EXHIBIT 10.13
AMENDMENT NUMBER TWO
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This AMENDMENT TO LOAN AGREEMENT ("Amendment") dated as of this ____
day of October, 1998, among FLEET CAPITAL CORPORATION, as Agent, the financial
institutions party to the Loan Agreement (as defined below) as Lenders, and
RESTORATION HARDWARE, INC. and THE MICHAELS FURNITURE COMPANY, INC. (each a
"Borrower" and collectively "Borrowers"), is made in reference to the following
facts:
A. Agent, Lenders and Borrowers have previously entered into that
certain Fourth Amended and Restated Loan and Security Agreement dated as of
April 30, 1998 ("Loan Agreement") and various agreements and instruments
collateral thereto (collectively with the Loan Agreement, the "Loan Documents").
All capitalized terms used herein, unless otherwise defined herein, shall have
the meanings set forth in the Loan Documents.
B. Without waiving any of Agent's or Lenders' rights and remedies,
Agent and Lenders are willing to amend the Loan Agreement on the terms and
subject to the conditions set forth in this Amendment. Borrowers are entering
into this Amendment with the understanding and agreement that, except as
specifically provided herein, none of Agent's or Lenders' rights or remedies as
set forth in the Loan Documents is being waived or modified by the terms of this
Amendment.
NOW THEREFORE, in consideration of the foregoing agreed upon recitals
and the terms and conditions hereof, the parties do hereby agree as follows:
1. The provisions of Section 1.1.1 (A) of the Loan Agreement is
amended in full to read as follows:
"(A) for Restoration, the amount of the Restoration Commitment of
such Lender for Revolving Credit Loans as in effect from time to time, provided
that in no event shall the aggregate principal amount of all Revolving Credit
Loans to Restoration (after giving effect to all amounts requested) plus the LC
Amount plus the aggregate outstanding principal amount of the Convertible Term
Loan plus the aggregate amount of Revolving Credit Loans to Michaels at such
date exceed the lesser of (i) the aggregate amount of the Restoration
Commitments as in effect from time to time or (ii) the aggregate Restoration
Borrowing Base at such time minus reserves against such Borrowing Base, if any,
that may be established by Agent from time to time in accordance with this
subsection; and"
2. The provisions of subsection 1.1.1(B) of the Loan Agreement are
amended in full to read as follows:
"(B) for Michaels, the amount of the Michaels' Revolving Credit
Commitment of such Lender for Revolving Credit Loans as in effect from time to
time, provided that (i) in no event shall the aggregate principal amount of all
Revolving Credit Loans to Michaels exceed the lesser of (a) the aggregate amount
of the Michaels Revolving Credit Commitments as in effect from time to time or
(b) the aggregate Michaels Borrowing Base at such time minus reserves against
such Borrowing Base, if any, that may be established by Agent
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from time to time in accordance with this subsection; and (ii) in no event shall
the aggregate outstanding principal amount of all Revolving Credit Loans to
Michael's (after giving effect to all amounts requested) plus the LC Amount plus
the aggregate outstanding principal amount of all Revolving Credit Loans to
Restoration plus the aggregate outstanding principal amount of the Convertible
Term Loan exceed the lesser of (a) the aggregate amount of the Restoration
Commitments as in effect from time to time or (b) the aggregate Restoration
Borrowing Base at such time minus reserves against such Borrowing Base, if any,
that may be established by the Agent from time to time in accordance with this
subsection."
3. The provisions of subsection 1.3 of the Loan Agreement are amended in
full to read as follows:
"1.3 Letters Of Credit. Agent shall, for so long as no Default or
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Event of Default exists, and if requested by Restoration, cause to be issued
letters of credit for the account of Restoration (collectively with any
guaranties thereof given by Agent, "Letters of Credit"); provided that (i) the
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aggregate outstanding undrawn amount of all Letters of Credit (the "LC Amount")
at any time shall not exceed $3,000,000 and (ii) in no event shall the LC Amount
(after giving effect to all requested Letters of Credit) plus the aggregate
outstanding principal amount of all Revolving Credit Loans to Restoration plus
the aggregate outstanding principal amount of the Convertible Term Loan plus the
aggregate outstanding principal amount of all Revolving Credit Loans to
Michael's exceed the lesser of (a) the aggregate amount of the Restoration
Commitments as in effect from time to time or (b) the aggregate Restoration
Borrowing Base at such time minus reserves against such Borrowing Base, if any,
that may be established by the Agent from time to time in accordance with
Section 1.1.1 hereof. The Letters of Credit shall constitute a subline of the
Restoration Commitment. No Letter of Credit may have an expiration date that is
after the last day of the Original Term or the then current Renewal Term.
Immediately upon the issuance of each Letter of Credit, the Agent shall be
deemed to have sold and transferred to each Lender, and each Lender shall be
deemed to have purchased and received from the Agent, in each case irrevocably
and without any further action by any party, an undivided interest and
participation in such Letter of Credit, as applicable, each drawing thereunder
and the obligations of Restoration under this Agreement in respect thereof in an
amount equal to the product of (x) such Lender's percentage of the aggregate
Restoration Commitments times (y) the maximum amount available to be drawn under
such Letter of Credit (assuming compliance with all conditions to drawing). Any
amounts paid by Agent or Lenders in connection with any Letter of Credit shall
be treated as Revolving Credit Loans to Restoration, shall be secured by all of
the Collateral and, unless and until converted in accordance with the terms of
this Agreement, shall bear interest and be payable at the same rate and in the
same manner as Base Rate Revolving Credit Loans. A reserve shall be charged
against the Restoration Borrowing Base based on 100% of the LC Amount from time
to time. All Letters of Credit will be processed through Agent's Treasury and
International Services Group."
4. The provisions of Section 1.4 of the Loan Agreement are amended in
full to read as follows:
"1.4 Convertible Term Loan and Acquisition Line Loans. Lenders
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agree, ratably in accordance with their respective commitments as set forth on
Annex 1, to make Convertible Term Loans and, in accordance with their respective
Acquisition Line
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Commitments, to make Acquisition Line Loans available to Restoration for the
purposes and in the amounts set forth below:
(a) $10,000,000 term loan facility for use by Restoration,
at its option, once each calendar year, to convert a portion of
its outstanding Revolving Credit Loans into a term loan
("Convertible Term Loan"). Each Convertible Term Loan shall be
for a term of thirteen months, from the date of such conversion
(or, if earlier, on the termination of this Agreement pursuant to
Section 4 hereof), interest only, payable monthly in arrears, all
principal and unpaid interest to be paid at maturity or, if
earlier, upon termination of this Agreement for any reason. Such
conversions from Revolving Credit Loans to Convertible Term Loans
shall be in minimum increments of $1,000,000 each, and shall
occur upon Restoration's request therefor. Concurrently with any
such request, Restoration shall execute and deliver to Agent a
Convertible Term Loan Note in the form of Exhibit 1.4 hereto, in
favor of each Lender, in the face amount of the Convertible Term
Loan owing to such Lender.
(b) $10,000,000 term loan facility for use by Restoration,
at its option, for the purpose of acquiring similar businesses,
trademarks and the like ("Acquisition Line"). Provided no
Default or Event of Default then exists or would be created
thereby and each Lender has consented to the underlying
acquisition and the terms of such Loans in its sole discretion,
in the exercise of its reasonable credit judgment draws under the
Acquisition Line may be made, shall be in minimum amounts of
$1,000,000 and shall be for a purpose and upon such terms and
conditions as shall be acceptable to each of the Lenders in their
sole discretion in the exercise of their reasonable credit
judgment."
5. The provisions of Section 2.3 (iv) of the Loan Agreement are amended
in full to read as follows:
"(iv) Lenders shall receive payments of all amounts made by the
Borrowers hereunder free and clear of, and without deduction for, any Taxes. If
(1) Lenders shall be subject to any Tax in respect of any payment made by a
Borrower hereunder or any part thereof or, (2) Borrowers shall be required to
withhold or deduct any Tax from any such amount, the relevant amount payable
hereunder shall be adjusted by Lenders to reflect all additional costs incurred
by Lenders in connection with the payment by Lenders or the withholding by
Borrowers of such Tax and Borrowers shall provide Lenders with a statement
detailing the amount of any such Tax actually paid by Borrowers. Determination
by Lenders of the amount of such costs shall, in the absence of manifest error,
be conclusive. If after any such adjustment any part of any Tax paid by Lenders
is subsequently recovered by Lenders, Lenders shall reimburse Borrowers to the
extent of the amount so recovered. A certificate of an officer of Agent setting
forth the amount of such recovery and the basis therefor shall, in the absence
of manifest error, be conclusive."
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6. The provisions of Section 2.6 of the Loan Agreement are amended in
full to read as follows:
"2.6 Reimbursement of Expenses. If, at any time or times regardless
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of whether or not an Event of Default then exists, Agent or, where and to the
extent expressly indicated below any Lender, incurs legal or accounting expenses
or any other out-of-pocket costs or expenses in connection with (i) the
negotiation and preparation of this Agreement or any of the other Loan
Documents, including all search, recording, filing, title search, title policy
fees and the like, any amendment of or modification of this Agreement or any of
the other Loan Documents; (ii) the administration of this Agreement or any of
the other Loan Documents and the transactions contemplated hereby and thereby;
(iii) any litigation, contest, dispute, suit, proceeding or action (whether
instituted by Agent, any Lender, any Borrower or any other Person) in any way
relating to the Collateral, this Agreement or any of the other Loan Documents;
(iv) any attempt to enforce any rights of Agent, any Lender, or any
Participating Lender against any Borrower or any other Person which may be
obligated to Agent or any Lender by virtue of this Agreement or any of the other
Loan Documents, including, without limitation, the Account Debtors; (v) any
attempt to inspect (including audits and appraisals), verify, protect, preserve,
restore, collect, sell, liquidate or otherwise dispose of or realize upon the
Collateral or (vi) any Default or Event of Default and any enforcement or
collection proceedings (including any bankruptcy, reorganization, workout or
other similar proceeding) resulting from such Default or Event of Default or in
connection with the negotiation of any restructuring or "work-out" (whether or
not consummated) of the obligations of Borrowers under the Loan Documents (and
including the costs and expenses of any Lender in connection therewith); then
all such reasonable legal and other actual out of pocket costs and expenses
(collectively, "Lenders' Costs") shall, to the extent incurred, be charged to
Borrowers; provided, however, that Borrowers shall not be charged in excess of
$10,000 in the aggregate under clauses (ii) and (v) of this Section 2.6 during
any calendar year in which no Event of Default has occurred or existed. All
amounts chargeable to Borrowers under this Section 2.6 shall be charged to the
Loan Account of the Borrower who incurred such charge to the extent
identifiable, and if not identifiable, at Agent's option, charged to each
Borrower's Loan Account in proportion to each Borrower's then outstanding
balance, in each case as Revolving Credit Loans, or otherwise be payable on
demand to Agent (for the account of the Person to whom such amount is payable),
shall be Obligations secured by all of the Collateral and shall bear interest
from the date charged to the Loan Account (or from the date following the date
demand is made, if not so charged) until paid in full at the rate applicable to
Base Rate Revolving Credit Loans from time to time (unless and until converted
in accordance with the terms of this Agreement). Borrowers shall also reimburse
Agent for expenses incurred by Agent in its administration of the Collateral to
the extent and in the manner provided in Section 6 hereof."
7. A new Section 2.8 is added to the Loan Agreement to read as follows:
"2.8. Changed Circumstances.
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(a) In the event that the Agent or any Lender shall have determined
in good faith (which determination shall be final and
conclusive) that:
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(i) adequate and fair means do not exist for ascertaining the LIBOR
Rate, or
(ii) the making of a LIBOR Loan or the continuation of or conversion
of any Loan to a LIBOR Loan has been made unlawful due to (1)
the occurrence of a contingency that materially and adversely
affects the interbank foreign currency deposits market or (2)
compliance by the Agent or any Lender in good faith with any
applicable law or governmental regulation, guideline or order or
interpretation or change thereof by any governmental authority
charged with the interpretation or administration thereof or
with any request or directive of any such governmental authority
(whether or not having the force of law); or
(iii) the LIBOR Rate no longer represents the effective cost to any
Lender for U.S. dollar deposits in the interbank market for
deposits in which it regularly participates;
then, and in any such event, the Agent or such Lender shall forthwith so
notify the Borrowers. Until the Agent or such Lender notifies the
Borrowers that the circumstances giving rise to such notice no longer
apply, the obligation of the Agent or such Lender to allow selection by
the Borrowers of LIBOR Loans shall be suspended. If at the time the
Agent or such Lender so notifies the Borrower, either of the Borrowers
has previously made a LIBOR Request but such LIBOR Loan has not yet been
made, continued or converted, such notification shall be deemed to be
void and the applicable Borrower may borrow Base Rate Loans by giving a
substitute request therefor.
Upon such date as shall be specified in such notice (which shall not be
earlier than the date such notice is given) the Borrowers shall
forthwith convert the relevant LIBOR Loans to Base Rate Loans in
accordance with Section 2.3 hereof by giving a notice to the Agent.
(b) In case the adoption of or any change in any law, regulation,
treaty or official directive or the interpretation or application
thereof by any court or by any governmental authority charged with
the administration thereof or the compliance with any guideline or
request of any central bank or other governmental authority
(whether or not having the force of law):
(i) imposes, modifies or deems applicable any deposit insurance,
reserve, special deposit or similar requirement against assets
held by, or deposits in or for the account of, or loans by,
the Agent or any Lender (other than such
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requirements as are already included in the determination of
the LIBOR Rate), or
(ii) imposes upon the Agent or any Lender any other condition with
respect to its or the Borrowers' performance under this
Agreement,
and the result of any of the foregoing is to increase the cost to any
Lender, reduce the income receivable by any Lender or impose any expense
upon any Lender with respect to the Loans or the commitments of the
Lenders hereunder in an amount which such Lender in good faith determines
is material, such Lender shall notify the Borrowers thereof as promptly
as is reasonably practical. The Borrowers agree to pay to such Lender the
amount of such increase in cost, reduction in income or additional
expense as and when such cost, reduction or expense is incurred or
determined, upon presentation by such Lender of a statement in the amount
and setting forth a calculation thereof, which statement shall be deemed
true and correct absent manifest error."
8. A new Section 2.9 is added to the Loan Agreement to read as follows:
"2.9. Capital Requirements. If after the date hereof any Lender
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determines that (i) the adoption of or change in any law, rule, regulation or
guideline regarding capital requirements for banks or bank holding companies, or
any change in the interpretation or application thereof by any governmental
authority charged with the administration thereof, or (ii) compliance by the
Lender or its parent bank holding company with any guideline, request or
directive of any such entity regarding capital adequacy (whether or not having
the force of law), has the effect of reducing the return on such Lender's or
such holding company's capital as a consequence of its commitment to make Loans
and to issue or participate in the issuance of Letters of Credit hereunder to a
level below that which such Lender or such holding company could have achieved
but for such adoption, change or compliance (taking into consideration such
Lender's or such holding company's then existing policies with respect to
capital adequacy and assuming the full utilization of such entity's capital) by
any amount deemed by such Lender in good faith to be material, such Lender shall
notify the Borrowers thereof as promptly as is reasonably practical. The
Borrowers agree to pay to such Lender the amount of such reduction in the return
on capital as and when such reduction is determined, upon presentation by such
Lender of a statement in the amount and setting forth a calculation thereof,
which statement shall be deemed true and correct absent manifest error. In
determining such amount, such Lender may use any reasonable averaging and
attribution methods."
9. A new Section 2.10 is added to the Loan Agreement to read as follows:
"2.10. Indemnity. The Borrowers agree to indemnify the Lenders and
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to hold the Lenders harmless from and against any loss, cost or expense
(including loss of anticipated profits) that the Lenders may sustain or incur as
a consequence of (a) default by the Borrowers in payment of the principal amount
of or any interest on any LIBOR Loan as and when due and payable, including any
such loss or expense arising from interest or fees payable
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by any Lender to lenders of funds obtained by it in order to maintain its LIBOR
Loans, or (b) default by the Borrowers in making a borrowing or conversion after
a Borrower has given (or is deemed to have given) a LIBOR Request relating
thereto, or (c) the making of any payment of a LIBOR Loan or the conversion of
any such Loan to a Base Rate Loan on a day that is not the last day of the
applicable LIBOR Period with respect thereto, including interest or fees payable
by any Lender to lenders of funds obtained by it in order to maintain any such
Loan. The Borrowers agree to pay to the Lenders the amount of such loss, cost or
expense as and when such loss, cost or expense is incurred or determined, upon
presentation by the relevant Lender of a statement in the amount and setting
forth such Lender's calculation thereof, which statement shall be deemed true
and correct absent manifest error. This covenant shall survive the termination
of this Agreement and the repayment of any outstanding Note, Loans and other
obligations of the Borrowers hereunder."
10. A new Section 2.11 is added to the Loan Agreement to read as follows:
"2.11 Procedure for Claims.
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(a) The Borrowers shall not be required to compensate any Lender
pursuant to Section 2.8 or 2.9 hereof for any amounts arising in respect of
increased costs, funding indemnity, or other indemnity relating to changes in
regulatory conditions for any Lender to the extent that such amounts were
incurred more than 180 days prior to the date that such Lender notifies the
Borrowers of such Lender's intention to claim compensation therefor, provided
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that if the event or change in regulatory condition giving rise to such amounts
is retroactive, then such 180-day period referred to above shall be extended to
include the period of retroactive effect thereof.
(b) Each Lender agrees that as promptly as practicable after it
becomes aware of the occurrence of an event that would entitle it to make a
claim for compensation in respect of increased costs, or other regulatory
indemnities relating to changes of regulatory conditions for any Lender, it
shall use reasonable efforts to make, fund or maintain its affected Loans
through another lending office if as a result thereof the increased costs would
be avoided or materially reduced or any illegality would thereby cease to exist
and if, in the reasonable opinion of such Lender, the making, funding or
maintaining of such Loans through such other lending office would not in any
material respect be disadvantageous to such Lender or contrary to such Lender's
normal banking practices.
(c) Upon the receipt by any Borrower from any Lender (an "Affected
Lender") of a request for compensation in respect of increased costs, or other
regulatory indemnities relating to changes of regulatory conditions for any
Lender, the Borrowers may (i) request one more of the other Lenders to acquire
and assume all or part of such Affected Lender's Loans and Commitment; or (ii)
designate an Eligible Assignee satisfactory to the Borrower to acquire and
assume all or part of such Affected Lender's Loans and Commitment (a
"Replacement Lender"). Any such designation of a Replacement Lender under
clause (ii) shall be subject to the prior written consent of the Agent (which
consent shall not be unreasonably withheld). In connection with any such
assumption (A) the Replacement Lender shall pay to the Affected Lender in
immediately available funds on the date of the assignment the principal amount
of the Loans made by the Affected Lender hereunder which are being acquired by
the Replacement Lender,
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and (B) the Borrowers shall pay to the Affected Lender in immediately available
funds on the date of the assignment the interest accrued to the date of the
assignment on the Loans which are being acquired by the Replacement Lender and
all other amounts then accrued for the Affected Lender's account or owed to it
hereunder with respect to such Loans (including any such increased costs or
regulatory indemnities.)"
11. The provisions of Section 3.1.1 (i) of the Loan Agreement are
amended in full to read as follows:
"(i) A request for Revolving Credit Loans shall be made, or shall be
deemed to be made, in the following manner: (a) a Borrower may give Agent
notice of its intention to borrow, in which notice such Borrower shall specify
the amount of the proposed borrowing and the proposed borrowing date (which
shall be a Business Day), no later than 10:00 a.m. Pacific time on the proposed
borrowing date (subject to such additional requirements as are set forth in
Section 2.3 for the LIBOR Option), provided, however, that no Lender shall have
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any obligation to make any Loans at a time when there exists a Default or an
Event of Default; and (b) the failure of any Borrower to pay when due any amount
required to be paid under this Agreement, whether as interest or for any other
Obligation, shall be deemed irrevocably to be a request by such Borrower for a
Base Rate Revolving Credit Loan on the due date in the amount required to pay
such interest or other Obligation and the advance of such Revolving Credit Loan
shall discharge such Obligation."
12. The provisions of Section 3.1.2 of the Loan Agreement are amended in
full to read as follows:
"3.1.2 Funding by Lenders. Agent shall from time to time, but no
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less frequently than weekly, notify each Lender of the date such Lender is to
fund its Loans and the amount to be made available by it. At the discretion of
Agent, the amount to be made available by a Lender on any date may be netted
against any amount owing to such Lender and otherwise payable by Agent on
account of payments received by it from Borrowers on such date. The amount to
be made available by each Lender on any date shall be made available by it on
such date to Agent, at account number 937-001-4304, ABA #000000000 (or such
other account as Agent shall have designated in writing to Lenders) maintained
by Agent with Bank at its office located at 000 Xxxx Xxxxxx, Xxxxxxxx,
Xxxxxxxxxxx 00000-0000, in immediately available funds, not later than 1:00 p.m.
Pacific time on any day in the case of fundings of which Lenders have received
notice not later than 10:30 a.m. Pacific time on such day (or, if notice is
received after such time, not later than 10:00 a.m. Pacific time on the next
succeeding Business Day). Except as otherwise specifically set forth herein,
the obligation of each Lender to fund its Loans on the date specified by Agent
(even if made available by Agent to a Borrower prior to requiring the funding by
such Lender) shall not be affected by (i) any set-off, counterclaim,
recoupment, defense or other right which such Lender may have against Agent,
Borrowers or any other Person for any reason whatsoever, (ii) the occurrence or
continuation of a Default or Event of Default, solely to the extent that the
Agent has obtained actual knowledge of such Default or Event of Default after
Agent shall have made the Loans available to Borrowers, or (iii) the failure of
any other Lender to make its Loans available to Agent."
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13. The provisions of Section 3.1.4 of the Loan Agreement are amended in
full to read as follows:
"3.1.4 Funding of Overadvances. Agent may, with the consent of all
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Lenders, make Revolving Credit Loans or issue Letters of Credit on behalf of
Lenders as requested by Borrowers pursuant to subsection 3.1.1 or Section 1.3
hereof in excess of the Restoration Borrowing Base (but in no event in excess of
the aggregate Restoration Commitments when such Revolving Credit Loans to the
Borrowers are aggregated with all Convertible Term Loans and the LC Amount as
set forth in Section 1.1.1 hereof) or the Michael's Borrowing Base (as
applicable, a "Discretionary Extension"). Any such Discretionary Extensions
shall be due on demand of Agent, and the making of any such Discretionary
Extensions at any time shall not be deemed to constitute a waiver of any
condition applicable to any future borrowing nor a waiver of any Default or
Event of Default, and Agent and Lenders reserve all of their rights with respect
thereto."
14. The provisions of Section 3.1.5 of the Loan Agreement are amended in
full to read as follows:
"3.1.5 Authorization. Borrowers hereby irrevocably authorize
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Lenders, in the sole discretion of Agent (should Borrowers not discharge such
obligation), to advance to Borrowers, and to charge to the applicable Borrower's
Loan Account hereunder as a Base Rate Revolving Credit Loan, a sum sufficient to
pay all interest accrued on such Borrower's Obligations during any calendar
month and to pay all costs, fees and expenses at any time owed by such Borrower
to Lenders or Agent hereunder. Amounts advanced pursuant to this subsection
3.1.5 shall be deemed to have been requested by Borrowers pursuant to subsection
3.1.1(i)(b), and the provisions of subsections 3.1.2 and 3.1.3 shall be
applicable to each such advance. Agent may, in its sole discretion, make
Discretionary Extensions of $2,000,000 in the aggregate, for a period not to
exceed 45 days (with respect to Michaels, not to exceed the lesser of (i)
$300,000 or (ii) 10% of the Michaels Borrowing Base), provided that nothing
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contained herein shall be deemed to permit the making of any Discretionary
Extensions which would cause the aggregate outstanding Revolving Credit Loans to
the Borrowers (when combined with the aggregate Convertible Term Loans and the
LC Amount) to exceed the aggregate Restoration Commitments for any reason or to
require any Lender to make or, as the case may be, participate in, Revolving
Credit Loans, Convertible Term Loans or Letters of Credit, in excess of such
Lender's individual Restoration Commitment."
15. The provisions of Section 3.2.1 of the Loan Agreement are amended in
full to read as follows:
"3.2.1 Principal. Principal payable on account of Revolving Credit
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Loans shall be payable by Borrowers to Agent for the account of Lenders
immediately upon the earliest of (i) the receipt by Agent or Borrowers of any
proceeds in excess of $250,000 for any single transaction or event concerning
any of the Collateral (other than sales in the ordinary course of each
Borrower's business and collection by Restoration of TI Accounts), to the extent
of said proceeds, (ii) the occurrence of an Event of Default in consequence of
which Lenders elect to accelerate the maturity and payment of the Obligations,
or (iii) termination of this Agreement pursuant to Section 4 hereof; provided,
however, that if an Overadvance shall exist at any time
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(other than with respect to any Discretionary Extension made and repaid in
accordance with Sections 3.1.4 and 3.1.5 hereof), Borrowers shall promptly repay
the Overadvance. Principal on account of the Convertible Term Loan and the
Acquisition Line loans shall be payable in the manner respectively set forth in
Section 1.4."
16. The provisions of Section 3.2.2 of the Loan Agreement are amended in
full to read as follows:
"3.2.2 Interest. Interest accrued on the Loans shall be due on the
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earliest of (i) the first calendar day of each calendar month (for the
immediately preceding calendar month), computed through the last calendar day of
the preceding calendar month, (ii) the occurrence of an Event of Default in
consequence of which all Lenders elect to accelerate the maturity and payment of
the Obligations or (iii) termination of this Agreement pursuant to Section 4
hereof."
17. The provisions of Section 4.2.1 of the Loan Agreement are amended in
full to read as follows:
"4.2.1 Termination by Lenders. Any Lender may terminate its
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Commitments without notice upon or after the occurrence of an Event of Default."
18. The provisions of Section 6.2.5 of the Loan Agreement are amended in
full to read as follows:
"6.2.5 "Maintenance of Dominion Account. Each Borrower shall
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maintain a Dominion Account acceptable to Agent with such bank or banks as may
be selected by such Borrower and be acceptable to Agent; provided, however, that
the Dominion Account of Borrowers shall only be utilized, if Agent so elects in
its reasonable credit judgment, during the continuance of an Event of Default;
provided, that, if such Event of Default shall be cured Agent shall be entitled,
in the exercise of its reasonable credit judgment, to maintain such account for
up to 60 days following such cure. Agent shall at all times have a perfected
security interest in such Dominion Accounts. Each of the Borrowers shall issue
to any such bank or banks an irrevocable letter of instruction directing such
bank or banks, upon notice from Agent that an Event of Default has occurred and
is then continuing (or during such 60 day period), to deposit all payments or
other remittances to its Dominion Account for application on account of the
Obligations. At all times prior to the use of the Dominion Account of
Borrowers, Borrowers shall have control over their cash, but the Borrowers agree
that at all times they shall ensure that all cash (including all proceeds of any
Accounts) of the Borrowers and their Subsidiaries shall be maintained at an
account or accounts subject to the foregoing letter of instruction and that all
Accounts and Inventory proceeds shall be deposited in such accounts directly or
promptly following receipt by the Borrowers or any of their Subsidiaries. Once
in effect (if ever), until released, all funds deposited in the Borrowers'
Dominion Accounts shall immediately become the property of Agent, for the
account of Lenders, and Borrowers shall obtain the agreement by such bank or
banks in favor of Agent, for the benefit of Agent and Lenders, to waive any
offset rights against the funds so deposited. Neither Agent nor any Lender
assumes any responsibility for any such arrangement, including, without
limitation, any claim of accord and satisfaction or release with respect to
deposits accepted by any bank or banks thereunder. No waiver or
10
forbearance with respect to any Event of Default shall act as a cure thereof for
purposes of this subsection 6.2.5."
19. The provisions of Section 7.1.10 of the Loan Agreement are amended in
full to read as follows:
"7.1.10 Financial Statements; Fiscal Year. The balance sheets of
---------------------------------
Borrowers as of their respective audited 1997 fiscal year end financial
statements, and the related statements of income, changes in stockholder's
equity, and changes in financial position for the period ended on such date,
have been prepared in accordance with GAAP, and present fairly the financial
positions of Borrowers at such date and the results of Borrowers' operations for
such period. From January 31, 1998, there has been no material change in the
condition, financial or otherwise, of Borrowers as shown on their respective
balance sheet as of such date and no change in the aggregate value of Equipment
and real Property owned by Borrowers, except changes in the ordinary course of
business, none of which individually or in the aggregate has been materially
adverse. The fiscal year of Borrower and each of its Subsidiaries ends on the
Saturday nearest the last day of January of each year."
20. Section 7.2 of the Loan Agreement is amended by adding a new
subsection (iii) to read as follows:
", or (iii) the representations and warranties set forth in the second
sentence of Section 7.1.10 which shall be deemed to be made only as of the date
of the making of any Loan and the date of delivery of financial statements
pursuant to Section 8.1.3."
21. The provisions of Section 8.2.2 of the Loan Agreement are amended in
full to read as follows:
"8.2.2 Loans. Make, except as permitted pursuant to the definition
-----
of a Restricted Investment, or permit, any Subsidiary of such Borrower, if any,
to make, any loans or other advances of money (other than for reasonable salary,
travel advances, advances against commissions and other similar reasonable
advances in the ordinary course of such Borrower's business) to any Person."
22. Subsection (ii) of Section 8.2.3 of the Loan Agreement is amended in
full to read as follows:
"(ii) Indebtedness, to the extent permitted by Section 8.2.2, of any
Subsidiary of Borrower, if any, to Borrower (except to the extent eliminated in
consolidation) or to another Subsidiary of Borrower;
23. The provisions of Section 8.2.12 of the Loan Agreement are amended in
full to read as follows:
"8.2.12 Restricted Investment. Make or have, or permit any
---------------------
Subsidiary of Borrower, if any, to make or have, any Restricted Investment or,
in any event, create, form or acquire, or permit any subsidiary to so create,
form or acquire any new Subsidiary."
11
24. Section 8.3 of the Loan Agreement is amended by deleting therefrom the
following:
"For future periods during the term of this Agreement, Agent shall
establish financial covenants in its reasonable credit judgment (based upon
similar criteria to those used by Agent for the existing covenants) under
subsections 8.2.8, 8.2.15, 8.3.1, 8.3.2, 8.3.4 and 8.3.5."
25. The provisions of Section 10.1.7 of the Loan Agreement are amended in
full to read as follows:
"10.1.7 Other Defaults. There shall occur any default or event of
--------------
default (however defined) on the part of a Borrower or any of its Subsidiaries
under any agreement, document or instrument to which such Borrower or Subsidiary
is a party or by which such Borrower or Subsidiary or any of its Property is
bound, creating or relating to any Indebtedness (other than the Obligations and
trade payables) with a principal amount outstanding, individually or in the
aggregate, in excess of $750,000 with respect to Restoration and $200,000 with
respect to Michaels or any other Subsidiary if the payment or maturity of such
Indebtedness is accelerated in consequence of such event of default or demand
for payment of such Indebtedness is made."
26. The provisions of Section 10.2 of the Loan Agreement are amended in
full to read as follows:
"10.2 Acceleration of the Obligations. Without in any way limiting
-------------------------------
the right of Agent or all Lenders to demand payment of any portion of the
Obligations payable on demand in accordance with Section 3.2 hereof, upon or at
any time during the continuance of an Event of Default, all or any portion of
the Obligations shall, at the option of all Lenders and without presentment,
demand, protest or further notice by Agent or any Lender, become at once due and
payable upon demand and Borrowers shall forthwith pay to Agent and Lenders, the
full amount of such Obligations, provided, that upon the occurrence of an Event
--------
of Default specified in subsection 10.1.9 hereof, all of the Obligations shall
become automatically due and payable without declaration, notice or demand by
Agent or Lenders."
27. The provisions of Section 10.3.3 of the Loan Agreement are amended in
full to read as follows:
"10.3.3 The right to sell or otherwise dispose of all or any
Collateral in its then condition, or after any further manufacturing or
processing thereof, at public or private sale or sales, with such notice as may
be required by law, in lots or in bulk, for cash or on credit, all as Agent or
all of the Lenders, in its or their sole discretion, may deem advisable.
Borrowers agree that 5 days written notice to Borrowers of any public or private
sale or other disposition of Collateral shall be reasonable notice thereof, and
such sale shall be at such locations as Agent may designate in said notice.
Agent shall have the right to conduct such sales on a Borrower's premises,
without charge therefor, and such sales may be adjourned from time to time in
accordance with applicable law. Agent shall have the right to sell, lease or
otherwise dispose of the Collateral, or any part thereof, for cash, credit or
any combination thereof, and Agent and
12
Lenders may purchase all or any part of the Collateral at public or, if
permitted by law, private sale and, in lieu of actual payment of such purchase
price, may set off the amount of such price against the Obligations. The
proceeds realized from the sale of any Collateral may be applied first to the
costs, expenses and reasonable attorneys' fees incurred by Agent in collecting
the Obligations, in enforcing the rights of Agent and Lenders under the Loan
Documents and in collecting, retaking, completing, protecting, removing,
storing, advertising for sale, selling and delivering any Collateral, second to
the interest due upon any of the Obligations; and third, to the principal of the
Obligations. If any deficiency shall arise, Borrowers shall remain liable to
Agent and Lenders therefor."
28. The provisions of Section 12.5.2 of the Loan Agreement are amended in
full to read as follows:
"12.5.2 Each Lender may (with the consent of Borrowers, unless such
assignment is to another Lender or a subsidiary, sister company or parent of any
Lender, each of whom shall be an Eligible Assignee (as defined below), or unless
an Event of Default shall have occurred and be continuing, in which case
Borrowers' consent shall not be required) assign all or any part of its Loans
and its Commitments (but only with the consent of Agent and only pro rata among
all of the various Loans and Commitments to the Borrowers), together with, in
any such case, its related rights, remedies, powers and privileges under the
Loan Documents; provided that (i) any such partial assignment shall be in an
--------
amount at least equal to $10,000,000 and the assigning Lender shall have a
retained interest at least equal to $10,000,000; (ii) each such assignment by a
Lender of its Loans and Commitments shall be made in such manner so that the
same portion of its Loans and Commitments is assigned to the respective
assignee; (iii) the assigning Lender or the respective assignee shall have paid
to Agent an assignment fee of $5,000; and (iv) such assignment, other than to
another Lender, or a subsidiary, sister company or parent of any Lender, shall
be to an Eligible Assignee (as defined below). Upon execution and delivery by
the assignee to Borrowers and Agent of an instrument in writing pursuant to
which such assignee agrees to become a "Lender" under this Agreement (if not
already a Lender) having the Commitment or Commitments and Loans specified in
such instrument, and upon the consent of Agent, the assignee shall have, to the
extent of such assignment (unless otherwise provided in such assignment with the
consent of Agent), the obligations, rights and benefits of a Lender under the
Loan Documents holding the Commitment or Commitments and Loans assigned to it
(in addition to the Commitment or Commitments and Loans, if any, theretofore
held by such assignee) and the assigning Lender shall, to the extent of such
assignment, be released from the Commitment or Commitments so assigned. Any
Lender may sell participations in its Loans and Commitments, but only on terms
acceptable to Agent in its reasonable discretion.
An Eligible Assignee is (a) a commercial bank organized under the laws
of the United States of America, or any state thereof; (b) a savings and loan
association or savings bank organized under the laws of the United States of
America, or any state thereof; (c) a commercial bank organized under the laws of
any other country which is a member of the OECD, or a political subdivision of
any such country, provided that such bank is acting through a branch or agency
located in the country in which it is organized or another country which is also
a member of the OECD; (d) the central bank of any country which is a member of
the OECD; (e) a commercial finance company or finance subsidiary of a
corporation organized
13
under the laws of the United States of America, or any state thereof; (f) an
insurance company organized under the laws of the United States of America, or
any state thereof; provided that in the case of any such organization listed in
(a) through (f) above, such organization shall have a combined capital and
surplus in excess of $250,000,000."
29. A new definition is added to Appendix A of the Loan Agreement in its
appropriate alphabetical place as follows:
"Acquisition Line Commitment - for each Lender, the obligation of such
---------------------------
Lender to make Loans to Restoration under the Acquisition Line pursuant to
Section 1.4(b) solely to the extent that such Lender shall have consented to the
terms and conditions of the underlying acquisition and the terms and conditions
of such Loan under the Acquisition Line and in an aggregate amount at any one
time outstanding up to but not exceeding the respective amount set forth
opposite the name of such Lender on Annex 1 as its Acquisition Line Commitment."
30. The definition of "Commitment" in Appendix A of the Loan Agreement is
amended in full to read as follows:
"Commitment collectively, the Restoration Commitment, the Michael's
----------
Revolving Credit Commitment and the Acquisition Line Commitment."
31. The introductory unnumbered paragraph in the definition of "Eligible
Inventory" in Appendix A of the Loan Agreement is amended in full to read as
follows:
"Eligible Inventory - such Inventory of a Borrower (other than
------------------
packaging materials and supplies) which Agent, in the exercise of its reasonable
credit judgment, deems to be Eligible Inventory. Without limiting the generality
of the foregoing, no Inventory shall be Eligible Inventory if:"
32. The definition of "Loans" in Appendix A of the Loan Agreement is
amended in full to read as follows:
"Loans - all loans and advances of any kind made by Lenders pursuant
-----
to the Agreement (including, without limitation, the issuance, extension, and
renewal of Letters of Credit and the participation by the Lenders therein)."
33. The definition of "Michaels' Revolving Credit Commitment" in Appendix
A of the Loan Agreement is amended in full to read as follows:
"Michael's Revolving Credit Commitment - for each Lender, the
-------------------------------------
obligation of such Lender to make Revolving Credit Loans to Michaels as a
sublimit of such Lender's Restoration Commitment in an aggregate amount at any
one time outstanding up to but not exceeding the respective amounts set forth
opposite the name of such Lender on Annex 1 as its Michael's Revolving Credit
Commitment."
34. The definition of "Overadvance" in Appendix A of the Loan Agreement is
amended in full to read as follows:
14
"Overadvance - the amount, if any, by which (i) the outstanding
-----------
principal amount of all Revolving Credit Loans to the Borrowers plus the LC
----
Amount plus the principal amount of the Convertible Term Loans exceeds the
----
Restoration Borrowing Base or (ii) the outstanding amount of all Revolving
Credit Loans to Michael's exceeds the Michael's Borrowing Base."
35. The definition of "Required Lenders" in Appendix A of the Loan
Agreement is amended in full to read as follows:
"Required Lenders - Lenders having at least 66-2/3% of the aggregate
----------------
amount of the Commitments or, if the Commitments shall have terminated, Lenders
holding at least 66-2/3% of the aggregate unpaid principal amount of the Loans."
36. The definition of "Restoration Borrowing Base" in Appendix A of the
Loan Agreement is amended in full to read as follows:
"(j) Restoration Borrowing Base - as at any date of determination
--------------------------
thereof, an amount equal to the lesser of:
(i) $60,000,000; and
(ii) an amount equal to the sum of
(a) $35,000,000,
PLUS
----
(b) 65% of the value of Restoration's Eligible
Inventory at such date in excess of $46,000,000, measured
on the basis of the weighted average cost method."
37. The definition of "Restoration Commitment" in Appendix A of the Loan
Agreement is amended in full to read as follows:
"Restoration Commitment - for each Lender, the obligation of such
----------------------
Lender to make Revolving Credit Loans, and Convertible Term Loans to Restoration
and to issue or participate in Letters of Credit for the benefit of Restoration
(and as a sublimit thereunder to make Revolving Credit Loans to Michaels) in an
aggregate amount at any one time outstanding up to but not exceeding the
respective amounts set forth opposite the name of such Lender on Annex 1 as its
Restoration Commitment."
38. Subsection (vi) of the definition of "Restricted Investment" in
Appendix A of the Loan Agreement is amended in full to read as follows:
"(vi) investments in wholly-owned Subsidiaries consisting of (a) the
existing investment in Michaels, (b) any future investments in Michaels and (c)
investments, not to exceed $500,000 in the aggregate at any time outstanding, in
Restoration Hardware of Blackhawk, Inc."
15
39. Except as amended by the terms herein, the Loan Documents remain in
full force and effect in accordance with their terms. If there is any conflict
between the terms and provisions of this Amendment, the terms and provisions of
Amendment Number One and the Loan Documents, the terms and provisions of this
Amendment shall govern.
40. This Amendment may be executed in one or more counterparts, each of
which shall be deemed an original but all of which together shall constitute one
and the same instrument.
41. This Amendment shall be governed by and construed according to the
laws of the State of California.
42. The Loan Documents, subject to the foregoing terms and conditions
provided by this Amendment, constitute the complete agreement of the parties
hereto with respect to the subject matters referred to herein and supersede all
prior or contemporaneous negotiations, promises, agreements, or representations,
all of which have become merged and finally integrated into the Loan Documents
and this Amendment.
43. Borrower agrees to pay, on demand, all attorneys' fees and costs
incurred in connection with the negotiation, documentation and execution of this
Amendment, not to exceed $8,000. If any legal action or proceeding shall be
commenced at any time by any party to this Amendment in connection with its
interpretation or enforcement, the prevailing party or parties in such action or
proceeding shall be entitled to reimbursement of its reasonable attorneys' fees
and costs in connection therewith, in addition to all other relief to which the
prevailing party or parties may be entitled.
44. Except for the fee letter of even date herewith between Agent and
Borrower, and as provided in the preceding paragraph hereof, there shall be no
closing fees or charges payable by Borrower in connection with this Amendment.
FLEET CAPITAL CORPORATION,
as Agent and Lender
By:
-------------------------------------
Its:
------------------------------------
RESTORATION HARDWARE, INC.
By:
-------------------------------------
Its:
------------------------------------
THE MICHAELS FURNITURE COMPANY, INC.
By:
-------------------------------------
Its:
------------------------------------
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