SECOND AMENDMENT TO
LOAN AND SECURITY AGREEMENT
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This Second Amendment to Loan and Security Agreement ("Amendment") is
made as of the ____ day of July, 1998 by and among Fleet Capital Corporation
("Lender"), a Rhode Island corporation with an office at 000 Xxxxxxxxxxx Xxxx,
Xxxxxxxxxxx, XX 00000 and The Electronics Boutique, Inc. ("EB"), a Pennsylvania
corporation and Electronics Boutique of America Inc. (sometimes referred to
herein as "EBOA" and sometimes as "Borrower"), a Pennsylvania corporation, each
having its chief executive office at 000 Xxxxx Xxxxxxx Xxxxxx, Xxxx Xxxxxxx, XX
00000.
BACKGROUND
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A. On March 16, 1998, EB and Lender entered into a certain Loan and
Security Agreement dated March 16, 1998, as amended from time to time ("Loan
Agreement") pursuant to which Lender established certain financing arrangements
with EB. The Loan Agreement and all instruments, documents and agreements
executed in connection therewith or related thereto are referred to herein
collectively as the "Existing Loan Documents". All capitalized terms not
otherwise defined herein shall have the meanings ascribed thereto in the Loan
Agreement.
B. On June 30, 1998, EBOA entered into a certain Joinder to Loan and
Security Agreement with EB and Lender, and certain other instruments, documents
and agreements related thereto, pursuant to which EBOA became a Borrower under
the Loan Agreement and became jointly and severally obligated with EB to Lender
for all Obligations and granted a security interest in all of its Collateral to
Lender to secure the Obligations.
C. On May 31, 1998 EB transferred certain of its tangible assets,
subject to all of its
liabilities, to EBOA and transferred certain of its intangible assets to Elbo,
Inc. ("Elbo") pursuant to the terms of those certain Assignment, Assumption and
Xxxx of Sale Agreements dated May 31, 1998 between EB and EBOA and EB and Elbo,
respectively ("Asset Sales"). EB retained (i) all of the outstanding shares of
capital stock of its affiliates: EBOA, Elbo, EB International, Inc. ("EB
International") and Electronics Boutique Canada Inc. ("EB Canada")
(collectively, the "Operating Shares"), (ii) its shares of the capital stock of
Electronics Boutique Plc ("EB-UK") (which represents 25.1% of the outstanding
shares of capital stock of EB-UK), (iii) the manufacturing and distribution
facility located in West Chester, Pennsylvania ("West Xxxxxxx Facility"), (iv)
approximately $17,500,000 worth of cash, accounts receivable and cash surrender
value of split-dollar life insurance policies and (v) approximately $7,700,000
in intercompany receivables.
D. EB and Borrower have informed Lender that in connection with the
proposed initial public offering of 6,250,000 shares of common stock of
Electronics Boutique Holdings Corp. ("EB Holdings"), a Delaware corporation, the
following events are to take place on or about the date hereof
("Restructuring"): (i) EB will transfer the Operating Shares, as well as shares
it holds in EB-UK, to EB Nevada Inc. ("EB Nevada"), a wholly-owned subsidiary of
EB; (ii) EB will lease (effective May 31, 1998) to EBOA the West Xxxxxxx
Facility pursuant to a triple net lease with an option to purchase at the end of
two years, exercisable at a purchase price equal to EB's cost of acquisition of
the West Xxxxxxx Facility ($6,700,000); (iii) EB Nevada will contribute the
Operating Shares to EB Holdings in return for 15,794,100 shares of EB Holdings'
common stock; and (iv) immediately thereafter, EB Holdings will contribute the
Operating Shares to EB Investment Corp. ("EB Investment") in exchange for all of
the stock of EB Investment (EB Investment thereafter retaining the Operating
Shares). The reorganization affected by the foregoing is described and depicted
graphically on Exhibit "A", which is attached hereto and
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forms a part hereof.
E. EB and Borrower have requested that Lender consent in writing to the
above described Asset Sales and Restructuring and amend the Loan Agreement on
the terms and conditions set forth herein. Lender has agreed to consent to the
Asset Sale and Restructuring and to amend the Loan Agreement on the terms, and
subject to the conditions, set forth herein.
NOW, THEREFORE, with the foregoing Background incorporated by reference
and made a part hereof, and intending to be legally bound, the parties agree as
follows:
1. Amendments to Loan Agreement. The Loan Agreement is amended
as follows:
1.1 The following definitions are added to Appendix A (General
Definitions) to the Loan Agreement as follows:
A. Obligor or Obligors - Singly or collectively as
the context requires, Borrower, EB Holdings, EB Investment and Elbo.
2. EB Nevada - EB Nevada Inc.
3. EB Holdings - Electronics Boutique Holdings
Corp.
D. EB Investment - EB Investment Corp.
E. EBOA - Electronics Boutique of America Inc.
1.2 Section 8.1.3 of the Loan Agreement is hereby deleted in
its entirety and replaced with the following:
8.1.3 Financial Statements. Cause each of the
Obligors to keep adequate records and books of account with respect to
their respective business activities in which proper entries are made
reflecting all of their financial transactions; and cause to be
prepared and furnished to Lender the following (all to be prepared on a
consistent basis; for each Obligor on a consolidating basis and for all
Obligors on a consolidated basis):
(i) not later than 120 days after the
close of each fiscal year of each Obligor, unqualified audited
financial statements of each Obligor as of the end of such
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year, certified by a firm of independent certified public accountants
of recognized standing selected by Borrower but acceptable to Lender
to have been prepared in accordance with GAAP;
(ii) not later than 45 days after the end of
each month hereafter including the last month of each Obligor's fiscal
year, unaudited interim financial statements of each Obligor as of the
end of such month and of the portion of each Obligor's fiscal year
then elapsed, certified by the principal financial officer of each
Obligor to have been prepared in accordance with GAAP and fairly to
present the financial position and results of operations of each
Obligor for such month and period subject only to changes from audit
and year-end adjustment and except that such statements need not
contain notes;
(iii) promptly after the sending or filing
thereof, as the case may be, copies of any proxy statements, financial
statements or reports which any Obligor has sent to all of its
respective shareholders and copies of any regular, periodic and
special reports or registration statements which any Obligor files
with the Securities and Exchange Commission or any governmental
authority which may be substituted therefor, or any national
securities exchange;
(iv) promptly after the filing thereof,
copies of any annual report to be filed under ERISA in connection with
each Plan;
(v) upon completion, but not later
than 30 days prior to the close of each fiscal year of each Obligor,
financial Projections for each Obligor, for each Obligor's upcoming
fiscal year, prepared on a month by month basis, in form acceptable to
Lender; and
(vi) such other data and information
(financial and otherwise) as Lender, from time to time, may reasonably
request, bearing upon or related to the Collateral or each Obligor's
financial condition or results of operations, including without
limitation, detailed monthly accounts payable agings.
Within 45 days after the delivery of the financial
statements described in clause (i) of this subsection 8.1.3, Borrower
shall forward to Lender a copy of the accountants' letter to each
Obligor's management that is prepared in connection with such financial
statements and also shall cause to be prepared and shall furnish to
Lender a certificate of the aforesaid certified public accountants
certifying to Lender that, based upon their examination of the
financial
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statements of each Obligor performed in connection with their
examination of financial statements, they are not aware of an Event of
Default, or, if they are aware of such an Event of Default, specifying
the nature thereof, and acknowledging in a manner satisfactory to
Lender, that they are aware that Lender is relying on such financial
statements in making its decision with respect to the Loans.
Concurrently with the delivery of the financial statements described in
clauses (i) and (ii) of this subsection 8.1.3, or more frequently if
requested by Lender, Borrower shall cause to be prepared and furnished
to Lender a Compliance Certificate in the form of Exhibit 8.1.3 hereto
executed by the chief financial officer of Borrower.
1.3 The preamble to Section 8.2 of the Loan Agreement is
hereby deleted in its entirety and replaced with the following (all of the
subsections within Section 8.2 of the Loan Agreement shall remain unmodified and
in full force and effect except as expressly modified herein):
8.2 Negative Covenants. During the term of this
Agreement, and thereafter for so long as there are any Obligations to
Lender, Borrower covenants that, unless Lender has first consented
thereto in writing, no Obligor will:
1.4 Subsection 8.2.4 of the Loan Agreement is hereby deleted
in its entirety and replaced with the following:
8.2.4 Affiliate Transactions. Enter into, or be a
party to, any transaction with any Affiliate of any Obligor or any
stockholder, except (a) in the ordinary course of and pursuant to the
reasonable requirements of the applicable Obligor's business and upon
fair and reasonable terms which are fully disclosed to Lender and are
no less favorable to the applicable Obligor than the applicable Obligor
would obtain in a comparable arm's length transaction with a Person not
an Affiliate or stockholder of such Obligor or (b) if (i) Aggregate
Adjusted Availability would be at least $3,500,000 after taking into
effect such transaction and (ii) no Event of Default is then
outstanding or would otherwise occur after taking into effect such
transaction.
1.5 Section 8.3.1 of the Loan Agreement is deemed deleted in
its entirety as of the date of the Loan Agreement and replaced with the
following:
8.3.1 Minimum Net Worth. Maintain a Net Worth of not
less than $11,000,000 at all times through July 30, 1998 and of not
less than $14,000,000 as of July
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31, 1998 and at all times thereafter.
1.6 Section 8.3 of the Loan Agreement is hereby further
modified to provide that as of the date hereof each of the financial covenants
contained therein (and therefore the definitions of Net Worth and Cash Flow)
shall apply to the Obligors on a consolidated basis.
1.7 Section 8.4 of the Loan Agreement is hereby deleted
in its entirety and replaced with the following:
8.4 Stock Ownership. Xxxxx X. Xxx, his wife Xxxxx X.
Xxx, and certain trusts established for the benefit of their children,
Xxxxx X. Xxx, Xxxxx X. Xxx and Xxxx X. Xxx, shall at all times own and
control, beneficially and of record, all of the issued and outstanding
capital stock of EB. EB shall at all times own, beneficially and of
record, all of the outstanding shares of capital stock of EB Nevada. EB
Nevada shall at all times own and control, beneficially and of record,
at least 25% of the issued and outstanding capital stock of EB
Holdings. EB Holdings shall at all times own, beneficially and of
record, all of the outstanding shares of capital stock of EB
Investment. EB Investment shall at all times own, beneficially and of
record all of the outstanding shares of capital stock of EBOA.
1.8 Section 10.1 of the Loan Agreement is hereby modified to
provide that the provisions of each Subsection thereof shall apply with equal
force and effect to each Obligor.
1.9 Section 10.1 of the Loan Agreement is hereby
further amended by adding the following Section 10.1.15 thereto:
10.1.15 Surety Agreements. Any Obligor shall disclaim
liability under, or attempt to revoke or terminate, any surety
agreement executed by any such Obligor whereby such Obligor agreed to
become surety for the Obligations.
1.10 The Loan Agreement is hereby further modified to delete
Section 1.2 therefrom, thereby unconditionally terminating Lender's obligation
to make the Supplemental Loan.
2. Conditions to Effectiveness. This Amendment shall become effective
upon satisfaction of each of the following conditions ("Effectiveness
Conditions") (all documents to be
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in form and substance satisfactory to Lender):
(a) delivery to Lender of this Amendment, fully executed by
EB, EBOA and Lender; (b) delivery to Lender of surety
agreements, executed respectively by EB Holdings, EB
Investment and Elbo;
(c) delivery to Lender of a landlord's waiver from EB whereby
EB subordinates its interest in and waives its right to destrain on or foreclose
against the Collateral located at the West Xxxxxxx Facility and agrees to allow
Lender to remain on such premises to dispose of or deal with any Collateral
located on such premises;
(d) delivery to Lender of certified copies of resolutions of
each Obligor's board of directors authorizing the execution of this Amendment
and all agreements, documents and instruments required to be executed by the
applicable Obligor by any section hereof;
(e) delivery to Lender of an incumbency certificate for each
Obligor identifying all of the officers executing each of the documents required
pursuant to this Amendment, with specimen signatures;
(f) delivery to Lender of certified copies of the articles of
incorporation and bylaws of each Obligor;
(g) delivery to Lender of certificates of good standing for
each Obligor from the Secretary's of State of their respective states of
incorporation;
(h) no Event of Default shall have occurred and be
continuing under the Loan Agreement;and
(i) each of the warranties and representations contained in
the Loan
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Agreement and the other Existing Loan Documents shall be true and
correct in all material respects on the date hereof with the same effect as
though made on and as of the date hereof.
3. Consent to Asset Sale and Restructuring. Upon satisfaction of each
of the Effectiveness Conditions, Lender hereby consents to the Asset Sale and
Restructuring as described in the Background section hereof.
4. Release of EB. Upon satisfaction of each of the Effectiveness
Conditions and upon the written request of EB and EBOA, Lender shall release EB
from all Obligations. Upon execution and delivery hereof (even though, pending
the release described in the preceding sentence, EB shall remain liable for
payment of the Obligations and its Property subject to Lender's Lien), no
Property of EB shall be included in the Borrowing Base.
5. EB's Release of Lender. Borrower and EB agree that, upon EB
receiving the release described in Section 4 above, EB shall, without the need
for further action, be deemed to have released and forever discharged Lender and
its officers, directors, attorneys, agents and employees from any claim for any
liability, damage, loss or expense of any kind that EB may have now or hereafter
against Lender or any of them arising out of or relating to the Obligations, the
Existing Loan Documents, this Amendment or any of the transactions referred to
herein or therein or related hereto or thereto.
6. Confirmation of Indebtedness. Borrower and EB hereby acknowledge and
confirm that as of the close of business on July 21, 1998, they were jointly and
severally indebted to Lender, without defense, setoff, claim or counterclaim
under the Loan Agreement and the other Existing Loan Documents, in the aggregate
(rounded) principal amount of $25,770,000 with respect to cash advances and
Letters of Credit, plus all unpaid interest, fees, costs and expenses
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(including attorneys' fees) incurred to date in connection with this Amendment
and the Existing Loan Documents.
7. Representations and Warranties.
7.1 Borrower and EB represent and warrant that as of the date
hereof, no Default or Event of Default is outstanding under the Loan Agreement
or the Existing Loan Documents.
7.2 The execution and delivery by Borrower and EB of this
Amendment and performance by them of the transactions herein contemplated (a)
are and will be within their corporate powers, (b) have been authorized by all
necessary corporate action, and (c) are not and will not be in contravention of
any order of any court or other agency of government, of any law or of any
indenture, agreement or undertaking to which EB or Borrower is a party or by
which the Property of EB or Borrower is bound, or be in conflict with, result in
a breach of or constitute (with due notice and/or lapse of time) a default under
any such indenture, agreement or undertaking or result in the imposition of any
Lien, charge or incumbrance of any nature on any of the Properties of EB or
Borrower.
7.3 This Amendment and each other agreement, instrument or
document executed and/or delivered in connection herewith, shall be valid,
binding and enforceable in accordance with its respective terms.
8. Further Assurances. EB and Borrower agree to execute all
instruments, documents and agreements reasonably required by Lender from time to
time to effectuate the agreements and undertakings set forth herein.
9. Ratification of Existing Loan Documents. Except as expressly set
forth herein, all of the terms and conditions of the Loan Agreement and Existing
Loan Documents are hereby
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ratified and confirmed and continue unchanged and in full force and effect. All
references to the Loan Agreement shall mean the Loan Agreement as modified by
this Amendment.
10. Collateral. Borrower and EB hereby confirm and agree that all
security interests and Liens granted to Lender continue in full force and effect
and shall continue to secure the Obligations. All Collateral remains free and
clear of any Liens other than Permitted Liens or Liens in favor of Lender.
Nothing herein contained is intended to in any way impair or limit the validity,
priority and extent of Lender's existing security interest in and Liens upon the
Collateral.
11. Governing Law. This Amendment shall be governed by, construed and
enforced in accordance with the laws of the Commonwealth of Pennsylvania,
without giving effect to the principles of conflicts of laws.
12. Counterparts. This Amendment may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original,
and such counterparts together shall constitute one and the same respective
agreement.
IN WITNESS WHEREOF, the parties have executed this Second Amendment to
Loan and Security Agreement the day and year first above written.
THE ELECTRONICS BOUTIQUE, INC.
Attest: /s/ By: /s/
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Assistant Secretary Title:
ELECTRONICS BOUTIQUE OF
AMERICA INC.
Attest: /s/ By: /s/
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Assistant Secretary Title:
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FLEET CAPITAL CORPORATION
By: /s/
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Title:
