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EXHIBIT 10.1
THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT
THIS THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT (this "Third
Amendment"), dated as of June 16, 1997, is entered into by and between PARTY
CITY CORPORATION, a Delaware corporation (the "Borrower"), and PNC BANK,
NATIONAL ASSOCIATION, successor by merger to Midlantic Bank, N.A. (the "Bank").
RECITALS:
A. The Borrower and the Bank are parties to a certain Loan and Security
Agreement, dated February 15, 1995, as amended by First Amendment to Loan and
Security Agreement, dated as of October 6, 1995 (the "First Amendment"), and by
Second Amendment to Loan and Security Agreement, dated as of December 15, 1996
(the "Second Amendment"; the Loan and Security Agreement, as amended by the
First Amendment and Second Amendment and as the same may be further amended from
time to time, the "Agreement"), pursuant to which (among other things) the Bank
agreed to make revolving credit loans to the Borrower, the outstanding principal
of which converted to term loans at scheduled intervals; and
B. The Borrower has requested that the Bank amend certain terms of the
Agreement to provide additional capital for general corporate purposes and for
expansion of company-owned retail stores; and
C. The Bank is willing to so amend the Agreement, upon and subject to
the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements set forth herein, and for value received by each party,
the parties hereto, intending to be legally bound hereby, agree as follows:
Section 1. DEFINITIONS
1.1. EXISTING DEFINITIONS. Unless otherwise defined herein, capitalized
terms used herein shall have the meanings set forth in the Agreement. The
definitions of the following defined terms used in the Agreement are amended as
set forth herein and such amended definitions shall apply wherever such defined
terms are used in the Loan Documents.
(a) Amended Revolving Credit Note. The definition of the term "Amended
Revolving Credit Note" set forth in the First Amendment is deleted and the
following is substituted therefor:
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"'AMENDED REVOLVING CREDIT NOTE' shall mean the amended and
restated promissory note of the Borrower, in substantially the
form of Exhibit A annexed hereto, evidencing the Revolving
Credit Loan and replacing the Amended Revolving Credit Note
dated October 6, 1995."
(b) Anniversary Date. The definition of the term "Anniversary Date" set
forth in the Agreement is deleted in its entirety.
(c) Eurodollar Rate. The definition of the term "Eurodollar Rate" set
forth in the Agreement is deleted and the following is substituted therefor:
"'EURODOLLAR RATE' means, for each Eurodollar Rate Loan, the
rate of interest per annum equal to the Adjusted LIBOR plus
the applicable LIBOR Margin."
(d) Interest Payment Date. The definition of the term "Interest Payment
Date" set forth in the Agreement is amended to delete subsection (ii) thereof
and to substitute the following therefor:
"(ii) as to Eurodollar Rate Loans having an Interest Period of
one, two or three months, the last day of the Interest Period
with respect thereto".
(e) Interest Period. The definition of the term "Interest Period" set
forth in the Agreement is amended to add the phrase ", two" after the word "one"
in the third line thereof, and subsection (c) thereof is amended to delete the
words "an Anniversary Date or".
(f) Loans. The definition of the term "Loan" set forth in the Agreement
is deleted and the following is substituted therefor:
"'LOANS' shall mean any Revolving Credit Advance made pursuant
hereto."
(g) Notes. The definition of the term "Notes" set forth in the
Agreement is deleted and the following is substituted therefor, and all
references to the term "Notes" in the Loan Documents shall hereafter be deemed
to refer to the term "Note" as so defined:
"'NOTE' shall mean the Amended Revolving Credit Note."
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(h) Permitted Indebtedness. The definition of the
term "Permitted Indebtedness" set forth in the Agreement, and
all references thereto in the Loan Documents, are deleted in
their entirety.
(i) Permitted Encumbrances. The definition of the
term "Permitted Encumbrances" set forth in the Agreement is
amended to delete subsection (ix) thereof in its entirety and
to delete Schedule 10.9 of the Agreement, as the Liens
reflected thereon have been terminated.
(j) Revolving Credit Maximum. The definition of the
term "Revolving Credit Maximum" set forth in the Agreement is
deleted and the following is substituted therefor:
"'REVOLVING CREDIT MAXIMUM' shall mean the sum of
$20,000,000."
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(k) Termination Date. The definition of the term "Termination Date" set
forth in the Agreement is deleted and the following is substituted therefor:
"'TERMINATION DATE' shall mean June 30, 2000."
(l) Term Loan. The definition of the word "Term Loan" set forth in the
Agreement, and any reference to such term in the Loan Documents, is deleted in
its entirety.
(m) Term Note. The definition of the term "Term Note" set forth in the
Agreement, and any reference to such term in the Loan Documents, is deleted in
its entirety.
1.2. ADDITIONAL DEFINITIONS. For purposes of the Agreement and the
other Loan Documents, the following terms shall have the meanings assigned to
them in this Section 1.2:
(a) "LEVERAGE RATIO" shall mean the ratio of total liabilities to
tangible net worth, as determined in accordance with GAAP.
(b) "LIBOR MARGIN" shall mean, initially, one and one quarter percent
(1.25%) per annum, and for each quarter thereafter, the following percent per
annum based upon the Borrower's Leverage Ratio for such quarter in accordance
with the following rates corresponding to the following Leverage Ratios:
LEVERAGE RATIO LIBOR MARGIN
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Less than 0.75:1.00 .75%
Equal to or greater than 0.75:1.00 but less than
1.25:100 1.00%
Equal to or greater than 1:25:1.00 but less than
1.75:1.00 1.25%
Equal to or greater than 1.75:1.00 but less than
2.0:1.00. 1.50%
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Equal to or greater than 2.0:1.00 but less than
2.25:1.00 1.75%
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Section 2. THE REVOLVING CREDIT LOAN
2.1. AMENDMENTS TO THE REVOLVING CREDIT LOAN.
(a) Section 2.1(a) of the Agreement is deleted and the following is
substituted therefor:
"(a) Upon and subject to the terms and conditions hereof, the
Bank agrees to make available, at any time and from time to
time, until the Termination Date, for Borrower's use and upon
the request of Borrower therefor, advances (each, a "Revolving
Credit Advance"); provided, however, that after giving effect
to each requested Revolving Credit Advance, at no time shall
the sum of the aggregate amount of Revolving Credit Advances
outstanding exceed the Revolving Credit Maximum."
(b) Section 2.1(b) of the Agreement is amended to delete the first
sentence thereof and to substitute the following therefor:
"Upon and subject to the terms and conditions hereof, and
provided that no Event of Default has occurred and is
continuing, until the Termination Date, Borrower may from time
to time borrow, repay and reborrow under this Section 2.1."
(c) Section 2.2 of the Agreement is amended to add the following
language after the first sentence thereof:
"The Amended Revolving Credit Note shall provide for the
payment of principal in full on the Termination Date and for
the payment of interest in accordance with Section 4.1 and the
Notice of Borrowing received from Borrower."
(d) Section 2.3 of the Agreement is deleted in its entirety and the
following is substituted therefor:
"2.3. USE OF PROCEEDS. Revolving Credit Advances shall be used
for working capital needs in connection with the expansion of
company-owned retail stores, the purchase of existing
franchisees and for other general corporate purposes."
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(e) Section 2.4(i) of the Agreement is amended to change the commitment
fee from "1/4 of 1% per annum" to "one eighth of one percent (0.125%) per annum"
of the average daily difference between (i) the Revolving Credit Maximum and
(ii) the outstanding balance of the Revolving Credit Loan.
2.2. FACILITY FEE. A facility fee in the amount of $50,000 shall be
payable by the Borrower to the Bank on the date of this Third Amendment. The
Bank hereby acknowledges receipt of payment of $25,000 on account of such fee
prior to the date hereof.
Section 3. THE TERM LOANS
3.1. Section 3 of the Agreement is deleted in its entirety.
Section 4. INTERESTS, PAYMENTS, ETC.
4.1. INTEREST RATES, PAYMENT DATES. Section 4.1(b) of the Agreement is
deleted and the following is substituted therefor:
"(b) All Loans which are Eurodollar Rate Loans shall bear
interest on the unpaid principal amount thereof at a rate per
annum equal to the Eurodollar Rate for the applicable Interest
Period."
4.2. MANNER OF PAYMENT. Section 4.4 of the Agreement is amended to
provide that payments shall be made to the Bank at its offices at Xxx Xxxxx
Xxxxxx, Xxxx Xxxxxxxxx, Xxx Xxxxxx 00000.
Section 5. CONDITIONS PRECEDENT
5.1. CONDITIONS TO THIS THIRD AMENDMENT. The Bank's agreement to amend
the Agreement is subject to the conditions precedent that the Bank shall have
received, or waived the receipt of, the following:
(a) the Amended Revolving Credit Note, duly executed and delivered by
Borrower to the Bank;
(b) resolutions of the board of directors of Borrower, certified by the
Secretary of Borrower as of the date hereof to be duly adopted and in full force
and effect on such date, authorizing the execution and delivery of this Third
Amendment and the increased borrowing hereunder;
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(c) certificates of the appropriate Governmental Authorities, dated the
most recent practicable date prior to the date hereof, showing that Borrower is
organized and in good standing in the State of its organization and in each
jurisdiction where it is qualified as a foreign corporation;
(d) copies of (i) the certificate of incorporation of the Borrower and
all amendments thereto, and (ii) the by-laws of the Borrower, certified by the
Secretary of the Borrower as true and complete and in full force and effect as
of the date hereof;
(e) an opinion of St. Xxxx & Xxxxx, counsel to the Borrower, as to such
matters relating to the Borrower and the Loans as the Bank may reasonably
request;
(f) UCC-1 financing statements deemed necessary by the Bank in its
reasonable discretion in order to perfect its security interest in the
Collateral;
(g) results of UCC, judgment and tax Lien searches on the Borrower
disclosing no Liens other than Permitted Encumbrances;
(h) evidence that the insurance policies provided for in Section 7.20
of the Agreement are in full force and effect, with appropriate loss payable and
additional insured clauses in favor of the Bank, certified by the insurer;
(i) payment of the facility fee set forth in Section 2.2 of this Third
Amendment; and
(j) such other agreements, documents, corporate resolutions and
certificates, filings, recordations and instruments as the Bank may reasonably
request.
5.2 Section 5.3 of the Agreement is deleted in its entirety.
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Section 6. SECURITY
6.1 Reaffirmation of Security Interest and Liens. The Borrower
acknowledges and agrees that the security interests and other Liens granted by
it to the Bank under the Agreement and the Loan Documents are and remain valid
and first priority Liens on the Collateral (other than Permitted Encumbrances),
and the Borrower represents and warrants that, as of the date hereof, there are
no set-offs or defenses to the Bank's exercise of any rights or remedies
available to it as a creditor in realizing upon the Collateral under the terms
and conditions of the Loan Documents. The Borrower agrees that the Liens granted
by it under the Agreement shall continue and shall secure the Obligations of the
Borrower to the Bank, as amended as set forth herein.
Section 7. RATIFICATION AND AMENDMENT OF REPRESENTATIONS,
WARRANTIES AND COVENANTS
7.1. RATIFICATION. The Borrower hereby ratifies, confirms and restates,
as if set forth herein in their entirety, all representations, warranties,
covenants, acknowledgments and agreements set forth in Sections 6, 7, 8, 9 and
10 of the Agreement at and as of the date hereof (other than representations,
warranties and covenants which expressly speak only as of a different date), and
affirmatively states that all of the same are true and accurate as of the date
hereof and shall be and remain in full force and effect, subject only to changes
effected by this Third Amendment and/or changes previously disclosed to the Bank
in writing. In addition, the Borrower represents and warrants to the Bank that:
(a) Borrower has the power and authority to enter into this Third
Amendment;
(b) the execution, delivery and performance of this Third Amendment and
the instruments and agreements executed and delivered by the Borrower in
connection herewith have been duly authorized by all requisite corporate action
and this Third Amendment and the instruments and agreements executed and
delivered in connection herewith constitute the legal, valid and binding
obligations of the Borrower, enforceable against it in accordance with their
terms;
(c) the copies of good standing certificates delivered to the Bank
pursuant to Section 5.1(c) above are true and correct copies of the respective
certificates received from the appropriate Governmental Authorities;
(d) the audited financial statements of the Borrower as at December 31,
1996 and unaudited financial statements of the Borrower as at September 30, 1996
and April 30, 1996, which were previously furnished to the Bank, were prepared
in accordance with GAAP consistently applied throughout the period involved and
present fairly the financial position of
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the Borrower as at the date thereof and the results of operations and cash flows
of the Borrower for the period then ended;
(e) no changes having a Material Adverse Effect have occurred since the
date of such financial statements referred to in Section 7.1(c) above; and
(f) no Default or Event of Default has occurred and is continuing or
will result from the execution, delivery and performance of this Third Amendment
and the instruments and agreements executed and delivered in connection
herewith.
7.2. AMENDMENT OF CERTAIN REPRESENTATIONS, WARRANTIES AND COVENANTS.
(a) Section 7.1 of the Agreement is amended to delete subsection (i)
thereof and to substitute the following therefor: "(i) is a corporation duly
organized and validly existing in good standing under the laws of the State of
Delaware;".
(b) Section 7.5(b) of the Agreement is amended to reflect that the
Borrower has no material obligations, contingent liabilities or liabilities for
Governmental Charges, long-term leases or unusual forward or long-term
commitments which are not reflected in the unaudited financial statements of the
Borrower as of April 30, 1997.
(c) Section 7.5(c) of the Agreement is deleted in its entirety.
(d) Section 7.6 of the Agreement is amended to add the following
language after the words "December 31, 1998" in the fourth line thereof:
", the Borrower's annual operating budget for the Fiscal Year
ending on December 31, 1997 and projections of Borrower's
annual operating budget, balance sheet and cash flow statement
for the Fiscal Year ending on December 31, 1998, previously
delivered to the Bank".
(e) Section 7.7 of the Agreement is amended to update Schedule 7.7 as
set forth on Schedule 7.2(e) hereof.
(f) Section 7.8 of the Agreement is amended to update Schedule 7.8 as
reflected on Schedule 7.2(f) hereof.
(g) Section 7.15 of the Agreement is amended to update Schedule 7.15 to
reflect that all of the Intellectual Property Rights listed thereon have been
registered with the United States Patent and Trademark Office.
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(h) Section 7.18 of the Agreement is amended to update Schedule 7.18 as
reflected in Schedule 7.2(h) hereto.
(i) Section 7.19 of the Agreement is amended to update Schedule 7.19 to
add the following tradename thereto: "Party City, The Discount Party Super
Store."
(j) Section 8.1 of the Agreement is amended to add the following
subsections (h) through (j), and to re-designate existing subsection (h) as
subsection (k):
"(h) Within 20 days from the date of possession of any new
store, a list of new store openings, including the address of
each such store, together with (i) UCC-1 financing statements,
in form acceptable to the Bank, duly executed on behalf of the
Borrower, for filing in the appropriate state and local
jurisdiction(s) and (ii) consent and waiver of the landlord of
such store, in form and substance satisfactory to the Bank;
(i) Within 45 days after the end of each Fiscal Year,
forecasted financial statements consisting of an income
statement, balance sheet and cash flow statement for each
Fiscal Year through the Termination Date, including details of
expected store openings, Capital Expenditures and projected
financing needs;
(j) Within 10 days after filing of same with the Securities
and Exchange Commission, copies of all periodic reports or
filings of any kind required to be filed pursuant to the
Securities Exchange Act of 1934, as amended; and".
(k) The following new Section 9.12 is added to the Agreement:
"9.12 SUBSIDIARIES AND AFFILIATES. Within ten (10) days of the
formation of any Subsidiary or Affiliate of Borrower, Borrower
shall deliver to the Bank a guaranty by such Subsidiary or
Affiliate, in form and substance satisfactory to the Bank,
guaranteeing all of Borrower's Obligations to the Bank."
(l) Section 10.1 of the Agreement is amended to delete subsection (i)
thereof and to substitute the following therefor:
"(i) merge or consolidate with or acquire all substantially
all of the assets or capital stock of, or otherwise combine
with, any Person, except that the Borrower may acquire
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assets or Capital Stock of any Person engaged in substantially
the same or similar business as the Borrower;".
(m) Section 10.6 of the Agreement is amended to delete subsection (iv)
thereof and to substitute the following therefor:
"(iv) Indebtedness in respect of Capital Leases and Purchase
Money Loans existing on the date hereof or hereafter incurred,
provided that, in no event shall Borrower incur Indebtedness
for Capital Leases in excess of $2,000,000 in any Fiscal Year
and $3,000,000 in the aggregate at any time outstanding;".
(n) Section 10.7 of the Agreement is deleted in its entirety.
(o) Section 10.8 of the Agreement is amended to reflect that the minute
books of the Borrower are retained at the offices of St. Xxxx & Xxxxx, located
at Xxx Xxxx Xxxxx Xxxx, Xxxxxx, Xxx Xxxxxx.
(p) Section 10.11 of the Agreement is amended to (i) delete the words
"acquire any business, including, without limitation, existing franchisees" in
lines six to seven thereof; and (ii) update Schedule 10.11 to reflect that all
accounts listed thereon have been closed and any similar investments are now
carried with the Bank.
(q) Section 10.12 of the Agreement is deleted and the following is
substituted therefor:
"10.12. CAPITAL EXPENDITURES. Borrower shall not make
Capital Expenditures in any Fiscal Year aggregating in excess
of:
(i) for the Fiscal Year ending December
31, 1997, an amount equal to
$15,000,000;
(ii) for the Fiscal Year ending December
31, 1998, an amount equal to (x)
$20,000,000 plus (y) the lesser of
(A) the amount by which Capital
Expenditures of the Borrower, in the
aggregate in Fiscal Year 1997, was
less than $15,000,000, or (B)
$3,000,000; and
(iii) for any Fiscal Year thereafter, an
amount equal to (x) $20,000,000 plus
(y) the lesser of (A) the amount by
which
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Capital Expenditures of the
Borrower, in the aggregate in the
prior Fiscal Year, was less than the
sum permitted by this Section 10.12,
or (B) $3,000,000;
provided, however, that Capital Expenditures
for the acquisition by the Borrower
of six retail franchise stores
(formerly owned by Les Fetes, Inc.,
Party Town USA, Inc., Party City of
Parsippany, Inc., Perry's Party
City, Inc., Party City of Xxxxx,
Inc. and Barbara's Party City, Inc.)
in the Fiscal Year ending December
31, 1997 shall be excluded for the
purposes of this calculation.
Notwithstanding anything in this
Section 10.12 to the contrary, in
addition to the Capital Expenditure
allowance limits set forth in
subsections (i), (ii) and (iii)
above, the Borrower may make
additional independent Capital
Expenditures as follows:
(A) in an aggregate amount
not to exceed $3,000,000 from the
date hereof through the Termination
Date, relating to the acquisition of
existing franchise stores; provided,
however, that the aggregate purchase
price of all existing franchise
stores through the Termination Date
shall not exceed $4,000,000; plus
(B) in an amount not to
exceed $14,700,000 from the date
hereof through the Termination Date,
the maximum net cash proceeds from
the public offering of shares of
capital stock of the Borrower in
March 1997."
(r) Section 10.13 of the Agreement is deleted in its entirety and the
following is substituted therefor:
"10.13. TANGIBLE NET WORTH. Borrower shall not permit its
tangible net worth, as determined in accordance with GAAP, at
any time, to be less than $20,300,000 plus an additional sum
equal to the greater of (i) $1,000,000, or (ii) fifty percent
(50%) of the Borrower's after-tax earnings."
(s) Section 10.15 of the Agreement is deleted and the following is
substituted therefor:
"10.15. LEVERAGE RATIO. Borrower shall not permit its Leverage
Ratio, measured at any time for such period, to be greater
than:
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PERIOD OF ANY FISCAL YEAR LEVERAGE RATIO
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July 1 through and including December 31 2.25: 1.0
January 1 through and including June 30 1.75:1.0."
(t) The parties acknowledge and agree that Section 10.17(a) of the
Agreement has been deleted pursuant to that certain letter, dated January 16,
1996, by the Bank to the Borrower.
(u) Section 10.18 of the Agreement is deleted in its entirety.
(v) The following new Sections 10.20 through 10.21 are added to the
Agreement:
"10.20. DISTRIBUTIONS. Borrower shall not make any
Distributions to its shareholders.
10.21. CHANGE OF CONTROL. Borrower shall not (i) make or
suffer a change of ownership of the outstanding capital stock
of the Borrower such that Xxxxxx Xxxxxxx shall cease to own at
least 7% of the outstanding capital stock of the Borrower, or
(ii) suffer or permit Xxxxxx Xxxxxxx to cease to be the chief
executive officer of the Borrower and actively involved in the
control of the day to day operations of the Borrower."
Section 8. EVENTS OF DEFAULT
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8.1. Section 11.1(g) is amended to delete the dollar amount of
"$100,000" and to substitute the amount "$200,000" therefor.
8.2. Section 11.1(j) of the Agreement is deleted in its entirety.
8.3. Section 11.1(n) of the Agreement is deleted in its entirety.
8.4. Section 11.1 of the Agreement is amended to add the following
subsections (n) and (o) thereto:
"(n) Any individual or group, as defined in Section 13(d) of
the Securities and Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder, shall purchase
more than 50% of the issued and outstanding Stock of the
Borrower; and
(o) In any proxy contest pursuant to Section 14 of the
Securities and Exchange Act of 1934, as amended, and the rules
and regulations promulgated thereunder, over the opposition of
the then-incumbent board of directors of the Borrower (whether
or not such board of directors ultimately acquiesces therein),
at any time after the date hereof, any stockholder or group of
stockholders of the Borrower shall elect a majority of the
members of the board of directors of the Borrower."
Section 9. MISCELLANEOUS
9.1. CONTINUED EFFECTIVENESS. Except as specifically amended by and/or
inconsistent with this Third Amendment, all of the terms and conditions of the
Agreement shall remain unchanged and in full force and effect and are hereby
ratified, adopted and confirmed in all respects. All references to the Agreement
in any Loan Document shall hereafter be deemed to refer to the Agreement as
amended by this Third Amendment. This Third Amendment is a Loan Document.
9.2. PAYMENT OF EXPENSES. Borrower shall pay the fees and expenses
(including, but not limited to, reasonable attorneys' fees and expenses, notary
fees, searches and recording fees) incurred by the Bank in connection with the
preparation, negotiation, execution and delivery and enforcement of this Third
Amendment and the documents executed and delivered in connection herewith and
any and all renewals, modifications, amendments and waivers hereof and
hereunder.
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9.3. ENTIRE AGREEMENT. This Third Amendment, together with the other
Loan Documents, constitutes the entire agreement between the parties with
respect to the subject matter hereof and supersedes any prior agreements,
written or oral, with respect to such subject matter.
9.4. COUNTERPARTS. This Third Amendment may be executed in one or more
counterparts, each of which shall be deemed to be an original and all of which
together shall constitute one and the same agreement, and any party may execute
this Third Amendment by signing any such counterpart.
9.5. GOVERNING LAW. This Third Amendment shall be interpreted, and the
rights and liabilities of the parties hereto, whether arising in contract or
tort and howsoever pertaining to the parties' relationship, shall be determined
in accordance with the laws of the State of New Jersey.
9.6. HEADINGS. The section titles contained in this Third Amendment
shall be without substantive meaning or content of any kind whatsoever and are
not a part of the agreement between the parties.
IN WITNESS WHEREOF, the parties have executed this Third
Amendment the day and year first above-written.
PARTY CITY CORPORATION, a
Delaware corporation
By: /s/ Xxxxx X. Xxxxxx
-------------------------
Name: Xxxxx X. Xxxxxx
Title: Chief Financial Officer
PNC BANK, NATIONAL
ASSOCIATION
By: /s/ Xxxxx X. Xxxxxxxxxx
--------------------------
Name: Xxxxx X. Xxxxxxxxxx
Title: Vice President
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