AMENDMENT NO. 1 TO LOAN AND SECURITY AGREEMENT
DAMARK INTERNATIONAL, INC.
DAMARK FINANCIAL SERVICES, INC.
0000 Xxxxxxxx Xxxxxx Xxxxx
Xxxxxxxx Xxxx, Xxxxxxxxx 00000
December 4, 1998
First Union National Bank
0000 Xxxxxxxx Xxxxxx
Xxxxxxxxxxxx, Xxxxxxxxxxxx 00000
Congress Financial Corporation (Central), as Agent
000 Xxxxx Xxxxxx Xxxxx
Xxxxxxx, Xxxxxxxx 00000
Gentlemen:
First Union National Bank, a national banking association ("Lender"),
Congress Financial Corporation (Central), an Illinois corporation, in its
capacity as administrative agent and collateral agent for Lender (in such
capacity, together with its successors and assigns, "Agent") and Damark
International, Inc. ("International") and Damark Financial Services, Inc.
("Financial"; together with International and their respective successors and
assigns, individually a "Borrower", and collectively the "Borrowers") have
entered into certain financing arrangements as set forth in the Loan and
Security Agreement dated August 20, 1998, as amended (the "Loan Agreement";
together with any other agreements, documents and instruments at any time
executed and/or delivered in connection therewith or related thereto, as all of
the foregoing now exist or may hereafter be further amended, modified,
supplemented, extended, renewed, restated or replaced, collectively, the
"Financing Agreements"), which include, among other things, the Guarantee in
favor of Congress by Texas Telemarketing, Inc. (together with its successors and
assigns, the "Guarantor").
Borrowers and Guarantor have requested that Lender (a) agree to decrease
the Adjusted Net Worth covenant requirements, (b) agree to amend the calculation
of Adjusted Net Worth and (c) agree to certain other amendments to the Financing
Agreements. Lender is willing to agree to the foregoing to the extent set forth
herein, and subject to the terms and conditions set forth herein. By this
Amendment, Lender, Agent, Borrowers and Guarantor desire and intend to evidence
such amendments.
In consideration of the foregoing and the respective agreements and
covenants contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. ADDITIONAL DEFINITION. As used herein and in the Loan Agreement, the
term "Membership Accounting Adjustment" shall mean the then-remaining amount of
a one-time adjustment in an amount not to exceed $25,000,000 (net of the effect
of taxes on income) in connection with a change in the accounting principles
applicable to the recognition of revenue from the sale of club membership. The
amount of such one-time adjustment shall be reduced to zero on a straight line
basis over a twelve (12) month period commencing on the date of its recordation.
2. INTERPRETATION. For purposes of this Amendment, unless otherwise
defined herein, all terms used herein, including, but not limited to, those
terms used and/or defined in the recitals hereto, shall have the respective
meanings assigned to such terms in the Loan Agreement.
3. ADJUSTED NET WORTH CALCULATION. Section 1.3 of the Loan Agreement is
hereby deleted in its entirety and the following substituted therefor:
"1.3 "Adjusted Net Worth" shall mean as to any Person, at any time,
in accordance with GAAP (except as otherwise specifically set forth
below), on a consolidated basis for such Person and its subsidiaries
(if any), the amount equal to the difference between: (a) the
aggregate net book value of all assets of such Person and its
subsidiaries, calculating the book value of inventory for this purpose
principally on a first-in-first-out basis, after deducting from such
book values all appropriate reserves in accordance with GAAP
(including all reserves for doubtful receivables, obsolescence,
depreciation and amortization), MINUS (b) the aggregate amount of the
indebtedness and other liabilities of such Person and its subsidiaries
(including tax and other proper accruals) PLUS (c), in the case of
International, all amounts paid by International from and after the
date hereof in accordance with
Section 9.11 to purchase, redeem, retire or defease any class of Capital
Stock." Notwithstanding anything to the contrary contained herein, in the
case of International Adjusted Net Worth shall exclude the then-remaining
Membership Accounting Adjustment.
4. ADJUSTED NET WORTH COVENANT. Section 9.13 of the Loan Agreement
is hereby deleted in its entirety and the following substituted:
"9.13 ADJUSTED NET WORTH. Borrowers shall (a) at all times on or
prior to December 31, 1998 maintain Adjusted Net Worth of not less
than $35,000,000, (b) at all times from and after January 1, 1999
maintain Adjusted Net Worth of not less than $20,000,000.
5. REPRESENTATIONS, WARRANTIES AND COVENANTS. Each Borrower
represents, warrants and covenants with an to Lender and Agent as follows, which
representations, warranties and covenants are continuing and shall survive the
execution and delivery hereof, the truth and accuracy of, or compliance with
each, together with their representations, warranties and covenants in the other
Financing Agreements, being a condition of the effectiveness of this Amendment
and a continuing condition of the making or providing of any loans or credit
accommodations by Lender to Borrowers:
(a) The failure of Borrowers to comply with the covenants, conditions
and agreements contained herein or in any other agreement, document or
instrument at any time executed or delivered by Borrowers, any Guarantor or any
other person with, to or in favor of Lender or Agent, shall constitute an Event
or Default under the Financing Agreements.
(b) This Amendment has been duly authorized, executed and delivered
by Borrowers and Guarantor, and is in full force and effect, and the agreements
and obligations of Borrowers and Guarantor, as the case may be, contained herein
and therein constitute legal, valid and binding obligations of Borrowers and
Guarantor, as the case may be, enforceable against them in accordance with their
respective terms.
(c) Neither the execution and delivery of this Amendment, or any
other agreements, documents or instruments in connection therewith, nor the
consummation of the transactions
herein or therein contemplated, nor compliance with the provisions hereof or
thereof (i) has violated or shall violate any law or regulation or any order or
decree of any court or governmental instrumentality in any respect, or (ii)
does, or shall conflict with or result in the breach of, or constitute a default
in any respect under any mortgage, deed of trust, security agreement, agreement
or instrument to which any Borrowers or any Guarantor is a party or may be
bound, or (iii) does or shall violate any provision of the Certificate of
Incorporation or By-Laws of any Borrower.
(d) All of the representations and warranties set forth in the
Financing Agreements, as amended hereby, are true and correct in all material
respects after giving effect to the provisions of this Amendment, except to the
extent any such representation or warranty is made as of a specified date, in
which case such representations or warranty shall have been true and correct as
of such date.
(e) After giving effect to the provisions of this Amendment, no Event
of Default or event, which with notice or passage or time or both would
constitute an Event of Default, exists or has occurred and is continuing.
5. AMENDMENT FEE. In addition to all other fees, charges interest and
expenses payable by Borrowers to Agent or Lender, Borrowers shall jointly and
severally pay to Agent for the benefit of Lender a fee for entering into this
Amendment in the amount equal to $25,000 which fee is fully earned as of the
date hereof and may be charged directly to any loan account of Borrowers
maintained by Agent.
7. CONDITIONS PRECEDENT. The effectiveness of the amendments to the
Financing Agreements provided for herein shall only be effective upon the
satisfaction of each of the following conditions precedent in a manner
satisfactory to Agent:
(a) no Event of Default shall have occurred and be continuing and no
act, condition or event shall have occurred or be existing and continuing which,
with notice or passage of time or both, would constitute an Event of Default;
and
(b) Agent shall have received, in form and substance satisfactory to
Agent, an original of this Amendment, duly authorized, executed and delivered by
Borrowers and Guarantor.
8. GENERAL.
(a) Except as modified pursuant hereto, no other changes or
modifications to the Financing Agreements are intended or implied and in all
other respects the Financing Agreements are hereby specifically ratified,
restated and confirmed by all parties hereto as of the date hereof. To the
extent of conflict between the terms of this Amendment and the Financing
Agreements, the terms of this Amendment shall control.
(b) The parties hereto shall execute and deliver such additional
documents and take such additional action as may be necessary or desirable to
effectuate the provisions and purposes of this Amendment. This Amendment and
all other Financing Agreements executed pursuant hereto shall be deemed to have
been made and to be performable in and shall be governed by and construed in
accordance with the laws of the State of Illinois.
(c) The rights and obligations hereunder of each of the parties
hereto shall be governed by and interpreted and determined in accordance with
the internal laws of the State of Illinois (without giving effect to principles
of conflicts of laws).
(d) This Amendment is binding upon and shall inure to the benefit of
Lender, Agent and Borrowers and their respective successors and assigns.
(e) This Amendment may be executed in one or more counterparts, each
of which when so executed shall be deemed to be an original but all of which
when taken together shall constitute one and the same instrument.
Very truly yours,
DAMARK INTERNATIONAL, INC.
By: /s/ Xxxxxxx X. Xxxxx
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Title: Chief Financial Officer
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DAMARK FINANCIAL SERVICES, INC.
By: /s/ Wiley X. Xxxxx III
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Title: Vice President
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CHIEF EXECUTIVE OFFICE OF EACH
BORROWER:
0000 Xxxxxxxx Xxxxxx Xxxxx
Xxxxxxxx Xxxx, Xxxxxxxxx
00000
ACKNOWLEDGED AND AGREED TO:
TEXAS TELEMARKETING, INC.
By: /s/ Wiley X. Xxxxx III
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Title: Vice President
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ACKNOWLEDGED AND AGREED TO:
FIRST UNION NATIONAL BANK
By: /s/ Xxxxx Xxxxxx
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Title: Vice President
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CONGRESS FINANCIAL CORPORATION
(Central) as Agent
By: /s/ Xxxxxx Xxxxxxxxx
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Title: Vice President
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