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Exhibit 10.9
FIRST AMENDMENT TO
LOAN AND SECURITY AGREEMENT
THIS FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT (the "Amendment"), dated as
of March 22, 1999, is entered into between CONGRESS FINANCIAL CORPORATION
(WESTERN), a California corporation ("Lender") and WAREFORCE INCORPORATED, a
California corporation ("Borrower").
RECITAL
A. Borrower and Lender have previously entered into that certain Loan
and Security Agreement dated as of August 27, 1998 (the "Loan Agreement"),
pursuant to which Lender has made certain loans and financial accommodations
available to Borrower. Terms used herein without definition shall have the
meanings ascribed to them in the Loan Agreement.
B. Borrower has informed Lender that it intends to purchase
substantially all the assets of Kennsco, Inc., a Minnesota corporation
("Kennsco"), pursuant to the terms and conditions of that certain Asset Purchase
Agreement dated as of February 4, 1999 between Kennsco and Borrower (together
with any bills of sale, quitclaim deeds, assignment and assumption agreements
and such other instruments of transfer as are referred to therein and all side
letters with respect thereto, and all agreements, documents and instruments
executed and/or delivered in connection therewith, as all of the foregoing now
exist or may hereafter be amended, modified, supplemented, extended, renewed,
restated or replaced, the "Kennsco Purchase Agreements").
C. Pursuant to the terms of the Loan Agreement, Borrower has requested
that Lender consent to such purchase and in connection therewith amend the Loan
Agreement to provide a Two Million Dollars ($2,000,000) revolving sub-facility
to be
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advanced against the Accounts purchased pursuant to the Kennsco Purchase
Agreements.
D. Lender is willing to give such consent and amend the Loan Agreement
under the terms and conditions set forth in this Amendment. Borrower is entering
into this Amendment with the understanding and agreement that, except as
specifically provided herein, none of Lender's rights or remedies as set forth
in the Loan Agreement is being waived or modified by the terms of this
Amendment.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants herein contained, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:
1. Consent to Kennsco Acquisition. Subject to the terms and conditions
set forth herein, including, without limitation the conditions set forth in
paragraph 3 below, Lender hereby consents to the purchase by Borrower of
substantially all the assets of Kennsco pursuant to the Kennsco Purchase
Agreements, the terms and conditions of which shall be satisfactory to Lender.
Borrower hereby acknowledges that Lender has relied upon information furnished
by Borrower to Lender as of the date hereof in granting the foregoing consent,
including copies of drafts of the Kennsco Purchase Agreements. In the event
Congress after the date hereof shall discover that any such information was
materially incorrect or shall discover additional relevant facts that cause the
information furnished by Borrower to have been materially incorrect, Lender
hereby reserves the right to amend, modify or revoke the consent set forth
herein as Lender shall determine.
2. Amendments to Loan Agreement.
(a) The following definitions are hereby added to Section 1 of the
Loan Agreement in their proper numerical and alphabetical order:
"1.__ `Eligible Kennsco Accounts' shall mean
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Eligible Accounts consisting of Accounts arising from or associated
with the assets and business purchased from Kennsco, pursuant to the
Kennsco Purchase Agreements."
"1.__ `Fidelity Subordination Agreement' shall mean that
certain Subordination Agreement dated as of March 19, 1999 between
Lender and Fidelity Bank."
"1.__ `Kennsco' shall mean Kennsco, Inc., a Minnesota
corporation."
"1.__ `Kennsco Purchase Agreements' shall mean,
individually and collectively, that certain Asset Purchase
Agreement, dated as of February 4, 1999, between Borrower and
Kennsco, together with any bills of sales, quitclaim deeds,
assignment and assumption agreements and such other instruments of
transfer as are referred to therein and all side letters with
respect thereto, and all agreements, documents and instruments
executed and/or delivered in connection therewith, as all of the
foregoing now exist or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced; provided,
that the term "Kennsco Purchase Agreements" as used herein shall not
include any of the Financing Agreements as such term is defined
herein."
"1.__ `Xxxxx Subordination Agreement' shall mean that
certain Subordination Agreement dated as of March 22, 1999 between
Lender and Xxxxxxx X. Xxxxx, Xx."
(b) The following is hereby added to Section 1.11 of the Loan
Agreement (the definition of "Eligible Accounts") as paragraph (r) and the
existing paragraph (r) is hereby re-designated as paragraph (s):
"(r) such Accounts do not arise from a lease of
equipment, the rights of Borrower under which lease has been
assigned to Guardian Capital Inc., or
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its successor or assign; and"
(c) Section 2.1(a)(iii)(A) of the Loan Agreement is hereby amended
in its entirety to read as follows:
"(A) eighty-five percent (85%) of the Net Amount of Eligible
Account; provided, however, the aggregate amount of Revolving Loans
outstanding advanced against Eligible Kennsco Accounts shall at no
time exceed Two Million Dollars ($2,000,000); plus"
(d) Section 9.8 (b) is hereby amended and restated as follows:
"(b) sell, assign, lease, transfer, abandon or otherwise dispose of
any stock or indebtedness to any other Person or any of its assets
to any other Person, except for:
(i) sales of Inventory in the ordinary course of
business;
(ii) the disposition of worn-out or obsolete Equipment
or Equipment no longer used in the business of Borrower so long as:
(A) if an Event of Default exists or has occurred and is continuing,
any proceeds are paid to Lender,
(B) such sales do not involve Equipment, together with any equipment
disposed by CYI, having an aggregate fair market value in excess of Twenty-Five
Thousand Dollars ($25,000) for all such equipment disposed of by Borrower and
CYI in any fiscal year of Borrower; and
(iii) sales of leases and equipment relating to such
leases to GLC, Inc. to the extent permitted under this Agreement."
(e) The following is hereby added to the end of Section 9.9 of the
Loan Agreement as paragraphs (i), (l), (j) and (k) respectively:
"(i) the liens and security interest granted to Xxxxxxx X. Xxxxx
Xx., an individual, on the assets of
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Borrower set forth in Exhibit A to the Xxxxx Subordination Agreement
to secure the indebtedness of Borrower to Xxxxxxx X. Xxxxx, Xx.
permitted under Section 9.10 hereof; " "(j) the liens and security
interest granted to Fidelity Bank on the assets of Borrower set
forth in Exhibit A to the Fidelity Subordination Agreement, to
secure the indebtedness of Borrower to Fidelity Bank permitted under
Section 9.10 hereof; and" "(k) the security interests and liens of
GCI Capital, Inc. (formerly known as Guardian Capital, Inc.) or any
assignee of GCI Capital, Inc. on certain leases, the rights of
Borrower to which have been purchased by GCI Capital, Inc. and the
equipment relating to such leases."
(f) The following is hereby added to the end of Section 9.10 of the
Loan Agreement as paragraphs (g), (h) and (i) respectively:
"(g) indebtedness of Borrower to Xxxxxxx X. Xxxxx, Xx. in an amount
not to exceed Two Hundred Fifty Thousand Dollars ($ 250,000 ) as
evidenced by that certain Promissory Note by Borrower in favor of
Xxxxxxx X. Xxxxx, Xx. dated as of March ___, 1999, which
indebtedness shall at all time be subject to the terms and
conditions of the Xxxxx Subordination Agreement;" "(h) indebtedness
of Borrower to Fidelity Bank in an amount not to exceed Four Hundred
Fifty Thousand Dollars ($450,000) as evidenced by that certain
Promissory Note by Borrower in favor of Fidelity Bank dated as of
March ___, 1999, which indebtedness shall at all times be subject to
the terms and conditions of the Fidelity Subordination Agreement;
and" "(i) indebtedness of Borrower to Kennsco in an amount not to
exceed Two Hundred Fifty Thousand Dollars ($250,000), as evidenced
by that certain Promissory Note by Borrower in favor of Kennsco
dated as of March ___, 1999, provided, that, such indebtedness is
payable solely in shares of common stock of Buyer."
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(g) Effective as of August 27, 1998, Section 9.11(d) of the Loan
Agreement is hereby amended in its entirety as follows:
"(d) the loans to Xxxxxxxx in an amount not to exceed Three Million
Three Hundred Thousand Dollars ($3,300,000) a portion of which proceeds thereof
have been paid to Xxxxx Xxxxxxx in exchange for all of her interest in
Borrower,"
(h) A new Section 9.19 of the Loan Agreement is hereby added as
follows:
"9.19 Commingling of Inventory. Borrower shall not permit Inventory
arising out of or associated with Borrower's operations (excluding the division
which will continue the operations conducted by Kennsco prior to the effective
date of the Kennsco Purchase Agreements) to be commingled with Inventory
associated with such division or used in or associated with the operations of
such division."
(i) The chart set forth in Section 12.1(c) of the Loan Agreement
constituting clauses (i) and (ii) is hereby amended in its entirety to read as
follows:
Amount Period
------ ------
(i) 1% of Maximum Credit From the date hereof to and including
March 22, 1999; and
(ii) 0.25% of Maximum Credit After March 22, 1999 or at any time
during a renewal term, if any.
3. Effectiveness of this Amendment. Lender must have received the
following items, in form and content acceptable to Lender, before this Amendment
is effective and before Lender is
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required to extend any credit to Borrower as provided for by this Amendment. The
date on which all of the following conditions have been satisfied is the
"Closing Date".
(a) Amendment. This Amendment fully executed in a sufficient number
of counterparts for distribution to Lender and Borrower.
(b) Authorizations. Evidence that the execution, delivery and
performance by Borrower and each guarantor or subordinating creditor of this
Amendment and any instrument or agreement required under this Amendment have
been duly authorized.
(c) Representations and Warranties. The representations and
warranties set forth in the Loan Agreement must be true and correct.
(d) Kennsco Purchase Agreements. Evidence that the Kennsco Purchase
Agreements have been duly executed and delivered by and to the appropriate
parties thereto and the transactions contemplated thereunder have been
consummated prior to or on the Closing Date.
(e) Termination of Existing Financing and Security Interests. All
releases and terminations and such other documents as Lender may request to
evidence and effectuate the termination by the existing lender or lenders of
Kennsco of their respective financing arrangements with Kennsco and the
termination and release by it or them, as the case may be, of any interest in
and to any assets and properties acquired by Borrower pursuant to the Kennsco
Purchase Agreements, duly authorized, executed and delivered by it or each of
them, including, but not limited to (i) UCC termination statements for all UCC
financing statements previously filed by it or any of them or their
predecessors, as secured party and Kennsco or Borrower, as debtor, and (ii)
satisfactions and discharges of any mortgages, deeds of trust or deeds to secure
debt by Kennsco in favor of such existing lender or lenders, in form acceptable
for recording in the appropriate government office.
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(f) First Priority Lien. Evidence that Lender has valid, perfected
and first priority security interests in and liens upon the assets acquired by
Borrower pursuant to the Kennsco Purchase Agreements and any other property
which is intended as security for the Obligations or the liability of any
Obligor in respect thereto, subject only to the security interests and liens
permitted in the Loan Agreement or the other Financing Agreements.
(g) Fidelity Subordination Agreement. The Fidelity Subordination
Agreement duly executed by Fidelity Bank.
(h) Xxxxx Subordination Agreement. The Xxxxx Subordination Agreement
duly executed by Xxxxxxx X. Xxxxx, Xx.
(i) Supplement to Lockbox Agreement. An agreement with respect to
the additional Blocked Account, pursuant to Section 6.1(a) of the Loan
Agreement, duly executed by Borrower and the applicable depository bank.
(j) Third Party Consents. All consents, waivers and acknowledgments
and other agreement from third persons which Lender may deem necessary or
desirable in order to permit, protect and perfect its security interests in and
liens upon the assets acquired by Borrower pursuant to the Kennsco Purchase
Agreements or to effectuate the provisions or purposes of the Loan Agreement and
the other Financing Agreements, including, without limitation, acknowledgements
by lessors, mortgagees and warehousemen of Lender's security interests in such
assets, waivers by such persons of any security interests, liens or other claims
by such persons to such assets and agreements permitting Lender access to, and
the right to remain on, the premises to exercise its rights and remedies and
otherwise deal with such assets.
(k) Opinion of Counsel. The opinion letters of counsels to Borrower
and Kennsco with respect to the effectiveness of the Kennsco Purchase Agreements
and such other matters as Lender may request.
(l) Pro-Forma Balance Sheet. A pro-forma balance sheet of Borrower
reflecting the transaction contemplated
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hereunder, including, but not limited to, (i) the consummation of the
acquisition of the assets to be purchased by Borrower from Kennsco and the other
transactions contemplated by the Kennsco Purchase Agreements and (ii) the Loans
provided by Lender to Borrower on the Closing Date and the use of the proceeds
of such Loans as provided herein, accompanied by a certificate dated of even
date herewith of the chief financial officer of Borrower stating that such
pro-forma balance sheet represents the reasonable, good faith opinion of such
officer as to the subject matter thereof as of the date of such certificate.
(m) Pass- Through Letter. The agreement of Kennsco consenting to the
collateral assignment by Borrower to Lender of all of Borrower's rights and
remedies and claims for damages or other relief under the Kennsco Purchase
Agreements and granting Lender such other rights as Lender may require, duly
authorized, executed and delivered by Kennsco.
(n) Excess Availability. The availability of Borrower with respect
to the Eligible Kennsco Accounts as determined by Lender, as of the Closing
Date, shall be not less than Two Hundred Thousand Dollars ($200,000) after
giving effect to the Loans made or to be made on the Closing Date and the
payment of all fees and expense payable upon the consummation of the
transactions contemplated hereunder. For purposes of this sub-paragraph (m)
only, availability of Borrower with respect to the Eligible Kennsco Accounts
shall mean the amount, as determined by Lender, equal to: (i) the lesser of (A)
the amount of the Revolving Loans available to Borrower to be advanced against
Eligible Kennsco Accounts as of the Closing Date (based on the applicable
advance rate set forth in Section 2.1(a)(ii) of the Loan Agreement), subject to
the sub-limits and Availability Reserves from time to time established by Lender
under the Loan Agreement, and (B) Two Million Dollars ($2,000,000); minus (ii)
the sum of: (A) the aggregate amount of all trade payables of Kennsco acquired
by Borrower which are more than sixty (60) days past due as of the Closing Date,
(C) the aggregate amount of Kennsco's book overdrafts acquired by Borrower, and
(D) the aggregate amount of Kennsco's past due lease and notes payable acquired
by Borrower.
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(o) Consent. The Consent appended hereto (the "Consent") executed by
each of C.Y. Investment Inc. and Xxxx Xxxxxxxx (together with the Borrower, each
a "Loan Party" and, collectively, the "Loan Parties").
(p) Other Required Documentation. 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 Lender.
(q) Payment of Modification Fee. Lender shall have received from
Borrower a modification fee of Five Thousand Dollars ($5,000) for the processing
and approval of this Amendment.
4. Representations and Warranties. The Borrower represents and warrants
as follows:
(a) Authority. The Borrower and each other Loan Party has the
requisite corporate power and authority to execute and deliver this Amendment or
the Consent, as applicable, and to perform its obligations hereunder and under
the Financing Agreements (as amended or modified hereby) to which it is a party.
The execution, delivery and performance by the Borrower of this Amendment and by
each other Loan Party of the Consent, and the performance by each Loan Party of
each Loan Document (as amended or modified hereby) to which it is a party have
been duly approved by all necessary corporate action of such Loan Party and no
other corporate proceedings on the part of such Loan Party are necessary to
consummate such transactions.
(b) Enforceability. This Amendment has been duly executed and
delivered by the Borrower. The Consent has been duly executed and delivered by
each Guarantor. This Amendment and each Loan Document (as amended or modified
hereby) is the legal, valid and binding obligation of each Loan Party hereto or
thereto, enforceable against such Loan Party in accordance with its terms, and
is in full force and effect.
(c) Acquisition of Purchased Assets.
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(i) The Kennsco Purchase Agreements and the transactions
contemplated thereunder have been duly executed, delivered and
performed in accordance with their terms by the respective parties
thereto in all respects, including the fulfillment (not merely the
waiver, except as may be disclosed to Lender and consented to in
writing by Lender) of all conditions precedent set forth therein and
giving effect to the terms of the Kennsco Purchase Agreements and
the assignments to be executed and delivered by Kennsco (or any of
its affiliates or subsidiaries) thereunder, Borrower acquired and
has good and marketable title to the assets purchased pursuant to
the Kennsco Purchase Agreements, free and clear of all claims,
liens, pledges and encumbrances of any kind, except as permitted
hereunder.
(ii) All actions and proceedings, required by the
Kennsco Purchase Agreements, applicable law or regulation
(including, but not limited to, compliance with the
Xxxx-Xxxxx-Xxxxxx Anti-Trust Improvements Act of 1976, as amended,
or applicable laws dealing with bulk transfers) have been taken and
the transactions required thereunder have been duly and validly
taken and consummated.
(iii) No court of competent jurisdiction has issued any
injunction, restraining order or other order which prohibits
consummation of the transactions described in the Kennsco Purchase
Agreements and no governmental or other action or proceeding has
been threatened or commenced, seeking any injunction, restraining
order or other order which seeks to void or otherwise modify the
transactions described in the Kennsco Purchase Agreements.
(iv) Borrower has delivered, or caused to be delivered,
to Lender, true, correct and complete copies of the Kennsco Purchase
Agreements.
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(d) Representations and Warranties. The representations and
warranties contained in each Loan Document (other than any such representations
or warranties that, by their terms, are specifically made as of a date other
than the date hereof) are correct on and as of the date hereof as though made on
and as of the date hereof.
(e) No Default. No event has occurred and is continuing that
constitutes an Event of Default.
5. Condition Subsequent to Amendment. Within ninety (90) days from the
Closing Date, Borrower shall deliver or cause to delivered to Lender an opening
balance sheet of Borrower after giving effect to the transactions contemplated
hereunder and the Kennsco Purchase Agreements, together with the unqualified
opinion of independent certified public accountants which accountants shall be
an independent accounting firm selected by Borrower and reasonably acceptable to
Lender, to the effect that such opening balance sheet has been prepared in
accordance with GAAP and presents fairly the financial condition of Borrower as
of such date. Borrower's failure to comply with this condition subsequent shall
constitute an Event of Default under the Loan Agreement.
6. Choice of Law. The validity of this Amendment, its construction,
interpretation and enforcement, the rights of the parties hereunder, shall be
determined under, governed by, and construed in accordance with the internal
laws of the State of California governing contracts only to be performed in that
State.
7. Counterparts. This Amendment may be executed in any number of
counterparts and by different parties and separate counterparts, each of which
when so executed and delivered, shall be deemed an original, and all of which,
when taken together, shall constitute one and the same instrument. Delivery of
an executed counterpart of a signature page to this Amendment or the Consent by
telefacsimile shall be effective as delivery of a manually executed counterpart
of this Amendment or such Consent.
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8. Due Execution. The execution, delivery and performance of this
Amendment are within the power of Borrower, have been duly authorized by all
necessary corporate action, have received all necessary governmental approval,
if any, and do not contravene any law or any contractual restrictions binding on
Borrower.
9. Reference to and Effect on the Loan Documents.
(a) Upon and after the effectiveness of this Amendment, each
reference in the Loan Agreement to "this Agreement", "hereunder", "hereof" or
words of like import referring to the Loan Agreement, and each reference in the
other Loan Documents to "the Loan Agreement", "thereof" or words of like import
referring to the Loan Agreement, shall mean and be a reference to the Loan
Agreement as modified and amended hereby.
(b) Except as specifically amended above, the Loan Agreement and all
other Loan Documents, are and shall continue to be in full force and effect and
are hereby in all respects ratified and confirmed and shall constitute the
legal, valid, binding and enforceable obligations of Borrower to Lender.
(c) The execution, delivery and effectiveness of this Amendment
shall not, except as expressly provided herein, operate as a waiver of any
right, power or remedy of Lender under any of the Loan Documents, nor constitute
a waiver of any provision of any of the Loan Documents.
(d) To the extent that any terms and conditions in any of the Loan
Documents shall contradict or be in conflict with any terms or conditions of the
Loan Agreement, after giving effect to this Amendment, such terms and conditions
are hereby deemed modified or amended accordingly to reflect the terms and
conditions of the Loan Agreement as modified or amended hereby.
10. Ratification. Borrower hereby restates, ratifies and reaffirms each
and every term and condition set forth in the Loan Agreement, as amended hereby,
and the Loan Documents effective as of the date hereof.
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11. Estoppel. To induce Lender to enter into this Amendment and to
continue to make advances to Borrower under the Loan Agreement, Borrower hereby
acknowledges and agrees that, after giving effect to this Amendment, as of the
date hereof, there exists no Event of Default and no right of offset, defense,
counterclaim or objection in favor of Borrower as against Lender with respect to
the Obligations.
IN WITNESS WHEREOF, the parties have entered into this Amendment as
of the date first above written.
"BORROWER"
WAREFORCE INCORPORATED,
a California corporation
By: /s/ Xxx Xxxxxxxx
-------------------------------------
Title: General Counsel
----------------------------------
"LENDER"
CONGRESS FINANCIAL CORPORATION (WESTERN),
a California corporation
By: /s/ [Illegible]
-------------------------------------
Title: Vice President
----------------------------------
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CONSENT
Dated as of March ___, 1999
The undersigned, C.Y. INVESTMENT INC., a California corporation ("CYI"), and
XXXX XXXXXXXX, an individual ("Xxxxxxxx"), in consideration of the continued
extension of credit to Wareforce Incorporated by Congress Financial Corporation
(Western) ("Congress"), each hereby consents and agrees to the foregoing First
Amendment to Loan and Security Agreement (the "Amendment") and hereby confirms
and agrees that their respective Guarantees dated August 27, 1999 in favor of
Congress are, and shall continue to be in, in full force and effect and are
hereby ratified and confirmed in all respects except that, upon the
effectiveness of, and on and after the date of the Amendment, each reference in
their Guarantees to the Loan Agreement (as defined in the Amendment),
"thereunder", "thereof" or words of like import referring to the "Loan
Agreement", shall mean and be a reference to the Loan Agreement as amended or
modified by the Amendment. Although Congress has informed CYI and Xxxxxxxx of
the matters set forth above, and CYI and Xxxxxxxx have each acknowledged the
same, CYI and Xxxxxxxx each understands and agrees that Congress has no duty
under the Loan Agreement, their respective Guarantees or any other agreement
with CYI or Xxxxxxxx to so notify CYI or Xxxxxxxx or to seek such an
acknowledgement, and nothing contained herein is intended to or shall create
such a duty as to any advances or transaction hereafter.
C.Y. INVESTMENT INC.,
a California corporation
By: Xxx Xxxxxxxx
---------------------------------
Title: General Counsel
------------------------------
/s/Xxxx Xxxxxxxx
-------------------------------------
XXXX XXXXXXXX, an individual
