-8-
THIRD AMENDMENT TO AMENDED AND RESTATED CREDIT AND SECURITY AGREEMENT AND
WAIVER OF DEFAULTS
This Amendment, dated as of March __, 1998, is made by and
between THE LAMAUR CORPORATION, a Delaware corporation (the "Borrower"), and
NORWEST BUSINESS CREDIT, INC., a Minnesota corporation (the "Lender").
Recitals
The Borrower and the Lender have entered into an Amended and
Restated Credit and Security Agreement dated as of May 16, 1997, as amended by a
First Amendment to Amended a Restated Credit and Security Agreement dated as of
August 13, 1997 and a Second Amendment to Amended and Restated Credit and
Security Agreement dated as of November 13, 1997 (as so amended, the "Credit
Agreement"). Capitalized terms used in these recitals have the meanings given to
them in the Credit Agreement unless otherwise specified.
The Borrower has requested that certain amendments be made to
the Credit Agreement, which the Lender is willing to make pursuant to the terms
and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants and agreements herein contained, it is agreed as follows:
1. Defined Terms. Capitalized terms used in this Amendment
which are defined in the Credit Agreement shall have the same meanings as
defined therein, unless otherwise defined herein. In addition, Section 1.1 of
the Credit Agreement is amended by adding or amending, as the case may be, the
following definitions:
"'Borrowing Base' means, at any time and subject to change
from time to time at the Lender's sole discretion, the lesser of:
(a) the Commitment, or
(b) the sum of
(i) 75% of Eligible Accounts, plus
(ii) the lesser of (A) the sum of (1) 54% of
Eligible Finished Goods Inventory, plus (2)
44% of Eligible Raw Materials Inventory,
plus (3) the lesser of (I) 29% of Eligible
Carton Inventory or (II) $200,000, or (B)
the Inventory Sub-Limit, plus
(iii) the lesser of (A) 100% of the (i) the
purchase price of any United States Treasury
Securities with an initial maturity date of
not greater than 90 days held from time to
time in the Investment Account and (ii) the
cash held in the Investment Account , (B)
$6,000,000, or (C) after April 2, 1998, zero
dollars ($0)."
"'Inventory Sub-Limit' means the following: (i) from the Third
Amendment Effective Date up to and including June 29, 1998, $7,000,000,
(ii) from June 30, 1998, up to and including September 30, 1998,
$6,500,000, and (iii) after September 30, 1998, $6,000,000."
"'Revolving Loan Floating Rate' means an annual rate equal to
the sum of the Base Rate plus two and one-half percent (2.50%), which
Revolving Loan Floating Rate shall change when and as the Base Rate
Changes."
"'Revolving Note Indebtedness' means all amounts owing from
the Borrower to the Lender under the Revolving Note."
"'Term Note Indebtedness' means the amount owing from the
Borrower to the Lender under the Term Note."
"'Third Amendment' means that certain Third Amendment to
Amended and Restated Credit and Security Agreement, dated as of March
__, 1998, by and between the Borrower and Lender."
"'Third Amendment Effective Date' means the date on which all
of the items listed in paragraph 15 of the Third Amendment are
satisfied in full."
"'Term Loan Floating Rate' means an annual rate equal to the
sum of the Base Rate plus two and three-quarters percent (2.75%) which
Term Loan Floating Rate shall change when and as the Base Rate
Changes."
2. Advances. Section 2.1 of the Credit Agreement is hereby
amended by deleting the first sentence thereto, and replacing it with the
following:
"2.1 Advances. Provided that the Borrower maintains
Availability of One Million Dollars ($1,000,000) or greater
the Lender agrees, on the terms and subject to the conditions
herein set forth, to make Advances to the Borrower from time
to time during the period from the Third Amendment Effective
Date to and including the Termination Date, or the earlier
date of termination in whole of the Credit Facility pursuant
to Sections 2.6 or 8.2 hereof. In the event that the Borrower
requests any Advance which would result in, if such Advance
were made, the Borrower's Availability becoming less than One
Million Dollars ($1,000,000), the Lender may or may not, in
the Lender's sole discretion, make such Advance to the
Borrower. In no event shall the aggregate amount of
outstanding Advances exceed the Borrowing Base less the L/C
Amount. The Advances shall be secured by the Collateral as
provided in Article III hereof."
3. Voluntary Prepayment; Termination of Agreement by Borrower;
Permanent Reduction of Commitment. Section 2.6 of the Credit Agreement is
amended as follows:
a.) Subsection (a) of Section 2.6 is amended by deleting the
reference to "prepayment fee under Sections 2.6 (d) and (e) below, if
applicable" in the last line thereto and replacing it with "any fee required
under the terms of the Credit Agreement."
b.) Subsection (b) of Section 2.6 is amended by deleting the
reference to "provided for in subsection (d) and (e) below" in the third line
thereto and replacing it with "provided for in the Credit Agreement."
c.) Subsections (d) and (e) to Section 2.6 are deleted in
their entirety,
d.) Subsection (f) to Section 2.6 is amended by relabeling it
as subsection "(d)."
4. Fees. Section 2.13 of the Credit Agreement is amended by
deleting the reference to "three (3)" in the second line of Subsection (a) and
inserting "six (6)" in its place.
5. Reporting Requirements. Section 6.1 of the Credit Agreement
is hereby amended by deleting subsection (c) thereto and replacing it with the
following:
"(c) within (i) 15 days after the end of each month, agings of
the Borrower accounts receivable and its accounts payable as
of the end of such month, and (ii) 3 days after the end of
each week an inventory certification report as of the end of
such week, which inventory certification report shall contain
a break-out of the Eligible Finished Goods Inventory by brand
name and any other itemization requested by the Lender."
6. Waiver of Defaults. The Borrower is in default of the
following provisions of the Credit Agreement (collectively, the "Defaults"):
-------------------------------- ------------- --------------- ----------------
Section/Covenant Date Required Actual
-------------------------------- ------------- --------------- ----------------
-------------------------------- ------------- --------------- ----------------
ss. 6.1 Monthly Reporting 1/98 2/20/98 Not yet
Requirements delivered
-------------------------------- ------------- --------------- ----------------
-------------------------------- ------------- --------------- ----------------
ss. 6.13 Debt Service 12/31/97 1.1 to 1.0 (3.7)
Coverage Ratio
-------------------------------- ------------- --------------- ----------------
-------------------------------- ------------- --------------- ----------------
ss. 6.13 Minimum Book Net
Worth Plus Subordinated Debt 12/31/97 $30,050,000 $11,627,000
-------------------------------- ------------- --------------- ----------------
-------------------------------- ------------- --------------- ----------------
ss. 6.14 Maximum Leverage Ratio 12/31/97 1.20 to 1.00 4.05 to 1.00
-------------------------------- ------------- --------------- ----------------
-------------------------------- ------------- --------------- ----------------
ss. 6.15 Minimum Net Income 12/31/97 $200,000 ($18,677,000)
-------------------------------- ------------- --------------- ----------------
Upon the terms and subject to the conditions set forth in this Amendment, the
Lender hereby waives the Defaults. This waiver shall be effective only in this
specific instance and for the specific purpose for which it is given, and this
waiver shall not entitle the Borrower to any other or further waiver in any
similar or other circumstances.
7. Financial Covenants. Section 6.12, 6.13, 6.14, and 6.15 of
the Credit Agreement are hereby amended as follows:
"Section 6.12 Debt Service Coverage Ratio. The Borrower shall
maintain (exclusive of any Subsidiaries or Affiliates unless the Lender
specifically consents in writing to their inclusion in such
calculation) a Debt Service Coverage Ratio of at least 3.00 to 1.00 for
the twelve month period ending December 31, 1998."
"Section 6.13 Book Net Worth Plus Subordinated Indebtedness.
The Borrower shall at all times maintain (exclusive of any Subsidiaries
or Affiliates unless the Lender specifically consents in writing to
their inclusion in such calculation), Book Net Worth plus Subordinated
Indebtedness of at least the following, calculated monthly as of the
following dates:
---------------------------------- ---------------------------------------------
For the Month Ending Minimum Book Net Worth Plus Subordinated
Indebtedness
---------------------------------- ---------------------------------------------
---------------------------------- ---------------------------------------------
3/31/98 $10,300,000
---------------------------------- ---------------------------------------------
---------------------------------- ---------------------------------------------
4/30/98 $10,200,000
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5/31/98 $10,401,000
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6/30/98 $10,800,000
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---------------------------------- ---------------------------------------------
7/31/98 $10,800,000
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8/31/98 $10,800,000
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---------------------------------- ---------------------------------------------
9/30/98 $11,000,000
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---------------------------------- ---------------------------------------------
10/31/98 $11,100,000
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---------------------------------- ---------------------------------------------
11/30/98 $11,400,000
---------------------------------- ---------------------------------------------
---------------------------------- ---------------------------------------------
12/31/98 $11,500,000
---------------------------------- ---------------------------------------------
"Section 6.14 Leverage Ratio. The Borrower shall at all times
maintain (exclusive of any Subsidiaries or Affiliates unless the Lender
specifically consents in writing to their inclusion in such
calculation) a Leverage Ratio of not greater than the following,
calculated monthly as of the following dates:
--------------------------------------- ----------------------------------------
For the Month Ending Leverage Ratio
--------------------------------------- ----------------------------------------
--------------------------------------- ----------------------------------------
3/31/98 4.3 to 1.00
--------------------------------------- ----------------------------------------
--------------------------------------- ----------------------------------------
4/30/98 4.3 to 1.00
--------------------------------------- ----------------------------------------
--------------------------------------- ----------------------------------------
5/31/98 4.3 to 1.00
--------------------------------------- ----------------------------------------
--------------------------------------- ----------------------------------------
6/30/98 4.3 to 1.00
--------------------------------------- ----------------------------------------
--------------------------------------- ----------------------------------------
7/31/98 4.2 to 1.00
--------------------------------------- ----------------------------------------
--------------------------------------- ----------------------------------------
8/31/98 4.0 to 1.00
--------------------------------------- ----------------------------------------
--------------------------------------- ----------------------------------------
9/30/98 4.0 to 1.00
--------------------------------------- ----------------------------------------
--------------------------------------- ----------------------------------------
10/31/98 4.0 to 1.00
--------------------------------------- ----------------------------------------
--------------------------------------- ----------------------------------------
11/30/98 3.8 to 1.00
--------------------------------------- ----------------------------------------
--------------------------------------- ----------------------------------------
12/31/98 3.8 to 1.00
--------------------------------------- ----------------------------------------
"Section 6.15 Net Income. The Borrower shall at all times
maintain (exclusive of any Subsidiaries or Affiliates unless the Lender
specifically consents in writing to their inclusion in such
calculation) Net Income calculated on a fiscal year-to-date basis of at
least the following amounts for the following dates:
------------------------------ ------------------------------
For the Month Ending Net Income
------------------------------ ------------------------------
------------------------------ ------------------------------
3/31/98 ($500,000)
------------------------------ ------------------------------
------------------------------ ------------------------------
4/30/98 ($600,000)
------------------------------ ------------------------------
------------------------------ ------------------------------
5/31/98 ($400,000)
------------------------------ ------------------------------
------------------------------ ------------------------------
6/30/98 $0
------------------------------ ------------------------------
------------------------------ ------------------------------
7/31/98 $100,000
------------------------------ ------------------------------
------------------------------ ------------------------------
8/31/98 $200,000
------------------------------ ------------------------------
------------------------------ ------------------------------
9/30/98 $400,000
------------------------------ ------------------------------
------------------------------ ------------------------------
10/31/98 $600,000
------------------------------ ------------------------------
------------------------------ ------------------------------
11/30/98 $800,000
------------------------------ ------------------------------
------------------------------ ------------------------------
12/31/98 $1,000,000
------------------------------ ------------------------------
8. Covenants for Subsequent Periods. Section 6.16 of the
Credit Agreement is hereby amended by deleting the reference to "May 1, 1998" in
the fourth line thereto and replacing it with "January 1, 1999" and by deleting
the reference to "April 30, 1998" in the final line thereto and replacing it
with "December 31, 1998".
9. Additional Events of Default. Section 8.1 of the Credit
Agreement is amended by adding the following subsection:
"(t) The Borrower shall fail to reduce, by April 2,
1998, the amount of the United States Treasury Securities
maintained in the Investment Account to zero."
10. Reduction of Amounts in Investment Account. Borrower
shall, on or before April 2, 1998, reduce the amount held in the Investment
Account to zero. In the event that, after April 2, 1998, the amount held in the
Investment Account is greater than zero, Lender shall have the right, in the
Lender's sole discretion, to apply the amount remaining in the Investment
Account to the outstanding Obligations.
11. Outside Consultant. Upon the occurrence of a Default or an
Event of Default, the Borrower agrees to retain an outside consultant,
acceptable to Lender, within two weeks from the first day of the occurrence of
such Event of Default.
12. No Other Changes. Except as explicitly amended by the
Third Amendment, all of the terms and conditions of the Credit Agreement shall
remain in full force and effect and shall apply to any Advance or Letter of
Credit thereunder.
13. Restructuring Fee. The Borrower shall pay the Lender as of
the date hereof a fully earned, non-refundable fee in the amount of $75,000 in
consideration of the Lender's execution of this Amendment.
14. Continuation Fee. In consideration of the Lender's
execution of this Amendment and continuing the Credit Facility, the Borrower
shall pay the Lender a fully earned, non refundable fee, as follows:
(a) The Borrower shall pay to the Lender a fee in connection
with the payment in full of the Revolving Note Indebtedness,
or any reduction of the Commitment, which fee shall be fully
earned as of the Third Amendment Effective Date, but payable
upon the payment in full of the Revolving Note Indebtedness
(or reduction of the Commitment, as the case may be), in an
amount equal to one and one half percent (1.5%) of the
Commitment (or the reduction of the Commitment, as the case
may be), provided, however, that in the event that the
Borrower pays the Revolving Note Indebtedness in full on or
before September 1, 1998, than the fee set forth in this
subsection (a) shall be an amount equal to one percent (1.0%)
of the Commitment.
(b) The Borrower shall pay to the Lender a fee in connection
with the payment in full of the Term Note Indebtedness, or any
reduction of the Term Note Indebtedness in excess of the
amount due under the amortization schedule for the Term Note,
which fee shall be fully earned as of the Third Amendment
Effective Date, but payable upon such payment in full of the
Term Note Indebtedness (or any reduction of the Term Note
Indebtedness in excess of the amortization schedule, as the
case may be) in an amount equal to one and one half percent
(1.5%) of amount of the Term Note Indebtedness at the time
such payment in full is made (or of the amount of any
reduction of the Term Note Indebtedness in excess of the
amortization schedule, as the case may), provided, however,
that in the event that the Borrower repays the Term Note
Indebtedness in full on or before September 1, 1998, than the
fee set forth in this subsection (b) shall be an amount equal
to one percent (1.0%) of the Term Note Indebtedness at the
time such payment in full is made."
15. Conditions Precedent. This Amendment, and the waiver set
forth in Paragraph 4 hereof, shall be effective when the Lender shall have
received an executed original hereof, together with each of the following, each
in substance and form acceptable to the Lender in its sole discretion:
(Error! Unknown switch argument.) A Certificate of the
Secretary of the Borrower certifying as to (Error! Unknown switch
argument.) the resolutions of the board of directors of the Borrower
approving the execution and delivery of this Amendment, (Error! Unknown
switch argument.) the fact that the Articles of Incorporation and
Bylaws of the Borrower, which were certified and delivered to the
Lender pursuant to the Certificate of Authority of the Borrower's
Secretary dated as of May 16, 1997 continue in full force and effect
and have not been amended or otherwise modified except as set forth in
the Certificate to be delivered, and (Error! Unknown switch argument.)
certifying that the officers and agents of the Borrower who have been
certified to the Lender, pursuant to the Certificate of Authority of
the Borrower's Secretary dated as of May 16, 1997, as being authorized
to sign and to act on behalf of the Borrower continue to be so
authorized or setting forth the sample signatures of each of the
officers and agents of the Borrower authorized to execute and deliver
this Amendment and all other documents, agreements and certificates on
behalf of the Borrower.
(b) Payment of the fee described in Paragraph 13.
(c) Such other matters as the Lender may require.
16. Representations and Warranties. The Borrower hereby
represents and warrants to the Lender as follows:
(Error! Unknown switch argument.) The Borrower has all
requisite power and authority to execute this Amendment and to perform
all of its obligations hereunder, and this Amendment has been duly
executed and delivered by the Borrower and constitutes the legal, valid
and binding obligation of the Borrower, enforceable in accordance with
its terms.
(Error! Unknown switch argument.) The execution, delivery and
performance by the Borrower of this Amendment have been duly authorized
by all necessary corporate action and do not (Error! Unknown switch
argument.) require any authorization, consent or approval by any
governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, (Error! Unknown switch argument.)
violate any provision of any law, rule or regulation or of any order,
writ, injunction or decree presently in effect, having applicability to
the Borrower, or the articles of incorporation or by-laws of the
Borrower, or (Error! Unknown switch argument.) result in a breach of or
constitute a default under any indenture or loan or credit agreement or
any other agreement, lease or instrument to which the Borrower is a
party or by which it or its properties may be bound or affected.
(Error! Unknown switch argument.) All of the representations
and warranties contained in Article V of the Credit Agreement are
correct on and as of the date hereof as though made on and as of such
date, except to the extent that such representations and warranties
relate solely to an earlier date.
17. References. All references in the Credit Agreement to
"this Agreement" shall be deemed to refer to the Credit Agreement as amended
hereby; and any and all references in the Security Documents to the Credit
Agreement shall be deemed to refer to the Credit Agreement as amended hereby.
18. No Other Waiver. Except as set forth in Paragraph 5
hereof, the execution of this Amendment shall not be deemed to be a waiver of
any Default or Event of Default under the Credit Agreement or breach, default or
event of default under any Security Document or other document held by the
Lender, whether or not known to the Lender and whether or not existing on the
date of this Amendment.
19. Release. The Borrower hereby absolutely and
unconditionally releases and forever discharges the Lender, and any and all
participants, parent corporations, subsidiary corporations, affiliated
corporations, insurers, indemnitors, successors and assigns thereof, together
with all of the present and former directors, officers, agents and employees of
any of the foregoing, from any and all claims, demands or causes of action of
any kind, nature or description, whether arising in law or equity or upon
contract or tort or under any state or federal law or otherwise, which the
Borrower has had, now has or has made claim to have against any such person for
or by reason of any act, omission, matter, cause or thing whatsoever arising
from the beginning of time to and including the date of this Amendment, whether
such claims, demands and causes of action are matured or unmatured or known or
unknown.
20. Costs and Expenses. The Borrower hereby reaffirms its
agreement under the Credit Agreement to pay or reimburse the Lender on demand
for all fees, costs and expenses incurred by the Lender in connection with the
Credit Agreement, the Security Documents and all other documents contemplated
thereby, including without limitation all reasonable fees and disbursements of
legal counsel. Without limiting the generality of the foregoing, the Borrower
specifically agrees to pay all fees and disbursements of counsel to the Lender
for the services performed by such counsel in connection with the preparation of
this Amendment and the documents and instruments incidental hereto. The Borrower
hereby agrees that the Lender may, at any time or from time to time in its sole
discretion and without further authorization by the Borrower, make a loan to the
Borrower under the Credit Agreement, or apply the proceeds of any loan, for the
purpose of paying any such fees, disbursements, costs and expenses.
21. Miscellaneous. This Amendment may be executed in any
number of counterparts, each of which when so executed and delivered shall be
deemed an original and all of which counterparts, taken together, shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed as of the date first written above.
THE LAMAUR CORPORATION NORWEST BUSINESS CREDIT, INC.
By _________________________________ By _________________________________
Xxxx X. Xxxxxxxx Xxxxx X. Xxxxxxxxxxx
Its Vice President Its Vice President
M1:
3/31/98 12:45 AM
CONSENT OF PARTICIPANT
This Consent is given effective as of the ____ day of March, 1998, by MERCANTILE
BUSINESS CREDIT, INC. ("Mercantile") in favor of NORWEST BUSINESS CREDIT, INC.
("Norwest").
1. Norwest and Mercantile entered into that certain Participation Agreement
dated February 10, 1997, as amended by that certain First Amendment to
Participation Agreement dated as of May 16, 1997, relating to that certain
Credit and Security Agreement dated as of November 16, 1995 by and between
Norwest and Electronic Hair Styling, Inc., a Delaware corporation now known as
The Lamaur Corporation (the "Borrower"), as amended and restated pursuant to
that certain Amended and Restated Credit and Security Agreement dated as of May
16, 1997 by and between Norwest and the Borrower, as amended by that certain
First Amendment to Amended and Restated Credit Agreement dated as of August 13,
1997, and that certain Second Amendment to Amended and Restated Credit Agreement
dated as of November 13, 1997 (the "Participation Agreement").
2. Mercantile hereby consents to the terms of that certain Third Amendment to
Amended and Restated Credit and Security Agreement in the form attached hereto
as Exhibit A, and all other documents, instruments and agreements executed in
connection therewith.
MERCANTILE BUSINESS CREDIT, INC.
By__________________________________
Its____________________________
