Exhibit 10.9
FOURTH AMENDMENT TO FINANCING AGREEMENT
This Fourth Amendment to Financing Agreement (this "Amendment") is entered
into as of this 16th day of September, 2002 among FACTORY 2-U STORES, INC., a
Delaware corporation ("Company"), the Lenders who are a party to the Financing
Agreement referred to below (collectively, "Lenders") and THE CIT GROUP/BUSINESS
CREDIT, INC., a New York corporation ("Agent"), in its capacity as Agent for the
Lenders, with reference to the following facts:
A. Agent, Company and Lenders previously entered into that certain Financing
Agreement dated as of March 3, 2000, as amended by that certain First
Amendment to Financing Agreement dated as of April 13, 2000, that certain
Second Amendment to Financing Agreement dated as of April 10, 2001 and that
certain Third Amendment to Financing Agreement dated as of April 9, 2002
(collectively, the "Financing Agreement"), pursuant to which Lenders have
provided Company with certain loans and other financial accommodations.
B. Company has requested that Agent and Lenders amend the Financing Agreement
to, among other things, extend the term of the Financing Agreement until
March 3, 2006.
C. Agent and Lenders are willing to amend the Financing Agreement on the terms
and subject to the conditions set forth in this Amendment.
NOW THEREFORE, in consideration of the foregoing and the terms and
conditions hereof, the parties do hereby agree as follows, effective as of the
date set forth above:
1. Definitions. Terms used herein, unless otherwise defined herein, shall have
the meanings set forth in the Financing Agreement.
2. Amendments to Financing Agreement.
(a) The definition of "Availability" set forth in Section 1 of the Financing
Agreement is hereby amended and restated in its entirety to read as
follows:
"Availability shall mean at any time the lesser of: (a) the excess of
the Borrowing Base over the sum of (x) the outstanding aggregate amount of
all Obligations, including, without limitation, all Obligations with
respect to Revolving Loans and Letters of Credit, (y) the Availability
Reserve and (z) $7,500,000; or (b) the excess of $50,000,000, over the sum
of (x) the outstanding aggregate amount of all Obligations, including,
without limitation, all Obligations with respect to Revolving Loans and
Letters of Credit and (y) the Availability Reserve."
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(b) The definition of "Borrowing Base" set forth in Section 1 of the Financing
Agreement is hereby amended and restated in its entirety to read as
follows:
"Borrowing Base shall mean (calculated without regard to the
$50,000,000 line of credit maximum) the sum of (a) eighty-five percent
(85%) of the outstanding Eligible Accounts Receivable of the Company plus
(b) the aggregate value of Eligible Inventory (including Eligible
In-Transit Inventory) determined at the lower of cost or market on a
first-in, first-out basis multiplied by the Inventory Advance Percentage;
provided that, in no event shall advances against Eligible In-Transit
Inventory exceed the lesser of (A) $5,000,000 or (B) forty percent (40%) of
the aggregate value of Eligible Inventory."
(c) The definition of "Chase Manhattan Rate" set forth in Section 1 of the
Financing Agreement is hereby amended and restated in its entirety to read
as follows:
"Chase Manhattan Rate shall mean the rate of interest per annum
announced by JPMorgan Chase Bank from time to time as its prime rate in
effect at its principal office in New York City. (The prime rate is not
intended to be the lowest rate of interest charged by JPMorgan Chase Bank
to its borrowers.)"
(d) The definition of "Early Termination Fee" set forth in Section 1 of the
Financing Agreement is hereby amended and restated in its entirety to read
as follows:
"Early Termination Fee shall: (a) mean the fee the Agent is entitled
to charge the Company in the event the Line of Credit (including the Letter
of Credit Sub-Line) or this Financing Agreement is terminated on a date
prior to an Anniversary Date; and (b) be determined by multiplying the Line
of Credit (including the Letter of Credit Sub-Line) by (i) one percent (1%)
if the Early Termination Date occurs on or prior to March 2, 2004, and (ii)
one-half of one percent (0.5%) if the Early Termination Date occurs after
March 2, 2004, but on or prior to March 2, 2005."
(e) The definition of "Inventory Advance Percentage" set forth in Section 1
of the Financing Agreement is hereby amended and restated in its entirety
to read as follows:
"Inventory Advance Percentage shall mean the lower of: (a) seventy
percent (70%) of the aggregate value of Eligible Inventory, or (b)
eighty-five percent (85%) of the Net Orderly Liquidation Value of the
Inventory as a percentage of the total Inventory as determined by the most
recent Inventory appraisal, a provided for in Section 7.13 hereof."
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(f) The following definition of "Triggering Availability" is hereby added
to Section 1 of the Financing Agreement in proper alphabetical order:
"Triggering Availability shall mean at any time the excess of the
Borrowing Base, over the sum of (x) the outstanding aggregate amount of all
Obligations, including, without limitation, all Obligations with respect to
Revolving Loans and Letters of Credit, and (y) the Availability Reserve."
(g) The second paragraph of Section 3.4 of the Financing Agreement is
hereby amended and restated in its entirety to read as follows:
"The Company may and will enforce, collect and receive all amounts
owing on the Accounts and/or received from sales or other dispositions of
Inventory at the Company's expense, and may manage and direct its
Depository Accounts; however such privilege shall terminate automatically
upon the institution by or against the Company of any proceeding under any
bankruptcy or insolvency law or, at the election of the Agent in its sole
discretion: (x) if Triggering Availability is at any time less than
$10,000,000 and at all times thereafter until such time the Company
maintains minimum Triggering Availability of $10,000,000 for a period of
ninety (90) consecutive days, or (y) upon the occurrence of any other Event
of Default and until such Event of Default is waived in writing by Agent or
cured to Agent's satisfaction."
(h) The second sentence of Section 7.2 of the Financing Agreement is hereby
amended and restated in its entirety to read as follows:
"The Company agrees that the Agent or its agents may enter upon the
Company's premises with reasonable notice (such notice not being required
if an Event of Default has occurred and is continuing) at any time during
normal business hours, and from time to time, but not more than twice in
any twelve (12) month period, for the purpose of inspecting the Collateral,
and any and all records pertaining thereto; provided however, (x) if at any
time Triggering Availability is less than $20,000,000 and at all times
thereafter until such time the Company maintains minimum Triggering
Availability of $20,000,000 for a period of ninety (90) consecutive days or
(y) upon the occurrence of any Event of Default and while it is continuing,
Agent shall not be limited in the number of times it or its agent may enter
upon the Company's premises."
(i) The last sentence of Section 7.3 of the Financing Agreement is hereby
amended and restated in its entirety to read as follows:
"At any time the Triggering Availability is less than $10,000,000 or
upon the occurrence and during the continuance of any Event of Default, the
Company shall, upon demand by Agent, provide the reports listed above as
(a) and (b) on a weekly basis."
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(j) Clause (3) of Section 7.9(i) of the Financing Agreement is hereby
amended and restated in its entirety to read as follows:
"(3) notwithstanding clauses (1) and (2) above, the Company may prepay
Subordinated Debt to the extent Triggering Availability after giving effect
to such prepayment exceeds $15,000,000, provided that the Company has
maintained a trailing twelve(12) month EBITDA of not less than
$30,000,000."
(k) The financial covenant relating to the Company's Tangible Net Worth is
hereby eliminated and accordingly, Section 7.10 of the Financing Agreement
is hereby amended and restated in its entirety to read as follows:
"7.10 Reserved."
(l) The first sentence of Section 7.13 of the Financing Agreement is hereby
amended and restated in its entirety to read as follows:
"The Company has provided to the Agent, and agrees to provide to the
Agent on an annual basis commencing with the first anniversary of the
Closing Date, an appraisal indicating the Net Orderly Liquidation Value of
the Inventory; provided however, if at any time Triggering Availability is
less than $20,000,000 and at all times thereafter until such time the
Company maintains minimum Triggering Availability of $20,000,000 for a
period of ninety (90) consecutive days, such appraisals shall be provided
on a semi-annual basis; provided further however, upon the occurrence and
continuance of an Event of Default, such appraisals shall be provided as
frequently as Agent may reasonably request."
(m) The grid set forth in Section 8.1 of the Financing Agreement is hereby
amended and restated in its entirety to read as follows:
Libor Rate Chase
Level EBITDA plus Or Manhattan
Rate plus
------ ---------------------------------- ------------- ------ ------------
I Greater than $28,000,000 1.50% or 0.00%
------ ---------------------------------- ------------- ------ ------------
II Greater than $20,000,000 but
less than or equal to $28,000,000 1.75% or 0.00%
------ ---------------------------------- ------------- ------ ------------
III Greater than $15,000,000 but
less than or equal to $20,000,000 2.00% or 0.00%
------ ---------------------------------- ------------- ------ ------------
IV Greater than $10,000,000 but
less than or equal to $15,000,000 2.25% or 0.25%
------ ---------------------------------- ------------- ------ ------------
V Greater than $5,000,000 but
less than or equal to $10,000,000 2.50% or 0.50%
------ ---------------------------------- ------------- ------ ------------
VI Less than or equal to $5,000,000 3.00% or 1.00%
------ ---------------------------------- ------------- ------ ------------
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(n) The last sentence of Section 8.1 of the Financing Agreement is hereby
amended and restated in its entirety to read as follows:
"Notwithstanding anything to the contrary contained herein, (x) in no
event shall the interest rate applicable hereunder decrease by more than
one-quarter percent (0.25%) within any six (6) month period and (y) if
Triggering Availability exceeds $30,000,000 at all times during any fiscal
quarter and no Event of Default shall have occurred and be continuing as at
the end of such fiscal quarter, the interest rate applicable hereunder for
the three-month period commencing immediately after such quarter shall be
decreased by one-quarter of one percent (0.25%)."
(o) The grid set forth in Section 8.8 of the Financing Agreement is hereby
amended and restated in its entirety to read as follows:
Date of Payment Amount of Payment
------------------------------------------- ----------------------------
On the Closing Date $25,000
------------------------------------------- -----------------------------
On each of the first, second, third, fourth $40,000 per year
and fifth anniversaries of the Closing Date
------------------------------------------- -----------------------------
(p) Section 11.1 of the Financing Agreement is hereby amended and restated
in its entirety to read as follows:
"11.1 This Financing Agreement shall become effective as of the date
set forth on the first page hereof and shall continue in full force and
effect for the initial term ending six (6) years from the Closing Date (the
"Anniversary Date") and from year to year thereafter (each, an "Anniversary
Date"), unless sooner terminated pursuant to the terms hereof."
3. Fee. In consideration of the foregoing amendment, Company shall pay to
Agent, for the pro-rata benefit of Lenders, an amendment fee of $162,500
(the "Amendment Fee"). The Amendment Fee shall be fully earned by Lenders
as of the date hereof and shall be payable and charged to Company's
Revolving Loan Account as follows: $81,250 upon execution of this Amendment
by Company and $81,250 upon the earlier of March 3, 2003 or the termination
of the Financing Agreement.
4. Conditions Precedent. The effectiveness of the foregoing amendment shall
be, and hereby is, subject to the fulfillment to Agent's satisfaction of
the Conditions Precedent. The "Conditions Precedent" shall mean each of the
following:
(a) Receipt by Agent of this Amendment duly executed by each of the parties
hereto;
(b) Receipt by Agent of a fully executed Assignment and Transfer Agreement
whereby Fleet Retail Finance Inc. shall reassign its rights and obligations
as a Lender under the Financing Agreement to The CIT Group/Business Credit,
Inc.;
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(c) Company shall have paid to Agent the portion of the Amendment Fee that
is due upon execution of this Amendment by Company; and
(d) As of the date hereof, the representations and warranties contained in
Section 7 of the Financing Agreement are (before and after giving effect to
this Amendment) true and correct in all material respects (except to the
extent any such representation and warranty is expressly stated to have
been made as of a specific date, in which case it shall be true and correct
as of such specific date) and no Default or Event of Default shall be
existing or have occurred and be continuing.
5. Miscellaneous.
(a) Reference to and Effect on the Financing Agreement.
(i) Except as specifically amended by this Amendment and the documents
executed and delivered in connection herewith, the Financing Agreement
shall remain in full force and effect and is hereby ratified and confirmed.
(ii) The execution and delivery of this Amendment shall not, except as
expressly provided herein, constitute a waiver of any provision of, or
operate as a waiver of any right, power or remedy of Agent or any Lender
under the Financing Agreement or any agreement or document executed in
connection therewith.
(iii) Upon the Conditions Precedent being satisfied, this Amendment
shall be construed as one with the existing Financing Agreement, and the
existing Financing Agreement shall, where the context requires, be read and
construed throughout so as to incorporate this Amendment.
(b) Fees and Expenses. The Borrower acknowledges that all costs, fees and
expenses incurred in connection with this Amendment will be paid in
accordance with Section 8.5 of the Financing Agreement.
(c) Headings. Section and subsection headings in this Amendment are
included for convenience of reference only and shall not constitute a part
of this Amendment for any other purpose or be given any substantive effect.
(d) Counterparts. This Amendment may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
(e) Governing Law. This Amendment shall be governed by and construed
according to the laws of the State of California.
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IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first above written.
Company:
FACTORY 2-U STORES, INC.
/s/Xxxxxxx X. Xxxxxxxxx
-----------------------
Name: Xxxxxxx X. Xxxxxxxxx
Title: Executive Vice President and
Chief Financial Officer
Agent and Lender:
THE CIT GROUP/BUSINESS CREDIT, INC.
/s/Xxxxx X. Xxxxxxxxx
------------------------
Name: Xxxxx X. Xxxxxxxxx
Title: Vice President
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