SECOND AMENDMENT TO
SECURED CREDIT AGREEMENT
AND WAIVER
This SECOND AMENDMENT TO SECURED CREDIT AGREEMENT (this "Amendment"),
dated as of July 26, 1999, is among BROWNSTONE HOLDINGS, INC., a Delaware
corporation ("Brownstone"), ECOLOGY KIDS, INC., a Delaware corporation ("Ecology
Kids"), DIPLOMAT HOLDINGS, INC., a California corporation ("Diplomat") and XXX
XXXXXX LTD., a New York corporation ("Xxx Xxxxxx"); Brownstone, Ecology Kids,
Diplomat and Xxx Xxxxxx are hereinafter referred to, collectively, as
"Borrowers" and individually, as a "Borrower"), FIRST SOURCE FINANCIAL LLP, an
Illinois registered limited liability partnership ("Lender") and DIPLOMAT DIRECT
MARKETING CORPORATION, a Delaware corporation, in its capacity as funds
administrator and borrowing agent for the Borrowers (in such capacity, the
"Funds Administrator") (this and all other capitalized terms used herein are
defined in Section 1 of the Credit Agreement defined below).
R E C I T A L S:
A. Borrowers, Parent and Lender are parties to that certain Secured
Credit Agreement dated as of May 12, 1999, as amended (the "Credit Agreement"),
subject to the terms and conditions of which Lender has agreed to make loans and
other financial accommodations to Borrowers.
B. Borrowers have not complied with the Borrowing Base and intercompany
loan restrictions under the Credit Agreement, and Borrowers have requested
Lender to increase availability under the Borrowing Base by providing an advance
against additional Collateral pledged by The Xxxxx Family Irrevocable Stock
Trust U/A Dated April 30, 1997 (the "Trust").
C. Borrowers are in non-compliance with certain covenants contained in
the Credit Agreement (the "Existing Defaults") and have indicated they expect to
be in non-compliance with certain financial covenants as of June 30, 1999 (the
"Financial Defaults"; the Existing Defaults and the Financial Defaults are
referred to collectively as the "Current Defaults"), and Borrowers have
requested Lender to waive the Current Defaults.
D. Subject to the terms and conditions of this Amendment, Lender has
agreed to include the additional Collateral pledged by the Trust in the
Borrowing Base and waive the Current Defaults.
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements contained herein, and subject to the terms and conditions hereof,
Funds Administrator, Borrowers and Lender hereby agree as follows:
1. Definitions. All capitalized terms used but not elsewhere defined in
this Amendment shall have the respective meanings ascribed thereto in the Credit
Agreement.
2. Amendments to Credit Agreement. The Credit Agreement is amended as
follows:
2.01. Section 1.1 of the Credit Agreement is hereby amended by amending
and restating the following definitions in their entirety:
"Change of Control" shall mean (i) failure of Parent to own,
legally and beneficially, one hundred percent of the issued and outstanding
capital stock of any Borrower or (ii) when any Person, including a "group" as
defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended,
other than Parent, Borrowers, any of their wholly-owned Subsidiaries or any of
their employee benefit plans, becomes the beneficial owner of the Parent's
Equity Interests having fifty percent (50%) or more of the combined voting power
of the then outstanding Equity Interests of the Parent that may be cast for the
election of directors of the Parent (other than as a result of issuance of
Equity Interests initiated by Parent in the ordinary course of business), or
(iii) two-thirds of the Parent's Board of Directors is removed or not
re-elected, or (iv) any two of Xxxxxx X. Xxxxxx (President and Chief Executive
Officer), Xxxxxx Xxxxxx (Director of Catalogs), and Xxxx X. XxXxxxxxx (Chief
Financial Officer), shall resign or be terminated, other than for cause and
other than as a result of death or disability, from their respective current
offices and capacities with the Parent and the Borrowers, and a successor or
successors acceptable to Lender shall not have been elected or appointed, as
applicable, within ninety (90) days after such resignation or termination;
provided, that if no such successor is elected or appointed, as applicable, an
Event of Default shall be deemed to have occurred and be continuing from and
after the date of such resignation or termination.
"Pledge Agreements" shall mean the (i) Pledge Agreement from
Parent dated of even date herewith; (ii) Pledge Agreement from Xxxxxx Xxxxx
dated of even date herewith and (iii) Pledge Agreement from the Trust dated as
of July 26, 1999, each in favor of Lender, as the same may, in each case, be
amended, modified, supplemented or replaced from time to time.
"Pledged Cash Collateral" shall mean any certificates of
deposit or other Cash Equivalent deposits or cash in depositary accounts (i)
pledged by Xxxxxx Xxxxx or Trust to Lender and maintained at the Master Account
Bank pursuant to a pledge or security agreement in form and substance
satisfactory to the Lender and the Master Account Bank and (ii) in which Lender
shall have a valid and perfected first priority Lien. Notwithstanding the
foregoing to the contrary, Pledged Cash Collateral shall also include, through
the period ending August 31, 1999, the value, calculated based upon the bid
price reported as of the previous Business Day by the Securities Intermediary,
of the common stock of Xxxxx Holdings, Inc. pledged by Trust pursuant to the
Pledge Agreement executed by Trust dated as of July 26, 1999; provided that (i)
such stock continues to be actively traded on the Nasdaq stock market (ii) the
bid price of such stock is never less than $2.00 and (iii) for the period ending
July 30, 1999, the maximum value of each share of Xxxxx Holdings, Inc. stock
shall, for the purposes of each Borrowing base, be $3.25,
and (iv) thereafter, the maximum value of each share of Xxxxx Holdings, Inc.
stock shall, for the purposes of each Borrowing Base, be $2.75.
2.02. Section 1.1 of the Credit Agreement is hereby amended by
inserting the following new definitions in the alphabetically appropriate places
therein:
"Securities Intermediary" shall mean the Master Account Bank
or Salomon Brothers Xxxxx Xxxxxx, Inc.
"Trust" shall mean The Xxxxx Family Irrevocable Stock Trust
U/A Dated April 30, 1997.
2.03. Schedule 10.21 is hereby deleted and Schedule 10.21 attached to
this Amendment is substituted in lieu thereof, provided, however, Lender does
not waive any noncompliance with any provision of the Credit Agreement arising
from the attachment of any Lien for failure to pay taxes.
3. Waivers.
(a) Borrowers have failed to submit monthly financial statements as
required by Section 11.1(c) of the Credit Agreement for April and May
in 1999;
(b) Borrowers are currently in noncompliance with Section 2.7 of the
Credit Agreement requiring mandatory prepayment of Revolving Loans;
(c) Borrowers are currently in noncompliance with Section 11.21(ii) of
the Credit Agreement restricting intercompany loans; and
(d) Borrowers have indicated they expect to be in noncompliance with
Sections 11.34(a), 11.34(b) and 11.34(c) of the Credit Agreement for
the period ending June 30, 1999.
Upon satisfaction of the conditions precedent set forth in Section 4 of
this Amendment, the Lender hereby waives Borrowers' noncompliance with the
foregoing sections of the Credit Agreement, but only with regard to the specific
instances described above. From and after the date of this Amendment with
respect to clauses (a) - (c) above, and for each measurement period ending after
June 30, 1999 with respect to clause (d) above, Borrowers shall comply with the
terms and conditions of the Credit Agreement, which shall remain in full force
and effect.
4. Conditions to Effectiveness. The effectiveness of this Amendment
shall be subject to the satisfaction of all of the following conditions in a
manner, form and substance satisfactory to Lender:
(a) Delivery of Documents. The following shall have been
delivered to Collateral Agent, each duly authorized and executed:
(1) this Amendment;
(2) a Limited Recourse Guaranty of Trust in form and
substance satisfactory to the Lender;
(3) a Pledge Agreement executed by Trust in favor of
the Lender in form and substance satisfactory to the Lender
together with UCC financing statements relating thereto;
(4) a safekeeping or other account agreements with
the Securities Intermediary, in form and substance
satisfactory to the Lender which shall provide, among other
things, sale of the Pledged Xxxxx Stock (defined below) and
delivery of all proceeds to an account at the Master Account
Bank subject to an Assignment of Deposit Agreement dated as of
even date herewith;
(5) the Securities Intermediary shall have confirmed
receipt of 300,000 unrestricted shares of the common stock of
Xxxxx Holdings, Inc. (the "Pledged Xxxxx Stock");
(6) an Assignment of Deposit Agreement contemplated
by clause (4) above from Trust and acknowledged by the Master
Account Bank;
(7) counsel to Xxxxx shall have rendered an opinion
that there are no restrictions regarding the sale of the
Pledged Xxxxx stock;
(8) counsel to Trust shall have rendered an opinion
to Lender regarding the execution and delivery of the Related
Documents executed by Trust in form and substance satisfactory
to Lender;
(9) such other instruments, documents, certificates,
consents, waivers and opinions as Lender reasonably may
request.
(b) Payment of Fee. The Borrowers shall have paid to Lender a
fee in the amount $50,000 as consideration for the waivers provided in
Section 3 of this Amendment and for including the Pledged Xxxxx Stock
in the Borrowing Base. Lender and Borrowers agree such fee shall be
paid from the proceeds of a Revolving Loan which the Funds
Administrator hereby requests Lender to make on the date hereof.
(c) No Material Adverse Effect. No Material Adverse Effect
shall have occurred since the date of the most recent financial
statements for Parent and Borrowers received by Lender.
(d) Payment of Costs. Borrowers shall have paid or caused to
be paid to Lender all out of pocket expenses of Lender relating to this
Amendment and the transactions contemplated herein, including, without
limitation, the expenses and reasonable fees of Lender's counsel.
(e) Satisfaction of Lender's Counsel. All legal matters
incident to the transactions contemplated hereby shall be reasonably
satisfactory to counsel for Lender.
The date on which all of the conditions set forth in this Paragraph 4 have been
satisfied (or waived by Lender) is referred to herein as the "Effective Date."
5. References. From and after the Effective Date, all references to the
Credit Agreement shall be deemed to refer to the Credit Agreement as amended
hereby.
6. Current Defaults. Nothing herein, or actions taken or not taken by
Lender pursuant hereto or pursuant to the Loan Documents, shall or be deemed to
(i) constitute a waiver of any Event of Default or Unmatured Event of Default
except for the Current Defaults or (ii) constitute a course of dealing among the
parties.
7. Representations and Warranties. Each Borrower hereby confirms to
Lender that the representations and warranties set forth in the Credit Agreement
and the Related Documents to which it is a party are true and correct as of the
date hereof after giving effect to this Amendment, except to the extent such
representations and warranties expressly relate to an earlier date and except as
disclosed in the schedules attached to the most recent Notice Prime Rate
Activity, Notice of LIBOR Activity or LC Guaranty Request. Each Borrower
represents and warrants to Lender that (a) it has full power and authority to
execute and deliver this Amendment and to perform its obligations hereunder, (b)
upon the execution and delivery hereof, this Amendment will be valid, binding
and enforceable upon it in accordance with its terms, (c) the execution and
delivery of this Amendment does not and will not contravene, conflict with,
violate or constitute a default under (A) the organizational documents or
operating agreement of any Borrower or (B) any applicable law, rule, regulation,
judgment, decree or order of which any Borrower has knowledge or any agreement,
indenture or instrument to which any Borrower is a party or is bound or which is
binding upon or applicable to all or any portion of its property, and (d) no
Material Adverse Effect has occurred since the date of the last financial
statements delivered by Borrowers to Lender.
8. Costs and Expenses. Borrowers agree, jointly and severally, to
reimburse Lender for all out of pocket expenses incurred in the preparation,
negotiation and execution
of this Amendment and the consummation of the transactions contemplated hereby,
including, without limitation, the expenses and fees of counsel for Lender.
9. No Further Amendments; Ratification of Liability. Except as amended
hereby, the Credit Agreement and each of the Related Documents shall remain in
full force and effect in accordance with their respective terms. Each Borrower
hereby ratifies and confirms its liabilities, obligations and agreements under
the Credit Agreement and the Related Documents to which it is a party, all as
amended by this Amendment, and the liens and security interests created thereby,
and each acknowledges that (a) it has no defenses, claims or set-offs to the
enforcement of such liabilities, obligations and agreements, (b) Lender has
fully performed all obligations to Borrowers which it may have had or have on
and as of the date hereof and (c) other than as specifically set forth herein,
Lender does not waive, diminish or limit any term or condition contained in any
of the Credit Agreement or the Related Documents. Lender's agreement to the
terms of this Amendment or any other amendment of the Credit Agreement or
Related Documents shall not be deemed to establish or create a custom or course
of dealing among Lender on the one hand, and the Borrowers on the other hand.
This Amendment and the documents executed and delivered pursuant to this
Amendment contain the entire agreement among Lender and Borrowers with respect
to the transactions contemplated by this Amendment.
10. Counterparts. This Amendment may be executed in one or more
counterparts, each of which shall be deemed an original, and all of which, when
taken together, shall constitute one and the same instrument.
11. Further Assurances. Each Borrower covenants and agrees that it will
at any time and from time to time do, execute, acknowledge and deliver, or will
cause to be done, executed, acknowledged and delivered, all such further acts,
documents and instruments as reasonably may be required by Lender in order to
effectuate fully the intent of this Amendment.
12. Severability. If any term or provision of this Amendment or the
application thereof to any party or circumstance shall be held to be invalid,
illegal or unenforceable in any respect by a court of competent jurisdiction,
the validity, legality and enforceability of the remaining terms and provisions
of this Amendment shall not in any way be affected or impaired thereby, and the
affected term or provision shall be modified to the minimum extent permitted by
law so as most fully to achieve the intention of this Amendment.
13. Captions. The captions in this Amendment are inserted for
convenience of reference only and in no way define, describe or limit the scope
or intent of this Amendment or any of the provisions hereof.
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IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Amendment at Chicago, Illinois as of the day and year first above written.
DIPLOMAT DIRECT MARKETING CORPORATION, in its
capacity as Funds Administrator
By: /s/ XXXXXX X. XXXXXX
-------------------------------------------------
Name Printed: Xxxxxx Xxxxxx
Its: President and Chief Executive Officer
BROWNSTONE HOLDINGS, INC.
By: /s/ XXXXXX X. XXXXXX
--------------------------------------------------
Name Printed: Xxxxxx Xxxxxx
Its: Vice President
ECOLOGY KIDS, INC.
By: /s/ XXXXXX X. XXXXXX
-------------------------------------------------
Name Printed: Xxxxxx Xxxxxx
Its: Chief Financial Officer
DIPLOMAT HOLDINGS, INC.
By: /s/ XXXXXX X. XXXXXX
-------------------------------------------------
Name Printed: Xxxxxx Xxxxxx
Its: Chief Financial Officer
XXX XXXXXX LTD.
By: /s/ XXXXXX X. XXXXXX
-------------------------------------------------
Name Printed: Xxxxxx Xxxxxx
Its: Executive Vice President
FIRST SOURCE FINANCIAL LLP
By: First Source Financial, Inc.
Its: Manager
By: /s/ XXXXXXX X. ZARA
--------------------------------------------------
Name Printed: Xxxxxxx X. Zara
Its: Senior Vice President
Guarantor's Consent
The undersigned, Xxxxxx Xxxxx, has heretofore executed and delivered to
the Lender a Guaranty dated as of May 12, 1999 and hereby consents to the
Amendment as set forth above and confirms that its Guaranty and all of the
undersigned's obligations thereunder remain in full force and effect. The
undersigned further agrees that the consent of the undersigned to any further
amendments to the Credit Agreement shall not be required as a result of this
consent having been obtained, except to the extent, if any, required by the
Guaranty referred to above.
/s/ XXXXXX XXXXX
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XXXXXX XXXXX
