SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT
This Second Amendment to Loan and Security Agreement ("Amendment") is dated
as of December 5, 1997, and entered into by and between XXX XXXXXX, INC., a
Washington corporation ("Borrower"), J.J. DISTRIBUTION COMPANY, a Washington
corporation ("Distribution"), and GENERAL ELECTRIC CAPITAL CORPORATION, a New
York corporation ("Lender").
R E C I T A L S:
WHEREAS Borrower, Distribution and Lender are parties to a Loan and
Security Agreement dated as of August 29, 1997, as amended by that certain First
Amendment to Loan and Security Agreement dated as of October 23, 1997
(collectively, the "Loan Agreement"; capitalized terms used herein without
definition shall have the meaning set forth in the Loan Agreement), pursuant to
which Lender has extended to Borrower a revolving credit loan (including a
subfacility for letters of credit);
WHEREAS, in connection with the proposed investment in Borrower by one or
more affiliates of Xxxxxx, Xxxxxxx & Company, LLC and possibly other accredited
or institutional investors ("Purchasers") pursuant to the form of Preferred
Stock Purchase Agreement attached hereto as Exhibit A (the "Purchase
Agreement"), Borrower has requested that Lender amend the Loan Agreement in
accordance with the terms hereof; and
WHEREAS Lender wishes to grant Borrower's request on the terms and
conditions set forth herein,
NOW, THEREFORE, for valuable consideration the receipt and sufficiency of
which is hereby acknowledged, the parties hereto agree as follow
ARTICLE I. AMENDMENTS
1.1 Defined Terms
On and after the Effective Date (as hereinafter defined), Schedule A to the
Loan Agreement shall be amended to include the following additional and revised
definitions:
"Additional Equity" shall mean an aggregate cash equity contribution (net
of customary investment banking fees of Purchasers, reimbursable expenses
of Purchasers, and out of pocket fees and expenses of Borrower) received by
Borrower on or after the Closing Date of not less than $6,000,000.
"Additional Equity Account" shall have the meaning assigned to it in
Schedule D.
"Fixed Charge Coverage Ratio" shall mean, for the last day of any Fiscal
Month for
the twelve (12) Fiscal Month period ending on such day, the ratio of the
following for Borrower and its Subsidiaries on a consolidated basis
determined in accordance with GAAP: (a) EBITDA plus Lease Expenses less
Capital Expenditures that are not financed through the incurrence of any
Indebtedness (excluding the Revolving Credit Loan) plus Capital
Expenditures that are made with the proceeds of the Additional Equity, in
each case for such period; to (b) the sum of (i) interest expense (net of
interest income) paid or deemed paid in respect of any indebtedness during
such period plus (ii) regularly scheduled payments of principal paid or
deemed paid on Funded Debt (excluding the Revolving Credit Loan) during
such period plus (iii) taxes to the extent accrued or otherwise payable
with respect to such period plus (iv) Lease Expenses during such period
plus (v) cash dividends paid with respect to the Preferred Stock during
such period.
"Plan of Reorganization" shall mean Borrower's Second Amended Chapter 11
Plan of Reorganization dated November 16, 1995 and filed with the United
States Bankruptcy Court for the Western District of Washington at Seattle
in Chapter 11 Case No. 94-03993, as in effect on the Closing Date, and as
further amended in accordance with the terms of the Order Re-Opening Case,
Modifying Treatment of Class 3 (General Unsecured) Claims Under Plan, and
Re-Closing Case entered on December 1, 1997.
"Preferred Stock" shall mean Borrower's Series A Preferred Stock and Series
B Preferred Stock, in each case issued pursuant to the terms of the
Statement of Rights and Preferences.
"Purchase Agreement" shall mean the Preferred Stock Purchase Agreement
between Borrower, as seller, and one or more affiliates of Xxxxxx, Xxxxxxx
& Company, LLC and such other accredited or institutional investors, as
purchasers, dated as of December 3, 1997.
"Purchasers" shall mean the "Purchasers" under and as defined in the
Purchase Agreement.
"Statement of Rights and Preferences" shall mean the Statement of Rights
and Preferences of Series A Preferred Stock and Series B Preferred Stock of
Xxx Xxxxxx, Inc., as in effect on December 3, 1997 and as amended from time
to time with the consent of the Lender."
1.2 Use of Proceeds
On and after the Effective Date, Section 1.3 of the Loan Agreement shall be
amended to read as follows:
"Borrower shall use the proceeds of the Revolving Credit Loan to repay
all of its outstanding indebtedness to LaSalle National Bank and for
general working capital
and corporate uses not otherwise prohibited by the terms of this Agreement,
but excluding in any event the making of any Restricted Payment not
otherwise permitted under Section 5(l); provided, that in no event shall
Borrower use the proceeds of the Revolving Credit Loan for the payment of
Capital Expenditures at any time that there are funds in the Additional
Equity Account."
1.3 Reports and Notices
On and after the Effective Date, Section 4.1(b) of the Loan Agreement shall
be amended by adding the following at the end of such clause:
"together with a report of the sources and uses of funds in the
Additional Equity Account during such Fiscal Month".
1.4 5(l) Restricted Payments
On and after the Effective Date, Section 5(l) of the Loan Agreement shall
be amended to read as follows:
"Make or permit any Restricted Payment; provided, that so long as no
Default or Event of Default has occurred and is continuing or would occur
as a result of such payment, then Borrower may pay dividends on account of
its Preferred Stock, cash or otherwise, in accordance with the terms of the
Statement of Rights and Preferences."
1.5 5(n) Modification of PCC Debt
On and after the Effective Date, Section 5(n) of the Loan Agreement shall
be amended by addition of the following proviso at the end thereof:
"; and provided further, that Borrower may satisfy all or any amount of the
PCC Debt in excess of 95% thereof in aggregate principal amount, by payment
of not more than (i) $1,500,000 in cash and (ii) issuance of $1,000,000 in
value of Borrower's common Stock in substitution therefor, in accordance
with the Purchase Agreement".
1.6 Statement of Rights and Preferences
On and after the Effective Date, a new Section 5(p) shall be added to the
Loan Agreement as follows:
"(p) amend the Statement of Rights and Preferences without the prior
written consent of Lender."
1.7 Schedule D (Cash Management)
On and after the Effective Date, Schedule D to the Loan Agreement shall be
amended
by: (i) the addition of "(other than the Additional Equity)" in the third line
of paragraph 2 thereof between the words "and all other receipts" and "into
blocked accounts"; and (ii) the addition of the following paragraph number 10 to
Schedule D to the Loan Agreement:
"10. Borrower shall deposit all of the net proceeds of the Additional
Equity to a deposit account (the "Additional Equity Account") with a bank
or other financial institution acceptable to Lender that shall enter into a
tri-party blocked account agreement (the "Additional Equity Account
Agreement") with Lender and Borrower, in form and substance acceptable to
Lender. The Additional Equity Account Agreement shall provide, among other
things, that the bank or other financial institution shall have no rights
of setoff or recoupment or any other claim against the Additional Equity
Account, other than for payment of its service fees and other charges
directly related to the administration of such account. The Additional
Equity Account shall be under the sole dominion and control of Lender;
provided, that prior to the occurrence of an Event of Default, Borrower may
use funds in the Additional Equity Account for any purpose permitted by the
Loan Agreement."
1.8 Schedule E (Fees)
On and after the Effective Date, paragraph 2 of Schedule E to the Loan
Agreement shall be amended to read as follows:
"2. Closing Fee. Borrower shall pay to Lender an origination fee in the
amount of $175,000, which fee shall be fully earned on the Closing Date;
$100,000 of such fee shall be payable on the Closing Date and $75,000 of
such fee shall be payable on December 31, 1997; provided, that payment by
Borrower of the $75,000 installment will be waived by Lender if Borrower
has received the Additional Equity on or before December 31, 1997 and no
Default or Event of Default has then occurred and is continuing."
1.9 Schedule G (Financial Covenants)
On and after the Effective Date, paragraph (a) of Schedule G to the Loan
Agreement shall be amended by deleting the amounts of "Maximum Capital
Expenditures per Period" set forth therein for the Fiscal Years ended 1/30/99
and 1/29/00 and replacing such amounts with "$2,000,000" and "$4,000,000" for
such Fiscal Years, respectively.
1.10 Open Items Letter
We refer to the letter agreement between Borrower and Lender dated August
29, 1997, wherein Lender waived immediately delivery of certain documents and
other information (collectively, the "Open Items") as a condition to the
effectiveness of the Loan Agreement and the other Loan Documents. On and after
the Effective Date the time for performance of the Open Items shall be extended
as follows:
"With respect to the Bank Direction Letters required under Item 3.7(c) of
the Schedule of Documents, Borrower shall have delivered to Lender (a) not
less than 50% of such letters by January 31, 1998, and (b) not less than
70% of such letters by February 28, 1998. In addition, Borrower shall have
delivered by February 28, 1998, direction letters in form and substance
satisfactory to Lender with respect to Borrower's charge card agreements
with each of American Express, First Data and the Discover Card. The
failure to deliver such documents by the respective dates set forth above
shall constitute an Event of Default."
ARTICLE II. CONSENTS
2.1 Change of Control
Lender hereby gives its consent, pursuant to Sections 7.1(l) and 9.3 of the
Loan Agreement, to any Change of Control of Borrower resulting directly or
indirectly from (i) the sale of the Preferred Stock to the Purchasers, (ii) the
conversion of Preferred Stock to common Stock, and (iii) the aggregate effect of
all other transactions contemplated by Borrower and Purchasers relating to the
Purchase Agreement, including without limitation the issuance of $1,000,000 in
value of Borrower common Stock in satisfaction of PCC Debt and the issuance of
new stock options to the management of Borrower pursuant to the Purchase
Agreement.
2.2 Additional Equity Account
Lender hereby gives its consent, pursuant to Sections 3.19 and 9.3 of the
Loan Agreement, to creation of the Additional Equity Account and to the addition
of the Additional Equity Account to Schedule 3.19.
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF BORROWER
In order to induce Lender to enter into this Amendment Borrower and
Distribution represent and warrant to Lender that the following statements are
true and correct:
3.1 Corporate Power and Authority
Each of Borrower and Distribution has all corporate power and authority to
enter into this Amendment and carry out the transactions contemplated hereby,
and perform its obligations under the Loan Agreement, as amended hereby.
3.2 Incorporation of Representations and Warranties from Loan Agreement
The representations and warranties contained in Article V of the Loan
Agreement are and will be true, correct, and complete in all material respects
on and as of the date of the Effective Date to the same extent as though made on
and as of that date, except to the extent such representations and warranties
specifically relate to an earlier date, in which they were true and correct in
all material respects on and as of such earlier date.
3.3 Absence of Default
No event has occurred and is continuing that constitutes or will constitute
a Default or an Event of Default.
ARTICLE IV. CONDITIONS TO EFFECTIVENESS
Article I and Article II of this Amendment shall become effective as of the
closing of the investment by Purchasers in Borrower pursuant to the Purchase
Agreement (the "Effective Date"), provided that (a) all representations and
warranties contained herein are true and correct as of the Effective Date, and
(b) Lender shall have received on or before the Effective Date (or such other
date indicated below) each of the following, dated the date hereof (or such
other date satisfactory to Lender), and in form and substance satisfactory to
Lender.
4.1 Amendment
A duly executed original (or, if elected by Lender, an executed facsimile
copy) of this Amendment, duly executed by Borrower, Distribution and Lender.
4.2 Purchase Agreement
A fully executed copy of the Purchase Agreement.
4.3 Articles of Incorporation
Within two business days of the closing of the investment, Borrower's
amended Articles of Incorporation incorporating the terms of the Statement of
Rights and Preferences and certified by the Washington Secretary of State.
4.4 Pledged Account Agreement
A Pledged Account Agreement in form and substance satisfactory to Lender
with respect to the Additional Equity Account.
4.5 Additional Equity
(a) Within ten business days of the closing of the investment, Lender shall
have received evidence satisfactory to it that the Company has distributed to
the holders of the PCC Debt the $1,500,000 cash payment to be made in accordance
with Section 3.2 of the Purchase Agreement.
(b) Lender shall have received from the Company from the proceeds of the
Additional Equity an amount sufficient to repay the Additional Advance and
Borrower's other repayment obligations arising under Section 1.2(a) of the Loan
Agreement as of the Effective
Date.
4.6 Further Assurances
All corporate and other proceedings taken or to be taken in connection with
the transactions contemplated by this Amendment and all documents relating
thereto shall be reasonably satisfactory in form and substance to Lender and
Lender shall have received all counterpart originals or certified copies of such
documents as it may reasonably request.
ARTICLE V. MISCELLANEOUS
5.1 Reservation of Rights
Borrower and Distribution acknowledge and agree that the execution and
delivery by Lender of this Amendment shall not be deemed to create a course of
dealing or otherwise obligate Lender to give similar amendments in the future.
5.2 Security
The Loan Agreement, as amended hereby, the Pledge Agreement, the
Intellectual Property Security Agreement, and all other Loan Documents creating,
evidencing and/or perfecting Lender's security interest in the Collateral shall
remain in full force and effect and shall secure the Obligations, as amended
herein. At any time and from time to time, upon the reasonable request of Lender
and at the sole expense of Borrower, Borrower and Distribution will promptly
execute and deliver such further instruments and documents, take such further
actions as Lender may reasonably request for the purpose of obtaining or
preserving the full benefits of this Amendment and rights and powers herein
granted to Lenders under the Loan Agreement or any of the other Loan Documents.
5.3 Supersession
This Amendment, together with the Loan Agreement, contains the entire and
exclusive agreement of the parties hereto with reference to the matters
discussed herein and therein. This Amendment supersedes all prior drafts and
communications with respect thereto. This Amendment may not be amended except in
accordance with the provisions of Section 9.1 of the Loan Agreement.
ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO FORBEAR
FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON LAW.
5.4 Fees and Expenses
Borrower acknowledges that all reasonable costs, fees, and expenses as
described in Section 9.2 of and Schedule E to the Loan Agreement incurred by
Lender and its counsel with
respect to this Amendment and the documents and transactions contemplated hereby
shall be for the account of Borrower.
5.5 Invalidity
If any term or provision of this Amendment shall be deemed prohibited by or
invalid under any applicable law, such provision shall be invalidated without
affecting the remaining provisions of this Amendment or the Loan Agreement,
respectively.
5.6 Governing Law
This Amendment and the rights and obligations of the parties hereunder
shall be governed by, and shall be construed and enforced in accordance with the
internal laws of the State of Washington, without regard to conflicts of laws
principles.
5.7 Headings
Section and subsection headings in this Amendment are included herein for
convenience of reference only and shall not constitute a part of this Amendment
for any other purpose or be given any substantive effect.
5.8 Successors
This Amendment shall be binding upon and inure to the benefit of the
parties hereto and thereto and their respective successors and assigns. No
third-party beneficiaries are intended in connection with this Amendment.
5.9 Counterparts
This Amendment may be executed in any number of counterparts and by
different parties hereto in separate counterparts, each of which when executed
and delivered shall be deemed an original, but all such counterparts together
shall constitute but one and the same instrument; signature pages may be
detached from multiple separate counterparts and attached to a single
counterpart so that all signature pages are physically attached to the same
document.
5.10 Effect of Amendment
Borrower, Distribution and Lender hereby acknowledge and agree to the
following:
(a) upon the effectiveness of this Amendment, on and after the date hereof,
each reference in the Loan Agreement to "this Agreement," "hereunder," "hereof"
or words of similar import shall mean and be a reference to the Loan Agreement
as amended hereby, and each reference in the other Loan Documents to the Loan
Agreement, "thereunder," "thereof," or words of similar import shall mean and be
a reference to the Loan Agreement as amended hereby;
(b) the execution, delivery and effectiveness of this Amendment shall not,
except to the extent specifically set forth herein, operate as a waiver of any
right, power or remedy by Lender under the Loan Agreement or any other Loan
Document, or constitute a waiver of any provision in the Loan Agreement or in
any of the other Loan Documents;
(c) except to the extent specifically amended by the terms of this
Amendment, all of the provisions of the Loan Agreement shall remain in full
force and effect to the extent in effect on the date hereof; and
(d) in the event of any inconsistency between the provisions of this
Amendment and any other provision of the Loan Agreement, the terms and
provisions of this Amendment shall govern and control.
ARTICLE VI. LENDER'S ACKNOWLEDGMENT
Lender hereby acknowledges that, based solely upon (a) the most recent
Borrowing Base Certificate received by Lender dated December 2, 1997, and (b)
the representation and warranty of Borrower and Distribution regarding the
absence of Defaults set forth in Section 3.3 above, as of the Effective Date, to
the actual knowledge of Lender (without any duty to investigate), no Default or
Event of Default has occurred and is continuing under the Loan Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment to
be duly executed and delivered by its respective officers therein to be duly
authorized as of the date first above written.
BORROWER:
XXX XXXXXX, INC.
By
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Xxxxxxx X. Xxxxxxxx, Xx.
Executive Vice President and
Chief Financial Officer
DISTRIBUTION:
J.J. DISTRIBUTION COMPANY
By
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Xxxxxxx X. Xxxxxxxx, Xx.
President
LENDER:
GENERAL ELECTRIC CAPITAL CORPORATION
By
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Xxxxxx Xxxxxxxx
Duly Authorized Signatory
