FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT
THIS FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT (this "Amendment")
is made and entered into as of September 5, 2001, by and between The Right
Start, Inc., a California corporation (the "Borrower") and Xxxxx Fargo Retail
Finance, LLC, successor to Paragon Capital LLC (the "Lender"). Any reference to
Paragon Capital LLC herein shall be deemed to be a reference to Xxxxx Fargo
Retail Finance, LLC. This Amendment amends certain provisions of that certain
Loan and Security Agreement dated as of January 23, 2001 (as amended by and
through the date of this Amendment, and as hereafter amended and/or restated
from time to time the "Loan Agreement") by and between the Borrower and the
Lender.
BACKGROUND
The Borrower has requested certain amendments to the Loan Agreement, and
the Lender is willing to amend the Loan Agreement as requested by the Borrower
but only upon the terms and conditions hereinafter set forth. Defined terms used
herein and not otherwise defined shall have the same meanings herein as in the
Loan Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Borrower and the Lender hereby
agree as follows:
SECTION I. AMENDMENT AND WAIVER.
1. Section 2-1 of the Loan Agreement is hereby amended by adding after the
words "and faithful performance of all and each of the Liabilities", the words
"including, without limitation, any and all obligations created under the Parent
Guaranty,".
2. Exhibit 5-2 of the Loan Agreement is hereby amended by deleting the
language contained therein and inserting the Exhibit 5-2 attached hereto.
3. Exhibit 5-5 of the Loan Agreement is hereby amended by deleting the
language contained therein and inserting the Exhibit 5-5 attached hereto.
4. Exhibit 5-6 of the Loan Agreement is hereby amended by deleting the
language contained therein and inserting the Exhibit 5-6 attached hereto.
5. Section 5-17 of the Loan Agreement is hereby amended by adding in clause
(f) thereof, after the words "Organize or create any Related Entity", the words
", provided that the organization or creation of ZB Company, Inc. and ZB
Operating Co. shall not be deemed to violate this provision."
6. Section 5-18 of the Loan Agreement is hereby amended by adding a new
clause (c) thereto as follows: (c) "The Borrower's Parent Guaranty and Parent
Pledge Agreement."
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7. Section 5-21 of the Loan Agreement is hereby amended by adding at the
end of such section as a new line the words "provided that the Investment
Agreement dated as of August 15, 2001, as amended by the Amendment No. 1 to the
Investment Agreement dated September 5, 2001 between the Borrower and Athanor
Holdings, LLC, the Subordinated Convertible Redeemable Paid-In-Kind Note Due
September 4, 2004 in principal amount of $4,900,000 made by the Borrower naming
Athanor Holdings, LLC as payee and the Subordination and Intercreditor Agreement
dated September 5, 2001 by and among the Borrower, the Lender and Athanor
Holdings, LLC shall not be deemed to violate this provision."
8. Exhibit 3 to the Loan Agreement is hereby amended by inserting
alphabetically therein the following definitions:
"Accounts" means all currently existing and hereafter arising
accounts, contract rights, and all other forms of obligations
owing to Borrower arising out of the sale or lease of goods or
the rendition of services by the applicable Borrower,
irrespective of whether earned by performance, and any and all
credit insurance, guaranties, or security therefor.
"Bankruptcy Case" means, collectively, the jointly-administered
cases filed by the Debtors under Chapter 11 of the Bankruptcy
Code with the Bankruptcy Court, with a lead case no. 01-1749, or
any successor case thereto.
"Bankruptcy Code" means the United States Bankruptcy Code (11
U.S.C.ss.101 et seq.), as amended, and any successor statute.
"Bankruptcy Court" means the United States Bankruptcy Court for
the District of Delaware, or such other successor court where the
Bankruptcy Case is pending.
"Books" means all of Borrower's books and records including:
ledgers; records indicating, summarizing, or evidencing
Borrower's properties or assets (including the Collateral) or
liabilities; all information relating to Borrower's business
operations or financial condition; and all computer programs,
disk or tape files, printouts, runs, or other computer prepared
information.
"Chattel Paper" means all of Borrower's now owned or hereafter
acquired right, title, and interest with respect to "chattel
paper", including, without limitation, "tangible chattel paper"
and "electronic chattel paper", as such terms are defined from
time to time in the Code, and any and all supporting obligations
in respect thereof.
"Collateral" means all Borrower's now owned or hereafter acquired
right, title, and interest in and to each of the following:
(a) Accounts,
(b) Books,
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(c) Deposit Accounts,
(d) General Intangibles,
(e) Goods,
(f) Investment Property,
(g) Negotiable Collateral,
(h) Real Property Collateral,
(i) money or other assets of Borrower that now or hereafter
come into the possession, custody, or control of the
Lender, and
(j) the proceeds and products, whether tangible or
intangible, of any of the foregoing, including proceeds
of insurance covering any or all of the foregoing, and
any and all Accounts, Books, Equipment, General
Intangibles, Inventory, Investment Property, Negotiable
Collateral, Real Property, money, Deposit Accounts, or
other tangible or intangible property resulting from
the sale, exchange, collection, or other disposition of
any of the foregoing, or any portion thereof or
interest therein, and the proceeds thereof.
"Deposit Account" means any "deposit account" (as that term is
defined from time to time in the Code) maintained by the
Borrower.
"Document" means all of Borrower's now owned or hereafter
acquired right, title, and interest with respect to any
"document" as that term is defined from time to time in the Code,
and any and all supporting obligations in respect thereof.
"Estate" means, collectively, the estates of the Debtors created
under Section 541 of the Bankruptcy Code by virtue of the
Bankruptcy Case.
"Equipment" means all of Borrower's now owned or hereafter
acquired right, title, and interest with respect to "equipment",
as that term is defined from time to time in the Code, including
all attachments, accessories, accessions, replacements,
substitutions, additions, and improvements to any of the
foregoing.
"General Intangibles" means all of Borrower's present and future
general intangibles and other personal property (including
contract rights, rights arising under common law, statutes, or
regulations, choses or things in action, commercial tort claims,
goodwill, patents, trade names, trademarks, service marks,
copyrights, blueprints, drawings, purchase orders, customer
lists, monies due or recoverable from pension funds, route lists,
rights to payment and other rights under any royalty or licensing
agreements, infringement claims, computer programs, information
contained on computer disks or tapes, literature, reports,
catalogs, deposit accounts, insurance premium rebates, tax
refunds, and tax refund claims), other than goods, Accounts, and
Negotiable Collateral.
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"Goods" means all of Borrower's now owned or hereafter acquired
right, title, and interest with respect to "goods", as that term
is defined from time to time in the Code, including, without
limitation, any and all Inventory and Equipment.
"Instruments" means all of Borrower's now owned or hereafter
acquired right, title, and interest with respect to
"instruments", including, without limitation, any "promissory
notes", as such terms are defined from time to time in the Code,
and any and all supporting obligations in respect thereof.
"Inventory" means all Borrower's now owned or hereafter acquired
right, title, and interest with respect to "inventory", as that
term is defined from time to time in the Code, including, without
limitation, goods held for sale or lease or to be furnished under
a contract of service, goods that are leased by a Borrower as
lessor, goods that are furnished by a Borrower under a contract
of service, and raw materials, work in process, or materials used
or consumed in a Borrower's business.
"Investment Property" means all of Borrower's presently existing
and hereafter acquired or arising investment property (as that
term is defined in Section 9115 of the Code).
"Letter of Credit Rights" means all of Borrower's now owned or
hereafter acquired right, title, and interest with respect to
"letter of credit rights", as that term is defined from time to
time in the Code, and any and all supporting obligations in
respect thereof.
"Loan Documents" means this Agreement, each instrument and
document executed and/or delivered as contemplated by Article 4,
each other instrument or document from time to time executed
and/or delivered in connection with the arrangements contemplated
thereby, and all agreements, instruments and documents related
thereto, as each may be amended from time to time.
"Negotiable Collateral" means all of Borrower's now owned and
hereafter acquired right, title, and interest with respect to any
letters of credit, Letter of Credit Rights, Instruments, drafts,
Documents, and Chattel Paper, and any and all supporting
obligations in respect thereof.
"Parent Guaranty" means that certain Guaranty Agreement dated as
of September 5, 2001 by the Borrower to Xxxxx Fargo Retail
Finance, LLC, as agent for all lenders under the ZB Loan and
Security Agreement.
"Parent Pledge Agreement" means that certain Pledge Agreement
dated as of September 5, 2001 by the Borrower in favor of Xxxxx
Fargo Retail Finance, LLC, as agent for all lenders under the ZB
Loan and Security Agreement.
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"Post-Closing Payments" means, collectively, the Cure Costs,
Post-Closing Payments, and the Additional Post-Closing Payments
(as each such term is defined in the Purchase Agreement) and any
other post-closing monetary obligations of ZB Company, Inc. to
the Estate or any other Person under the Purchase Agreement.
"Post-Closing Payments Guaranty" means the Borrower's guaranty of
the obligations of ZB Company, Inc. under the Purchase Agreement.
"Purchase Agreement" means the Asset Purchase Agreement by and
among the ZB Company, Inc., Borrower, and Zany Brainy, Inc.,
Children's Products, Inc., Children's Distribution, LLC,
Children's Development, Inc., Noodle Kidoodle, Inc., and Zany
Brainy Direct LLC dated as of August 31, 2001.
"Real Property" means any estates or interests in real property
now owned or hereafter acquired by Borrower.
"Real Property Collateral" means all of Borrower's right, title,
and interest (whether as owner, lessee, or otherwise) in the
parcel or parcels of real property and the related improvements
thereto, and each of the leased locations, and any Real Property
hereafter acquired by Borrower.
"ZB Company, Inc." means ZB Company, Inc., a Delaware
corporation, wholly-owned by the Borrower.
"ZB Loan and Security Agreement" means that certain Loan and
Security Agreement dated as of September 5, 2001 by and among ZB
Company, Inc. and Xxxxx Fargo Retail Finance, LLC, as agent for
all lenders as may from time to time be parties thereto.
8. A new section 10-7A is hereby added to the Loan Agreement as follows:
"10-7A. Default Under ZB Loan and Security Agreement. The
occurrence of any Event of Default under the ZB Loan and Security
Agreement or under any agreements, instruments or documents
related thereto."
9. A new section 10-7B is hereby added to the Loan Agreement as follows:
"10-7B. Default Under Post-Closing Payments Guaranty. The
occurrence of any Event of Default under the Post-Closing
Payments Guaranty or under any agreements, instruments or
documents related thereto."
10. A new Article 10A is hereby added to the Loan Agreement as follows:
"ARTICLE 10A - POST-CLOSING PAYMENTS
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If any Event of Default shall have occurred under this Agreement,
Borrower shall be prohibited from making any Post-Closing
Payments."
11. The Loan Agreement is hereby amended by deleting existing Exhibit 9-11
and replacing it with the substitute Exhibit 9-11 attached to this Amendment.
SECTION II. REPRESENTATIONS AND WARRANTIES; CONFIRMATION OF REPRESENTATIONS,
WARRANTIES, EXHIBITS AND SCHEDULES TO THE LOAN AGREEMENT.
This Amendment has been duly authorized, executed and delivered by the
Borrower. The Loan Agreement, as amended hereby, and each of the Loan Documents,
as amended by and through the date hereof, constitute legal, valid and binding
obligations of the Borrower, enforceable against the Borrower in accordance with
their respective terms. The Borrower, by execution of this Amendment, certifies
to the Lender that each of the representations and warranties set forth in the
Loan Agreement and the Loan Documents is true and correct as of the date hereof,
except to the extent such representations and warranties expressly relate to an
earlier date, as if fully set forth in this Amendment, and that, as of the date
hereof, no Event of Default has occurred and is continuing under the Loan
Agreement or any other Loan Document. The Borrower acknowledges and agrees that
this Amendment shall become a part of the Loan Agreement and shall be a Loan
Document.
SECTION III. CONSENT TO TRANSACTION.
Simultaneously with this Amendment the Borrower is forming a subsidiary,
ZB Company, Inc., for the purpose of purchasing the assets of Zany Brainy, Inc.
and its subsidiaries in a sale conducted pursuant to Sections 363 and 365 of the
Bankruptcy Code (the "Transaction"). The Lender acknowledges that it is familiar
with the structure of the Transaction and agrees with the Borrower that, to the
extent the amendments to the Loan Agreement set forth herein do not eliminate an
Event of Default that would arise under the Loan Agreement solely as a result of
consummation of the Transaction or performance by Borrower of its obligations in
connection therewith, that Lender hereby waives any such Event of Default. This
waiver is a limited waiver for the specific purpose of permitting Borrower to
create ZB Company, Inc. to consummate the Transaction and perform its
obligations in connection therewith and shall not be deemed a waiver of any
other Event of Default now or hereafter existing. Borrower hereby agrees with
Lender that, to the extent any Event of Default that would arise under the Loan
Agreement as a result of consummation of the Transaction is later discovered,
that Borrower will execute an amendment to the Loan Agreement in form and
substance reasonably satisfactory to Lender in order to cure such Event of
Default.
SECTION IV. CONDITIONS PRECEDENT & SUBSEQUENT
As a condition to the obligation of the Lender to execute this
Amendment, and to the effectiveness of the provisions hereof, each of the
following conditions precedent shall have been satisfied or waived in writing by
the Lender:
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(a) The Lender shall have received:
(i) this Agreement, the Amendment to Subordination and Intercreditor Agreement,
and the Parent Guaranty, each fully executed by each of the parties hereto;
(ii) such other instruments, certificates or documents as the Lender shall
reasonably request, each of which shall be in form and substance satisfactory to
the Lender, for the purpose of implementing or effectuating the provisions of
the Loan Agreement and the other Loan Documents, each as amended hereby.
(b) All reasonable costs and expenses incurred by the Lender in
connection with this Amendment and the other agreements, instruments and
transactions contemplated hereby (including the reasonable fees and expenses of
Xxxxxx, Hall & Xxxxxxx, special counsel to the Lender) shall have been paid by
the Borrower.
(c) Borrower shall provide to Lender on or before October 31, 2001
monthly projections for the Borrower's fiscal year ending January 26, 2002,
which projections shall be acceptable to Lender.
SECTION V. NO NOVATION; EFFECT; COUNTERPARTS; GOVERNING LAW.
Except to the extent specifically amended hereby, the Loan Agreement,
each of the Security Documents and all other Loan Documents shall be unaffected
hereby and shall remain in full force and effect. The Borrower hereby
acknowledges, confirms and ratifies its obligations under the Loan Agreement,
the Master Note, and each of the Loan Documents. The Borrower hereby covenants,
acknowledges and confirms to the Lender that the term "Loan Agreement" shall
mean the Loan Agreement as amended through the date of this Amendment and as
further amended and/or restated from time to time. This Amendment may be
executed in any number of counterparts, and by the different parties on separate
counterparts, each of which, when so executed and delivered, shall be an
original, but all the counterparts shall together constitute one instrument.
This Amendment shall be governed by the internal laws of The Commonwealth of
Massachusetts (without reference to conflicts of law principles) and shall be
binding upon and inure to the benefit of the parties hereto and the respective
successors and assigns. The Borrower shall pay all reasonable out-of-pocket
expenses of the Lender in connection with the preparation, execution and
delivery of this Amendment.
[THE BALANCE OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
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IN WITNESS WHEREOF, the parties hereto have executed this Amendment to
the Loan Agreement as a sealed instrument as of the date first above written.
THE RIGHT START, INC.
By: /s/ Xxxxxxx X. Xxxxxx
---------------------------
Name: Xxxxxxx X. Xxxxxx
Title: Vice President
XXXXX FARGO RETAIL FINANCE, LLC
By: /s/ Xxxxxxx X. Xxxxxxxx
---------------------------
Name: Xxxxxxx X. Xxxxxxxx
Title: Chief Financial Officer
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EXHIBIT 5-2
Related Entities
(1) 100% of the outstanding common stock of ZB Company, Inc., is owned by the
Company and the Company's beneficial owners hold, beneficially and
directly, substantially the amounts of the Company's common stock shown in
the Company's Proxy Statement filed Schedule 14A for the year ended
February 3, 2001. ZB Company, Inc. is a subsidiary for purposes of
consolidation of the two entities' financial statements. The Company's
financial statements are not consolidated with the financial statements of
any of its beneficial owners.
(2) Athanor Holdings, LLC is an Affiliate of the Company.
(3) The Company has two wholly-owned inactive subsidiaries, The Right Start,
Inc. Subsidiary I and The Right Start, Inc. Subsidiary II, which it is in
the process of eliminating. The Company also created a subsidiary, ZB
Operating Co., for the acquisition of the assets of Zany Brainy, Inc. which
it does not expect to use.
(4) The Company is the sole owner of Xxxxxxx-RS, LLC, a New York limited
liability company that owns the assets of Right Xxxxx.xxx Inc.
EXHIBIT 5-5
Encumbrances and Liens
Secured Party Payment Terms
or Mortgagee Description of Collateral and Dates of Maturity
1. ARBCO Associates, L.P. Blanket Lien PIK Notes Due
Xxxxx Xxxxxxxx Non-Traditional Sept. 1, 2005
Investments, L.P. $3,000,000 in
aggregate principal
amount
Xxxxx Xxxxxxxx Diversified
Capital Partners, L.P.
UCCs filed in states in
Xxxxx Xxxxxxxx Capital which collateral is
Partners, L.P. located
2. Liens imposed for taxes, assessments or other charges.
3. Non-consensual statutory Liens including, without limitation, carriers',
mechanics', warehousemen's, artisans', service, suppliers', depositaries' and
other like Liens arising in the ordinary course of business.
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4. Pledges or deposits in respect of workers' compensation, unemployment
insurance and other social security legislation.
5. Deposits to secure performance of bids, trade contracts, leases, statutory
obligations, surety and appeal bonds, performance bonds and other similar
obligations incurred in the ordinary course of business.
6. Easements, rights-of-way, restrictions and similar encumbrances incurred in
the ordinary course of business and encumbrances consisting of zoning
restrictions, easements, licenses and restrictions on the use of property or
minor imperfections in title that do not materially interfere with the Company's
business.
7. Liens in favor of credit card processors.
8. Purchase money security interests.
9. Liens on indebtedness permitted under Section 5-6.
10. Liens of landlords and their lenders against leasehold interests.
11. Liens of customs and revenue authorities.
12. Liens existing on acquired property.
13. Liens created under the Loan and Security Agreement between ZB Company, Inc.
and Xxxxx Fargo Retail Finance (the "ZB Company Loan Agreement") and the Parent
Guaranty (the "Parent Guaranty") and the Parent Pledge (the "Parent Pledge")
required thereunder.
14. Any extension, renewal or replacement of the foregoing.
EXHIBIT 5-6
Indebtedness
Principal Monthly
Creditor Amount Maturity Date Payment Collateral
1. ARBCO Associates, L.P. $3,000,000 Sept. 1, 2005 PIK 8% per Substantially
Xxxxx Xxxxxxxx Non-Traditional annum all of the
Non-Traditional Investments, L.P. Company's
Assets
Xxxxx Xxxxxxxx Diversified
Capital Partners, L.P.
Xxxxx Xxxxxxxx Capital
Partners, L.P.
2. Intercompany payables between the Company and ZB Company, Inc. in amounts
up to $750,000.
3. Trade obligations and accruals in the ordinary course of business.
4. Purchase money indebtedness including capital leases.
5. Unsecured indebtedness.
6. Indebtedness arising under agreements providing for indemnification,
adjustment of purchase price or similar obligations, or obligations to perform
bids, trade contracts, leases, statutory obligations or surety and appeal bonds,
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performance bonds and other similar obligations incurred in the ordinary course
of business.
7. Indebtedness to secure workers' compensation, unemployment insurance and
other social security legislation obligations.
8. Indebtedness of the Company incurred under the ZB Loan Agreement, the Parent
Guaranty and the Parent Pledge.
9. Indebtedness of the Company incurred in exchange for or the net proceeds of
which are used to extend, refinance, renew, replace, substitute or refund
Indebtedness referred to above.
Guaranties
Amount and Description
Primary Obligor of Obligation Guaranteed Beneficiary of Guaranty
The Company All obligations of XX Xxxxx Fargo
Company, Inc. under the Retail Finance
ZB Loan Agreement
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