AMENDMENT NO. 2 TO LOAN AND SECURITY AGREEMENT
AND LIMITED WAIVER AND CONSENT
This AMENDMENT NO. 2 TO LOAN AND SECURITY AGREEMENT AND LIMITED WAIVER
AND CONSENT (this "Amendment") dated as of February 1, 1999 is by and between
XXX XXXXXX, INC., a Washington corporation ("Borrower"), and FINOVA CAPITAL
CORPORATION, a Delaware corporation ("FINOVA"). Unless otherwise specified
herein, capitalized terms used in this Amendment shall have the meanings
ascribed to them by the Loan Agreement (as hereinafter defined).
RECITALS
WHEREAS, FINOVA and Borrower are parties to that certain Loan and
Security Agreement, dated as of May 29, 1998 (as amended by Amendment No. 1
dated as of July 17, 1998, the "Existing Loan Agreement", and as further
amended, supplemented, restated or otherwise modified from time to time, the
"Loan Agreement");
WHEREAS, Borrower and FINOVA desire to amend the Existing Loan
Agreement to, inter alia, (i) modify the calculation of Advance Rate, (ii)
establish a loan reserve for required computer upgrades, (iii) extend the time
period in which Borrower must remedy Year 2000 Problems, (iv) modify certain
definitions and covenants with respect to Borrower's issuance of new preferred
stock and warrants and (v) modify certain other provisions as set forth herein;
and
WHEREAS, Borrower has requested that FINOVA, and, subject to the terms
and conditions of this Amendment, FINOVA has agreed to, (i) waive certain Events
of Default with respect to Borrower's EBITDA compliance under the Loan
Agreement, (ii) amend certain financial covenants of Borrower and (iii) consent
to the funding of certain payments to certain Subordinating Creditors;
NOW THEREFORE, in consideration of the mutual execution hereof and
other good and valuable consideration, the parties hereto agree as follows:
Section 1. Amendments To The Existing Loan Agreement. Subject to the
satisfaction of the conditions precedent set forth in Section 9 hereof, the
parties hereto hereby agree to amend the Existing Loan Agreement as follows:
(a) Section 1.1 of the Existing Loan Agreement is hereby amended
by adding the following new defined terms in the proper alphabetical order:
"Securities Purchase Agreement" has the meaning ascribed to
such term in Section 6.1.25 hereto.
"Series D Preferred Stock" has the meaning ascribed to such
term in Section 6.1.25 hereto.
"Subordinated Debt Exchange" has the meaning ascribed to
such term in Section 6.1.25 hereto.
"Year 2000 Reserve" means a special Loan Reserve of $300,000
reflecting approximately one-half of the amount needed for
Borrower to upgrade its existing MIS system for its chief
executive office and the POS terminals at each of its store
locations to remedy any Year 2000 Problems. Such Year 2000
Reserve shall be reduced dollar for dollar by each
expenditure by Borrower in calendar year 1999 for such
computer upgrading upon FINOVA's receipt from Borrower of
satisfactory written evidence of payment therefor; provided
Borrower has spent an initial $300,000 on such computer
upgrading.
(b) The definition of "Advance Rate" set forth in Section 1.1 of
the Existing Loan Agreement is hereby amended and restated to read as follows:
"Advance Rate" means a percentage rate, established on a
monthly basis, equal to the product of (i) the Net GOB Sale
Value Rate of Borrower's Eligible Inventory as of the date
of the most recent monthly Appraisal Report and (ii) a
percentage equal to (A) from the Closing Date to and
including August 15, 1999, 100% and (B) from August 16, 1999
thereafter, 95%. The Advance Rate so computed will remain in
effect until the next monthly Appraisal Report has been
delivered. In the event, for any reason, the next monthly
Appraisal Report is not timely delivered, FINOVA shall be
entitled to adjust the Advance Rate or impose such Loan
Reserves as FINOVA may deem appropriate in its discretion
until such monthly Appraisal Report is received. So long as
no Event of Default has occurred and is continuing, (i)
during the period commencing on January 1 and ending August
15 of each year, the Net GOB Sale Value Rate shall be
determined by reference to the "low" or "slow" selling
season rate specified in the applicable Appraisal Report and
(ii) during the period commencing August 16 and ending
December 31 of each year, the Net GOB Sale Value Rate shall
be determined by reference to the "high" or "prime" selling
season rate specified in the applicable Appraisal Report.
Without limiting any of FINOVA's other rights and remedies,
anytime any Event of Default has occurred and is continuing,
FINOVA may adjust the Advance Rate and/or impose such Loan
Reserves as FINOVA may deem appropriate in its discretion.
Notwithstanding the foregoing, during the period commencing
January 11, 1999 through and including February 15, 1999,
the Net GOB Sale Value Rate shall be determined by reference
to the "high" or "prime" selling season rate specified in
the applicable Appraisal Report; provided, that such Net GOB
Sale Value Rate shall be reduced by deducting 1% on January
11, 1999 and an additional 1% on each Monday of each
calendar week occurring thereafter through and including
February 15, 1999 at which time the Net GOB Sale Value Rate
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shall no longer be governed by this sentence. For purposes
of illustration only, if the Net GOB Sale Value Rate for
January 11, 1999 equals 80%, the Advance Rate which would be
applicable on January 11, 1999 would equal 79% (i.e., 80% -
1% = 79%).
(c) The definition of "Loan Reserve" set forth in Section 1.1 of
the Existing Loan Agreement is hereby amended by adding the language "Year 2000
Reserve" after the language "In-Transit Reserve,".
(d) The definition of "Preferred Stock" set forth in Section 1.1
of the Existing Loan Agreement is hereby amended by (i) deleting the word "and"
appearing after the language "Series B Preferred Stock" and inserting a comma
(",") in place thereof and (ii) adding the language "Series D Preferred Stock"
immediately after the language "Series C Preferred Stock" appearing in the third
line thereof.
(e) The definition of "Statement of Rights and Preferences of
Preferred Stock" set forth in Section 1.1 of the Existing Loan Agreement is
hereby amended and restated in its entirety to read as follows:
"Statement of Rights and Preferences of Preferred Stock"
means collectively, (i) the Statement of Rights and
Preferences of Series A Preferred Stock and Series B
Preferred Stock of the Borrower, as in effect on December 3,
1997, (ii) the Statement of Rights and Preferences of Series
C Preferred Stock of the Borrower, as in effect on March 11,
1998, and (iii) the Statement of Rights and Preferences of
Series D Preferred Stock of the Borrower, as in effect on
February 1, 1999, as each may be amended from time to time
with the prior written consent of FINOVA.
(f) Section 6.1.14 of the Existing Loan Agreement is hereby
amended by replacing the language "the first anniversary of the Closing Date"
with "October 1, 1999".
(g) Section 6.1.22 of the Existing Loan Agreement is hereby
amended by replacing the language "the first anniversary of the Closing Date"
with "October 1, 1999".
(h) Section 6.1 of the Existing Loan Agreement is amended by
adding at the end thereof a new Section 6.1.25 as set forth below:
6.1.25 Securities Purchase Agreement Transactions. Issue, in
one or more tranches, certain warrants for Borrower's common
stock and up to 40,000 shares of Borrower's Series D
Preferred Stock (the "Series D Preferred Stock") to certain
Subordinating Creditors
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for gross cash consideration of $100 per share of Series D
Preferred Stock in accordance with the terms of that certain
Securities Purchase Agreement dated on or about February 1,
1999 between Borrower and certain Subordinating Creditors
(the "Securities Purchase Agreement"). Borrower further
covenants that the first $2,000,000 of gross cash proceeds
generated from the issuance of such Series D Preferred Stock
(from which the reasonable out-of-pocket costs and expenses
of the purchasers of such Series D Preferred Stock may be
deducted) will be received no later than February 1, 1999
and be paid to FINOVA to reduce the Revolving Credit Loans
and the balance of proceeds from subsequent issuances of
such Series D Preferred Stock will be used to reduce past
due trade obligations and for other purposes at the sole
discretion of the purchasers of such Series D Preferred
Stock, provided such purposes are in compliance with the
terms of the Loan Documents. Borrower also covenants that on
or prior to February 1, 1999, Borrower's existing $2,000,000
Subordinated Debentures dated March 11, 1998 will be
exchanged pursuant to the Securities Purchase Agreement for
(x) certain warrants for Borrower's common stock, (y) new
subordinated debentures having a maturity date of December
31, 2001 and requiring payment of all interest obligations
thereunder only on such maturity date (the "Subordinated
Debt Exchange") and (z) payment of the obligations described
in Section 2(b) of Amendment No. 2 to Loan and Security
Agreement and Limited Waiver and Consent dated as of
February 1, 1999 between FINOVA and Borrower.
(i) Section 6.2.17 of the Existing Loan Agreement is hereby
amended by amending and restating clause (y) to read as follows:
(y) the warrants issued to certain Subordinating Creditors,
pursuant to the terms of (i) the Subordinated Debenture
Purchase Agreement, dated as of March 11, 1998, between
Borrower and certain Subordinating Creditors and (ii) the
Securities Purchase Agreement, and
(j) Section 2.6 of the Schedule to the Existing Loan Agreement is
hereby amended by adding a new paragraph at the end of such section as follows:
Amendment No. 2 Fee Borrower agrees to pay to FINOVA an
Amendment No. 2 Fee of $30,000, in connection with the
execution and delivery of Amendment No. 2 to Loan and
Security Agreement and Limited Waiver and Consent between
FINOVA and Borrower, which shall be fully earned as of the
date of execution of such Amendment No. 2 but shall be
payable in five (5) installments of $6,000 beginning on the
effective date of such Amendment No. 2
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and on the first Business Day of each month thereafter
through and including June 1, 1999.
(k) The EBITDA covenant set forth in Section 6.1.13 of the
Schedule to the Existing Loan Agreement is hereby amended and restated in its
entirety to read a follows:
EBITDA: Borrower shall maintain Earnings Before Interest,
Taxes, Depreciation and Amortization ("EBITDA") (i) on
a cumulative basis (as defined below) beginning May 1,
1998 to and including January 30, 1999, (ii) on a
cumulative basis beginning February 1, 1999 through and
including January 29, 2000 and (iii) for the trailing
twelve month period for every monthly measurement
period after January 29, 2000, as follows:
Measurement Period Ending EBITDA
------------------------- ------
May 30, 1998 None
July 4, 1998 $150,000
August 1, 1998 $100,000
August 29, 1998 $661,000
October 3, 1998 $938,000
October 31, 1998 $1,099,000
November 28, 1998 $1,766,000
January 2, 1999 $4,246,000
January 30, 1999 $3,401,000
February 27, 1999 ($1,613,000)
April 3, 1999 ($1,850,000)
May 1, 1999 ($1,963,000)
May 29, 1999 ($1,575,000)
July 3, 1999 ($800,000)
July 31, 1999 ($790,000)
August 28, 1999 ($280,000)
October 2, 1999 $216,000
October 30, 1999 $326,000
November 27, 1999 $352,000
January 1, 2000 $2,517,000
January 29, 2000 $2,069,000
February 26, 2000 $3,000,000
April 1, 2000 $3,000,000
April 29, 2000 $3,000,000
May 27, 2000 $3,000,000
June 1, 2000 $3,000,000
July 29. 2000 $3,000,000
August 26, 2000 $3,000,000
September 30, 2000 $3,000,000
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October 28, 2000 $3,000,000
November 25, 2000 $3,000,000
December 30, 2000 $3,000,000
February 3, 2001 $3,000,000
As used above, "cumulative basis" shall mean the amount
of EBITDA generated from the designated starting date
of the period (i.e., May 1, 1998 or February 1, 1999)
to the end of the relevant measurement period
designated in the column above. Borrower shall not be
deemed to be in breach of the foregoing covenant unless
Borrower fails to comply with the projected EBITDA
levels for two consecutive months, provided, that the
actual EBITDA in each such month is no more than
$300,000 below the projected EBITDA level for such
month; provided, further that after FINOVA's receipt of
Borrower's projections for calendar year 2000, Borrower
and FINOVA agree to enter into good faith negotiations
to reset the EBITDA levels for all periods ending after
January 29, 2000. In the event that no written
agreement between Borrower and FINOVA is reached prior
to January 1, 2000, required EBITDA level shall be as
set forth above for such subsequent periods.
Section 2. Limited Waiver; Limited Consent.
(a) Limited Waiver. Borrower hereby acknowledges and agrees that
certain Events of Default exist by virtue of the failure of Borrower to maintain
the required EBITDA for the periods ending November 28, 1998, January 2, 1999
and January 30, 1999 as set forth in Section 6.1.13 of the Existing Loan
Agreement (the "Existing Defaults"). Subject to the satisfaction of the
conditions precedent set forth in Section 9 hereof, FINOVA hereby waives the
Existing Defaults; provided, that nothing contained herein shall in any way
waive, release, modify or limit Borrower's obligations to meet future EBITDA
requirements and to otherwise comply with each of the terms and conditions of
the Existing Loan Agreement nor any of FINOVA's rights and privileges in respect
thereof.
(b) Limited Consent. In connection with the proposed issuance of
the Series D Preferred Stock and the proposed Subordinated Debt Exchange
described above, Borrower has requested that Borrower be permitted to fund
payments of up to (I) $140,000 of outstanding interest obligations in respect of
Borrower's $2,000,000 Subordinated Debentures, dated March 11, 1998, and (II)
$57,500 of preferred dividend obligations pursuant to the terms of the Statement
of Rights and Preferences of Series A Preferred Stock and Series B Preferred
Stock of Xxx Xxxxxx, Inc., adopted by the Borrower on December 2, 1997 (the
payments described in clauses (I) and (II) above, the "Proposed Payments").
Subject to the satisfaction of the conditions
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to effectiveness of this Amendment, FINOVA hereby consents to the Borrower
funding, and the applicable Subordinating Creditors receiving, the Proposed
Payments so long as each of the "Required Payment Conditions" set forth below
are satisfied on the date of the funding of the Proposed Payments. As used
herein, "Required Payment Conditions" shall mean, at the time of funding any
Proposed Payment (x) Borrower shall have issued not less than 20,000 shares of
its Series D Preferred Stock for gross cash consideration of not less than
$2,000,000 (less the reasonable out of pocket costs and expenses of the
purchasers thereof), (y) no Event of Default or event which, with the passage of
time or the provision of notice or both, would constitute an Event of Default,
has occurred and is continuing under the Loan Agreement and no Event of Default
would result from the making of such Proposed Payment, and (z) according to the
monthly financial statements submitted to FINOVA by Borrower pursuant to the
Loan Agreement, (i) Borrower will have a Debt Service Coverage Ratio of no less
than 1.0:1.0 and (ii) Borrower will have at least $500,000 of Excess
Availability (as defined in the Loan Agreement) for the 30 day period
immediately preceding the date of such payment (taken as an average) and
immediately after giving effect to such proposed payment.
Section 3. Representations And Warranties Of Borrower. Borrower
represents and warrants that:
(a) the execution, delivery and performance by Borrower of this
Amendment have been duly authorized by all necessary corporate action and this
Amendment is a legal, valid and binding obligation of Borrower enforceable
against Borrower in accordance with its terms, except as the enforcement thereof
may be subject to (i) the effect of any applicable bankruptcy, insolvency,
reorganization, moratorium or similar law affecting creditors' rights generally
and (ii) general principles of equity (regardless of whether such enforcement is
sought in a proceeding in equity or at law);
(b) each of the representations and warranties contained in the
Loan Agreement is true and correct in all material respects on and as of the
date hereof as if made on the date hereof, except to the extent that such
representations and warranties expressly relate to an earlier date; and
(c) neither the execution, delivery and performance of this
Amendment nor the consummation of the transactions contemplated hereby does or
shall contravene, result in a breach of, or violate (i) any provision of
Borrower's certificate or articles of organization or by-laws, (ii) any law or
regulation, or any order or decree of any court or government instrumentality,
or (iii) any indenture, mortgage, deed of trust, lease, agreement or other
instrument to which Borrower is a party or by which Borrower or any of its
property is bound, except in any such case to the extent such conflict or breach
has been waived by a written waiver document, a copy of which has been delivered
to FINOVA on or before the date hereof.
Section 4. Acknowledgments Regarding Loan Agreement.
(a) Except as specifically amended above, the Loan Agreement and
the other Loan Documents shall remain in full force and effect and are hereby
ratified and confirmed.
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(b) The execution, delivery and effectiveness of this Amendment
shall not operate as a waiver of any right, power or remedy of FINOVA under the
Loan Agreement or any other Loan Document, nor constitute a waiver of any
provision of the Loan Agreement or any other Loan Document, except as
specifically set forth herein. Upon the effectiveness of this Amendment, each
reference in the Loan Agreement to "this Agreement", "hereunder", "hereof",
"herein" or words of similar import shall mean and be a reference to the Loan
Agreement as amended hereby.
(c) Borrower hereby acknowledges and agrees that there is no
defense, setoff or counterclaim of any kind, nature or description to the
Obligations or the payment thereof when due.
Section 5. Costs And Expenses. As provided in Section 8.1 of the Loan
Agreement, Borrower agrees to reimburse FINOVA for all fees, costs and expenses,
including the fees, costs and expenses of counsel or other advisors for advice,
assistance, or other representation in connection with this Amendment (and the
other documents to be delivered in connection herewith).
Section 6. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED TO CONFLICTS OF LAWS
PROVISIONS) OF THE STATE OF ARIZONA.
Section 7. Headings. Section headings in this Amendment are included
herein for convenience of reference only and shall not constitute a part of this
Amendment for any other purposes.
Section 8. Counterparts. This Amendment may be executed in any number
of counterparts, each of which when so executed shall be deemed an original, but
all such counterparts shall constitute one and the same instrument.
Section 9. Effectiveness.
(a) This Amendment shall become effective when each of the
following conditions precedent have been met to the satisfaction of FINOVA or
waived in writing by FINOVA:
(i) Amendment. Each of FINOVA and Borrower shall have
delivered to the other duly executed counterparts to this Amendment;
(ii) Representations. The representations and warranties
contained herein shall be true and correct in all respects; and
(iii) Guarantors' Consent. Guarantor shall have delivered to
FINOVA duly executed counterpart to the form of Acknowledgment and Consent
attached to this Amendment.
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(iv) Subordination Agreement Amendment. Borrower and each
Subordinating Creditor party thereto shall have delivered to FINOVA duly
executed counterparts to Amendment No. 1 to Subordination Agreement in the form
of Exhibit A attached to this Amendment.
(v) Securities Purchase Agreement. FINOVA shall have
received and approved the final form of the Securities Purchase Agreement and be
satisfied that (I) each of the conditions to the "First Closing" (as defined
therein) set forth in Sections 6 and 7 of such Securities Purchase Agreement
(except for the condition regarding the effectiveness of this Amendment) have
been met and (II) that the "Original Debentures" shall have exchanged and
replaced with the "New Debentures" (as such terms are defined in the Securities
Purchase Agreement).
(vi) First Closing Proceeds. FINOVA shall have received cash
proceeds of the initial issuance of 20,000 shares of the Series D Preferred
Stock in an amount equal to $2,000,000 less the reimbursable out-of-pocket costs
and expenses of the purchasers thereof.
[Signature page follows]
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[Signature Page to Amendment No. 2]
IN WITNESS WHEREOF, the parties hereto hereupon set their hands as of
the date first written above.
XXX XXXXXX, INC.
By: /s/ XXXXXXX X. XXXXXXXX, XX.
------------------------------------
Xxxxxxx X. Xxxxxxxx, Xx.
Its: Executive Vice President
FINOVA CAPITAL CORPORATION
By: /s/ [NOT LEGIBLE]
------------------------------------
Its: Vice President
[Signature Page to Amendment No. 2]
Acknowledgment and Consent
The undersigned hereby acknowledges receipt of the attached Amendment
and consents to the execution and performance thereof by Xxx Xxxxxx, Inc. The
undersigned hereby also reaffirms that the guarantee of such undersigned in
favor of FINOVA remains in full force and effect and acknowledges and agrees
that there is no defense, setoff or counterclaim of any kind, nature or
description to obligations arising under such guarantee.
J.J. DISTRIBUTION COMPANY
By: /s/ XXXXXXX X. XXXXXXXX, XX.
------------------------------------
Name: Xxxxxxx X. Xxxxxxxx, Xx.
Title: President
[Guarantor's Acknowledgment and Consent to Amendment No. 2]
