FIRST AMENDMENT TO DEBTOR IN POSSESSION
LOAN AND SECURITY AGREEMENT
---------------------------
THIS FIRST AMENDMENT TO DEBTOR IN POSSESSION LOAN AND SECURITY
AGREEMENT (this "First Amendment") is entered into and effective as of April 14,
1999, by and among Factory Card Outlet of America Ltd., an Illinois corporation
and a debtor and debtor in possession (the "Borrower"), on the one hand, and
Foothill Capital Corporation, as Agent ("Foothill") and the financial
institutions listed on the signature page of the Loan Agreement referred to
below (such financial institutions, together with their respective successors
and assigns, are collectively referred to herein as the "Lenders"), on the other
hand. This First Amendment amends certain provisions of the Debtor in Possession
Loan and Security Agreement dated as of March 23, 1999 by and among the Borrower
and Foothill, as Agent, and the Lenders (as amended by and through the date of
this First Amendment, and as hereafter amended and/or restated from time to
time, the "Loan Agreement"). Capitalized terms used herein and not otherwise
defined shall have the same meanings herein as in the Loan Agreement.
BACKGROUND
----------
This First Amendment is entered into to conform the Loan Agreement to
the terms of the Final Order (A) Approving Postpetition Financing, (B) Granting
Security Interests and Superpriority Administrative Expense Treatment, and (C)
Modifying Automatic Stay, Pursuant to Sections 362 and 364 of the Bankruptcy
Code and Bankruptcy Rule 4001(c) entered in the Case by the Bankruptcy Court on
April 14, 1999.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Borrower, the Agent and the
Lenders hereby agree as follows:
1. Amendments to Loan Agreement.
----------------------------
(a) Amendments to Subsection 1.1.
----------------------------
(i) Subsection 1.1 is hereby amended by deleting the existing
definition of "Carve Out" appearing therein and inserting in lieu
thereof the following:
"'Carve Out' means, at any time of determination, the
sum of (i) allowed administrative expenses payable
pursuant to 28 U.S.C. ss. 1930(a)(6) and (ii) up to
$1,250,000 of Priority Professional Expenses due but
unpaid as of, or incurred after the date of an Event
of Default, and (iii) up to $250,000 of Nonpriority
Professional Expenses."
(ii) Subsection 1.1 is hereby amended by deleting the existing
definition of "Case" appearing therein and inserting in lieu thereof
the following:
1
NY2:\3001578\3\44336.0003
"'Case' means the Borrower's and Parent's jointly
administered reorganization cases Nos. 99-685(JJF)
and 99-686(JJF) under Chapter 11 of the Bankruptcy
Code, pending in the Bankruptcy Court."
(iii) Subsection 1.1 is hereby amended by deleting the
existing definition of "Obligations" appearing therein and inserting in
lieu thereof the following:
"'Obligations' means all loans, Advances, debts,
principal, interest (including any interest that, but
for the provisions of the Bankruptcy Code, would have
accrued), contingent reimbursement obligations under
any outstanding Letters of Credit, premiums
(including Early Termination Premiums), liabilities
(including all amounts charged to Borrower's Loan
Account pursuant hereto), obligations, fees, charges,
costs, or Lender Group Expenses (including any fees
or expenses that, but for the provisions of the
Bankruptcy Code, would have accrued), lease payments,
guaranties, covenants, and duties owing by Borrower
to the Lender Group (provided the same arises under
or pursuant to, or is evidenced by, the Loan
Documents), whether direct or indirect, absolute or
contingent, due or to become due, now existing or
hereafter arising, and including any debt, liability,
or obligation owing from Borrower to others that the
Lender Group may have obtained by assignment or
otherwise, and further including all interest not
paid when due and all Lender Group Expenses that,
Borrower is required to pay or reimburse by the Loan
Documents, by law, or otherwise, but, as to each item
referenced in this definition, only to the extent the
same arises under or pursuant to the Loan Documents."
(iv) Subsection 1.1 is hereby amended by inserting the
following definitions alphabetically therein:
"Avoidance Actions" means the Borrower's rights and
recoveries under Section 544, 545, 547, 548, 550 and
551 of the Bankruptcy Code."
"Committee" means the Official Committee of Unsecured
Creditors appointed in the Case."
"Permitted Application" has the meaning set forth in
Section 9.1.
"Petition Date" means March 23, 1999.
"Postpetition Liens" has the meaning given to such
term in the Final Order.
(b) Amendment to Subsection 2.2(a). Subsection 2.2(a) of the Loan
Agreement is hereby amended by deleting such subsection in its entirety and
inserting in lieu thereof the following:
2
"(a) Agreement to Cause Issuance; Amounts; Outside
Expiration Date. Subject to the terms and conditions of this
Agreement, Agent agrees to issue, or cause an Affiliate of
Agent to issue, letters of credit for the account of Borrower
(each, an "L/C") or to guaranty letters of credit issued by an
Issuing Bank for the account of the Borrower (each such
guaranty, an "L/C Guaranty"). The Agent shall have no
obligation to issue an L/C or L/C Guaranty (x) at any time
during the pendency of a Default or Event of Default, or (y)
if, after giving effect to the issuance of such L/C or L/C
Guaranty:
(i) the sum of 50% (or such other percentage
as may from time to time equal the inverse of the
inventory advance rate) of the aggregate amount of
all undrawn and unreimbursed Inventory Letters of
Credit plus 100% of the aggregate amount of all other
types of undrawn and unreimbursed Letters of Credit,
would exceed the Borrowing Base less the amount of
outstanding Advances (including any Agent Advances
and Agent Loans);
(ii) the aggregate amount of all undrawn or
unreimbursed Letters of Credit would exceed the lower
of: (x) the Maximum Revolving Amount minus the amount
of outstanding Advances (including any Agent Advances
and Agent Loans); or (y) $10,000,000; or
(iii) the outstanding Obligations would
exceed the Maximum Revolving Amount.
Borrower expressly understands and agrees that Agent shall
have no obligation to arrange for the issuance by Issuing
Banks of the letters of credit that are to be the subject of
L/C Guaranties. Borrower and the Lender Group acknowledge and
agree that certain of the letters of credit that are to be the
subject of L/C Guaranties may be outstanding on the Closing
Date. Each Letter of Credit shall have an expiry date no later
than 60 days prior to the date on which this Agreement is
scheduled to terminate under Section 3.4 (without regard to
any potential renewal term), unless the Agent expressly agrees
to a later expiry date, and all such Letters of Credit shall
be in form and substance acceptable to Agent in its sole
discretion. If the Lender Group is obligated to advance funds
under a Letter of Credit, Borrower immediately shall reimburse
such amount to Agent and, in the absence of such
reimbursement, the amount so advanced immediately and
automatically shall be deemed to be an Advance hereunder and,
thereafter, shall bear interest at the rate then applicable to
Advances under Section 2.7."
(c) Amendment to Subsection 2.6. Subsection 2.6 of the Loan Agreement
is hereby amended by deleting the word "immediately" appearing therein and
inserting after the word "Agent" the phrase "by no later than the second
Business Date after the Agent has provided notice to the Borrower that an
Overadvance exists."
3
(d) Amendment to Subsection 2.11. Subsection 2.11 of the Loan Agreement
is hereby amended by deleting the last sentence of such existing subsection and
inserting in lieu thereof the following sentences:
"Agent shall render statements regarding the Loan Account to
Borrower and the Committee, including principal, interest, and
fees, including an itemization of all charges and expenses
constituting the Lender Group Expenses owing, and, subject to
the following sentence, such statements shall be conclusively
presumed to be correct and accurate and constitute an account
stated between Borrower and Lender Group unless, within 30
days after receipt thereof by Borrower, Borrower shall deliver
to Agent written objection thereto describing the error or
errors contained in any such statements. In addition, the
Borrower and the Committee shall have thirty (30) days after
the receipt of such statements to object to the reasonableness
of the attorneys' fees and expenses incurred by the Lender
Group. Any objection shall be first sent to the Agent and its
counsel. If the parties cannot resolve the dispute within ten
(10) days of the objection's delivery to the Agent and its
counsel, the Borrower and/or the Committee may seek relief
from the Bankruptcy Court. In the absence of a timely
objection and (if necessary) request for relief by the
Borrower or the Committee, the attorneys' fees and expenses of
the Lender Group shall be conclusively presumed reasonable."
(e) Amendment to Subsection 4.2. Subsection 4.2 of the Loan Agreement
is hereby amended by adding the following sentence to the end of such existing
subsection:
"Notwithstanding the foregoing, the proceeds of any Avoidance
Actions shall not be subject to, and shall not be used to
satisfy, the Super-Priority Claim of the Lender Group, except
that to the extent the Lender Group funds the Carve Out, the
amount so funded shall be first repaid from the proceeds of
the Avoidance Actions to satisfy the Super-Priority Claim of
the Lender Group."
(f) Amendment to Subsection 6.19. Subsection 6.19 of the Loan Agreement
is hereby amended by deleting the number "25" appearing therein and inserting in
lieu thereof the number "32."
(g) Amendment to Section 8. Section 8 of the Loan Agreement is hereby
amended by deleting such section in its entirety and inserting in lieu thereof
the following:
"8. EVENTS OF DEFAULT.
Any one or more of the following events shall constitute an
event of default (each, an "Event of Default") under this Agreement:
8.1 If Borrower shall fail to pay when due and payable or when
declared due and payable, any portion of the Obligations (whether of
principal, interest
4
(including any interest which, but for the provisions of the Bankruptcy
Code, would have accrued on such amounts), fees and charges due the
Lender Group, reimbursement of Lender Group Expenses, or other amounts
constituting Obligations);
8.2 If Borrower shall fail to perform, keep or observe: (a)
any term, provision, condition, covenant or agreement contained in
Sections 6.3 (Tax Returns), 6.6 (Title to Equipment), 6.11 (Location of
Inventory and Equipment), 6.12 (Compliance with Laws), 6.13 (Employee
Benefits) or 6.14 (Leases) of this Agreement, and such failure
continues for a period of 5 days after the date of such failure or
neglect; (b) any term, provision, condition, covenant or agreement
contained in Sections 6.1 (Accounting System) or 6.17 (Cycle Count
Program) of this Agreement, and such failure continues for a period of
15 days after the date of such failure or neglect; or (c) any other
term, provision, condition, covenant or agreement contained in this
Agreement, or in any of the other Loan Documents (subject to any grace
periods set forth therein); provided, however, that during any period
of time that any such failure exists, even if such failure is not yet
an Event of Default by virtue of the existence of a grace period,
Lenders shall not be required during such period to make Advances to
Borrower;
8.3 If there is a Material Adverse Change;
8.4 If any material portion (i.e., more than $250,000 per
creditor or $1,000,000 in the aggregate) of Borrower's or Parent's
properties or assets shall be attached, seized, subjected to a writ or
distress warrant, or levied upon, or come into the possession of any
third Person;
8.5 If Borrower shall fail to make: (a) rental payments not in
bona fide dispute in the aggregate amount of at least $100,000 due
under its retail location leases, or (b) any rental payment not in bona
fide dispute under the lease for its principal place of business and
main distribution center, to the extent such payments arose after the
commencement of the Case and prior to the rejection of any such lease;
8.6 If the Case is dismissed or converted to a case under
Chapter 7 of the Bankruptcy Code, or if a trustee under Section 1104 of
the Bankruptcy Code or an examiner with expanded powers relating to the
operation of the business of the Borrower and/or the Parent under
Section 1106(b) of the Bankruptcy Code is appointed;
8.7 If Borrower is enjoined, restrained, or in any way
prevented by court order from continuing to conduct all or any material
part of its business affairs;
8.8 If a notice of lien, levy, or assessment is filed of
record with respect to any of Borrower's properties or assets by the
United States Government, or any department, agency, or instrumentality
thereof, or by any state, county, municipal, or governmental agency, or
if any taxes or debts owing at any time hereafter to any one
5
or more of such entities becomes a lien, whether xxxxxx or otherwise
with a priority equal or superior to the liens granted to the Agent and
the Lenders hereunder, upon any of Borrower's properties or assets and
the same is not paid on the payment date thereof;
8.9 If a judgment or other claim becomes a lien or encumbrance
with a priority equal or superior to the liens granted to the Agent and
the Lenders hereunder upon any material portion (i.e., more than
$250,000 per creditor or $1,000,000 in the aggregate) of Borrower's or
Parent's properties or assets;
8.10 If there is a filing by Borrower or Parent, or
confirmation (regardless of the proponent), of a Reorganization Plan or
Plans in the Case which does not provide for (i) the termination of all
of the Lenders' commitments to lend and indefeasible payment in full in
cash of all Obligations and the cash collateralization or return of all
Letters of Credit in a manner satisfactory to Agent on or before the
effective date of such plan and (ii) the continuation of the
Postpetition Liens in favor of Agent until such effective date;
8.11 If Borrower shall make any payment on account of
Indebtedness that has been contractually subordinated in right of
payment to the payment of the Obligations, except to the extent such
payment is permitted by the terms of the subordination provisions
applicable to such Indebtedness;
8.12 If any material misstatement or misrepresentation exists
now or hereafter in any warranty, representation, statement, or report
made to the Lender Group by Borrower or any officer, employee, agent,
or director of Borrower, or if any such warranty, representation,
statement or report is withdrawn;
8.13 If the obligation of any guarantor under its guaranty or
other third person under any Loan Document is limited or terminated by
operation of law or by the guarantor or other third Person thereunder,
or any such guarantor (other than the Parent) or other third person
becomes the subject of an Insolvency Proceeding, it being acknowledged
that as of the date of this Agreement the Parent is the only Guarantor
of the Obligations;
8.14 If the Bankruptcy Court shall enter any order (i)
amending, supplementing, altering, staying, vacating, rescinding or
otherwise modifying any Order, or (ii) granting relief from the
automatic stay to any creditor asserting a lien or reclamation claim on
a material portion (i.e., more than $250,000 per creditor or $1,000,000
in the aggregate) of the assets of the Borrower or the Parent;
8.15 If an application shall be filed by the Borrower for the
approval of any other superpriority claim herein which is pari passu
with or senior to the claims of the Agent and the Lenders against the
Borrower hereunder and the Order or under any of the other Loan
Documents (unless after giving effect to the transactions contemplated
6
by such application, all Obligations (whether contingent or otherwise)
shall be paid in full in cash and the Commitment shall be terminated,
or there shall arise any such superpriority claim;
8.16 If Borrower shall be generally unable to pay its
post-petition debts as they mature, or shall fail to comply with any
order of the Bankruptcy Court in any material respect;
8.17 If a Reorganization Plan shall be filed by the Borrower
or approved by the Bankruptcy Court (regardless of the proponent) in
the Case which does not satisfy the requirements of Section 4.4 of this
Agreement;
8.18 If Borrower shall file a motion in the Case (i) to use
cash collateral of the Lenders under Section 363(c) of the Bankruptcy
Code except with the Lenders' consent, (ii) to recover from any portion
of the Collateral any costs or expenses of preserving or disposing of
any such collateral under Section 506(c) of the Bankruptcy Code, or
(iii) except with respect to the filing of a Permitted Application (as
defined in Section 9 below), to take any other action or actions
adverse to the Lenders or their rights and remedies hereunder or under
any of the other Loan Documents or any documents related thereto or the
Lenders' interest in any of the Collateral, which other action or
actions would individually or in the aggregate, have a Material Adverse
Change;
8.19 If Borrower shall pay or discharge any prepetition
Indebtedness in an aggregate amount exceeding $50,000, other than the
Prepetition Bank Debt and such Indebtedness paid pursuant to customary
orders entered by this Court on or immediately following the Petition
Date;
8.20 If there shall remain undischarged for more than thirty
(30) days any final post-petition judgment against the Borrower in
excess of $400,000;
8.21 If the Borrower or Parent shall commence, or participate
in (unless compelled to do so by order of the Bankruptcy Court) any
lawsuit, adversary proceeding, or contested matter against the Agent or
Lenders, other than a Permitted Application; or
8.22 If there shall occur any attempt by Borrower or Parent to
invalidate, reduce or otherwise impair Agent's or any Lender's claims
against Borrower or Parent or to subject any Collateral to assessment
pursuant to Section 506(c) of the Bankruptcy Code."
(h) Amendment to Subsection 9.1. Subsection 9.1 of the Loan Agreement
is hereby amended by deleting the third paragraph of such subsection in its
entirety and inserting in lieu thereof the following paragraph
7
Upon the occurrence and during the continuance of an Event of Default
which has resulted in any of the Obligations having been declared due
and payable prior their stated maturity (an "Acceleration") and before
exercising any of the rights or remedies of the Lender Group comprising
the enforcement of its Liens against Collateral subject to the
immediately preceding paragraph or the exercise of its rights of
set-off under this Agreement, the Agent shall provide at least seven
(7) Business Days' prior written notice to the Borrower, bankruptcy
counsel to the Borrower, counsel to the Committee and the office of the
United States Trustee in the Case, setting forth the Event of Default
or Events of Default which the Agent believes in good faith to have
occurred and to have been continuing at the time of such Acceleration
and providing notice that the Agent, on behalf of the Lender Group,
intends to enforce its Liens against Collateral and/or to exercise its
rights of set-off. During such seven (7) Business Day period (the
"Waiting Period"), any of such parties may file an application (a
"Permitted Application") with the Bankruptcy Court with a copy to the
Agent and its counsel, (a) stating that: (i) such party believes in
good faith that no Event of Default specified in such notice has
occurred and was continuing at the time of such Acceleration; or (ii)
that due to compelling circumstances the immediate enforcement of the
Agent's and the Lender's rights should not be permitted; and (b)
requesting that a hearing be held promptly to determine whether such is
the case. During the Waiting Period and, if any such Permitted
Application is filed with the Bankruptcy Court, during such additional
period (an "Extended Period") expiring on the earlier to occur of (i)
the conclusion of any such hearing requested and (ii) five (5) Business
Days following the filing of such application, (A) the Agent shall
refrain from proceeding to exercise such rights or remedies or rights
of set-off, and (B) the Borrower may use funds to make payment in the
ordinary course of business consistent with past practices in the
Operating Account and up to 50% of the amount of cash proceeds from
account debtors and obligors received by the Borrower or the Agent and
otherwise creditable to the Obligations; provided that the total amount
for the Waiting Period and the Extended Period (if applicable) shall
not exceed, in the aggregate, the sum of $250,000 plus payroll expenses
in an amount not to exceed $1,700,000. At the end of the Waiting Period
or the Extended Period (if applicable) the Agent shall be free to
exercise all of such rights and remedies and such rights of set-off
unless, in the event a Permitted Application has been filed, the
Bankruptcy Court has determined within such Extended Period that no
such Event of Default has occurred and was continuing at the time of
such Acceleration or that due to compelling circumstances the immediate
enforcement of the Agent's and the Lender's rights should not be
permitted. In the event that the Bankruptcy Court does determine that
no such Event of Default has occurred and was continuing at the time of
such Acceleration, the scheduled maturity of the Obligations which had
been the subject of such Acceleration, together with the automatic stay
of Section 362(a) of the Bankruptcy Code, shall be reinstated, all with
the same effect as if no such Event of Default has been declared or
Acceleration occurred.
8
(i) Amendments to Exhibit B-1. The Loan Agreement is hereby amended by
deleting in its entirety the existing Exhibit B-1 (Business Plan) thereto and
substituting therefor the form of Exhibit B-1 (Business Plan) attached to this
First Amendment.
2. Representations and Warranties; Confirmation of
Representations, Warranties.
-------------------------------------------------------------
This First Amendment has been duly authorized, executed and delivered
by the Borrower. The Loan Agreement, as amended hereby, and each of the other
Loan Documents, as amended by and through the date hereof, constitute legal,
valid and binding obligations of the Borrower, enforceable against the Borrower
in accordance with their respective terms. The Borrower, by execution of this
First Amendment, certifies to the Agent and each of the Lenders that each of the
representations and warranties set forth in the Loan Agreement and the other
Loan Documents is true and correct as of the date hereof, except to the extent
such representations and warranties expressly relate to an earlier date, as if
fully set forth in this First Amendment, and that, as of the date hereof, no
Default or Event of Default has occurred and is continuing under the Loan
Agreement or any other Loan Document. The Borrower acknowledges and agrees that
this First Amendment shall become a part of the Loan Agreement and shall be a
Loan Document.
3. No Novation; Effect; Counterparts; Governing Law.
------------------------------------------------
Except to the extent specifically amended hereby, the Loan Agreement
and each of the other Loan Documents shall be unaffected hereby and shall remain
in full force and effect; this First Amendment shall not be deemed a novation of
the Loan Agreement or any other Loan Document. The Borrower hereby acknowledges,
confirms and ratifies its obligations under the Loan Agreement and each of the
other Loan Documents. This First Amendment may be executed in any number of
counterparts, and by the different parties on separate counterparts, each of
which, when so executed and delivered, shall be an original, but all the
counterparts shall together constitute one instrument. This First Amendment
shall be governed by the internal laws of The Commonwealth of Massachusetts
(without reference to conflicts of law principles) and the United States
Bankruptcy Code and shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns. The
Borrower acknowledges that the reasonable out-of-pocket expenses of the Agent
and the Lenders incurred in connection with the preparation, execution and
delivery of this First Amendment shall be "Lender Group Expenses," as such term
is defined in the Loan Agreement.
4. Construction.
------------
The Borrower, by execution hereof, acknowledges and confirms that for
all purposes of the Loan Agreement and the other Loan Documents, the term "Loan
Agreement" shall mean the Loan Agreement as amended by and through the date of
this First Amendment and as further amended and/or restated from time to time
hereafter.
[Signatures appear on following page]
9
IN WITNESS WHEREOF, the parties hereto have executed this First
Amendment to Loan and Security Agreement as a sealed instrument as of the date
first above written.
FACTORY CARD OUTLET OF AMERICA,
LTD.
By:
----------------------------------
Name:
----------------------------------
Title:
----------------------------------
FOOTHILL CAPITAL CORPORATION, for
itself and as Agent for the Lenders
By:
----------------------------------
(Title)
PARAGON CAPITAL, LLC, as a Lender
By:
----------------------------------
(Title)
10
