, capital surplus or paid-in surplus, and all other distributions (other than dividends and distributions referred to in the preceding sentence) made on or in respect of the Pledged Collateral, whether paid or payable in cash or otherwise, whether resulting from a subdivision, combination or reclassification of the outstanding capital stock or membership interests of the issuer of any Pledged Securities or received in exchange for Pledged Securities or any part thereof, or in redemption thereof, or as a result of any merger, amalgamation, arrangement, consolidation, acquisition or other exchange of assets to which such issuer may be a party or otherwise, shall be and become part of the Pledged Collateral, and, if received by such Pledgor, to the extent required to be paid to the Collateral Agent pursuant to the terms of the Credit Agreement or the other Loan Documents, shall not be commingled by such Pledgor with any of its other funds or property but shall be held separate and apart therefrom, shall be held in trust for the benefit of the Collateral Agent and shall be forthwith delivered to the Collateral Agent in the same form as so received (with any necessary endorsement).

 

6.3           After the occurrence and during the continuance of a Specified Default, all rights of any Pledgor to dividends or other cash distributions that such Pledgor is authorized to receive pursuant to Section 6.2 above shall cease, and all such rights shall thereupon become vested in the Collateral Agent, which shall have the sole and exclusive right and authority to receive and retain such dividends or other cash distributions.  All dividends or other cash distributions

 

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received by any Pledgor contrary to the provisions of this Section 6.3 shall be held in trust for the benefit of the Collateral Agent, shall be segregated from other property or funds of such Pledgor and shall be forthwith delivered to the Concentration Account in accordance with the provisions of Section 2.18 of the Credit Agreement in the same form as so received (with any necessary endorsement).  Any and all money and other property paid over to or received by the Collateral Agent pursuant to the provisions of this Section 6.3 shall be applied in accordance with the provisions of Section 8.  After all Specified Defaults have been cured or waived in writing by the Collateral Agent, without any further action by the Collateral Agent, each Pledgor will have the right to receive the dividends or other cash distributions that it would otherwise be entitled to receive pursuant to the terms of Section 6.2 above.

 

6.4           After the occurrence and during the continuance of a Specified Default and upon notice to the Pledgors, all rights of the Pledgors to exercise the voting and consensual rights and powers it is entitled to exercise pursuant to Section 6.1 shall cease, and all such rights shall thereupon become vested in the Collateral Agent, which shall have the sole and exclusive right and authority to exercise such voting and consensual rights and powers; provided that the Collateral Agent shall have the right from time to time following and during the continuance of a Specified Default to permit any Pledgor to exercise such rights.  After all Specified Defaults have been cured or waived in writing by the Collateral Agent, without any further action by the Collateral Agent, each Pledgor will have the right to exercise the voting and consensual rights and powers that it would otherwise be entitled to exercise pursuant to the terms of Section 6.1.

 

SECTION 7

 

Remedies upon Default

 

After the occurrence and during the continuance of an Event of Default, it is agreed that the Collateral Agent shall have in any jurisdiction in which enforcement hereof is sought, in addition to all other rights and remedies, the rights and remedies of a secured party under the UCC or other Applicable Law.  The rights and remedies of the Collateral Agent shall include, without limitation, the right to take any or all of the following actions at the same or different times:

 

7.1           The Collateral Agent may sell or otherwise dispose of all or any part of the Pledged Collateral, at public or private sale or at any broker’s board or on any securities exchange, for cash, upon credit or for future delivery as the Collateral Agent shall deem appropriate.  Each purchaser at any such sale shall hold the property sold absolutely, free from any claim or right on the part of any Pledgor.

 

7.2           If required by Applicable Law, the Collateral Agent shall give the Pledgors at least ten (10) days’ prior written notice, by authenticated record, of the Collateral Agent’s intention to make any sale of the Pledged Collateral.  Such notice, (i) in the case of a public sale, shall state the date, time and place for such sale, (ii) in the case of a sale at a broker’s board or on a securities exchange, shall state the board or exchange at which such sale is to be made and the day on which the Pledged Collateral, or portion thereof, will first be offered for sale at such board or exchange, and (iii) in the case of a private sale, shall state the date after which any private sale or other disposition of the Pledged Collateral shall be made.  Each Pledgor agrees

 

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that such written notice shall satisfy all requirements for notice to the Pledgor which are imposed under the UCC with respect to the exercise of the Collateral Agent’s rights and remedies upon default.  The Collateral Agent shall not be obligated to make any sale or other disposition of any Pledged Collateral if it shall determine not to do so, regardless of the fact that notice of sale or other disposition of such Pledged Collateral shall have been given. The Collateral Agent may, without notice or publication, adjourn any public or private sale or cause the same to be adjourned from time to time by announcement at the time and place fixed for sale, and such sale may, without further notice, be made at the time and place to which the same was so adjourned.

 

7.3           Any public sale shall be held at such time or times within ordinary business hours and at such place or places as the Collateral Agent may fix and state in the notice of such sale.

 

7.4           At any public (or, to the extent permitted by Applicable Law, private) sale made pursuant to this Section 7, the Collateral Agent or any other Secured Party may bid for or purchase, free (to the extent permitted by Applicable Law) from any right of redemption, stay, valuation or appraisal on the part of any Pledgor, the Pledged Collateral or any part thereof offered for sale and may make payment on account thereof by using any claim then due and payable to the Collateral Agent or such other Secured Party from any Pledgor on account of the Secured Obligations as a credit against the purchase price, and the Collateral Agent or such other Secured Party may, upon compliance with the terms of sale, hold, retain and dispose of such property without further accountability to such Pledgor therefor.

 

7.5           For purposes hereof, a written agreement to purchase the Pledged Collateral or any portion thereof which is entered into in good faith shall be treated as a sale thereof.  The Collateral Agent shall be free to carry out such sale pursuant to such agreement and no Pledgor shall be entitled to the return of the Pledged Collateral or any portion thereof subject thereto, notwithstanding the fact that after the Collateral Agent shall have entered into such an agreement all Events of Default shall have been remedied and/or the Secured Obligations paid in full.

 

7.6           As an alternative to exercising the power of sale herein conferred upon it and subject to Applicable Law, the Collateral Agent may proceed by a suit or suits at law or in equity to foreclose upon the Pledged Collateral and to sell the Pledged Collateral or any portion thereof pursuant to a judgment or decree of a court or courts having competent jurisdiction or pursuant to a proceeding by a court-appointed receiver.

 

7.7           Each Pledgor recognizes that (a) the Collateral Agent may be unable to effect a public sale of all or a part of the Pledged Collateral by reason of certain prohibitions contained in the Securities Act or the Blue Sky Laws, but may be compelled to resort to one or more private sales to a restricted group of purchasers who will be obliged to agree, among other things, to acquire the Pledged Collateral for their own account, for investment and not with a view to the distribution or resale thereof, (b) that private sales so made may be at prices and upon other terms less favorable to the seller than if the Pledged Collateral were sold at public sales, (c) that neither the Collateral Agent nor any other Secured Party has any obligation to delay sale of any of the Pledged Collateral for the period of time necessary to permit the Pledged Collateral to be registered for public sale under the Securities Act or the Blue Sky Laws, and (d) that private sales made under the foregoing circumstances shall be deemed to have been made in a commercially reasonable manner.

 

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7.8           To the extent permitted by Applicable Law, each Pledgor hereby waives all rights of redemption, stay, valuation and appraisal which such Pledgor now has or may at any time in the future have under any rule of law or statute now existing or hereafter enacted.  In dealing with or disposing of the Pledged Collateral or any part thereof, neither the Collateral Agent nor any Secured Party shall be required to give priority or preference to any item of Pledged Collateral or otherwise to marshal assets or to take possession or sell any Pledged Collateral with judicial process.

 

SECTION 8

 

Application of Proceeds of Sale

 

After the occurrence and during the continuance of an Event of Default and acceleration of the Secured Obligations pursuant to the terms of the Credit Agreement, the Collateral Agent shall apply the proceeds of any collection or sale of the Pledged Collateral, as well as any Pledged Collateral consisting of cash, in accordance with Section 7.03 of the Credit Agreement.

 

The Collateral Agent shall have absolute discretion as to the time of application of any such proceeds, moneys or balances in accordance with this Agreement and the Credit Agreement.  Upon any sale or other disposition of the Pledged Collateral by the Collateral Agent (including pursuant to a power of sale granted by statute or under a judicial proceeding), the receipt of the purchase money by the Collateral Agent or of the officer making the sale or other disposition shall be a sufficient discharge to the purchaser or purchasers of the Pledged Collateral so sold or otherwise disposed of and such purchaser or purchasers shall not be obligated to see to the application of any part of the purchase money paid over to the Collateral Agent or such officer or be answerable in any way for the misapplication thereof.

 

SECTION 9

 

Indemnification

 

Without limiting any of its other indemnification obligations under the Credit Agreement, the Security Agreement or the other Loan Documents, each Pledgor agrees to indemnify the Collateral Agent, each other Secured Party and each of their Subsidiaries and Affiliates, any underwriter, and their respective officers, directors, and controlling Persons of any of the foregoing Persons (each person being called an “Indemnitee”), against, and hold each Indemnitee harmless from, any and all damages, actual out-of-pocket losses, claims, actions, causes of action, settlement payments, obligations, liabilities and related expenses (including the reasonable fees, charges and disbursements of one counsel for the Collateral Agent and one for all the Indemnitees (plus, in each case, one local counsel in any other jurisdiction to the extent reasonably necessary) (provided, that in the case of a conflict of interest, the affected Indemnitee may engage and shall be reimbursed for one additional counsel, plus one local counsel in any other jurisdiction to the extent reasonably necessary), incurred, suffered, sustained or required to be paid by, or asserted against, any Indemnitee arising out of, in any way connected with, or as a result of, (i) the execution or delivery of this Agreement, the Credit Agreement or any other Loan Document or any other agreement or instrument contemplated hereby, the performance by the 

 

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Pledgors of their respective obligations thereunder, or the consummation of the transactions contemplated by the Credit Agreement and the other Loan Documents or any other transactions contemplated hereby or thereby, or (ii) any actual or prospective claim, litigation, investigation or proceeding relating to or arising from any of the foregoing or the Collateral, whether based on contract, tort or any other theory and regardless of whether any Indemnitee is a party thereto or whether such claim, litigation, investigation or proceeding is brought by a third party or any Loan Party or any Affiliate thereof; provided, however, that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses are determined by a court of competent jurisdiction or another tribunal having jurisdiction to have resulted from (i) the gross negligence, bad faith, fraud or willful misconduct of such Indemnitee (or any of its Affiliates or  Related Parties), (ii) such Indemnitee’s (or any of its Affiliates’ or Related Parties’) material breach of its obligations under this Agreement or any other Loan Document or (iii) any dispute solely among the Indemnitees other than claims against the Administrative Agent in its capacity or in fulfilling its role as an agent or arranger or any other similar role under this Agreement or any other Loan Document and any claims arising out of any act or omission by the Lead Borrower or any of its Affiliates.  Notwithstanding anything to the contrary contained herein, the Loan Parties shall have no obligation to reimburse any Indemnitee for fees and expenses unless such Indemnitee provides the Loan Parties with an executed undertaking in which such Indemnitee agrees to refund and return any and all amounts paid by the Loan Parties to such Indemnitee to the extent any of the foregoing items described in clauses (i) through (iii) occurs.

 

SECTION 10

 

Further Assurances

 

Each Pledgor agrees to do such further acts and things, and to execute and deliver such additional conveyances, assignments, agreements and instruments, as the Collateral Agent may at any time reasonably request in connection with the administration and enforcement of this Agreement or with respect to the Pledged Collateral or any part thereof or in order to better assure and confirm the rights and remedies of the Collateral Agent hereunder.

 

SECTION 11

 

Intent

 

This Agreement is being executed and delivered by the Pledgors for the purpose of confirming the grant of the security interest of the Collateral Agent in the Pledged Collateral.  It is intended that the security interest granted pursuant to this Agreement is granted as a supplement to, and not in limitation of, the security interest granted to the Collateral Agent, for its own benefit and the benefit of the other Secured Parties, under the Security Agreement.  All provisions of the Security Agreement shall apply to the Pledged Collateral.  The Collateral Agent shall have the same rights, remedies, powers, privileges and discretions with respect to the security interests created in the Pledged Collateral as in all other Collateral. In the event of a conflict between this Agreement and the Security Agreement, the terms of this Agreement shall 

 

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control with respect to the Pledged Collateral and the Security Agreement with respect to all other Collateral.

 

SECTION 12

 

Governing Law

 

THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

 

SECTION 13

 

Intercreditor Agreement

 

Each Pledgor and the Collateral Agent acknowledge that the exercise of certain of the Collateral Agent’s Rights and Remedies hereunder may be subject to, and restricted by, the provisions of the Intercreditor Agreement.  Except as specified herein, nothing contained in the Intercreditor Agreement shall be deemed to modify any of the provisions of this Agreement, which, as among the Pledgors and the Collateral Agent shall remain in full force and effect.

 

[SIGNATURE PAGE FOLLOWS]

 

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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement under seal as of the day and year first above written.

 

	
 
    	
PLEDGORS:
    
	
 
    	
 
    
	
 
    	
GUITAR   CENTER HOLDINGS, INC.
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   John Tudor
    
	
 
    	
Name:   John Tudor
    
	
 
    	
Title:   Vice President
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
VH   MERGERSUB, INC.
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   John Tudor
    
	
 
    	
Name:   John Tudor
    
	
 
    	
Title:   Vice President
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
GUITAR   CENTER STORES, INC.
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   Leland Smith
    
	
 
    	
Name:   Leland Smith
    
	
 
    	
Title: Executive   VP of Corporate Development, General Counsel and Secretary
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
GUITAR   CENTER GIFT CARD COMPANY, LLC
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   Leland Smith
    
	
 
    	
Name:   Leland Smith
    
	
 
    	
Title: Executive   Vice President, General Counsel and Secretary
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
HARMONY   CENTRAL GROUP, LLC
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ Leland Smith
    
	
 
    	
Name: Leland Smith
    
	
 
    	
Title: Executive   VP of Corporate Development, General Counsel and Secretary
    

 

[Signature page — ABL Pledge Agreement]

 

 

	
 
    	
MUSICIAN’S   FRIEND, INC.
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/   Leland Smith
    
	
 
    	
Name:   Leland Smith
    
	
 
    	
Title: Executive   Vice President, General Counsel and Secretary
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
As   of and upon effectiveness of the Merger, the undersigned hereby acknowledges   and agrees that it will succeed to all of the rights and obligations of the   Lead Borrower set forth herein and that all references herein to the Lead   Borrower shall thereupon be deemed to be references to the undersigned.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
GUITAR   CENTER, INC.
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ Leland Smith
    
	
 
    	
Name: Leland Smith
    
	
 
    	
Title: Executive   VP of Corporate Development, General Counsel and Secretary
    

 

[Signature page — ABL Pledge Agreement]

 

 

	
 
    	
COLLATERAL   AGENT:
    
	
 
    	
 
    
	
 
    	
JPMORGAN   CHASE BANK, N.A.
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ Thomas H.   Kozlark
    
	
 
    	
Name: Thomas H.   Kozlark
    
	
 
    	
Title: Executive   Director
    

 

[Signature page — ABL Pledge Agreement]

 

 

SCHEDULE I

 

None of the issuers has any authorized, issued or outstanding shares of its capital stock of any class or any commitments to issue any shares of its capital stock of any class or any securities convertible into or exchangeable for any shares of its capital stock of any class except as otherwise stated in this Schedule I.

 

	
Issuer
    	
 
    	
Record
   Owner
    	
 
    	
Class of
   Shares
    	
 
    	
Number of
   Shares held
   by Record
   Owner
    	
 
    	
Number of
   Issued and
   Outstanding
   Shares
    	
 
    	
Percentage
   of Shares
   held by
   Record
   Owner
    	
 
    
	
VH MergerSub, Inc.
    	
 
    	
Guitar   Center Holdings, Inc.
    	
 
    	
Common   stock
    	
 
    	
100   shares(1)
    	
 
    	
100   shares
    	
 
    	
100
    	
%
    
	
Guitar Center, Inc.
    	
 
    	
Guitar   Center Holdings, Inc.
    	
 
    	
Common   stock
    	
 
    	
100   shares
    	
 
    	
100   shares
    	
 
    	
100
    	
%
    
	
Musician’s Friend, Inc.
    	
 
    	
Guitar   Center, Inc.
    	
 
    	
Common   stock
    	
 
    	
100   shares
    	
 
    	
100   shares
    	
 
    	
100
    	
%
    
	
Guitar Center Stores, Inc.
    	
 
    	
Guitar   Center, Inc.
    	
 
    	
Common   stock
    	
 
    	
100   shares
    	
 
    	
100   shares
    	
 
    	
100
    	
%
    
	
Guitar Center Gift Card Company, LLC
    	
 
    	
Guitar   Center, Inc.
    	
 
    	
N/A
    	
 
    	
N/A
    	
 
    	
N/A
    	
 
    	
100
    	
%
    
	
GC Insurance Company, Inc.
    	
 
    	
Guitar   Center, Inc.
    	
 
    	
Common   stock 
    	
 
    	
1,000   shares
    	
 
    	
1,000   shares
    	
 
    	
100
    	
%
    
	
Harmony Central Group, LLC
    	
 
    	
Musician’s   Friend, Inc.
    	
 
    	
N/A
    	
 
    	
N/A
    	
 
    	
N/A
    	
 
    	
100
    	
%
    

 

(1)           Shares will not be delivered at closing as this entity will be merged out of existence.

 

16

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