February 8, 2005
CERTIFIED MAIL;
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RECEIPT NO.
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Pizza Inn, Inc.
0000 Xxxxx Xxxxxxx
Xxx Xxxxxx, Xxxxx 00000
Attn: Xxxx Xxxxxxx
Re: Third Amended and Restated Loan Agreement (as amended by that
certain First Amendment to Third Amended and Restated Loan Agreement dated as of
March 28, 2004, the "LOAN AGREEMENT") dated as of January 22, 2003 by and
between Pizza Inn, Inc. ("BORROWER") and Xxxxx Fargo Bank, National Association
(successor to Xxxxx Fargo Bank (Texas), National Association, herein "BANK").
All terms used herein and not otherwise defined herein shall have the meanings
given to them in the Loan Agreement.
Ladies and Gentlemen:
Reference is made to that certain letter dated December 27, 2004, sent by
you to Bank notifying Bank of a Change of Control resulting from Xxxxxx Xxxxxx
ceasing to be the Chief Executive Officer of Borrower (the "XXXXXX CHANGE OF
CONTROL") and, in accordance with Section 10.12 of the Loan Agreement, offering
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to accelerate payment of the obligations (the "NOTICE AND OFFER").
In addition, you are hereby notified that an Event of Default currently exists
under the Loan Agreement. As disclosed in the most recent draft 10Q statement
of Borrower received by Bank, Bank is aware that Borrower repurchased certain of
its capital stock for a purchase price of approximately $117,000. Section 11.4
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of the Loan Agreement prohibits Borrower's repurchase of its capital stock
without Bank's consent (the "CURRENT DEFAULT").
Without waiving any Default or Event of Default now existing or hereafter
arising under the Loan Agreement and the other Loan Documents, other than the
Current Default, or any of Bank's rights and remedies under the Loan Agreement
and the other Loan Documents resulting therefrom, Bank agrees (a) not to
accelerate payment of the Obligations based on the Notice and Offer and (b) to
waive the Current Default, subject to the following conditions precedent:
1. Xxxxxxxx acknowledges the terms of this letter by executing it in the
space indicated below.
2. On or before the close of business on February 11, 2005, Xxxxxxxx enters
into a Second Amendment to Third Amended and Restated Loan Agreement and such
other documents, instruments, promissory notes and agreements Bank deems
necessary in connection therewith (the "SECOND AMENDMENT") pursuant to which the
Loan Agreement is amended in accordance with the terms set forth below and such
other terms, covenants and agreements which are in form and substance
satisfactory to Bank;
a. The Revolving Credit Commitment shall be reduced to $3,000,000;
b. The definition of "Termination Date" shall be modified to December 23,
2005;
c. The interest rate for the Real Estate Loan shall be modified to LIBOR +
2.25%;
d. The interest rate for the Revolving Credit Loan shall be modified to
LIBOR + 2.75% or Prime + 0.50%;
e. The Commitment Fee set forth in Section 2.7 of the Loan Agreement shall
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be terminated;
f. The definition of "Change of Control" and the Change of Control
provisions in the Loan Agreement shall be modified;
g. Borrower shall be prohibited from making non-financed capital
expenditures in excess of $500,000 in the aggregate during any given fiscal year
without Bank's consent;
h. Included with existing reporting requirements, Borrower shall be required
to deliver an aged listing of accounts receivable, accounts payable and a
reconciliation of accounts, and, at any time requested by Bank, a listing of all
account debtors that includes names, addresses and phone numbers of the account
debtors;
i. The Tangible Net Worth covenant contained in Section 12.2 of the Loan
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Agreement shall be deleted;
j. A new financial covenant shall be added that requires Borrower to
maintain total liabilities less subordinated debt divided by Tangible Net Worth
of not more than 1.50 to 1.00; and
k. A new covenant shall be added that prohibits the outstanding principal
and interest amount of the Revolving Credit Loan plus all Letter of Credit
Liabilities to exceed 80% of Eligible Accounts (as defined in EXHIBIT A attached
hereto);
3. No Event of Default, other than the Current Default, shall have occurred
and be continuing, or would result from the Second Amendment; and
4. All of the representations and warranties contained in the Loan Agreement
and in the other Loan Documents shall be true and correct on and as of the date
of the Second Amendment.
Failure by you to execute the Second Amendment and such other documents,
instruments, promissory notes and agreements Bank deems necessary in connection
therewith on or before February 11, 2005, shall constitute an Event of Default
under the Loan Agreement. This letter shall constitute a Loan Document.
Notwithstanding Bank's agreement (a) not to accelerate payment of the
Obligations based on the Notice and Offer and (b) to waive the Current Default,
subject to the foregoing conditions, you are hereby notified that Bank requires
strict compliance with the terms and conditions of the Loan Documents. The
execution by Bank of this letter, or any other act or omission by Bank, or its
officers in connection herewith, shall not be deemed a waiver by Bank of any
Default or Event of Default, other than the Current Default, which may exist or
which may occur in the future under the Loan Agreement or any other Loan
Document, or any future Default or Event of Default of the same provision waived
under the Current Default (collectively "OTHER VIOLATIONS"). No waiver of any
provision of the Loan Agreement or any other Loan Document shall be effective
unless the same shall be in writing and signed by Bank, and then such waiver or
consent shall be effective only in the specific instance to which it relates and
for the purpose for which it is given. Similarly, nothing contained in this
letter shall directly or indirectly in any way whatsoever either (i) impair,
prejudice or otherwise adversely affect Bank's right at any time to exercise any
right, privilege or remedy in connection with the Loan Agreement or any other
Loan Document with respect to any Other Violations, (ii) amend or alter any
provision of the Loan Agreement or any other Loan Document, or (iii) constitute
any course of dealing or other basis for altering any obligation of Borrower or
any right, privilege or remedy of Bank under the Loan Agreement or any other
Loan Document. Nothing in this letter shall be construed to be a consent or
waiver by Bank of any Other Violations. The rights provided for in the Loan
Agreement and the other Loan Documents are cumulative and not intended to be
exclusive of any other right given hereunder or now or hereafter existing at law
or in equity or by statute or otherwise.
This letter may be executed in one or more counterparts, each of which when
so executed shall be deemed to be an original, but all of which when taken
together shall constitute one and the same instrument. The parties agree that
this letter may be executed and delivered via facsimile and any such facsimile
copy of any such document shall be considered to have the same binding legal
effect as an original copy and each party hereby agrees that it shall not raise
the use of a facsimile copy as a defense to this letter and forever waives any
such defense. Furthermore, at the request of any party, a party executing and
delivering this letter by facsimile copy shall re-execute an original copy in
replacement.
Bank intends this letter to supercede and replace, in its entirety,
correspondence dated February 4, 2005, issued by Bank to Borrower.
Should you have any questions, please do not hesitate to contact the
undersigned.
Very truly yours,
XXXXX FARGO BANK, NATIONAL ASSOCIATION
By: /s/ Xxxxx Xxxx XXX
Name: Xxxxx Xxxx XXX
Title: Vice President
AGREED AND ACCEPTED TO
THIS 9th DAY OF FEBRUARY, 2005 BY:
PIZZA INN, INC.
By: /s/ Xxxxxx X. Page
Name: Xxxxxx X. Xxxx
Title: Chief Executive Officer
EXHIBIT A
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"Eligible Accounts" means, at any time, all accounts receivable of the
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Borrower created in the ordinary course of business that are acceptable to Bank
and satisfy the following conditions:
1. The account complies with all applicable laws, rules, and regulations,
including, without limitation, usury laws, the Federal Truth in Lending Act, and
Regulation Z of the Board of Governors of the Federal Reserve System;
2. The account has not been outstanding for more than 90 days past the
original date of invoice;
3. The account does not represent a commission and the account was created
in connection with (i) the sale of goods by the Borrower in the ordinary course
of business and such sale has been consummated and such goods have been shipped
and delivered and received by the account debtor, or (ii) the performance of
services by the Borrower in the ordinary course of business and such services
have been completed and accepted by the account debtor;
4. The account arises from an enforceable contract, the performance of which
has been completed by the Borrower;
5. The account does not arise from the sale of any good that is on a
bill-and-hold, guaranteed sale, sale-or-return, sale on approval, consignment,
or any other repurchase or return basis;
6. The Borrower has good and indefeasible title to the account and the
account is not subject to any Lien except Liens in favor of Bank;
7. The account does not arise out of a contract with or order from, an
account debtor that, by its terms, prohibits or makes void or unenforceable the
grant of a security interest by the Borrower to Bank in and to such account;
8. The account is not subject to any setoff, counterclaim, defense, dispute,
recoupment, or adjustment other than normal discounts for prompt payment;
9. The account debtor is not insolvent or the subject of any bankruptcy or
insolvency proceeding and has not made an assignment for the benefit of
creditors, suspended normal business operations, dissolved, liquidated,
terminated its existence, ceased to pay its debts as they become due, or
suffered a receiver or trustee to be appointed for any of its assets or affairs;
10. The account is not evidenced by chattel paper or an instrument;
11. No default exists under the account by any party thereto;
12. The account debtor has not returned or refused to retain, or otherwise
notified the Borrower of any dispute concerning, or claimed nonconformity of,
any of the goods from the sale of which the account arose;
13. The account is not owed by an Affiliate, employee, officer, director or
shareholder of the Borrower, except certain trade accounts arising in the
ordinary course of business from director owned franchises that would otherwise
be Eligible Accounts;
14. The account is payable in Dollars by the account debtor;
15. The account is not owed by an account debtor whose accounts Bank in its
sole discretion has chosen to exclude from Eligible Accounts;
16. The account shall be ineligible if (a) the account debtor is domiciled
in any country other than the United States of America and (b) the aggregate
amount of accounts owed by account debtors domiciled outside the United States
of America is in excess of $500,000, to the extent of such excess;
17. The account shall be ineligible if more than twenty percent (20%) of the
aggregate balances then outstanding on accounts owed by such account debtor and
its Affiliates to the Borrower are more than 90 days past the dates of their
original invoices;
18. The account shall be ineligible if the account debtor is the United
States of America or any department, agency, or instrumentality thereof, and the
Federal Assignment of Claims Act of 1940, as amended, shall not have been
complied with; and
19. The Account is otherwise acceptable in the sole discretion of Bank;
provided that Bank shall have the right to create and adjust eligibility
standards and related reserves from time to time in its good faith credit
judgment.
The amount of the Eligible Accounts owed by an account debtor to the
Borrower shall be reduced by the amount of all "contra accounts" and other
obligations owed by the Borrower to such account debtor.
