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EXHIBIT 10.2
FOURTH AMENDMENT TO LOAN AND
SECURITY AGREEMENT
THIS FOURTH AMENDMENT TO LOAN AND SECURITY AGREEMENT (this
"Amendment"), dated as of August 14, 1997, is entered into by and between
CONGRESS FINANCIAL CORPORATION (WESTERN), a California corporation ("Lender"),
with a place of business at 000 Xxxxx Xxxx Xxxxxx, Xxxxx 0000, Xxxxxxxx,
Xxxxxxxxxx 00000 and XXXXXX'X SOFA FACTORY, a California corporation, and its
wholly owned subsidiary, XXXXXX CONVERTIBLE CORPORATION, a New York corporation
(jointly and severally, "Borrower"), with its chief executive office located at
000 X. Xxxxx Xxxxxx, Xxxx, Xxxxxxxxxx 00000.
RECITALS
A. Borrower and Lender have previously entered into that certain Loan
and Security Agreement dated as of January 20, 1995, as amended by that certain
First Amendment to Loan and Security Agreement dated as of May 10, 1996, that
certain Second Amendment to Loan and Security Agreement dated as of August 26,
1996, and that certain Third Amendment to Loan and Security Agreement dated as
of November 25, 1996 (collectively, 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. Concurrently with the execution of this Amendment, Borrower is
receiving an additional contribution in the minimum amount of Two Million Five
Hundred Thousand Dollars ($2,500,000) from the Parent in the form of
subordinated debt.
C. In connection with the such contribution, Borrower has requested
that Lender amend the Loan Agreement to (i) increase the advance rate for
Eligible Inventory and Eligible Raw Materials, (ii) add additional financial
covenants relating to EBITDA and (iii) modify the negative covenant relating to
permitted indebtedness.
D. Lender is willing to further 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 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:
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1. Amendment of Credit Facilities Provision. Paragraph (a) of Section
2.1 of the Loan Agreement, entitled Revolving Loans, is hereby amended in its
entirety as follows:
"(a) Subject to, and upon the terms and conditions contained
herein, Lender agrees to make Revolving Loans to Borrower from time to
time in amounts requested by Borrower up to the amount equal to the sum
of:
(i) the lesser of (A) sixty-seven percent (67%) of the Value of
Eligible Inventory or (B) eighty-five percent (85%) of the Value of
Eligible Inventory multiplied by the appraised median net recovery
percentage of Eligible Inventory (net of all costs and expenses
anticipated by Lender to be incurred in liquidating the Eligible
Inventory), as determined from time to time by an appraiser acceptable
to Lender in a manner consistent with the determination of net recovery
by BGA Consulting as set forth in their Inventory Liquidation Analysis
of the Borrower dated March 20,1997, as amended (the 'Analysis');
(ii) notwithstanding the exclusion of raw materials from the definition
of Eligible Inventory, the lesser of (x) fifty percent (50%) of the
Value of raw materials consisting of fabric and leather ('Eligible Raw
Materials') or (y) One Million Dollars ($1,000,000); less
(iii) any Availability Reserves;
provided, however, at no time shall aggregate advances under clauses
(i) and (ii) above exceed eighty percent (80%) of the combined Value of
Eligible Inventory and Eligible Raw Materials multiplied by the
combined appraised median net recovery percentage of Eligible Inventory
and Eligible Raw Materials (net of all costs and expenses anticipated
by Lender to be incurred in liquidating the Eligible Inventory and
Eligible Raw Materials), as determined from time to time by an
appraiser acceptable to Lender in a manner consistent with the
determination of net recovery by BGA Consulting as set forth in the
Analysis."
2. Amendment to Collateral Reporting and Covenants Provision. Clause
(d) of Section 7.3 of the Loan Agreement, entitled "Inventory Covenants", is
hereby amended in its entirety as follows:
"(d) upon Lender's request, Borrower shall, at its expense, not less
frequently than semi-annually prior to the occurrence of an Event of
Default, and at any time or times as Lender may request on or after an
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Event of Default, deliver or cause to be delivered to Lender written
reports or appraisals as to the Inventory in form, scope and
methodology acceptable to Lender and by an appraiser acceptable to
Lender, addressed to Lender or upon which Lender is expressly permitted
to rely (with the understanding that Lender may revise the definition
of 'Eligible Inventory' hereunder as Lender may deem advisable in its
sole discretion based upon the results of such updated appraisals);"
3. Amendment to Indebtedness Covenant Provision. Paragraph (e) of
Section 9.9 of the Loan Agreement, entitled "Indebtedness", is hereby amended in
its entirety as follows:
"(e) unsecured indebtedness of Borrower to Xxxxxx'x Furniture,
Inc., a Delaware corporation ("Parent"), in a maximum amount of
Twenty-Four Million Two Hundred Fifty Thousand Dollars ($24,250,000)
consisting of: (i) Two Million Seven Hundred Thousand Dollars
($2,700,000) evidenced by that certain amended and restated Promissory
Note, dated as of January 20, 1995, issued by Borrower payable to
Parent, which amount is the result of reducing the outstanding
principal amount of such indebtedness of Four Million Seven Hundred
Thousand Dollars ($4,700,000) as of January 20, 1995 by Two Million
Dollars ($2,000,000) funded from the initial advances hereunder; (ii)
up to One Million Dollars ($1,000,000) in payment under Borrower's
agreement to indemnify Parent from any loss, cost, expense or liability
incurred by Parent in providing cash collateral for the issuance of an
One Million Dollars ($1,000,000) standby letter of credit for the
benefit of the landlord of Borrower's Brea, California facility, which
letter of credit expires in 1999 and, if drawn prior to its expiry,
will be treated as a bullet loan from Parent to Borrower due January
20, 2000 in the amount of any draw thereunder; (iii) One Million Seven
Hundred Fifty Thousand Dollars ($1,750,000) of indebtedness advanced by
Parent to Borrower during the period from January 20, 1995 through
August 22, 1996, evidenced by those certain Promissory Notes, dated,
respectively: as of September 22, 1995 in the original principal amount
of Five Hundred Thousand Dollars ($500,000); as of May 3, 1996 in the
original principal amount of Five Hundred Thousand Dollars ($500,000);
and as of May 22, 1996 in the original amount of Seven Hundred Fifty
Thousand Dollars ($750,000), each issued by Borrower payable to Parent;
(iv) Five Million Dollars ($5,000,000) of indebtedness evidenced by
that certain Promissory Note, dated as of August 26, 1996, issued by
Borrower payable to Parent; (v) One Million Dollars ($1,000,000) of
indebtedness evidenced by that certain Promissory Note, dated as of
September 27, 1996,
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issued by Borrower payable to Parent; (vi) One Million Five Hundred
Thousand Dollars ($1,500,000) of indebtedness evidenced by that certain
Promissory Note, dated as of October 18, 1996, issued by Borrower
payable to Parent; (vii) Two Million Five Hundred Thousand Dollars
($2,500,000) of indebtedness evidenced by that certain Promissory Note,
dated as of November 26, 1996, issued by Borrower payable to parent;
(viii) One Million Five Hundred Thousand Dollars ($1,500,000) of
indebtedness evidenced by that certain Promissory Note, dated as of
January 10, 1997, issued by Borrower payable to Parent; (ix) Five
Hundred Thousand Dollars ($500,000) of indebtedness evidenced by that
certain Promissory Note, dated as of April 3, 1997, issued by Borrower
payable to Parent; (x) Two Hundred Thousand Dollars ($200,000) of
indebtedness evidenced by that certain Promissory Note, dated as of May
14, 1997, issued by Borrower payable to parent; (xi) Three Million
Dollars ($3,000,000) of indebtedness as evidenced by that certain
Promissory Note, dated as of August 15, 1997, issued by Borrower
payable to Parent; and (xii) up to Three Million Six Hundred Thousand
Dollars ($3,600,000) of additional indebtedness to be extended by
Parent to Borrower, from time to time; all of which indebtedness is
subject to, and subordinate in right of payment to, the right of Lender
to receive the prior payment in full of all of the Obligations;
provided, that: (i) Borrower shall not, directly or indirectly, make
any payments in respect of such indebtedness, including, but not
limited to, any prepayments or other non-mandatory payments, except
that until an Event of Default, or event which with notice or passage
of time or both would constitute an Event of Default, shall exist or
have occurred and be continuing, Borrower may make payments of
principal and interest in accordance with the terms of that certain
Amended and Restated Subordination Agreement between Parent and Lender
dated August 26, 1996 (the "Subordination Agreement"), (ii) Borrower
shall not, directly or indirectly, (A) amend, modify, alter or change
any terms of such indebtedness or any agreement, document or instrument
related thereto, or (B) redeem, retire, defease, purchase or otherwise
acquire such indebtedness, or set aside or otherwise deposit or invest
any sums for such purpose, except as permitted by the Subordination
Agreement, and (iii) Borrower shall furnish to Lender all notices,
demands or other materials concerning such indebtedness either received
by Borrower or on its behalf, promptly after receipt thereof, or sent
by Borrower or on its behalf, concurrently with the sending thereof, as
the case may be."
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4. Addition of EBITDA Financial Covenant.
(a) Section 1 of the Loan Agreement is hereby amended to add
the following definition in its proper alphabetical order:
"'EBITDA' shall mean, for any specified accounting period, net
income (or net loss), plus, to the extent deducted in determining such
net income (or net loss), the sum of (a) interest expense, (b) income
tax expense, (c) depreciation, and (d) amortization, in each case
determined in accordance with GAAP for such period, and minus, to the
extent included in determining such net income (or net loss),
Borrower's non-recurring miscellaneous and extraordinary income for
such period."
(b) The following is hereby added to the Loan Agreement as
Section 9.15 and existing Sections 9.15 to 9.17 as hereby redesignated
as Sections 9.16 to 9.18 accordingly:
"9.15 Minimum EBITDA. Borrower shall, on and as of
the ending date of each fiscal quarter set forth below
maintain EBITDA of not less than the amount set forth next to
such ending date of each fiscal quarter:
Fiscal Quarter Ending
October 1997 $578,000
Fiscal Quarter Ending
January 1998 $482,000
Fiscal Quarter Ending
April 1998 $745,000
Fiscal Quarter Ending
July 1998 $1,010,000
Fiscal Quarter Ending
October 1998 $1,647,000
Fiscal Quarter Ending
January 1999 $1,505,000
Fiscal Quarter Ending
April 1999 $1,671,000
Fiscal Quarter Ending
July 1999 $2,064,000
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Fiscal Quarter Ending
October 1999 $2,825,000
Fiscal Quarter Ending
January 2000 $2,746,000"
5. Modification Fee. In consideration of Lender's agreement to enter
into this Amendment with Borrower and to provide Borrower with the financial
accommodations described herein, Borrower shall pay to Lender a modification fee
in the amount of Twenty-Five Thousand Dollars ($25,000). Such modification fee
shall be payable simultaneously with the execution hereof and shall be deemed
fully earned at the time of payment.
6. Effectiveness of this Amendment. Lender must have received the
following items, in form and substance acceptable to Lender, or evidence of the
occurrence thereof, before this Amendment is effective and before Lender is
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) Subordinated Debt. Borrower shall have received from
Parent a capital contribution in the minimum amount of Two Million Five
Hundred Thousand Dollars ($2,500,000) as subordinated debt on terms and
conditions acceptable to Lender, and Lender shall have received, in
form and substance satisfactory to Lender, acknowledgment by Parent
that such contribution is "Junior Debt" as defined in that certain
Amended and Restated Subordination Agreement dated as of August 26,
1996 between Xxxxxx and Lender, and is subject to the terms and
conditions thereof.
(e) 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.
7. Choice of Law. The validity of this Amendment, its construction,
interpretation and enforcement, and the rights of the parties hereunder, shall
be
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determined under, governed by, and construed in accordance with the laws of the
State of California governing contracts wholly to be performed in that State.
8. Counterparts. This Amendment may be executed in any number of
counterparts and by different parties on separate counterparts, each of which
when so executed and delivered, shall be deemed an original, and all of which,
when taken together, shall constitute but one and the same instrument.
9. Due Execution. The execution, delivery and performance of this
Amendment are within the powers of the Borrower, have been 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.
10. Otherwise Not Affected. In the event of any conflict or
inconsistency between the Loan Agreement and the provisions of this Amendment,
the provisions of this Amendment shall govern. Except to the extent set forth
herein, the Loan Agreement shall remain in full force and effect.
11. Ratification. Borrower hereby restates, ratifies and reaffirms each
and every term and condition set forth in the Loan Agreement, as amended hereby,
and the Financing Agreements effective as of the date hereof.
12. 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 hereto have executed this Amendment as
of the day and year first above written.
XXXXXX'X SOFA FACTORY,
a California corporation
By:
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Name:
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Title:
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XXXXXX CONVERTIBLE CORPORATION,
a New York corporation
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By:
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Name:
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Title:
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CONGRESS FINANCIAL CORPORATION
(WESTERN),
a California corporation
By:
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Name:
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Title:
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