EXHIBIT 10.27
LETTER AGREEMENT BY AND AMONG
THE REGISTRANT, CORESTATES BANK, N.A. AND XXXXXXX XXXXX
[LETTERHEAD OF CORESTATES]
[LOGO OF CORESTATES]
February 7, 1997
RYKA, Inc.
000 Xxxxx Xxxxxxxxx Xxxx
Xxxx xx Xxxxxxx, XX 00000
Attention: Xxxxx Xxxx
RE: REVOLVING CREDIT AGREEMENT DATED AUGUST 15, 1996 BY AND AMONG
CORESTATES BANK, N.A. (THE BANK") AND RYKA INC. (THE "BORROWER")(AS
AMENDED FROM TIME TO TIME, THE "CREDIT AGREEMENT").
Dear Xxxxx:
Pursuant to our recent discussions, I am writing to confirm that the
Borrower and the Bank have agreed to modify the Credit Agreement in accordance
with the terms set forth in this letter (the "Letter Agreement") and in
anticipation of a complete refinancing of the Borrower's obligations under the
Credit Agreement to occur on or before March 31, 1997 in accordance with the
terms of the refinancing commitment letter obtained by the Borrower as of the
date hereof (the "Commitment Letter"). All capitalized terms used in this
Letter Agreement without definition shall have the meanings given to such terms
in the Credit Agreement.
Terms of Amendment
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1. The definition of "Accounts" as set forth on page 1 of the Credit
Agreement is hereby deleted in its entirety and a new definition of "Accounts"
is hereby added in its place as follows:
"Accounts" means any right to payment for goods sold or leased or for
services rendered which is not evidenced by an instrument or chattel
paper, whether or not it has been earned by performance.
2. The definition of "Account Debtor" as set forth on page 1 of the
Credit Agreement is hereby deleted in its entirety and a new definition of
"Account Debtor" is hereby added in its place as follows:
"Account Debtor" means any Person who is obligated on any one or more
Accounts.
3. The definition of "Eligible Inventory" as set forth on page 2 of the
Credit Agreement is hereby deleted in its entirety and a new definition of
"Eligible Inventory" is hereby added in its place as follows:
RYKA INC.
February 7, 1997
Page 2
"Eligible Inventory" means Inventory owned by the Borrower: (i) which
is located in the United States or, if not located in the United
States, the purchase price for which is either secured by an
outstanding import letter of credit issued by the Bank pursuant to
this Agreement or paid as evidenced by the Borrower's initiation of
the transfer of immediately available funds and the corresponding
release of documents of title to the Borrower; (ii) which is readily
saleable in a bonafide arm's length transaction; (iii) which is titled
in the Borrower's name and not subject to any prior assignment or
lien, except the security interest of the Bank; (iv) which is not more
than nine (9) months or more from the purchase date; (v) which, if in
a warehouse, is located in a warehouse reported to the Bank as one
utilized by the Borrower as required by this Agreement and the
Security Agreement, and for which the Bank has received a landlord's
waiver and/or warehouseman's waiver satisfactory in form and substance
to the Bank (an "Approved Warehouse"); (vi) which is not "in transit"
except to the extent title to such in-transit inventory has passed to
the Borrower under documentation reasonably acceptable to the Bank and
either (a) such inventory is being shipped to an Approved Warehouse by
common carrier commissioned by the Borrower, or (b) such inventory is
received at an Approved Warehouse pending recording in the Borrower's
perpetual inventory system (as the case may be, "Approved In-Transit
Inventory"), and provided that the aggregate of all such Approved In-
Transit Inventory included as Eligible Inventory does not exceed a
book value of $1,000,000; and (vii) which meets such other
specifications and requirements that may from time to time be
established by the Bank.
4. The definition of "Qualified Account" as set forth on page 4 of the
Credit Agreement is hereby deleted in its entirety and a new definition of
"Qualified Account" is hereby added as follows:
"Qualified Account" means any Account of the Borrower which meets the
following criteria: (i) it is lawfully owned by the Borrower arising
from a bona fide outright sale of goods by the Borrower, or for
services performed by the Borrower, under an enforceable contract
subject to no lien, security interest or prior assignment, and the
Borrower has the right of assignment thereof and the power to grant a
security interest therein; (ii) it is a valid and enforceable Account,
representing the undisputed indebtedness of an Account Debtor to the
Borrower and, if owing from a customer whose balances owing are
historically subject to credits, chargebacks, allowances, or other
adjustments, it has been reduced by a reserve for such historic
credits, allowances, or other adjustments in an
RYKA INC.
February 7, 1997
Page 3
amount reasonably satisfactory to the Bank; (iii) it is not subject to
any defense, set-off, counter-claim, credit, chargeback, allowance or
adjustment; (iv) no substantial part of any goods, the sale of which
has given rise to the Account, has been returned, rejected, lost or
damaged; (v) if it arises from the sale of goods by the Borrower, such
sale was an absolute sale and not on consignment or on approval or on
a sale or return basis nor subject to any other repurchase or return
agreement, and such goods have been shipped to the Account Debtor;
(vi) if it arises from the performance of services, such services have
actually been performed; (vii) it arose in the ordinary course of the
Borrower's business; (viii) no notice of the Bankruptcy, receivership,
reorganization, insolvency, or financial embarrassment of the Account
Debtor has been received; (ix) the Account Debtor is not a subsidiary
or affiliate of the Borrower, does not control the Borrower, and is
not under the control of or under common control with the Borrower;
(x) it shall be aged less than 90 days from the date of invoice; and
(xi) it shall not be (a) a foreign receivable, unless supported by
credit insurance or a letter of credit or a bank guaranty acceptable
to the Bank, in which case it shall be a Qualified Account only up to
the amount covered by such insurance, letter of credit or bank
guaranty, (b) a "contra account" (defined as an Account off set by any
claim owing to the Account Debtor), provided, however, that the
ineligible amount for any contra account shall not exceed the amount
of the applicable claim or claims, (c) an Account owed by an Account
Debtor fifty percent (50%) or more of whose Accounts are not Qualified
Accounts, or (d) related to a "drop shipment" of inventory except to
the extent title has passed from the Borrower to its customer as
evidenced by documentation reasonably satisfactory to the Bank; and
(xii) the Account meets such other specifications and requirements
which may from time to time be established by the Bank.
5. The definition of "Termination Date" as set forth on page 5 of the
Credit Agreement is hereby deleted in its entirety and a new definition of
"Termination Date" is hereby added as follows:
"Termination Date" means March 31, 1997.
6. The following new definitions are hereby added to section 1.01 of the
Credit Agreement in appropriate alphabetical order as follows:
RYKA INC.
February 7, 1997
Page 4
"Inventory" means tangible personal property held for sale or lease or
to be furnished under contracts of service, and raw materials, work in
process and materials used, produced or consumed the ordinary course
of business, and shall include tangible personal property returned by
a purchaser following a sale thereof and tangible personal property
represented by documents of title. All equipment, accessories and
parts at any time attached or added to items of Inventory or used in
connection therewith shall be deemed to be part of the Inventory.
7. Line 10 of section 2.09 of the Credit Agreement is hereby amended by
deleting therefrom the number "$5,000,000" and adding in its place the number
"$3,000,000."
8. The following new provisions are hereby added to the end of section
5.08 of the Credit Agreement:
(17) within 15 days of the end of each calendar month: (i) a
written report of foreign Accounts reconciling each such Account to
applicable credit insurance coverage; and (ii) a written report of
pending credits not processed by the Borrower; and
(18) as and when received from its auditors, copies of all
management and other reports provided to the Borrower by such
auditors.
9. The following sentence is hereby added to the end of the section 5.07
of the Credit Agreement:
In addition to the foregoing, the Bank shall have the right at any
time and from time at the Borrower's expense to conduct extended scope
audits of the Accounts of the Borrower and any Subsidiary for the
purpose of determining compliance with the Borrower Base.
10. A new section 5.12 is hereby added to the Credit Agreement as follows:
5.12 Minimum Balance in Operating Account. From and at all
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times after February 7, 1997, the Borrower shall maintain a minimum
balance in its operating account with the Bank of not less than two
thousand dollars ($2,000).
11. The Borrower agrees that until such time as the Loans are repaid in
full from the proceeds of refinancing of the Loans, the Borrower will use its
best efforts to meet or otherwise comply with any and all conditions imposed
under the Commitment Letter. Upon and at any time following the Initial
Inventory Stepdown Date (as that term is defined in that certain
RYKA INC.
February 7, 1997
Page 5
Forbearance and Amendment Agreement dated the date hereof by and among the Bank,
KPR Sports International, Inc., and various guarantors), the Borrower will
provide the Bank upon request with a borrowing base certificate prepared
according to the criteria set forth in the Commitment Letter in order to assist
the Bank in monitoring the Borrower's ability to meet any opening day
availability requirements set forth in the Commitment Letter. In the event that
any such borrowing base certificate does not demonstrate the appropriate opening
day availability required under the Commitment Letter, the Borrower will, at the
Bank's request, establish a borrowing reserve under the Revolving Credit
Facility up to a maximum of the amount that may be required for opening day
availability under the Commitment Letter.
12. The effectiveness of this Letter Agreement and the Bank's obligations
hereunder are conditioned upon the delivery by the Borrower of the following:
(a) This Letter Agreement duly executed by the Borrower and Xxxxxxx
X. Xxxxx;
(b) Allonge to RYKA Note duly executed by the Borrower;
(c) A Certification of Corporate Authority executed by the Secretary
of the Borrower, dated as of the date of this Letter Agreement,
certifying the incumbency and signature of the officers of the
Borrower executing this Letter Agreement and all other documents
to be delivered by them pursuant hereto, together with evidence
of the incumbency of such Secretary;
(d) A Security Agreement Questionnaire to be completed by the
Borrower and in final form as attached hereto as Schedule 11(d);
(e) such Uniform Commercial Code Financing Statements and other
security documents as shall be presented by the Bank on or before
the closing date; and
(f) such other documents as may be required by the Bank to carry out
the provisions of this Letter Agreement.
13. The Borrower and the Guarantors, on behalf of themselves, and all
persons and entities claiming by, through, or under either of them, hereby
release, waive and forever discharge the Bank, and all of the Bank's officers,
directors, attorneys, agents, affiliates, and successors and assigns, of, from,
and with respect to any and all manner of action and actions, cause and causes
of actions, suits disputes, claims, counterclaims and/or liabilities,
RYKA INC.
February 7, 1997
Page 6
cross claims, defenses, and any claims for avoidance or other remedies available
to a debtor, its estate or any trustee or representatives thereof, whether now
known or unknown, suspected or unsuspected, past or present, asserted or
unasserted, contingent or liquidated, whether or not well founded in fact or
law, whether in contract, in tort or otherwise, at law or in equity, which the
Borrower and/or the Guarantor had or now have, claim to have had, now claim to
have or hereafter can, shall or may claim to have against the Bank, for or by
reason of any cause, matter, or thing whatsoever arising from the beginning of
the world through the date hereof, including any claims based upon, relating to
or arising out of any and all transactions, relationships or dealings with or
loans made to the Borrower prior to the date hereof.
14. Any notice given pursuant to this Letter Agreement or pursuant to
any document comprising or relating to this Letter Agreement or any of the other
Loan Documents shall be in writing, including telecopies. Notice given by
telecopy or other electronic mail shall be deemed to have been given and
received when sent. Notice given by overnight mail courier shall bee deemed to
have been given and received one (1) day after the date delivered to such
overnight courier by the party sending such Notice. Notice by mail shall be
deemed to have been given and received three (3) days after the date deposited,
when sent by first class certified mail, postage prepaid, and addressed as
follows:
To the Borrower:
RYKA Inc.
000 Xxxxx Xxxxxxxxx Xxxx
Xxxx xx Xxxxxxx, XX 00000
Attention: Xxxxx Xxxx
Telecopy: (000) 000-0000
With a copy to:
Xxxxx X. Xxxxxx, Esquire
Astor, Weiss, Kaplan, and Xxxxxxxxx
The Bellevue, 0xx Xxxxx
Xxxxx Xxxxxx xx Xxxxxx
Xxxxxxxxxxxx, XX 00000
Telecopy: (000) 000-0000
RYKA INC.
February 7, 1997
Page 7
To the Guarantor:
c/o RYKA Inc.
000 Xxxxx Xxxxxxxxx Xxxx
Xxxx xx Xxxxxxx, XX 00000
Telecopy:(000) 000-0000
To the Bank:
CoreStates Bank, N.A.
Meetinghouse Business Center
0000 Xxxxxx Xxxx
Xxxxxxxx Xxxxxxx, XX 00000
Attention: Xxxx X. Xxxxx, Vice President
Telecopier No.: (000)000-0000
With a copy to:
Duane, Morris & Heckscher
Xxx Xxxxxxx Xxxxx, 00xx Xxxxx
Xxxxxxxxxxxx, XX 00000
Attention: Xxxxx X. Xxxxx, Esquire
Telecopier Number: 000-000-0000
15. On or before the date hereof, the Borrower shall pay to the Bank the
amount of the Bank's costs incurred in connection with this Letter Agreement and
the other Loan Documents.
16. Except as expressly modified herein, the Credit Agreement remains in
full force and effect and the Borrower and the Guarantor hereby affirm and
reaffirm to the Bank their respective representations, warranties and covenants
as set forth in the Credit Agreement and the other Loan Documents.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
RYKA INC.
February 7, 1997
Page 8
Please indicate the consent and agreement of the parties to the Loan
Documents to this Letter Agreement by having this Letter Agreement signed below
by an authorized officer of the Borrower and by Xxxxxxx Xxxxx, as guarantor of
the Loan.
Sincerely,
CoreStates Bank, N.A.
By: /s/ Xxxx X. Xxxxx
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Xxxx X. Xxxxx
Vice President
ACCEPTED AND AGREED TO
AS OF THIS 7 DAY OF
FEBRUARY 1997:
RYKA INC.
By: /s/ Xxxxxxx X. Xxxxx
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_______________________
_______________________
ACKNOWLEDGED AND AGREED TO
AS OF THIS __ DAY OF FEBRUARY 1997:
/s/ Xxxxxxx X. Xxxxx
---------------------------------
Xxxxxxx X. Xxxxx, as Guarantor
