FIFTH AMENDMENT TO LOAN AND SECURITY AGREEMENT
Exhibit-10.74
FIFTH AMENDMENT TO LOAN AND SECURITY AGREEMENT
THIS FIFTH AMENDMENT TO LOAN AND SECURITY AGREEMENT (this “Amendment”), dated as of
August 31, 2006, is entered into among WACHOVIA CAPITAL FINANCE CORPORATION (WESTERN), a California
corporation formerly known as Congress Financial Corporation (Western) (“Agent”), as
administrative and collateral agent for the Lenders party to the Loan Agreement (as defined below)
from time to time (“Lenders”), WACHOVIA CAPITAL FINANCE CORPORATION (WESTERN), a California
corporation formerly known as Congress Financial Corporation (Western), as a Lender
(“Wachovia”), ROCKFORD CORPORATION, an Arizona corporation (“Borrower Agent”), and
AUDIO INNOVATIONS, INC., an Oklahoma corporation (“AII” and together with Rockford,
collectively, “Borrowers”).
RECITALS
A. Agent, Wachovia, Wachovia Bank, National Association, as arranger, and Borrowers have
previously entered into that certain Loan and Security Agreement dated March 29, 2004 as amended by
the First Amendment to Loan and Security Agreement and Conditional Default Waiver dated as of June
10, 2004, the Second Amendment to Loan and Security Agreement dated as of December 30, 2004, the
Third Amendment to Loan and Security Agreement dated as of August 31, 2005 and the Fourth Amendment
to Loan and Security Agreement and Consent dated as of March 21, 2006 (the “Loan
Agreement”), pursuant to which Wachovia has made certain loans and financial accommodations
available to Borrowers. Terms used herein without definition shall have the meanings ascribed to
them in the Loan Agreement.
B. Borrowers have requested Agent and Wachovia to amend the Loan Agreement in certain
respects, and Agent and Wachovia are now willing to accommodate such request on the terms and
conditions set forth herein.
C. Borrowers are entering into this Amendment with the understanding and agreement that,
except as specifically provided herein, none of Agent’s or Lenders’ rights or remedies as set forth
in the Loan Agreement is being waived or modified by the terms of this Amendment.
AGREEMENT
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. Reserve. The amount of the Reserve established pursuant to Section 1 of the First
Amendment to Loan and Security Agreement and Conditional Default Waiver dated as of June 10, 2004,
as amended by the Third Amendment to Loan and Security Agreement dated as of August 31, 2005, is
hereby increased to Three Million Five Hundred Thousand Dollars
($3,500,000). Such Reserve is a permanent Reserve under the Loan and Security Agreement and
shall not be reduced or eliminated without the written consent of Agent and the Lenders.
2. Amendments to Loan Agreement.
(a) The first sentence of the definition of “Borrowing Base” in Section 1.6 of the Loan
Agreement is hereby amended and restated to read in its entirety as follows:
“‘Borrowing Base’ shall mean, at any time, the amount equal to: (a) the sum of
(i) eighty-five percent (85%) of Eligible Accounts (other than Eligible Accounts described
in the immediately following clause (ii)), plus (ii) the lesser of Two Million Dollars
($2,000,000) or seventy percent (70%) of foreign Eligible Accounts subject to credit
insurance as set forth in clause (e)(ii) of the within definition of ‘Eligible Accounts’,
plus (b) the least of: (i) the sum of (A) during the months of December through May,
inclusive, fifty-five percent (55%) of the Value of Eligible Inventory consisting of
finished goods, and at all other times, fifty percent (50%) of the Value of such Eligible
Inventory, plus (B) thirty-five percent (35%) of the Value of Eligible Inventory consisting
of raw materials for such finished goods or (ii) eighty-five percent (85%) of the Net
Orderly Liquidation Value of Eligible Inventory, or (iii) Seven Million Five Hundred
Thousand Dollars ($7,500,000), less (c) any Reserves.”
(b) The definition of “Eurodollar Rate Margin” in Section 1.34 of the Loan Agreement is hereby
amended and restated to read in its entirety as follows:
“1.34 ‘Eurodollar Rate Margin’ shall mean five percent (5.00%) per annum.”
(c) The definition of “Letter of Credit Rate” in Section 1.56 of the Loan Agreement is hereby
amended and restated to read in its entirety as follows:
“1.56 ‘Letter of Credit Rate’ shall mean five percent (5.00%) per annum.”
(d) The definition of “Maximum Credit” in Section 1.60 of the Loan Agreement is hereby amended
and restated to read in its entirety as follows:
“1.60 ‘Maximum Credit’ shall mean the amount of Twenty Million Dollars
($20,000,000).”
(e) The definition of “Prime Rate Margin” in Section 1.76 of the Loan Agreement is hereby
amended and restated to read in its entirety as follows:
“7.76 ‘Prime Rate Margin’ shall mean one percent (1.00%) per annum.”
(f) The definition of “Revolving Loan Limit” in Section 1.89 of the Loan Agreement is hereby
amended and restated to read in its entirety as follows:
“1.89 ‘Revolving Loan Limit’ shall mean the amount of Twenty Million Dollars
($20,000,000).”
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(g) Section 9.17.1 of the Loan Agreement is hereby amended and restated to read in its
entirety as follows:
“9.17.1 EBITDA. Borrowers and their Subsidiaries, on a consolidated basis,
shall earn EBITDA, calculated as of the last day of each period set forth below, of not less
then the amount set forth opposite such periods:
| Period | Amount | |
Three months ending September 30, 2006
|
<$ 950,000> | |
Four months ending October 31, 2006
|
<$1,187,000> | |
Five months ending November 30, 2006
|
<$1,447,000> | |
Six months ending December 31, 2006
|
<$1,529,000> |
For the purposes hereof, ‘EBITDA’ shall mean the net income of Borrowers and
their Subsidiaries determined on a consolidated basis in accordance with GAAP consistently
applied, but excluding any extraordinary or one-time gains, plus (a) depreciation,
amortization and other non-cash charges (to the extent deducted in the computation of such
net income), plus (b) Interest Expense (to the extent deducted in the computation of
such net income), plus (c) charges for federal, state, local and foreign income
taxes (to the extent deducted in the computation of such income).
On or before December 15 of each year (commencing with December 15, 2006), Borrowers
shall furnish Agent with projected consolidated and consolidating financial statements
(including in each case, forecasted balance sheets and statements of income and loss,
statements of cash flow, and statements of shareholders’ equity) of Borrowers and their
Subsidiaries for the next fiscal year, all in reasonable detail, and in a format consistent
with the projections previously delivered by Borrowers to Agent, together with such
supporting information as Agent may reasonably request. Such projected financial statements
shall be prepared on a monthly basis for the next succeeding fiscal year. Such projections
shall represent the reasonable estimate by Borrowers of the future financial performance of
Borrowers and their Subsidiaries for the periods set forth therein and shall have been
prepared on the basis of the assumptions set forth therein which Borrowers believe are fair
and reasonable as of the date of preparation in light of current and reasonably foreseeable
business conditions (it being understood that actual results may differ from those set forth
in such projected financial statements). Based upon each such projected financial
statement, Agent shall reasonably set minimum EBITDA levels for Borrowers and their
Subsidiaries for the subject fiscal year, and Borrowers and their Subsidiaries shall earn
EBITDA of not less than such minimum EBITDA levels.”
3. Effectiveness of this Amendment. Agent must have received the following items, in
form and content acceptable to Agent, before this Amendment is effective.
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(a) Amendment; Acknowledgement. This Amendment and the attached Acknowledgement by
Guarantors, each fully executed in a sufficient number of counterparts for distribution to all
parties.
(b) Amendment Fee. An amendment fee in the amount of Twenty-Five Thousand Dollars
($25,000), which fee shall be paid to Agent by Borrower on or before the date hereof and is fully
earned as of 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 Agent.
4. Representations and Warranties. Each Borrower represents and warrants as follows:
(a) Authority. Such 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 such 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 such
Borrower. This Amendment and each Financing Agreement (as amended or modified hereby) is the
legal, valid and binding obligation of such Borrower, enforceable against such 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 such 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 such Borrower.
(e) No Default. No event has occurred and is continuing that constitutes an Event of
Default.
5. Choice of Law. The validity of this Amendment, its construction, interpretation
and enforcement, and the rights of the parties hereunder, shall be determined under, governed by,
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and construed in accordance with the internal laws of the State of California governing
contracts only to be performed in that State.
6. 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.
7. 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 Borrowers to Agent and Lenders.
(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 Agent or any 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.
8. 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.
9. 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.
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IN WITNESS WHEREOF, the parties have entered into this Amendment as of the date first above
written.
| ROCKFORD CORPORATION | ||||||
| By: | ||||||
| Name: | ||||||
| Title: | ||||||
| AUDIO INNOVATIONS, INC. | ||||||
| By: | ||||||
| Name: | ||||||
| Title: | ||||||
| WACHOVIA CAPITAL FINANCE CORPORATION (WESTERN), as Agent and as a Lender |
||||||
| By: | ||||||
| Name: | ||||||
| Title: | ||||||
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ACKNOWLEDGEMENT BY GUARANTORS
Dated as of August 31, 2006
Each of the undersigned, being a guarantor (each a “Guarantor” and collectively, the
“Guarantors”) under their Guaranty and Security Agreement dated March 29, 2004, made in
favor of Agent and Lenders (as amended, modified or supplemented, the “Guaranty”) hereby
acknowledges and agrees to the foregoing Fifth Amendment to Loan and Security Agreement (the
“Amendment”) and confirms and agrees that the Guaranty is and shall continue to be, in full
force and effect and is hereby ratified and confirmed in all respects except that, upon the
effectiveness of, and on and after the date of the Amendment, each reference in the Guaranty to the
Loan Agreement (as defined in the Amendment), “thereunder”, “thereof” or words of like import
referring to the “Loan Agreement”, shall mean and be a reference to the Loan Agreement as amended
or modified by the Amendment. Although Lender has informed Guarantors of the matters set forth
above, and Guarantors have acknowledged the same, each Guarantor understands and agrees that Lender
has no duty under the Loan Agreement, the Guaranty or any other agreement with any Guarantor to so
notify any Guarantor or to seek such an acknowledgement, and nothing contained herein is intended
to or shall create such a duty as to any advances or transaction hereafter.
If any action or proceeding is filed in a court of the State of California by or against any
Guarantor in connection with any of the transactions contemplated by the Loan Agreement or any
document related thereto, the court shall, and is hereby directed to, make a general reference
pursuant to California Code of Civil Procedure Section 638 to a referee or referees to hear and
determine all of the issues in such action or proceeding (whether of fact or of law) and to report
a statement of decision, provided that at the option of Lender, any such issues pertaining to a
“provisional remedy” as defined in California Code of Civil Procedure Section 1281.8 shall be heard
and determined by the court.
| ROCKFORD SINGAPORE CORPORATION | ||||||
| By: | ||||||
| Name: | ||||||
| Title: | ||||||
| ROCKFORD XXXXX.XXX, INC. | ||||||
| By: | ||||||
| Name: | ||||||
| Title: | ||||||
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| MB QUART SHANGHAI, INC. | ||||||
| By: | ||||||
| Name: | ||||||
| Title: | ||||||
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