EXHIBIT 10.7
THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT
THIS THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT (this "Amendment"),
dated as of January______, 2003, is entered into between CONGRESS FINANCIAL
CORPORATION (SOUTHWEST), a Texas corporation ("Lender"), and CITI TRENDS, INC.,
a Delaware corporation ("Borrower").
RECITALS
A. Borrower and Lender have previously entered into that certain Loan and
Security Agreement dated April 2, 1999, as amended by that certain First
Amendment to Loan and Security Agreement dated June 22, 2000, that certain
Second Amendment to Loan and Security Agreement dated November 30, 2000 and that
certain letter agreement dated August 1, 2001 regarding Borrower's name change
(as amended, 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. Lender and Borrower now wish to further amend the Loan Agreement on the
terms and conditions set forth herein.
C. 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.
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. Amendments to Loan Agreement.
(a) Section 1.28 of the Loan Agreement is hereby amended and
restated to read in its entirety as follows:
"1.28 "Maximum Credit" shall mean, with reference to the
Revolving Loans and the Letter of Credit Accommodations, the
amount of Fifteen Million Dollars ($15,000,000); provided,
however, from April 3, 2003 to and including April 2, 2004, it
shall mean the amount of Twenty Million Dollars ($20,000,000);
provided, further, on April 3, 2004 and thereafter, it shall
mean the amount of Twenty-Five Million Dollars ($25,000,000)."
(b) The definition of "Interest Rate" set forth in Section 1 of
the Loan Agreement is hereby amended and restated to read in its entirety as
follows:
" "Interest Rate shall mean:
(a)as to Prime Rate Loans, a rate of:
(i) the Prime Rate to the extent either (A) Borrower has
maintained Excess Availability of $5,000,000 or greater at all
times during the immediately preceding month or (B) both (1)
Borrower has maintained Excess Availability of $3,000,000 or
greater at all times during the immediately preceding month
and (2) Borrower's then year to date EBITDA, as determined by
Lender based upon its review of the financial statements
provided to Lender by Borrower for the relevant period, when
measured as of the last day of such period, was $5,000,000 or
greater;
(ii) one-quarter of one percent (0.25%) per annum in
excess of the Prime Rate to the extent either (A) Borrower has
maintained Excess Availability of between $2,500,000 and
$4,999,999 at all times during the immediately preceding month
or (B) Borrower's then year to date EBITDA, as determined by
Lender based upon its review of the financial statements
provided to Lender by Borrower for the relevant period, when
measured as of the last day of such period, was between
$3,000,000 and $4,999,999; or
(iii) one-half of one percent (0.50%) per annum in
excess of the Prime Rate to the extent either (A) Borrower has
maintained Excess Availability of $2,499,999 or less at all
times during the immediately preceding month or (B) Borrower's
then year to date EBITDA, as determined by Lender based upon
its review of the financial statements provided to Lender by
Borrower for the relevant period, when measured as of the last
day of such period, was $2,999,999 or less; and
(b) as to Eurodollar Rate Loans, a rate of:
(i) two and one-quarter percent (2.25%) per annum in
excess of the Adjusted Eurodollar Rate (based on the
Eurodollar Rate applicable for the Interest Period selected by
Borrower as in effect three (3) Business Days after the date
of receipt by Lender of the request of Borrower for such
Eurodollar Rate Loans in accordance with the terms hereof,
whether such rate is higher or lower than any rate previously
quoted to Borrower) to the extent either (A) Borrower has
maintained Excess Availability of $5,000,000 or greater at all
times during the immediately preceding month or (B) both (1)
Borrower has maintained Excess Availability of $3,000,000 or
greater at all times during the immediately preceding month
and (2) Borrower's then year to date EBITDA, as determined by
Lender based upon its review of the financial statements
provided to Lender by Borrower for the relevant period, when
measured as of the last day of such period, was $5,000,000 or
greater;
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(ii) two and one-half percent (2.50%) per annum in
excess of the Adjusted Eurodollar Rate (based on the
Eurodollar Rate applicable for the Interest Period selected by
Borrower as in effect three (3) Business Days after the date
of receipt by Lender of the request of Borrower for such
Eurodollar Rate Loans in accordance with the terms hereof,
whether such rate is higher or lower than any rate previously
quoted to Borrower) to the extent either (A) Borrower has
maintained Excess Availability of between $2,500,000 and
$4,999,999 at all times during the immediately preceding month
or (B) Borrower's then year to date EBITDA, as determined by
Lender based upon its review of the financial statements
provided to Lender by Borrower for the relevant period, when
measured as of the last day of such period, was between
$3,000,000 and $4,999,999; or
(iii) two and three-quarters percent (2.75%) per annum
in excess of the Adjusted Eurodollar Rate (based on the
Eurodollar Rate applicable for the Interest Period selected by
Borrower as in effect three (3) Business Days after the date
of receipt by Lender of the request of Borrower for such
Eurodollar Rate Loans in accordance with the terms hereof,
whether such rate is higher or lower than any rate previously
quoted to Borrower) to the extent either (A) Borrower has
maintained Excess Availability of $2,499,999 or less at all
times during the immediately preceding month (B) Borrower's
then year to date EBITDA, as determined by Lender based upon
its review of the financial statements provided to Lender by
Borrower for the relevant period, when measured as of the last
day of such period, was $2,999,999 or less;
provided, that, the Interest Rate shall mean a rate of two
percent in excess of the rate that would otherwise be applied
in accordance with the foregoing, at Lender's option, without
notice, (x) for the period (i) from and after the date of
termination or non-renewal hereof until Lender has received
full and final payment of all obligations (notwithstanding
entry of a judgment against Borrower) and (ii) from and after
the date of the occurrence of an Event of Default for so long
as such Event of Default is continuing as determined by
Lender, and (y) on the Revolving Loans at any time outstanding
in excess of the amounts available to Borrower under Section 2
(whether or not such excess(es), arise or are made with or
without Lender's knowledge or consent and whether made before
or after an Event of Default)."
(c) The following definitions are hereby added, in their proper
alphabetical order, to Section 1 of the Loan Agreement:
" "Capital Lease" shall mean, as applied to any Person, any lease of
(or any agreement conveying the right to use) any property (whether
real,
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personal or mixed) by such Person as lessee that, in
accordance with GAAP, is required to be reflected as a
liability on the balance sheet of such Person.
"Capital Stock" shall mean, with respect to any Person, any
and all shares, interests, participations or other equivalents
(however designated) of such Person's capital stock,
partnership interests or limited liability company interests
at any time outstanding, and any and all rights, warrants or
options exchangeable for or convertible into such capital
stock or other interests (but excluding any debt security that
is exchangeable for or convertible into such capital stock).
"EBITDA" shall mean, as to any Person, with respect to any
period, an amount equal to: (a) the Net Income of such Person
and its Subsidiaries for such period on a consolidated basis
determined in accordance with GAAP, plus (b) depreciation,
amortization and other non-cash charges (including, but not
limited to, imputed interest and deferred compensation) of
such Person for such period (to the extent deducted in the
computation of Net Income), all in accordance with GAAP, plus
(c) Interest Expense of such Person for such period (to the
extent deducted in the computation of Net Income), plus (d)
charges for Federal, State, local and foreign income taxes for
such period (to the extent deducted in the computation of Net
Income), plus (e) all extraordinary losses and unusual losses
related to the restructuring of the business of such Person
and costs associated with the refinancing transaction
contemplated by this Agreement, minus (f) all income (and plus
all charges, up to the amount of such income) attributable to
any Subsidiary of such Person.
"Interest Expense" shall mean, for any period, as to any
Person and its Subsidiaries, all of the following as
determined in accordance with GAAP, total interest expense,
whether paid or accrued (including the interest component of
Capital Leases for such period), including, without
limitation, all bank fees, commissions, discounts and other
fees and charges owed with respect to letters of credit,
banker's acceptances or similar instruments, but excluding (a)
amortization of discount and amortization of deferred
financing fees and closing costs paid in cash in connection
with the transactions contemplated hereby, (b) interest paid
in property other than cash and (c) any other interest expense
not payable in cash.
"Net Income" shall mean, with respect to any Person, for any
period, the aggregate of the net income (loss) of such Person
and its Subsidiaries, on a consolidated basis, for such period
(excluding to the extent included therein any extraordinary or
one-time gains or losses) after deducting all charges which
should be deducted before arriving at the net income (loss)
for such period and after deducting the Provision for Taxes
for such period, all as determined in accordance with GAAP,
provided, that, (a) the net income of any Person that is not a
wholly-owned Subsidiary or that is accounted for by the equity
method of accounting shall be included only to
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the extent of the amount of dividends or distributions paid or
payable to such Person or a wholly-owned Subsidiary of such
Person; (b) the effect of any change in accounting principles
adopted by such Person or its Subsidiaries after the date
hereof shall be excluded; and (c) the net income (if positive)
of any wholly-owned Subsidiary to the extent that the
declaration or payment of dividends or similar distributions
by such wholly-owned Subsidiary to such Person or to any other
wholly-owned Subsidiary of such Person is not at the time
permitted by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule
of government regulation applicable to such wholly-owned
Subsidiary shall be excluded. For the purpose of this
definition, net income excludes any gain or loss, together
with any related Provision for Taxes for such gain or loss
realized upon the sale or other disposition of any assets that
are not sold in the ordinary course of business (including,
without limitation, dispositions pursuant to sale and
leaseback transactions), or of any Capital Stock of such
Person or a Subsidiary of such Person and any net income
realized as a result of changes in accounting principles or
the application thereof to such Person.
"Provision for Taxes" shall mean, with respect to any Person,
for any period, an amount equal to all taxes imposed on or
measured by net income, whether Federal, State or local, and
whether foreign or domestic, that are paid or payable by such
Person and its Subsidiaries in respect of such period on a
consolidated basis in accordance with GAAP.
"Subsidiary" shall mean, with respect to any Person, any
corporation, limited or general partnership, limited liability
company, trust, association or other business entity of which
more than fifty percent (50%) of the voting stock or other
voting equity interests (in the case of a business entity
other than a corporation) is owned or controlled directly or
indirectly by such Person, or one or more Subsidiaries of such
Person, or a combination thereof."
(d) Section 2.1(a)(i) of the Loan Agreement is hereby amended and
restated to read in its entirety as follows:
"(i) the lesser of:
(A) sixty-five percent (65%) of the Value of the
Eligible Inventory; or
(B) eighty-five percent (85%) of the Appraised
Inventory Value of Eligible Inventory; minus"
(e) The first sentence of Section 2.2(d) of the Loan Agreement is
hereby amended to read as follows:
"Except in Lender's discretion, the amount of all outstanding
Letter of Credit Accommodations and all other commitments and
obligations made
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or incurred by Lender in connection therewith shall not at any
time exceed Two Million Dollars ($2,000,000)."
(f) Section 3.1(b)(v) of the Loan Agreement is hereby amended to
read as follows:
"(v) the aggregate amount of the Eurodollar Rate Loans must be
in an amount not less than $1,000,000 or an integral multiple
of $500,000 in excess thereof,"
(g) A new Section 3.6 is hereby added to Section 3 of the Loan
Agreement which reads as follows:
"3.6 Unused Line Fee. Beginning April 3, 2003, Borrower shall
pay to Lender monthly an unused line fee at a rate equal to
one-quarter of one percent (0.25%) per annum calculated upon
the amount by which Ten Million Dollars ($10,000,000) exceeds
the average daily principal balance of the outstanding
Revolving Loans and Letter of Credit Accommodations during the
immediately preceding month (or part thereof) while this
Agreement is in effect and for so long thereafter as any of
the Obligations are outstanding, which fee shall be payable on
the first day of each month (beginning May 1, 2003) in
arrears."
(h) Section 6.3(a)(ii) of the Loan Agreement is hereby amended and
restated to read in its entirety as follows:
"(ii) Borrower shall establish and maintain, at its expense,
pursuant to an agreement described in the following sentence,
a blocked account with such bank or banks as are acceptable to
Lender (each a "Blocked Account" and collectively the "Blocked
Accounts"). Each bank at which a Blocked Account is
established shall enter into an agreement, in form and
substance satisfactory to Lender, providing (unless otherwise
agreed to by Lender) that all items received or deposited in
such Blocked Account are the Collateral of Lender, that the
depository bank has no lien upon, or right to setoff against,
the Blocked Accounts, the items received for deposit therein,
or the funds from time to time on deposit therein, and that,
upon notice from Lender (a "Control Notice"), the depository
bank will wire, or otherwise transfer, in immediately
available funds, on a daily basis, all funds received or
deposited into such Blocked Account to such bank account of
Lender as Lender may from time to time designate for such
purpose (the "Payment Account"); provided, that, Lender may
only issue a Control Notice upon the occurrence of an Event of
Default or in the event that Excess Availability is $4,999,999
or less at any time; and provided, further, that Lender shall
rescind such Control Notice if Borrower maintains Excess
Availability of $5,000,000 or more at all times during the
ninety (90) day period immediately following the issuance of
such Control Notice. Borrower agrees that all amounts
deposited in the Blocked Account(s) or other funds received
and collected by Lender,
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whether as proceeds of Inventory, the collection of Accounts
or other Collateral or otherwise shall be the Collateral of
Lender. Prior to the issuance of a Control Notice, Borrower
shall make all payments with respect to the Obligations to the
Payment Account, which payments shall automatically be made,
pursuant to the terms of this Section, after the issuance of a
Control Notice."
(i) A new Section 7.8 is hereby added to the Loan Agreement which
reads as follows:
"7.8 Interim Collateral Audits. Lender shall be entitled to
conduct interim audits of the Collateral a minimum of twice
over every twelve (12) month period, except, that, upon the
occurrence of an Event of Default or if Excess Availability is
$4,999,999 or less at any time, such audits shall be conducted
at any time as Lender may request."
(j) Section 9.16(g) of the Loan Agreement is hereby amended to
read as follows:
"(g) all out-of-pocket expenses and costs incurred by Lender's
examiners in the conduct of their periodic field examinations
of the Collateral and Borrower's operations, plus a per diem
charge at the rate of $750 per person per day for Lender's
examiners in the field and office; and"
(k) The first sentence of Section 12.1(a) of the Loan Agreement is
hereby amended to read as follows:
"This Agreement and the other Financing Agreements shall
become effective as of the date set forth on the first page
hereof and shall continue in full force and effect for a term
ending on April 2, 2005."
(l) Sections 12.1(c)(i) and (ii) of the Loan Agreement are hereby
amended to read as follows:
Amount Period
------ ------
(i) 1% of the Maximum Credit from the date of this Agreement
to and including Xxxxx 0, 0000
(xx) .5% of the Maximum Credit from April 3, 2004 to and
including April 1, 2005
2. 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 required to extend any credit to Borrower as
provided for by this Amendment.
(a) Amendment. This Amendment, fully executed in a sufficient
number of counterparts for distribution to all parties.
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(b) Extension Fee. An extension fee in the amount of Fifty
Thousand Dollars ($50,000), which fee is fully earned as of and due and payable
on the date hereof.
(c) Representations and Warranties. The representations and
warranties set forth herein and in the Loan Agreement must be true and correct.
(d) 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.
3. Representations and Warranties. Borrower represents and warrants as
follows:
(a) Authority. Borrower has the requisite corporate power and
authority to execute and deliver this Amendment, 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 Borrower of this
Amendment have been duly approved by all necessary corporate action and no other
corporate proceedings are necessary to consummate such transactions.
(b) Enforceability. This Amendment has been duly executed and
delivered by Borrower. This Amendment and each Financing Agreement (as amended
or modified hereby) is the legal, valid and binding obligation of Borrower,
enforceable against Borrower in accordance with its terms, and is in full force
and effect.
(c) Representations and Warranties. The representations and
warranties contained in each Financing Agreement (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.
(d) 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.
(e) No Default. No event has occurred and is continuing that
constitutes an Event of Default.
(f) No Duress. This Amendment has been entered into without force
or duress, of the free will of Borrower. Borrower's decision to enter into this
Amendment is a fully informed decision and Borrower is aware of all legal and
other ramifications of such decision.
(g) Counsel. Borrower has read and understands this Amendment, has
consulted with and been represented by legal counsel in connection herewith, and
has been advised by its counsel of its rights and obligations hereunder and
thereunder.
4. 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
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construed in accordance with the internal laws of the State of New York (without
giving effect to principals of conflicts of law).
5. 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 by telefacsimile
shall be effective as delivery of a manually executed counterpart of this
Amendment.
6. Reference to and Effect on the Financing Agreements.
(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 Financing Agreements 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 Financing Agreements, 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 Financing Agreements, nor
constitute a waiver of any provision of any of the Financing Agreements.
(d) To the extent that any terms and conditions in any of the
Financing Agreements 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.
7. 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.
8. 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, 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.
9. Integration. This Amendment, together with the other Financing
Agreements, incorporates all negotiations of the parties hereto with respect to
the subject matter hereof and is the final expression and agreement of the
parties hereto with respect to the subject matter hereof.
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10. Severability. In case any provision in this Amendment shall be
invalid, illegal or unenforceable, such provision shall be severable from the
remainder of this Amendment and the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
IN WITNESS WHEREOF, the parties have entered into this Amendment as of the
date first above written.
CITI TRENDS, INC.,
a Delaware corporation
By: /s/ XXX XXXXXX
--------------------------
Name: Xxx Xxxxxx
Title: CFO
CONGRESS FINANCIAL CORPORATION
(SOUTHWEST),
a Texas corporation
By: /s/ XXX X. XXXXX
--------------------------
Name: Xxx X. Xxxxx
Title: AVP
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