THIRD AMENDMENT TO CREDIT AGREEMENT
THIS THIRD AMENDMENT TO CREDIT AGREEMENT dated as of June23, 1997
("this Amendment") by and between DAMARK INTERNATIONAL, INC., a Minnesota
corporation (the "Borrower"), the banks which are signatories hereto
(individually, a "Bank" and, collectively, the "Banks") and FIRST BANK
NATIONAL ASSOCIATION, a national banking association, one of the Banks, as
agent for the Banks (in such capacity, the "Agent").
RECITALS
A. The Borrower, the Banks and the Agent are parties to a Credit
Agreement dated as of March 22, 1996, as amended by a First Amendment dated
as of October 18, 1996 and a Second Amendment dated as of February 10, 1997
(as so amended, the "Credit Agreement").
B. The obligations of the Borrower to the Banks under the Credit
Agreement are evidenced by three separate Promissory Notes of the Borrower in
favor of the Banks each dated March 22, 1996 (collectively, the "Existing
Notes").
C. The parties hereto desire to amend the Credit Agreement in the
respects hereinafter set forth and to cause the Existing Notes to be amended
and restated in their entireties.
NOW, THEREFORE, in consideration of the premises and for other good
and valuable consideration the receipt and adequacy of which are hereby
acknowledged, the parties hereto hereby agree as follows:
Section 1. DEFINITIONS. Capitalized terms used herein and not
otherwise defined herein, but which are defined in the Credit Agreement,
shall have the meanings ascribed to such terms in the Credit Agreement unless
the context otherwise requires.
Section 2. AMENDMENTS TO CREDIT AGREEMENT. Subject to Section 4
hereof, the Credit Agreement is hereby amended as follows:
(a) The definition of the term "Commitment Amount" set forth in
Section 1.1 thereof is amended to read as follows:
"COMMITMENT AMOUNT": With respect to a Bank, the amount set
opposite such Bank's name on Exhibit 1.1-E hereto as its Commitment Amount,
but as the same may be reduced from time to time pursuant to Section 2.14.
(b) The definition of the term "Loan/Standby Letter of Credit
Sublimit" set forth in Section 1.1 thereof is amended to read as follows:
"LOAN/STANDBY LETTER OF CREDIT SUBLIMIT": With respect to a
Bank, the amount set opposite such Bank's name on Exhibit 1.1-E hereto as
its Loan/Standby Letter of Credit Sublimit, but as the same may be reduced
from time to time pursuant to Section 2.14.
(c) Section 6.9 thereof is amended to read as follows:
Section 6.9 CAPITAL EXPENDITURES. The Borrower will not, and
will not permit any Subsidiary to, make Capital Expenditures in an amount
exceeding, on a consolidated basis, (a) $11,500,000 in its fiscal year
ending December31, 1997 or (b) $10,000,000 in its fiscal year ending
December 31, 1998 or in any fiscal year thereafter; provided, however, that
Capital Expenditures made, with the prior written consent of the Majority
Banks, from equity capital specifically raised by the Borrower for the
purpose of making such Capital Expenditures shall not be subject to the
foregoing limitations.
(d) Section 6.19 thereof is amended to read as follows:
Section 6.19 EBITDA. The Borrower will not permit EBITDA as of
any date set forth below, for the period of four consecutive fiscal
quarters ending on such date, to be less than the minimum amount set
opposite that date:
Four-Quarter Minimum
Period Ending EBITDA
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6/30/97 $11,400,000
9/30/97 $11,700,000
12/31/97 and on the
last day of any fiscal
quarter thereafter $11,900,000
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(e) Section 6.21 thereof is amended to read as follows:
Section 6.21 CLEAN-DOWN. The Borrower shall cause the sum of
(a) the aggregate principal balance of all Loans
outstanding, plus
(b) the remainder of (i) the aggregate maximum amount
available to be drawn under outstanding Standby Letters of Credit plus
the aggregate amount of Unpaid Drawings relating to Standby Letters of
Credit, minus (ii) the average daily amount of funds on deposit in
accounts maintained by the Borrower with the Agent during the
calculation period, plus
(c) the sum of the aggregate maximum amount available to be
drawn under outstanding Documentary Letters of Credit having
expiration dates more than 180 days later than the date of
determination plus the aggregate amount of Unpaid Drawings relating to
Documentary Letters of Credit
not to exceed $4,000,000 for at least 60 consecutive days during the period
of twelve consecutive months beginning on September1, 1997 and during each
period of twelve consecutive months beginning on the first day of each
month thereafter occurring.
(f) Exhibit 1.1-A thereto is amended and restated to be in the form
of Exhibit 1.1-A attached to this Amendment.
(g) Exhibit 1.1-B thereto is amended and restated to be in the form
of Exhibit 1.1-B attached to this Amendment.
(h) A new Exhibit 1.1-E is added thereto, which new Exhibit 1.1-E
shall be in the form of Exhibit 1.1-E attached to this Amendment.
Section 3. REPRESENTATIONS AND WARRANTIES OF THE BORROWER. To
induce the Banks and the Agent to execute and deliver this Amendment (which
representations and warranties shall survive the execution and delivery of
this Amendment), the Borrower represents and warrants to the Agent and the
Banks that:
(a) this Amendment and the Amended Notes (as hereinafter defined)
have been duly authorized, executed and delivered by it and this Amendment
and the Amended Notes constitute the legal, valid and binding obligations
of the Borrower enforceable against the Borrower in accordance with their
respective terms, subject to limitations as to enforceability which
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might result from bankruptcy, insolvency, reorganization, moratorium or
similar laws or equitable principles relating to or limiting creditors'
rights generally;
(b) the Credit Agreement, as amended by this Amendment, constitutes
the legal, valid and binding obligation of the Borrower enforceable against
the Borrower in accordance with its terms, subject to limitations as to
enforceability which might result from bankruptcy, insolvency,
reorganization, moratorium or similar laws or equitable principles relating
to or limiting creditors' rights generally;
(c) the execution, delivery and performance by the Borrower of this
Amendment and the Amended Notes (i) have been duly authorized by all
requisite corporate action and, if required, shareholder action, (ii) do
not require the consent or approval of any governmental or regulatory body
or agency, and (iii) will not (A) violate (1) any provision of law,
statute, rule or regulation or its certificate of incorporation or bylaws,
(2) any order of any court or any rule, regulation or order of any other
agency or government binding upon it, or (3) any provision of any material
indenture, agreement or other instrument to which it is a party or by which
any of its properties or assets are or may be bound, or (B) result in a
breach of or constitute (alone or with due notice or lapse of time or both)
a default under any indenture, agreement or other instrument referred to in
clause (iii)(A)(3) of this Section 3(c);
(d) as of the date hereof, no Default or Event of Default has
occurred which is continuing; and
(e) all the representations and warranties contained in Article IV of
the Credit Agreement are true and correct in all material respects with the
same force and effect as if made by the Borrower on and as of the date
hereof.
Section 4. CONDITIONS TO EFFECTIVENESS OF THIS AMENDMENT. This
Amendment shall not become effective until, and shall become effective when,
each and every one of the following conditions shall have been satisfied:
(a) executed counterparts of this Amendment, duly executed by the
Borrower and each of the Banks, shall have been delivered to the Agent;
(b) each Bank shall have received a new promissory note substantially
in the form attached as Exhibit 1.1-C to the Credit Agreement, payable to
such Bank and in a maximum amount equal to such Bank's Commitment Amount as
amended by this Amendment, duly executed by the Borrower (as to such Bank,
its "Amended Note"), which Amended Note shall constitute an amendment and
restatement of the Existing Note payable to such Bank;
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(c) the Agent shall have received from each Subsidiary a Consent and
Agreement of Subsidiary in the form of Attachment 1 hereto (the "Subsidiary
Agreements") duly completed and executed by such Subsidiary;
(d) the Agent shall have received a copy of the resolutions of the
Board of Directors of the Borrower authorizing the execution, delivery and
performance by the Borrower of this Amendment, certified by an officer
thereof, together with a certificate of an officer of the Borrower
certifying as to the incumbency and the true signatures of the officers
authorized to execute this Amendment on behalf of the Borrower; and
(e) the Agent shall have received the favorable opinion of counsel to
Borrower, covering the matters set forth in Sections 3(a), 3(b) and 3(c).
Upon receipt of all of the foregoing, (i) the Agent shall notify the Borrower
and the Banks that this Amendment has become effective, but the failure of
the Agent to give such notice shall not affect the validity of this Amendment
or prevent it from becoming effective, (ii) each Bank shall surrender to the
Borrower such Bank's Existing Note, marked "renewed but not paid" or words to
similar effect; and (iii) the unpaid principal balance outstanding under each
Bank's Existing Note, and the interest accrued but unpaid thereon, shall be
outstanding under such Bank's Amended Note.
Section 5. UCC FILINGS. The Borrower agrees that it will, by not
later than September 1, 1997, deliver to the Agent Uniform Commercial Code
financing statements prepared for filing with the appropriate filing offices
in the State of North Carolina with respect to collateral located at the
Borrower's facility in Fayetteville, North Carolina, duly executed by the
Borrower. The Borrower further agrees that failure on its part to comply
with the foregoing requirement shall constitute an Event of Default under the
Credit Agreement.
Section 6. COUNTERPARTS AND EFFECTIVENESS. This Amendment may be
executed in any number of counterparts, and by different parties hereto in
separate counterparts, each of which when so executed and delivered shall be
deemed an original, but all such counterparts together shall constitute but
one of the same instrument.
Section 7. LEGAL EXPENSES. The Borrower agrees to reimburse the
Agent for all reasonable out-of-pocket expenses (including attorneys' fees
and legal expenses of Xxxxxx & Xxxxxxx LLP, counsel for the Agent) incurred
in connection with the negotiation, preparation, execution and delivery of
this Amendment.
Section 8. AFFIRMATION. Each party hereto affirms and acknowledges
that (a) the Credit Agreement as amended by this Amendment remains in full force
and effect in accordance with its terms, (b) all references to the "Credit
Agreement"
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or any similar term contained in any other Loan Document shall be deemed to
be references to the Credit Agreement as amended hereby and (c) all
references to the "Notes" or any similar term contained in the Credit
Agreement or any other Loan Document shall be deemed to be references to the
Amended Notes.
Section 9. CHOICE OF LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAW, AND NOT THE LAW OF CONFLICTS,
OF THE STATE OF MINNESOTA, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO
NATIONAL BANKS.
Section 10. SUCCESSORS AND ASSIGNS. This Amendment shall be
binding upon the Borrower, the Banks, the Agent and their respective
successors and assigns, and shall inure to the benefit of the Borrower, the
Bank and the successors and assigns of the Banks and the Agent.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed as of the day and year first above written.
DAMARK INTERNATIONAL, INC.
By
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Its
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FIRST BANK NATIONAL ASSOCIATION,
as a Bank and as Agent
By
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Title
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THE SUMITOMO BANK, LIMITED,
CHICAGO BRANCH
By
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Title
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By
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Title
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BANK ONE, MILWAUKEE,
NATIONAL ASSOCIATION
By
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Title
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[Signature Page to Third Amendment to Credit Agreement]
S-1
EXHIBIT 1.1-A TO
CREDIT AGREEMENT
FORMULA FOR
BORROWING BASE
1. BORROWING BASE. The "Borrowing Base" as of any date of
determination shall be the sum of the following:
(a) the product of (i) the aggregate face amount of Eligible
Accounts (provided, that the aggregate face amount of Eligible Accounts
attributable to installments payable under the Ten Pay Installment Plan that
can be taken into account for purposes of this clause 1(a)(i) shall not
exceed 30% of the aggregate face amount of all Eligible Accounts), MULTIPLIED
BY (ii) 50%; and
(b) an amount equal to the lesser of (i) 40% of the lower of
cost (determined on a first-in, first-out basis) or market value of Eligible
Inventory or (ii) $30,000,000.
2. DEFINITIONS. Capitalized terms used herein which are defined in
the Credit Agreement are used herein with the respective meanings attributed
thereto in the Credit Agreement. In addition, for the purposes of this
Exhibit and for determining the Borrowing Base, the following terms shall
have the following respective meanings:
"ELIGIBLE ACCOUNTS": the right of the Borrower to receive
payment of installments owed to the Borrower on account of sales of inventory
(including related shipping and handling fees), membership and other services
in the ordinary course of the Borrower's business on the Borrower's
installment plans, provided such right to payment:
(a) has arisen out of the sale of goods and services by the
Borrower within the United States, or, if such goods and services are sold
outside the United States, is backed by a letter of credit issued or
confirmed by a bank chartered under the laws of the United States or of any
State;
(b) is the valid, binding and legally enforceable obligation of the
obligor and such right to payment has not been subordinated by the Borrower
to any other claim against the obligor and such obligor is not (i) the
Borrower or an Affiliate of the Borrower, (ii) the United States or any
department, agency or instrumentality thereof unless the Borrower shall have
complied with the Assignment of Claims Act to the satisfaction of the Agent,
(iii) a debtor under any proceeding under the
Bankruptcy Code or comparable provision of state or foreign law, (iv) an
assignor for the benefit of creditors, or (v) a customer for whom the
Borrower has tried, but has been refused, an authorization by the applicable
credit card processor in whole or in part;
(c) is assignable;
(d) is subject to a perfected first security interest in favor of
the Agent and is free and clear of any other Lien;
(e) is not subject to any claimed offset, counterclaim or other
defense with respect thereto (except for return rights and warranty claims
not yet asserted);
(f) is not unpaid for more than 30 days from the date that payment
thereof is due or for more than (i) 300 days from the date of the relevant
invoice, in the case of installments payable on sales made under the Ten Pay
Installment Plan, (ii) 180 days from the date of the relevant invoice, in the
case of installments payable on sales made under the Six Pay Installment
Plan, or (iii) 120 days from the date of the relevant invoice, in the case of
installments payable under the Four Pay Installment Plan;
(g) is not owed by an obligor who is obligated on accounts owed to
the Borrower more than 10% of the aggregate unpaid balance of which remains
unpaid for longer than the relevant periods specified in clause (f) above; and
(h) is not, as reasonably determined by the Agent in its
discretion, uncollectible or otherwise disqualified;
PROVIDED, that the Agent shall, notwithstanding the foregoing, have the
right, in the reasonable exercise of its discretion, to establish reserves
against the aggregate amount of Eligible Accounts.
"ELIGIBLE INVENTORY": all inventory held by the Borrower for
sale in the ordinary course of business, less any reserves maintained by the
Borrower, and which:
(a) is subject to a perfected, first priority security interest in
favor of the Agent free and clear of all other Liens;
(b) is located at one of the locations set forth in the Security
Agreement or in any schedule delivered pursuant thereto as a location at
which inventory is kept, and is not in transit (other than inventory in
transit to a location set forth in the Security Agreement or in any schedule
delivered pursuant thereto as a location at which inventory is kept and which
has been shipped pursuant to a Documentary Letter of Credit);
(c) is not so identified to a contract to sell that it is evidenced
by an account;
(d) is of good and merchantable quality free from any defects which
would affect the market value thereof;
(e) is not inventory that the Borrower has returned or is in the
process of returning, including, but not limited to, inventory classified by
the Borrower as "C-Goods";
(f) is insured against loss or damage in accordance with the
provisions of the Security Agreement;
(g) is not subject to or covered by a negotiable document of title,
including, without limitation, negotiable warehouse receipts and negotiable
bills of lading;
(h) is not stored in a public warehouse or held by any Person as
bailee, unless the terms of such storage or bailment are satisfactory to the
Agent; and
(i) does not consist of packaging supplies;
PROVIDED, that the Agent shall, notwithstanding the foregoing, have the
right, in the reasonable exercise of its discretion, to establish reserves
against the aggregate amount of Eligible Inventory.
"FOUR PAY INSTALLMENT PLAN": an installment payment plan of
the Borrower which requires the customer to make payment in four consecutive
monthly installments, the first installment of which is to be paid at or
before shipment of the item sold.
"SIX PAY INSTALLMENT PLAN": an installment payment plan of the
Borrower which requires the customer to make payment in six consecutive
monthly installments, the first installment of which is to be paid at or
before shipment of the item sold.
"TEN PAY INSTALLMENT PLAN": an installment payment plan of the
Borrower which requires the customer to make payment in ten consecutive
monthly installments, the first installment of which is to be paid at or
before shipment of the item sold.
EXHIBIT 1.1-B
TO CREDIT AGREEMENT
BORROWING BASE CERTIFICATE
Borrowing Base as of ______________________, 199___
To: First Bank National Association:
The undersigned hereby certifies to First Bank National Association
that as of the date above, the Borrowing Base for DAMARK INTERNATIONAL, INC.
was as follows:
1. Total Accounts $__________
2. LESS Ineligible Accounts ($_________ )
3. Eligible Accounts (Line 1 - Line 2) $__________
4. Total "Ten Pay" Eligible Accounts $__________
5. 30% of Line 3 $__________
6. Line 4 LESS Line 5 (but not less than
zero) $__________
7. Line 3 LESS Line 6 $__________
8. TIMES Availability Rate x 50%
9. Borrowing Base Amount
(Line 7 x Line 8) $__________
10. Total Inventory $__________
11. LESS Ineligible Inventory ($__________)
12. Eligible Inventory (Line 10 - Line 11) $__________
13. TIMES Availability Rate x 40%
14. Borrowing Base Amount
(Line 12 x Line 13 but not
more than $30,000,000) $__________
15. Total Borrowing Base
(Line 9 + Line 14 but not
to exceed $50,000,000) $__________
16. Loans Outstanding $__________
17. Standby Letters of Credit Outstanding $__________
18. Documentary Letters of Credit
Outstanding $__________
19. Total Outstandings
(Line 16 + Line 17 + Line 18) $__________
20. Additional Availability or (Deficiency)
(Line 15 - Line 19) $__________
Capitalized terms are used herein as defined in the Credit Agreement
dated as of March 22, 1996 and the Exhibits thereto, as the same may be from
time to time amended, modified, supplemented or extended.
Date of Certificate:__________ , ____
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Title
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For DAMARK INTERNATIONAL, INC.
EXHIBIT 1.1-E
TO CREDIT AGREEMENT
BANK COMMITMENTS
Loan/Standby
Commitment Letter of Credit
Bank Amount Sublimit
---- ------------ -----------------
First Bank National Association $23,333,334 $21,000,000
The Sumitomo Bank, Limited
Chicago Branch 13,333,333 12,000,000
Bank One, Wisconsin 13,333,333 12,000,000
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Total $50,000,000 $45,000,000
ATTACHMENT 1 TO THIRD AMENDMENT TO CREDIT AGREEMENT
CONSENT AND AGREEMENT OF SUBSIDIARY
_________________________, a Minnesota corporation (the "Subsidiary"),
hereby acknowledges and consents to that certain Third Amendment to Credit
Agreement dated as of June __, 1997 (the "Amendment") between Damark
International, Inc., a Minnesota corporation (the "Borrower"), the Banks
which are signatories thereto (the "Banks") and First Bank National
Association as Agent for the Banks. The Subsidiary further acknowledges and
agrees as follows:
(a) All references to the "Credit Agreement" contained
in the Guaranty dated as of _____________ (the "Guaranty"),
executed by the Subsidiary in favor of the Banks and the
Agent, shall hereafter mean and refer to the Credit
Agreement dated as of March 22, 1996 between the Borrower,
the Banks and the Agent, as heretofore amended, as amended
by the Amendment and as the same may hereafter be further
amended, supplemented, restated, extended or renewed from
time to time.
(b) The Guaranty is hereby reaffirmed and shall remain
in full force and effect with respect to the Obligations (as
defined in the Guaranty).
Dated: June __, 1997
SUBSIDIARY:
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By
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Title
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