AMENDMENT NUMBER TWO TO
LOAN AND SECURITY AGREEMENT
THIS AMENDMENT NUMBER TWO TO LOAN AND SECURITY AGREEMENT (this
"Amendment"), is entered into as of December 18, 1998, between FOOTHILL CAPITAL
CORPORATION, a California corporation ("Foothill"), with a place of business
located at 00000 Xxxxx Xxxxxx Xxxxxxxxx, Xxxxx 0000, Xxx Xxxxxxx, Xxxxxxxxxx
00000-0000, and DISCOVERY ZONE, INC., a Delaware corporation ("Borrower"), with
its chief executive office located at 000 Xxxxxx Xxxx, Xxxxx Xxxxx, Xxxxxxxx,
Xxx Xxxx 00000.
This Amendment is entered into with reference to the following
facts:
A. Foothill and Borrower heretofore entered into that certain
Loan and Security Agreement, dated as of March 31, 1998, as amended by
that certain Amendment Number One to Loan and Security Agreement, dated
as of July 17, 1998 (herein the "Agreement");
B. Borrower has requested that the Agreement be amended to
increase the Maximum Amount from $10,000,000 to $12,500,000 through
March 15, 1999, and to $12,000,000 thereafter, and to revise the
Borrowing Base calculation;
C. Foothill is willing to so amend the Agreement in accordance
with the terms and conditions hereof;
D. Borrower has advised Foothill that Borrower intends to sell
the Fort Bend County Real Property and has requested Foothill's consent
to such sale; and
E. All capitalized terms used herein and not defined herein
shall have the meanings ascribed to them in the Agreement, as amended
hereby.
NOW THEREFORE, in consideration of the above recitals and the
mutual promises contained herein, Foothill and Borrower hereby agree as follows:
1. Amendments to the Agreement.
a. Section 1.1 of the Agreement hereby is amended by
adding or modifying, as the case may be, the following definitions:
"Add-Back Credit" means the Top 50 Store Add-Back
Credit plus the Second 50 Store Add-Back Credit.
"Adjusted Aggregate Second 50 Store Contribution"
means, (a) as of any date of determination occurring in each of the
first 24 months following the Closing Date, Aggregate Second 50 Store
Contribution for the relevant trailing 12 month period, plus, the
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Second 50 Store Add-Back Credit, and (b) as of any date of
determination occurring after the first 24 months following the Closing
Date, Aggregate Second 50 Store Contribution for the relevant trailing
12 month period.
"Adjusted Aggregate Top 50 Store Contribution" means,
(a) as of any date of determination occurring in each of the first 24
months following the Closing Date, Aggregate Top 50 Store Contribution
for the relevant trailing 12 month period, plus, the Top 50 Store
Add-Back Credit, and (b) as of any date of determination occurring
after the first 24 months following the Closing Date, Aggregate Top 50
Store Contribution for the relevant trailing 12 month period.
"Adjusted EBITDA" means, with respect to each fiscal
month of Borrower, Borrower's EBITDA for such fiscal month, plus the
sum of Borrower's Excess EBITDA for each of the 2 immediately preceding
fiscal months.
"Adjusted Store EBITDA" means, with respect to each
fiscal month of Borrower, Borrower's Store EBITDA for such fiscal
month, plus the sum of Borrower's Excess Store EBITDA for each of the 2
immediately preceding fiscal months.
"Adjusted Value" means, with respect to any parcel of
Real Property: (a) until such time as Foothill shall have received, in
each case, with respect to such parcel of Real Property (i) a Mortgage,
(ii) a Mortgage Policy assuring Foothill that the Mortgage with respect
thereto is a valid and enforceable first priority mortgage Lien thereon
free and clear of all defects and encumbrances except Permitted Liens,
and (iii) an opinion of Borrower's counsel in form and substance
satisfactory to Foothill, $0.00; and (b) thereafter, the appraised
value of such parcel of Real Property, as reasonably determined by
Foothill.
"Aggregate Second 50 Store Contribution" means, as of
any date of determination, the sum of the individual Store Contribution
of each of Borrower's Second 50 Stores.
"Aggregate Store Contribution" means the sum of (a)
the Aggregate Top 50 Store Contribution, plus (b) the Aggregate Second
50 Store Contribution.
"Aggregate Top 50 Store Contribution" means, as of
any date of determination, the sum of the individual Store Contribution
of each of Borrower's Top 50 Stores.
"Borrower Collateral" means all of Borrower's
interests in each of the following:
(a) the Accounts,
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(b) Borrower's Books,
(c) the Equipment,
(d) the General Intangibles,
(e) the Inventory,
(f) the Negotiable Collateral,
(g) the Real Property Collateral,
(h) any month, or other assets of Borrower that now
or hereafter come into the possession, custody, or control of Foothill,
and
(i) the proceeds and products, whether tangible or
intangible, of any of the foregoing, including proceeds of insurance
covering any or all of the Borrower Collateral, and any an all
Accounts, Borrower's Books, Equipment, General Intangibles, Inventory,
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;
provided, however, that anything in the foregoing to the contrary
notwithstanding, the Borrower Collateral shall not include the Escrowed
Interest Account or the McDonald's Collateral.
"Borrower Personal Property Collateral" means all
Borrower Collateral other than the Real Property Collateral.
"Borrower's Second 50 Stores" means, as of any date
of determination, Borrower's 50 store locations (calculated to include
any store that would have been included but for the commencement of
renovations) which are ranked 51 through 100 on the basis of highest
levels of Store Contribution on a per-store basis, as compared to
Borrower's other store locations, computed on a trailing 12 month
basis.
"Borrower's Top 50 Stores" means, as of any date of
determination, Borrower's 50 store locations (calculated to include any
store that would have been included but for the commencement of
renovations) reporting highest levels of Store Contribution on a
per-store basis, as compared to Borrower's other store locations,
computed on a trailing 12 month basis.
"Dallas County Real Property" means that certain
tract of land owned by Borrower in the City of Dallas, Dallas County,
Texas, a part of the Xxxxxx Xxxxxxx Survey, Abstract No. 1580, and
being all of Xxx 0X, Xxxxx 0/0000, Xxxxxxxxxxx Towers, an addition
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to the City of Dallas according to the replat of Xxx 0, Xxxxx 0/0000 xx
Xxxxxxxxxxx Xxxxxx recorded in Volume 92208, Page 3668, Dallas County
Map Records.
"EBITDA" means, with respect to any fiscal period of
a Person, determined on a consolidated basis, such Persons' net income
(or net loss) during such fiscal period (exclusive of extraordinary or
non-recurring items), plus (except to the extent attributable to
extraordinary or non-recurring items) the amount of interest, taxes,
depreciation, amortization, and non-cash rent adjustments deducted in
arriving at such net income (or net loss), in each case determined in
accordance with GAAP.
"Excess EBITDA" means, (a) with respect to each
fiscal period of Borrower set forth in Section 7.19(c), the amount by
which Borrower's EBITDA for such fiscal period exceeds the Minimum
Adjusted EBITDA for such fiscal period (including any negative amount,
in the event that Borrower's EBITDA for such fiscal period is less than
the Minimum Adjusted EBITDA for such fiscal period), and (b) with
respect to each fiscal period of Borrower not set forth in Section
7.19(c), $0.
"Excess Store EBITDA" means, (a) with respect to each
fiscal period of Borrower set forth in Section 7.19(b), the amount by
which Borrower's Store EBITDA for such fiscal period exceeds the
Minimum Adjusted Store EBITDA for such fiscal period (including any
negative amount, in the event that Borrower's Store EBITDA for such
fiscal period is less than the Minimum Adjusted Store EBITDA for such
fiscal period), and (b) with respect to each fiscal period of Borrower
not set forth in Section 7.19(b), $0.
"Foothill Expenses" means all: costs or expenses
(including taxes, and insurance premiums) required to be paid by
Borrower under any of the Loan Documents that are paid or incurred by
Foothill; fees or charges paid or incurred by Foothill in connection
with Foothill's transactions with Borrower, including, fees or charges
for photocopying, notarization, couriers and messengers,
telecommunication, public record searches (including tax lien,
litigation, and UCC searches and including searches with the patent and
trademark office, the copyright office, or the department of motor
vehicles), filing, recording, publication, appraisal (including
periodic Personal Property Collateral or Real Property Collateral
appraisals), real estate surveys, real estate title policies and
endorsements, and environmental audits; costs and expenses incurred by
Foothill in the disbursement of funds to Borrower (by wire transfer or
otherwise); charges paid or incurred by Foothill resulting from the
dishonor of checks; costs and expenses paid or incurred by Foothill to
correct any default or enforce any provision of the Loan Documents, or
in gaining possession of, maintaining, handling, preserving, storing,
shipping, selling, preparing for sale, or advertising to sell the
Property Collateral or the Real Property Collateral, or any portion
thereof, irrespective of whether a sale is consummated; costs and
expenses paid or incurred by Foothill in examining Borrower's Books;
costs and expenses of third party claims or any other suit paid or
incurred by Foothill in enforcing or defending the Loan Documents or in
connection with the transactions contemplated by the Loan Documents or
Foothill's
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relationship with Borrower or any guarantor; and Foothill's reasonable
attorneys fees and expenses incurred in advising, structuring,
drafting, reviewing, administering, amending, terminating, enforcing
(including attorneys fees and expenses incurred in connection with a
"workout," a restructuring," or an Insolvency Proceeding concerning
Borrower or any guarantor of the Obligations) defending, or concerning
the Loan Documents, irrespective of whether suit is brought.
"Fort Bend County Real Property" means that certain
parcel of Real Property owned by Borrower consisting of Reserve "G" of
Creekside at Town Center, a subdivision in Fort Bend County, Texas,
according to the map or plat thereof recorded under Slide Number 1281/B
of the Plat Records of Fort Bend County, Texas.
"Lien" means any interest in property securing an
obligation owed to, or a claim by, any Person other than the owner of
the property, whether such interest shall be based on the common law,
statute, or contract, whether such interest shall be recorded or
perfected, and whether such interest shall be contingent upon the
occurrence of some future event or events or the existence of some
future circumstance or circumstances, including the lien or security
interest arising from a mortgage, deed of trust, encumbrance, pledge,
hypothecation, assignment, deposit arrangement, security agreement,
adverse claim or charge, conditional sale or trust receipt, or from a
lease, consignment, or bailment for security purposes and also
including reservations, exceptions, encroachments, easements,
rights-of-way, covenants, conditions, restrictions, leases, and other
title exceptions and encumbrances affecting Real Property.
"Loan Documents" means this Agreement, the Letters of
Credit, the Stock Pledge Agreement, the Trademark Security Agreement,
the Guaranty, the Guarantor Security Agreement, the Intercreditor
Agreement, the Disbursement Letter, the Concentration Account
Agreements, the Collateralized Notes Intercreditor Agreement, the
Mortgages, any note or notes executed by Borrower and payable to
Foothill, and any other agreement entered into, now or in the future,
in connection with this Agreement.
"Maximum Revolving Amount" means, (a) prior to the
Second Amendment Date, $10,000,000, (b) from the Second Amendment Date
through March 15, 1999, $12,500,000, and (c) thereafter, $12,000,000.
"Minimum Adjusted EBITDA" means, for any fiscal
period of Borrower, the amount set forth in Section 7.19(c) in the
column labeled "Minimum Adjusted EBITDA" for such fiscal period.
"Minimum Adjusted Store EBITDA" means, for any fiscal
period of Borrower, the amount set forth in Section 7.l.(b) in the
column labeled "Minimum Adjusted Store EBITDA" for such fiscal period.
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"Mortgage Policy" means, with respect to any parcel
of Real Property, a mortgagee title insurance policy (or marked
commitment to issue the same) in form and substance satisfactory to
Foothill for such parcel of Real Property issued by a title insurance
company satisfactory to Foothill.
"Mortgages" means on more mortgages, deeds of trust,
or deeds to secure debt, executed by Borrower in favor of Foothill, the
form and substance of which shall be satisfactory to Foothill, that
encumber the Real Property Collateral and the related improvements
thereto.
"Permitted Liens" means:
(a) Liens held by Foothill;
(b) Liens for taxes, assessments or governmental
charges or claims either (i) not delinquent or (ii) are the subject of
Permitted Protests;
(c) Liens to secure Indebtedness of Borrower incurred
under the Subordinated Creditor Indenture, the Collateralized Notes
Indenture, and the McDonald's Senior Liens;
(d) Liens arising by operation of law in favor of
warehousemen, landlords, carriers, mechanics, materialmen, laborers, or
suppliers, incurred in the ordinary course of business of any Obligor
and not in connection with the borrowing of money, and which Liens
either, (i) are for sums not year delinquent, or (ii) are the subject
of Permitted Protests;
(e) Liens incurred or deposits made in the ordinary
course of business in connection with workers' compensation,
unemployment insurance and other types of social security, including
any Lien securing letters of credit issued in the ordinary course of
business consistent with past practice in connection therewith, or to
see the performance and return-of-money bonds and other similar
obligations (exclusive of obligations for the payment of borrowed
money);
(f) Liens or deposits to secure performance of bids,
tenders, or leases (to the extent permitted under this Agreement),
incurred in the ordinary course of business of any Obligor and not in
connection with the borrowing of money;
(g) Liens arising by reason of security for surety or
appeal bonds in the ordinary course of business of any Obligor;
(h) Liens of or resulting from any judgement or award
against any Obligor that reasonably could not be expected to result in
a Material Adverse Change and as to which the time for the appeal or
petition for rehearing of which has not yet expired, or in respect
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of which such Obligor is in good faith prosecuting an appeal or
proceeding for a review and in respect of which a stay of execution
pending such appeal or proceeding for review has been secured;
(i) Liens with respect to the Real Property
Collateral that are exceptions to the commitments for title insurance
issued in connection with the Mortgages, as accepted by Foothill;
(j) with respect to any Real Property that is not
part of the Real Property Collateral, easements, rights-of-way, zoning
restrictions and other similar charges or encumbrances in respect of
such Real Property not interfering in any material respect with the
ordinary conduct of the business of any Obligor, or impair the use or
operation of the Collateral by any Obligor, or impair the value of
Foothill's Lien thereon or therein;
(k) any interest or title of a lessor under any
Capital Lease Obligation permitted to be incurred under this Agreement
pursuant to clause (a) of the definition of "Permitted Indebtedness"
provided that such Liens do not extend to any property or assets which
are not leased property subject to such Capital Lease Obligation;
(l) Purchase Money Liens of any Obligor acquired in
the ordinary course of business; provided, however, that (i) the
related Purchase Money Obligation shall not exceed the cost of such
property or assets and shall not be secured by any property or assets
of Borrower or any Subsidiary of Borrower other than the property and
assets so acquired and (ii) the Lien securing such Indebtedness shall
be created within 90 days of such acquisition;
(m) Liens encumbering deposits made to secure
obligations arising from statutory, regulatory, contractual, or
warranty requirements of any Obligor, including rights of offset and
set-off;
(n) Liens securing Interest Swap Obligations, which
Interest Swap Obligations relate to Indebtedness that is otherwise
permitted under this Agreement;
(o) Liens in favor of Borrower or any Subsidiary of
Borrower on assets of any other Subsidiary of Borrower; and
(p) Acquisition Liens.
"Personal Property Collateral" means all Collateral
other than the Real Property Collateral.
"Projections" means, with respect to any fiscal
period of Borrower, Borrower's forecasted (a) balance sheets, (b)
profit and loss statements, and (c) cash flow statements, in each case,
for such fiscal period, and prepared on a consistent basis with
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Borrower's historical financial statements, together with appropriate
supporting details and a statement of underlying assumptions.
"Real Property" means any estates or interest in real
property now owned or hereafter acquired by Borrower.
"Real Property Collateral" means the parcel or
parcels of Real Property and the related improvements thereto
identified on Schedule R-1, and any Real Property hereafter acquired by
Borrower.
"Second Amendment Date" means December 18, 1998.
"Second 50 Store Add-Back Credit" means, as of any
date of determination, an amount equal to (a) $10,000 multiplied by (b)
the number of store renovations commenced among Borrower's Second 50
Stores during the 15 month period preceding such date of determination.
"Store EBITDA" means, with respect to any fiscal
period of Borrower, Borrower's EBITDA for such fiscal period, plus
(except to the extent attributable to extraordinary or non-recurring
items) the amount of selling, general, and administrative expenses
deducted in arriving at Borrower's EBITDA for such fiscal period, in
each case determined in accordance with GAAP.
"Top 50 Store Add-Back Credit" means, as of any date
of determination, an amount equal to (a) $10,000 multiplied by (b) the
number of store renovations commenced among Borrower's Top 50 Stores
during the 15 month period preceding such date of determination.
b. Section 2.1(a) and (b) of the Loan Agreement are
hereby amended and restated in their entirety to read as follows:
(a) Subject to the terms and conditions of this
Agreement, Foothill agrees to make advances ("Advances") to Borrower in
an amount outstanding not to exceed at any one time the lesser of (i)
the Maximum Revolving Amount less the Letter of Credit Usage, or (ii)
the Borrowing Base less (A) the Letter of Credit Usage. For purposes of
this Agreement, "Borrowing Base", as of any date of determination,
shall mean the result of:
(v) the lesser of (1) $1,200,000, and (2)
75% of the Adjusted Value of the Dallas County Real Property;
plus
(w) the lesser of (1) $600,000, and (2) 75%
of the Adjusted Value of the Fort Bend County Real Property;
plus
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(x) 150% of the Adjusted Aggregate Top 50
Store Contribution, plus
(y) 120% of the Adjusted Aggregate Second 50
Store Contribution, minus
(z) the aggregate amount of reserves, if
any, established and maintained by Foothill from time to time
pursuant to the Loan Documents, including such reserves
established under Sections 2.1(b), 2.1(e), 6.15, 8.8 or 10 or
under the definition of Permitted Protest.
(b) Anything to the contrary in Section 2.1(a) above
notwithstanding, Foothill may create reserves against or reduce its
advance rate based upon the appraised value of the Dallas County Real
Property, the appraised value of the Fort Bend County Real Property,
Adjusted Aggregate Top 50 Store Contribution or Adjusted Aggregate
Second 50 Store Contribution if it determines in good faith that there
has occurred a Material Adverse Change.
c. Section 4.1 of the Loan Agreement is hereby
amended and restated in its entirety to read as follows:
4.1 Grant of Security Interest. Borrower hereby
grants to Foothill a continuing security interest in all currently
existing and hereafter acquired or arising Borrower Personal Property
Collateral in order to secure prompt repayment of any and all
Obligations and in order to secure prompt performance by Borrower of
each of its covenants and duties under the Loan Documents. Foothill's
security interests in all of the Collateral shall attach to all of the
Collateral without further act on the part of Foothill or any Obligor.
Anything contained in this Agreement or any other Loan Document to the
contrary notwithstanding, except for Permitted Dispositions, no Obligor
has any authority, express or implied, to dispose of any item or
portion of the Collateral.
d. Section 6.2 of the Loan Agreement hereby is
amended and restated in its entirety to read as follows:
6.2. Collateral Reporting. Provide Foothill with the
following documents at the following times in form satisfactory to
Foothill:
(a) a detailed calculation of the Aggregate Top 50
Store Contribution, the Aggregate Second 50 Store Contribution, the
Aggregate Store Contribution, and a detailed report of the Store
Contribution of each of Borrower's individual stores measured on a
trailing 12-month basis as of the last day of each fiscal month, by no
later than (i) with respect to any fiscal month ending on a date that
is the last day of any fiscal year, the date
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that is 60 days after the last day of such fiscal month, and (ii) with
respect to any other fiscal month, the date that is 30 days after the
last day of such fiscal month.
(b) concurrent with the reporting delivered pursuant
to clause (a) above during the first 24 months following the Closing
Date, a detailed calculation of the Top 50 Store Add-Back Credit, the
Second 50 Store Add-Back Credit, the Add-Back Credit, and a report
detailing each store renovation completed during the last 15 month
period;
(c) concurrent with the reporting delivered pursuant
to clause (a) above during the first 24 months following the Closing
Date, a certificate representing Borrower's good faith, reasonable
estimate (based upon the advice of its professional advisors) of the
Disputed Amount; and
(d) such other reports as to the Collateral or the
financial condition of each Obligor as Foothill may reasonably request
from time to time.
e. Section 6.10 of the Loan Agreement hereby is
amended and restated in its entirety to read as follows:
6.10 Insurance.
(a) At its expense, keep the Personal Property
Collateral insured against loss or damage by fire, theft, explosion,
sprinklers, and all other hazards and risks, and in such amounts, as
are ordinarily insured against by other owners in similar businesses.
Borrower also shall maintain business interruption, public liability,
product liability, and property damage insurance relating to each
Obligor's ownership and use of the Personal Property Collateral, as
well as insurance against larceny, embezzlement, and criminal
misappropriation.
(b) At its expense, obtain and maintain (i) insurance
of the type necessary to insure the improvements to and fixtures
located on the Real Property Collateral for the full replacement cost
thereof, against any loss by fire, lightning, windstorm, hail,
explosion, aircraft, smoke damage, vehicle damage, earthquakes,
elevator collision, and other risks from time to time included under
"extended coverage" policies, in such amounts as Foothill may require,
but in any event in amounts sufficient to prevent Borrower from
becoming a co- insurer under such policies, (ii) combined single limit
bodily injury and property damages insurance against any loss,
liability, or damages on, about, or relating to each parcel of Real
Property Collateral, in such amounts, as are ordinarily insurance
against by other owners in similar businesses, (iii) business rental
insurance covering annual receipts from a 12 month period for each
parcel of Real Property Collateral; and (iv) insurance for such other
risks as Foothill may require. Replacement costs, at Foothill's option,
may be re-determined by an insurance appraiser, satisfactory to
Foothill, not more frequently than once every 12 months at Borrower's
expense.
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(c) All such policies of insurance shall be in such
form, with such companies, and in such amounts as may be reasonably
satisfactory to Foothill. All insurance required herein shall be
written by companies which are authorized to do insurance business in
the State of California. All hazard insurance and such other insurance
as Foothill shall specify, shall contain a Form 438BFU (NS) mortgagee
endorsement, or an equivalent endorsement satisfactory to Foothill,
showing Foothill as loss payee thereof, as its interests may appear,
and shall contain a waiver of warranties. Every policy of insurance
referred to in this Section 6.10 shall contain an agreement by the
insurer that it will not cancel such policy except after 30 days' prior
written notice to Foothill and that any loss payable thereunder shall
be payable notwithstanding (i) occupancy or use of the Real Property
Collateral for purposes more hazardous than permitted by the terms of
such policy, (ii) any foreclosure or other action or proceeding taken
by Foothill pursuant to the Mortgages upon the happening of an Event of
Default, or (iii) any change in title or ownership of the Real Property
Collateral. Borrower shall deliver to Foothill certified copies of such
policies of insurance and evidence of the payment of all premiums
therefor.
(d) Each Obligor shall give Foothill prompt notice of
any loss or damage to its properties and assets by fire, lightning,
windstorm, hail, explosion, aircraft, smoke damage, vehicle damage,
earthquake, elevator collision, and other risks included under an
"extended coverage" endorsement covered by such insurance. Upon the
occurrence and during the continuance of an Event of Default, Foothill
shall have the exclusive right to adjust all losses payable under the
applicable insurance policies without any liability to any Obligor
whatsoever in respect of such adjustments. Any monies received as
payment for any loss or damage to their properties and assets by fire,
lightning, windstorm, hail, explosion, aircraft, smoke damage, vehicle
damage, earthquake, elevator collision, and other risks included under
an "extended coverage" endorsement under the applicable insurance
policy (exclusive of any casualty loss wherein the insurance proceeds
are less than $100,000), shall be paid over to Foothill, and Borrower
shall have the right to designate in writing to Foothill within 30 days
of such payment whether such payment shall be (i) applied to the
prepayment of the Obligations without premium, in such order or manner
as Foothill may elect (together with a commensurate reduction of the
Maximum Revolving Amount), or (ii) disbursed to Borrower under staged
payment terms satisfactory to Foothill for application to the cost of
repairs, replacements, or restorations and subject to the conditions
set forth in this Section 6.10(d). In the event Foothill fails to
receive timely such written designation or the conditions set forth in
the following sentence are not satisfied, the payment shall be applied
in the manner set forth in clause (i) of the immediately preceding
sentence. If Borrower elects to cause Foothill to disburse any monies
received as payment for any loss pursuant to this Section 6.10(d),
Foothill only shall be obligated to disburse such money for the repair,
replacement, or restoration of the affected property or assets if all
of the following conditions are satisfied: (A) no Default or Event of
Default has occurred and is continuing or would result from the
disbursement or application of such monies; (B) Borrower has cash, cash
equivalents, borrowing availability under Section 2.1 and/or business
interruption insurance proceeds in amounts sufficient, in Foothill's
reasonable judgment, to ensure that Borrower
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will be able to make payment as and when due of each of its Obligations
that will be payable during the period of such repair, replacement, or
restoration; (C) Foothill is reasonably satisfied that the amount of
such cash, cash equivalents, borrowing availability, and/or insurance
proceeds will be sufficient fully to repair, replace, or restore the
affected property or assets; (D) construction, completion of the
repair, replacement or restoration of the affected property or assets
shall be completed in accordance with plans, specifications, and
drawings submitted to and approved by Foothill, which approval shall
not be unreasonably withheld or delayed; and (E) all construction and
completion of the repair, replacement, or restoration shall be effected
with reasonable promptness and shall be of a value (the "Replaced
Value") (i) at least equal to the replacement value (the "Destroyed
Value") of such items of property destroyed or condemned prior to such
destruction or condemnation, or (ii) of a value less than the Destroyed
Value so long as the difference between the Destroyed Value and the
Replaced Value is applied to the prepayment of the Obligations without
premium, in such order or manner as Foothill may elect (together with a
commensurate reduction of the Maximum Revolving Amount). All monies
paid by Borrower to Foothill pursuant to this Section 6.10(d) may be
commingled with other funds of Foothill and will not bear interest
pending disbursement hereunder. Upon the occurrence and during the
continuance of an Event of Default, Foothill shall have the right to
apply all prepaid premiums to the payment of the Obligations in such
order or form as Foothill shall determine.
(e) Borrower shall not take out separate insurance
concurrent in form or contributing in the event of loss with that
required to be maintained under this Section 6.10, unless Foothill is
included thereon as named insured with the loss payable to Foothill
under a standard 438BFU (NS) Mortgagee endorsement, or its local
equivalent. Borrower immediately shall notify Foothill whenever such
separate insurance is taken out, specifying the insurer thereunder and
full particulars as to the policies evidencing the same, and originals
of such policies immediately shall be provided to Foothill.
f. The following is added as a new Section 6.17 to
the Loan Agreement:
Section 6.17 Projections. Not later than 30 days
prior to the end of each fiscal year of Borrower, deliver to Foothill
Projections of Borrower, in form and substance (including as to scope
and underlying assumptions) satisfactory to Foothill in its discretion,
for the forthcoming fiscal year, month by month, certified by the chief
financial officer of Borrower as being such officer's good faith best
estimate of the financial performance of Borrower during the period
covered thereby.
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g. Section 7.19 of the Loan Agreement is hereby
amended and restated in its entirety to read as follows:
Section 7.19 Financial Covenants. Fail to:
(a) Minimum Aggregate Store Contribution. Maintain
Aggregate Store Contribution of (1) as of the end of each of the first
12 months following the Closing Date in an amount equal to or greater
than $5,000,000, minus the lesser of (i) the Add-Back Credit or (ii)
$1,000,000, and (2) thereafter, equal to or greater than $5,000,000, in
each case measured as of the end of each calendar month on a trailing
12 month basis.
(b) Minimum Adjusted Store EBITDA. Achieve Adjusted
Store EBITDA of not less than the amount shown below for the period
corresponding thereto:
Minimum Adjusted
Period Store EBITDA
------ ------------
Month ending January 31, 1999 $2,765,000
Month ending February 28, 1999 $3,327,000
Month ending March 31, 1999 $3,636,000
Month ending April 30, 1999 $2,298,000
Month ending May 31, 1999 $1,497,000
Month ending June 30, 1999 $1,984,000
Month ending July 31, 1999 $1,471,000
Month ending August 31, 1999 $1,844,000
Month ending September 30, 1999 $365,000
Month ending October 31, 1999 $961,000
Month ending November 30, 1999 $1,843,000
Month ending December 31, 1999 $425,000
For each calendar month thereafter during each of
Borrower's fiscal years, Foothill shall establish, in its reasonable
credit judgment, Minimum Adjusted Store EBITDA for each such calendar
month during such fiscal year based upon the Projections for such
fiscal year delivered pursuant to Section 6.17.
13
(c) Minimum Adjusted EBITDA. Achieve Adjusted EBITDA
of not less than the amount shown below for the period corresponding
thereto:
Minimum Adjusted
Period EBITDA
------ ------
Quarter ending December 31, 1998 ($9,250,000)
Month ending January 31, 1999 $600,000
Month ending February 28, 1999 $1,250,000
Month ending March 31, 1999 $1,864,000
Month ending April 30, 1999 $196,000
Month ending May 31, 1999 ($316,000)
Month ending June 30, 1999 ($241,000)
Month ending July 31, 1999 ($641,000)
Month ending August 31, 1999 ($175,000)
Month ending September 30, 1999 ($1,634,000)
Month ending October 31, 1999 ($1,377,000)
Month ending November 30, 1999 ($372,000)
Month ending December 31, 1999 ($1,521,000)
For each calendar month thereafter during each of
Borrower's fiscal years, Foothill shall establish, in its reasonable
credit judgment, Minimum Adjusted EBITDA for each such calendar month
during such fiscal year based upon the Projections for such fiscal year
delivered to Foothill pursuant to Section 6.17.
h. Section 8.2 of the Loan Agreement is hereby
amended and restated in its entirety to read as follows:
8.2 (a) If any Obligor fails or neglects to perform,
keep, or observe any term, provision, condition, covenant, or agreement
applicable to such Obligor contained in Sections 6.1 (Accounting
System), 6.2 (Collateral Reporting), 6.3 (Financial Statements,
Reports, Certificates), 6.4 (Tax Returns), 6.7 (Title to Equipment),
6.8 (Maintenance of Equipment), 6.12 (Location of Equipment), 6.13
(Compliance with Laws), 6.14 (Employee Benefits), or 6.15 (Leases) of
this Agreement and such failure continues for a period of 30 days; (b)
so long as no Event of Default shall have occurred and be continuing,
if any Obligor fails or neglects to perform, keep, or observe any term,
provision, condition, covenant, or agreement applicable to such Obligor
contained in Section 7.19 (Financial Covenants), and such Obligor fails
to deliver to Foothill within 60 days after such failure a detailed
written plan, in form and substance satisfactory to Foothill in its
sole discretion, for remedying such failure, including a set of
Projections, in form and substance (including as to scope and
underlying assumptions) satisfactory to Foothill in its sole and
absolute discretion, for the next succeeding 12 months on a month by
month basis; or (c) if any Obligor fails or neglects
14
to perform, keep, or observe any other term, provision, condition,
covenant, or agreement applicable to such Obligor contained in this
Agreement (including, upon the occurrence and during the continuance of
an Event of Default, under Section 7.19, or in any of the other Loan
Documents (giving effect to any grace periods, cure periods, or
required notices, if any, expressly provided for in such Loan
Documents); in each case, other than any such term, provision,
condition, covenant, or agreement that is the subject of another
provision of this Section 8, in which event such other provision of
this Section 8 shall govern); provided that, during any period of time
that any such failure or neglect of any Obligor referred to in this
paragraph exists, even if such failure or neglect is not yet an Event
of Default by virtue of the existence of a grace or cure period or the
pre-condition of the giving of a notice, Foothill shall be relieved of
its obligation to extend credit hereunder;
i. Section 9.1(f) of the Loan Agreement hereby is
amended and restated in its entirety to read as follows:
(f) Without notice to or demand upon any Obligor or any
guarantor, make such payments and do such acts as Foothill considers
necessary or reasonable to protect its security interests in the
Collateral. Borrower agrees to assemble the Personal Property
Collateral if Foothill so requires, and to make the Personal Property
Collateral available to Foothill as Foothill may designate. Borrower
authorizes Foothill to enter the premises where the Personal Property
Collateral is located, to take and maintain possession of the Personal
Property Collateral, or any part of it, and to pay, purchase, contest,
or compromise any encumbrance, charge, or Lien that in Foothill's
determination appears to conflict with its security interests and to
pay all expenses incurred in connection therewith. With respect to any
of Borrower's owned or leased premises, Borrower hereby grants Foothill
a license to enter into possession of such premises and to occupy the
same, without charge, for up to 120 days in order to exercise any of
Foothill's rights or remedies provided herein, at law, in equity, or
otherwise;
j. Section 9.1(i), (j), and (k) of the Loan Agreement
hereby are amended and restated in their entirety to read as follows:
(i) Ship, reclaim, recover, store, finish, maintain,
repair, prepare for sale, advertise for sale, and sell (in the manner
provided for herein) the Personal Property Collateral. Foothill is
hereby granted a license or other right to use, without charge,
Borrower's labels, patents, copyrights, rights of use of any name,
trade secrets, trade names, trademarks, service marks, and advertising
matter, or any property of a similar nature, as it pertains to the
Personal Property Collateral, in completing production of, advertising
for sale, and selling any Personal Property Collateral and Borrower's
rights under all licenses and all franchise agreements shall inure to
Foothill's benefit;
(j) Sell the Personal Property Collateral at either a
public or private sale, or both, by way of one or more contracts or
transactions, for cash or on terms, in such manner
15
and at such places (including Borrower's premises) as Foothill
determines is commercially reasonable. It is not necessary that the
Personal Property Collateral be present at any such sale;
(k) Foothill shall give notice of the disposition of
the Collateral as follows:
(1) Foothill shall give Borrower and each
holder of a security interest in the Personal Property
Collateral who has filed with Foothill a written request for
notice, a notice in writing of the time and place of public
sale, or, if the sale is a private sale or some other
disposition other than a public sale is to be made of the
Personal Property Collateral, then the time on or after which
the private sale or other disposition is to be made;
(2) The notice shall be personally delivered
or mailed, postage prepaid, to Borrower as provided in Section
12, at least 5 days before the date fixed for the sale, or at
least 5 days before the date on or after which the private
sale or other disposition is to be made; no notice needs to be
given prior to the disposition of any portion of the
Collateral that is perishable or threatens to decline speedily
in value or that is of a type customarily sold on a recognized
market. Notice to Persons other than Borrower claiming an
interest in the Personal Property Collateral shall be sent to
such addresses as they have furnished to Foothill;
(3) If the sale is to be a public sale,
Foothill also shall give notice of the time and place by
publishing a notice one time at least 5 days before the date
of the sale in a newspaper of general circulation in the
county in which the sale is to be held;
k. Section 9.1(m) of the Loan Agreement hereby is
amended and restated in its entirety to read as follows:
(m) Any deficiency that exists after disposition of
the Personal Property Collateral as provided above will be paid
immediately by Borrower. Any excess will be returned, without interest
and subject to the rights of third Persons, by Foothill to Borrower.
l. The Loan Agreement hereby is amended by attaching
thereto, Schedule R-1, attached hereto and incorporated herein by this
reference.
2. Representations and Warranties. Borrower hereby represents
and warrants to Foothill that (a) the execution, delivery and performance of
this Amendment and of the Agreement, as amended by this Amendment, are within
its corporate powers, have been duly authorized by all necessary corporate
action, and are not in contravention of any law, rule, or regulation, or any
order, judgment, decree, writ, injunction, or award of any arbitrator, court, or
16
governmental authority, or of the terms of its charter or bylaws, or of any
contract or undertaking to which it is a party or by which any of its properties
may be bound or affected, and (b) this Amendment and the Agreement, as amended
by this Amendment, constitute Borrower's legal, valid, and binding obligation,
enforceable against Borrower in accordance with its terms.
3. Conditions Precedent to Amendment. The satisfaction of each
of the following, on or before December 18, 1998, unless waived or deferred by
Foothill in its sole discretion, shall constitute conditions precedent to the
effectiveness of this Amendment:
a. Foothill shall have received each of the following
documents, in form and substance satisfactory to Foothill and its counsel, duty
executed, and each such document shall be in full force and effect:
(i) this Amendment; and
(ii) the Reaffirmation and Consent (as
hereinafter defined).
b. The representations and warranties in this
Amendment, the Agreement as amended by this Amendment, and the other Loan
Documents shall be true and correct in all respects on and as of the date
hereof, as though made on such date (except to the extent that such
representations and warranties relate solely to an earlier date);
c. No Event of Default or event which with the giving
of notice or passage of time would constitute an Event of Default shall have
occurred and be continuing on the date hereof, nor shall result from the
consummation of the transactions contemplated herein;
d. Foothill shall have received a modification fee of
$40,000, which fee is earned in full by Foothill and non-refundable when paid;
and
e. All other documents and legal matters in
connection with the transactions contemplated by this Amendment shall have been
delivered or executed or recorded and shall be in form and substance
satisfactory to Foothill and its counsel.
4. Conditions Subsequent. As conditions subsequent to the
effectiveness of this Amendment, Borrower shall perform or cause to be performed
the following (the failure by Borrower to so perform or cause to be performed
constituting an Event of Default):
a. On or before January 31, 1999, Foothill shall have
received, in each case with respect to the Dallas County Real Property, (i) an
appraisal satisfactory to Foothill, (ii) a Mortgage, duly executed and in full
force and effect, (iii) a Mortgage Policy assuring Foothill that the Mortgage
thereon is a valid and enforceable first priority mortgage Lien thereon free and
clear of all defects and encumbrances except Permitted Liens, and (iv) a phase-I
environmental report and a real estate survey (the environmental consultants and
surveyors retained for such reports or surveys,
17
the scope of the reports or surveys, and the results thereof shall be acceptable
to Foothill in its sole discretion);
b. On or before January 31, 1999, Foothill shall have
received (i) evidence, reasonably satisfactory to Foothill, of the consummation
of the sale of the Fort Bend County Real Property, or (ii) in each case, with
respect to Fort Bend County Real Property (A) an appraisal satisfactory to
Foothill, (B) a Mortgages, duly executed and in full force and effect, (C) a
Mortgage Policy assuring Foothill that the Mortgages on the Fort Bend County
Real Property Collateral are valid and enforceable first priority mortgage Liens
on the Fort Bend Country Real Property Collateral free and clear of all defects
and encumbrances except Permitted Liens, and (D) a phase-I environmental report
and a real estate survey (the environmental consultants and surveyors retained
for such reports or surveys, the scope of the reports or surveys, and the
results thereof shall be acceptable to Foothill in its sole discretion); and
c. On or before January 31, 1999, Foothill shall have
received an opinion of Borrower's counsel with respect to Borrower's execution,
delivery, and performance of this Amendment and the Mortgages, in form and
substance satisfactory to Foothill in its sole discretion.
5. Reaffirmation and Consent. Concurrently herewith, Borrower
shall cause each current Guarantor to execute and deliver to Foothill the
Reaffirmation and Consent attached hereto as Exhibit "A" (the "Reaffirmation and
Consent").
6. Further Assurances. Borrower shall execute and deliver all
agreements, documents and instruments, in form and substance satisfactory to
Foothill, and take all actions as Foothill reasonably may request from time to
time fully to consummate the transactions contemplated under this Amendment and
the Agreement, as amended by this Amendment.
7. Effect on Agreement. The Agreement, as amended hereby,
shall be and remain in full force and effect in accordance with its terms and
hereby is ratified and confirmed in all respects. The execution, delivery, and
performance of this Amendment shall not operate as a waiver of or, except as
expressly set forth herein, as an amendment of any right, power, or remedy of
Foothill under the Agreement, as in effect prior to the date hereof.
8. Consent to Sale of Fort Bend County Real Property. Nothing
contained herein or in the Agreement, as amended hereby, to the contrary
notwithstanding, Foothill hereby consents to the sale of the Fort Bend County
Real Property. The parties hereto understand, and hereby agree, that upon the
consummation of such sale, the Adjusted Value of the Fort Bend County Real
Property shall by $0.00.
9. Miscellaneous.
18
a. Upon the effectiveness of this Amendment, each
reference in the Agreement to "this Agreement", "hereunder", "herein", "hereof"
or words of like import referring to the Agreement shall mean and refer to the
Agreement as amended by this Amendment.
b. Upon the effectiveness of this Amendment, each
reference in the Loan Documents to the "Loan Agreement", "thereunder",
"therein", "thereof" or words of like import referring to the Agreement shall
mean and refer to the Agreement as amended by this Amendment.
c. This Amendment shall be governed by and construed
in accordance with the laws of the State of New York.
d. This Amendment may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and any of the parties hereto may execute this Amendment by signing
any such counterpart. Delivery of an executed counterpart of this Amendment by
telefacsimile shall be equally as effective as delivery of a manually executed
counterpart of this Amendment. Any party delivering an executed counterpart of
this Amendment by telefacsimile also shall deliver a manually executed
counterpart of this Amendment but the failure to deliver a manually executed
counterpart shall not affect the validity, enforceability, and binding effect of
this Amendment.
[Signature page to follow.]
19
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed as of the date first written above.
DISCOVERY ZONE, INC.,
a Delaware corporation
By /s/ Xxxxxx Xxxxxx
-----------------------------------
Title: Senior Vice President and CFO
FOOTHILL CAPITAL CORPORATION.
a California corporation
By /s/ Xxxxx Xxxx
-----------------------------------
Title: AVP
S-1
EXHIBIT R-1
REAL PROPERTY COLLATERAL
That certain tract of land owned by Borrower in the City of Dallas, Dallas
County, Texas, a part of the Xxxxxx Xxxxxxx Survey, Abstract No. 1580, and being
all of Xxx 0X, Xxxxx 0/0000, Xxxxxxxxxxx Towers, an addition to the City of
Dallas according to the replat of Xxx 0, Xxxxx 0/0000 xx Xxxxxxxxxxx Xxxxxx
recorded in Volume 92208, Page 3668, Dallas County Map Records.
That certain parcel of Real Property owned by the Borrower consisting of Reserve
"G" of Creekside at Town Center, a subdivision of Fort Bend County, Texas,
according to the map or plat thereof recorded under Slide Number 1281/B of the
Plat Records of Fort Bend County, Texas.
R-1
EXHIBIT A
Reaffirmation and Consent
All capitalized terms used herein but not otherwise defined
herein shall have the meanings ascribed to them in that certain Amendment Number
Two to Loan and Security Agreement dated as of December 18, 1998 (the
"Amendment"). Each of the undersigned hereby (a) represents and warrants to
Foothill that the execution, delivery, and performance of this Reaffirmation and
Consent are within its corporate powers, have been duly authorized by all
necessary corporate action, and are not in contravention of any law, rule or
regulation, or any order, judgment, decree, writ, injunction, or award of any
arbitrator, court, or governmental authority, or of the terms of its charter or
bylaws, or of any contract or undertaking to which it is a party or by which any
of its properties may be bound or affected; (b) consents to the amendment of the
Agreement by the Amendment; (c) acknowledges and reaffirms its obligations owing
to Foothill under the Guaranty and any other Loan Documents to which it is a
party; and (d) agrees that each of the Guaranty and any other Loan Documents to
which it is a party is and shall remain in full force and effect. Although each
of the undersigned has been informed of the matters set forth herein and has
acknowledged and agreed to same, it understands that Foothill has no obligations
to inform it of such matters in the future or to seek its acknowledgment or
agreement to future amendments, and nothing herein shall create such a duty.
This Reaffirmation and Consent may be executed in any number of counterparts and
by different parties on separate counterparts, each of which, when executed and
delivered, shall be deemed to be an original, and all of which, when taken
together, shall constitute but one and the same Reaffirmation and Consent.
Delivery of an executed counterpart of this Reaffirmation and Consent by
telefacsimile shall be equally as effective as delivery of an original executed
counterpart of this Reaffirmation and Consent. Any party delivering an executed
counterpart of this Reaffirmation and Consent by telefacsimile also shall
deliver an original executed counterpart of this Reaffirmation and Consent but
the failure to deliver an original executed counterpart shall not affect the
validity, enforceability, and binding effect of this Reaffirmation and Consent.
This Reaffirmation and Consent shall be governed by the laws of the State of New
York, as more fully set forth in Section 20 of the Guaranty.
[Signature page to follow.]
1
DISCOVERY ZONE (CANADA) LIMITED,
a corporation organized under the laws of Canada
By: /s/ Xxxxxx Xxxxxx
-----------------------------------
Title: Vice President
DISCOVERY ZONE (PUERTO RICO), INC.,
a Puerto Rico corporation
By: /s/ Xxxxxx Xxxxxx
-----------------------------------
Title: Vice President
DISCOVERY ZONE LICENSING, INC.,
a Nevada corporation
By: /s/ Xxxxxx Xxxxxx
-----------------------------------
Title: Vice President
2
