1
EXHIBIT 10.18
FIFTH AMENDMENT TO LOAN AND SECURITY AGREEMENT
THIS FIFTH AMENDMENT TO LOAN AND SECURITY AGREEMENT ("Amendment") is
executed as of this 30th day of April, 1997, by-and between RADIO SYSTEMS
CORPORATION, a Tennessee corporation with principal offices in Knoxville,
Tennessee ("Borrower") and FIRST AMERICAN NATIONAL BANK, a national banking
association with principal offices in Nashville, Tennessee ("Lender");
W I T N E S S E T H:
WHEREAS, Borrower and Lender entered into that certain Loan and
Security Agreement dated April 3, 1995, as amended by that certain First
Amendment to Loan and Security Agreement dated October 25, 1995, that certain
Second Amendment to Loan and Security Agreement dated May 17, 1996, that certain
Third Amendment to Loan and Security Agreement dated December 13, 1996, and that
certain Fourth Amendment to Loan and Security Agreement dated January 22, 1997
(as amended, the "Agreement"), pursuant to which Lender has made available to
Borrower a line of credit currently in the maximum principal amount of
$4,000,000, as described therein; and
WHEREAS, Borrower and Lender desire to further amend the Agreement in
certain respects;
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Definitions. Article I of the Agreement is hereby amended by
substituting the following definitions for the existing definitions of the
following terms and, as applicable, adding the following definitions:
"Acquisition" means the acquisition by Borrower of all or any
substantial part of the business or assets of any other person or
entity.
"Acquisition Line" shall have the meaning assigned such term
in Section 2.5 of this Agreement.
"Acquisition Line Interest Rate" shall mean an annual rate
equal to the lesser of (a) the maximum contact rate of interest
permitted to be charged under applicable law or (b) the interest rate
from time to time designated by Lender as its "Index Rate" plus one
percentage point (1%), computed on the basis of a 360-day year, actual
number of days elapsed, adjusted daily as the Index Rate changes.
"Acquisition Line Termination Date" shall mean May 30, 1998.
"Acquisition Notes" shall have the meaning assigned such term
in Section 2.5 of this Agreement.
"Borrowing Base" shall mean an aggregate amount equal to the
sum of (a) seventy-five percent (75%) of Eligible Receivables, plus (b)
the lesser of fifty percent (50%) of Eligible Inventory or the
Inventory Borrowing Limit, plus (c) the lesser of fifty percent (50%)
of the face amount of trade letters of credit issued by Lender for the
account of Borrower securing the purchase of Inventory by Borrower or
$150,000.
2
"Inventory Borrowing Limit" shall mean (a) $1,800,000 from
April 30, 1997, through September 30, 1997, and from December 31, 1997
through June 30, 1998, and (b) $1,500,000 at all other times.
"Line of Credit Borrowing Limit" shall mean $5,000,000.
"Line of Credit Interest Rate" shall mean an annual rate equal
to the lesser of (a) the maximum contract rate of interest permitted to
be charged under applicable law or (b) the interest rate from time to
time designated by Lender as its "Index Rate" plus one percentage point
(1%), computed on the basis of a 360-day year, actual number of days
elapsed, adjusted daily as the Index Rate changes; provided, however,
such rate shall be reduced to the Index Rate plus one-half percentage
point (1/2%) so long as no Event of Default exists hereunder and
Borrower's debt-to-tangible net worth (as defined in Section 6.3 of
this Agreement) is not greater than 1.5 to 1.0 as of December 31, 1997.
Any adjustment in the Line of Credit Interest Rate shall be effective
as of December 31, 1997, based upon Lender's satisfactory review of
Borrower's audited financial statements for the year ending December
31, 1997. If, at any time thereafter, Borrower fails to maintain a
debt-to-worth ratio of not greater than 1.5 to 1.0, the Line of Credit
Interest Rate shall revert to the Index Rate plus one percentage point
(1%) for the remainder of the term of the Line of Credit, effective as
of the month-end for which Borrower fails to maintain such compliance.
"Line of Credit Termination Date" shall mean May 30, 1999.
"Line of Credit Note" shall mean that certain Amended and
Restated Master Secured Promissory Note dated April ___, 1997, in the
principal amount not exceeding the Line of Credit Borrowing Limit, made
and executed by Borrower, payable to-the order of Lender, evidencing
the indebtedness of Borrower to Lender in connection with the Line of
Credit, together with any and all extensions, modifications, renewals
and/or replacements thereof.
"Permitted Acquisitions" shall have the meaning assigned such
term in Section 2.5 of this Agreement.
"Service Fee" shall mean $1,500, payable quarterly beginning
March 31, 1997, and on the last day of every third month thereafter.
2. Acquisition Line. The following Section 2.5 is hereby added to
the Agreement immediately following Section 2.4:
2.5 Acquisition Line. In addition to the Line of Credit,
Lender shall make available to Borrower a non-revolving acquisition
line of credit in the maximum principal amount of $1,500,000 (the
"Acquisition Line"). Prior to the Acquisition Line Termination Date and
so long as no Event of Default (or event that with the giving of notice
or the passage of time or both would constitute an Event of Default)
has occurred and is in existence hereunder, Lender shall advance
proceeds under the Acquisition Line to Borrower upon Borrower's request
on a non-revolving basis, subject to the following terms and
conditions:
(a) The purpose of the Acquisition Line shall be to finance
Permitted Acquisitions by Borrower. The proceeds by the Acquisition
Line shall be used for no other purpose.
(b) All advances under the Acquisition Line for a particular
Permitted Acquisition shall be evidenced by a separate term promissory
note bearing interest at the Acquisition Line Interest Rate
(collectively the "Acquisition Notes"). Interest only under the
2
3
Acquisition Notes shall be payable monthly, in arrears, until
consummation of the subject Permitted Acquisition. Thereafter,
principal and interest shall be due and payable in monthly installments
based upon an amortization period to be determined by Lender in its
sole discretion, but in no event greater than thirty-six (36) months.
(c) Prior to the initial advance under the Acquisition
Line, Borrower shall pay to Lender a non-refundable commitment fee of
$11,250.
(d) As used herein, "Permitted Acquisitions" shall mean
Acquisitions which have the prior written approval of Lender, which
approval may be granted or withheld in Lender's sole discretion.
Without limiting the foregoing, Permitted Acquisitions shall be subject
to the following terms and conditions:
(i) following a Permitted Acquisition financed with
the proceeds of the Acquisition Line, the debt-to-tangible net
worth ratio covenant set forth in Section 6.3 of this
Agreement shall be adjusted as determined by Lender to reflect
the resulting changes in Borrower's financial condition;
provided, however, in no event shall any such adjustment
permit Borrower's debt-to-tangible worth ratio to exceed 4.0
to 1.0,
(ii) following a Permitted Acquisition, Borrower's
cash flow coverage ratio (ratio of net income plus interest
expense, amortization and depreciation to current maturities
of long-term debt plus interest expense) shall be not less
than 2.0 to 1.0 (this calculation shall include any
indebtedness incurred in connection with the ; subject
Permitted Acquisition, but shall exclude any projected
increase in cash flow associated with such Permitted
Acquisition),
(iii) any seller or other third-party financing
arising in connection with a Permitted Acquisition must be on
terms satisfactory to Lender in all respects and must be fully
subordinated to any and all indebtedness of Borrower to Lender
pursuant to subordination agreements in form and substance
satisfactory to Lender in all respects,
(iv) all Permitted Acquisitions must be within a
similar industry and complementary product line as Borrower's
existing business,
(v) prior to the closing of a Permitted
Acquisition, Borrower shall provide to Lender such information
with respect thereto as Lender may request, including but not
limited to drafts of purchase agreements and other acquisition
documents and financial projections, all of which must be
satisfactory to Lender in all respects, and
(vi) at the time of a Permitted Acquisition, no
Event of Default shall exist hereunder, and the consummation
of the subject Permitted Acquisition shall not result in an
Event of Default (except with respect to financial covenants
which Lender has agreed, in its sole discretion, to modify as
a result of said Permitted Acquisition).
3. K-Mart Receivables. "Eligible Receivables" shall include all
Receivables arising out of the sale of Borrower's Inventory to K-Mart
Corporation (collectively the "K-Mart Receivables"), excluding (a) all K-Mart
Receivables that have been outstanding for more than thirty (30) days after the
due dates of the corresponding invoices or more than ninety (90) days after the
dates of the corresponding invoices, (b) all K-Mart Receivables if more than
twenty-five percent (25%) of the K-Mart Receivables are otherwise ineligible
(other than pursuant to (c) of this paragraph), (c) the
3
4
amount by which total K-Mart Receivables exceed twenty-five percent (251) of
Borrower's total Receivables and (d) any K-Mart Receivables which are otherwise
ineligible pursuant to the provisions of the Agreement.
4. Financial Covenants. Section 6.2 (Net Worth Requirements) and
Section 6.3 (Debt to Worth Ratio) of the Agreement are hereby amended to provide
as follows:
6.2 (Net Worth Requirements). Borrower shall at all times
maintain a minimum tangible net worth of $2,400,000 through June 30,
1997; $3,000,000 from July 1, 1997, through December 31, 1997;
$3,500,000 from January 1, 1998 through September 30, 1998; and
$4,000,000 thereafter. For purposes of this covenant, "tangible net
worth" shall refer to Borrower's total assets minus total liabilities
minus prepaids, intangibles and amounts due from affiliates plus any
debt subordinated to indebtedness of Borrower to Lender pursuant to
subordination agreements satisfactory to Lender, all determined in
accordance with generally accepted accounting principles consistently
applied.
6.3 (Debt-to-Tangible Worth Ratio). Borrower shall at all
times maintain a ratio of total liabilities (exclusive of any debt
subordinated to indebtedness of Borrower to Lender pursuant to
subordination agreements satisfactory to Lender) to tangible net worth
of not more than 3.0 to 1.0 through September 30, 1997; 2.5 to 1.0 from
October 1, 1997 through December 31, 1998; and-2.0 to 1.0 thereafter.
For purposes of this covenant, "tangible net worth" shall have the
meaning set forth in Section 6.2 hereof.
5. Representations and Warranties. Borrower represents and warrants
that the representations and warranties set forth in Article IV of the Agreement
are true and correct on and as of the date of this Amendment, and that no
default or Event of Default exists under the Agreement or any other documents
executed in connection therewith.
6. Miscellaneous. Except as amended hereby, the Agreement shall remain
in full force and effect. This Amendment does not constitute a waiver of any
default or Event of Default under the Agreement, whether or not Lender is aware
of any such default or Event of Default.
4
5
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first above written.
LENDER:
FIRST AMERICAN NATIONAL BANK
By: /s/ Xxxx X. Xxxxxxx
-------------------------------
Title: Assistant Vice-President
------------------------
BORROWER:
RADIO SYSTEMS CORPORATION
By: /s/ Xxxxx Xxxx
-------------------------------
Title: President
------------------------
5
