EXHIBIT 10.5
AMENDMENT NUMBER SEVEN TO
SECOND AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
This Amendment Number Seven to Second Amended and Restated Loan and
Security Agreement ("Amendment") is entered into as of March ____, 2002, by and
between CONGRESS FINANCIAL CORPORATION (WESTERN), a California corporation
("Lender"), on the one hand, and SENSORY SCIENCE CORPORATION, a Delaware
corporation ("Sensory"), and CALIFORNIA AUDIO LABS, LLC, a California limited
liability company ("Cal-Audio", and collectively, jointly and severally, with
Sensory, "Borrowers"), on the other hand, in light of the following:
A. Borrowers and Lender have previously entered into that certain Second
Amended and Restated Loan and Security Agreement, dated as of August 19, 1998
(as amended and modified, from time to time, the "Agreement").
B. Borrowers and Lender desire to amend the Agreement as provided for
and on the conditions herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Borrowers and Lender hereby amend
and supplement the Agreement as follows:
1. DEFINITIONS. All initially capitalized terms used in this Amendment
shall have the meanings given to them in the Agreement unless specifically
defined herein.
2. AMENDMENTS.
(a) The following definitions are hereby added to Section 1 of the
Agreement:
"Availability Block" shall mean the greater of: (i) $2,500,000;
or (ii) $5,000,000 minus the positive amount (if any) by which
Borrowers' Revolving Loan availability under Section 2.1(a) (without
deducting the Availability Block) exceeds $25,000,000.
"Net Worth" shall mean as to any Person, at any time, in
accordance with GAAP (except as otherwise specifically set forth below),
the amount equal to the difference between: (i) the aggregate net book
value of all assets of such Person, calculating the book value of
inventory for this purpose on a first-in-first-out basis, after
deducting from such book values all appropriate reserves in accordance
with GAAP (including all reserves for doubtful receivables,
obsolescence, depreciation and amortization) and (ii) the aggregate
amount of the indebtedness and other liabilities of such Person
(including tax and other proper accruals).
"Parent" shall mean SonicBlue Incorporated, a Delaware
corporation.
(b) The definition of "Applicable Inventory Reserve Percentage" in
Section 1 is hereby amended to read as follows:
"Applicable Inventory Reserve Percentage" means, at any time and
for any category of Eligible Inventory, the percentage obtained by
subtracting from 100% the greater of (A) 65% of the Value of Eligible
Inventory, or (B) 70% of the Orderly Liquidation Value of such Eligible
Inventory, at such time."
(c) Section (m) of the definition of "Eligible Accounts" in Section 1
of the Agreement is hereby amended to read as follows:
"(m) such Accounts of a single account debtor or its affiliates
do not exceed 20%, or in the case of Costco or Sam's Club 40%, of all
otherwise Eligible Accounts or such other percentage as Lender may in
its discretion impose from time to time in the future as a concentration
limit (but the portion of the Accounts not in excess of such percentage
may be deemed Eligible Accounts);"
(d) The definition of "Eligible Inventory" in Section 1 of the
Agreement is hereby amended to read as follows:
"Eligible Inventory" shall mean Inventory of Sensory consisting
of boxed and sealed finished goods held for resale in the ordinary
course of the business of Sensory which are acceptable to Lender based
on the criteria set forth below. In general, Eligible Inventory shall
not include (a) raw materials or work-in-process; (b) components which
are not part of finished goods; (c) spare parts for equipment; (d)
packaging and shipping materials; (e) supplies used or consumed in a
Borrower's business; (f) Inventory at premises other than those owned
and controlled by a Borrower, except if Lender shall have received an
agreement in writing from the person in possession of such Inventory
and/or the owner or operator of such premises in form and substance
satisfactory to Lender acknowledging Lender's first priority security
interest in the Inventory, waiving security interests and claims by such
person against the Inventory and permitting Lender access to, and the
right to remain on, the premises so as to exercise Lender's rights and
remedies and otherwise deal with the Collateral; provided, however, that
Eligible Inventory which otherwise satisfies the criteria set forth
herein shall include (i) Inventory at premises of any Customs Broker if
Lender has received a Collateral Access Agreement from the Customs
Broker duly authorized, executed and delivered by such Customs Broker,
and (ii) Eligible In-Transit Inventory; (g) Inventory subject to a
security interest or lien in favor of any person other than Lender
except those permitted in this Agreement; (h) xxxx and hold goods; (i)
unserviceable, obsolete or slow moving Inventory; (j) Inventory which is
not subject to the first priority, valid and perfected security
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interest of Lender; (k) damaged and/or defective Inventory; (l)
Inventory purchased or sold on consignment; (m) Inventory subject to
trademark licenses or other intellectual property rights of third
persons, or with respect to which Lenders ability to sell such Inventory
following an Event of Default would be restricted; (n) Inventory of
Cal-Audio; and (o) Inventory consisting of televisions and MP3 players.
General criteria for Eligible Inventory may be established and revised
from time to time by Lender in good faith. Any Inventory which is not
Eligible Inventory shall nevertheless be part of the Collateral."
(e) The definition of "Interest Rate" in Section 1 is hereby amended
to read as follows:
"Interest Rate" shall mean a rate of one percent (1.0%) per
annum in excess of the Prime Rate; provided, that, the Interest Rate
shall mean the rate of three percent (3.00%) per annum in excess of the
Prime Rate, at Lender's option, without notice, (a) for the period (i)
from and after the date of termination or non-renewal hereof until
Lender has received full and final payment of all obligations
(notwithstanding entry of a judgment against either Borrower) and (ii)
from and after the date of the occurrence of an Event of Default for so
long as such Event of Default is continuing as determined by Lender, and
(b) on the Revolving Loans at any time outstanding in excess of the
amounts available to Borrowers under Section 2 (whether or not such
excess(es), arise or are made with or without Lender's knowledge or
consent and whether made before or after an Event of Default)."
(f) The definition of "Maximum Credit" in Section 1 of the Agreement
is hereby amended to read as follows:
"Maximum Credit" shall mean the amount of $25,000,000 minus the
Availability Block.
(g) The definition of "Orderly Liquidation Value" in Section 1 of the
Agreement is hereby amended to read as follows:
"Orderly Liquidation Value" means, for any asset, the "Orderly
Liquidation Value" thereof, net of any and all costs and expenses of
such asset's liquidation, as established by third party appraisals
conducted pursuant to the terms of Section 7.3(d) or 7.4 hereof, as the
case may be.
(h) Section 2.1(a) of the Agreement is hereby amended to read as
follows:
"(a) Subject to, and upon the terms and conditions contained
herein, Lender agrees to make Revolving Loans to Borrowers from time to
time in amounts requested by Borrowers up to the amount equal to the sum
of:
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(i) seventy-five (75%) percent of the Net Amount of Eligible
Accounts, plus
(ii) the least of: (A) 65% of the Value of Eligible Inventory,
or (B) 70% of the Orderly Liquidation Value of such Eligible Inventory,
or (C) the amount equal to: (1) $17,500,000 minus (2) the aggregate
Inventory Letter of Credit Reserve amount for all outstanding Letter of
Credit Accommodations, less
(iii) the Availability Block; less
(iv) any Availability Reserves.
In no event shall there be more than: (1) $9,000,000 advanced at any one
time against Eligible Inventory that is in transit to Borrowers; (2)
17,500,000 in the aggregate of advances at any one time against Eligible
Inventory and outstanding Letter of Credit Accommodations; or (3)
$1,500,000 of advances at any one time against Eligible Accounts of
Cal-Audio."
(i) Sections 3.1(b) and 3.1(c) of the Agreement are hereby deleted in
their entirety, and all Loans shall be Prime Rate Loans.
(j) Section 3.4 of the Agreement is hereby amended to read as
follows:
"Servicing Fee. Borrowers shall pay to Lender monthly a
servicing fee in an amount equal to $2,000 in respect of Lender's
services for each month (or part thereof) while this Agreement remains
in effect and for so long thereafter as any of the Obligations are
outstanding, which fee shall be fully earned as of and payable in
advance on the date hereof and on the first day of each month
hereafter."
(k) Section 3.5 of the Agreement is hereby amended to read as
follows:
"Unused Line Fee. Borrowers shall pay to Lender monthly an
unused line fee equal at a rate equal to one quarter of one percent
(0.25%) percent per annum calculated upon the amount by which
$22,500,000 exceeds the average daily principal balance of the
outstanding Obligations during the immediately preceding month (or part
thereof) while this Agreement is in effect and for so long thereafter as
any of the Obligations are outstanding, which fee shall be payable on
the first day of each month in arrears."
(l) Subsection (d) of Section 7.3 of the Agreement is hereby amended
to read as follows:
"(d) on a quarterly basis, and at such other times upon Lender's
request, Borrowers shall, at their expense, but at any time or times as
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Lender may request on or after an Event of Default, deliver or cause to
be delivered to Lender written reports or appraisals as to the Inventory
in form, scope and methodology acceptable to Lender (which shall include
a determination of the Orderly Liquidation Value of such Inventory) and
by an appraiser acceptable to Lender, addressed to Lender or upon which
Lender is expressly permitted to rely;"
(m) Section 9.6(a) of the Agreement is hereby amended to read as
follows:
"(a) Borrowers and Parent shall keep proper books and records in
which true and complete entries shall be made of all dealings or
transactions of or in relation to the Collateral and the business of
such Borrower and its subsidiaries (if any) in accordance with GAAP.
Each Borrower shall furnish or cause to be furnished to Lender within
thirty (30) days after the end of each fiscal month, monthly unaudited
consolidated financial statements, and, if either Borrower has any
subsidiaries, unaudited consolidating financial statements (including in
each case balance sheets, statements of income and loss, statements of
cash flow, and statements of shareholders' equity), all in reasonable
detail, fairly presenting the financial position and the results of the
operations of such Borrower and its subsidiaries as of the end of and
through such fiscal month. Borrowers shall cause Parent to furnish to
Lender within ninety (90) days after the end of each fiscal year,
audited consolidated financial statements of Parent and its subsidiaries
(including balance sheets, statements of income and loss, statements of
cash flow and statements of shareholders' equity), and the accompanying
notes thereto, all in reasonable detail, fairly presenting the financial
position and the results of the operations of Parent and its
subsidiaries as of the end of and for such fiscal year, together with
the unqualified opinion of independent certified public accountants,
which accountants shall be an independent accounting firm selected by
Parent and reasonably acceptable to Lender, that such financial
statements have been prepared in accordance with GAAP, and present
fairly the results of operations and financial condition of Parent and
its subsidiaries as of the end of and for the fiscal year then ended."
(n) Section 9.14 of the Agreement is hereby amended to read as
follows:
"Net Worth. Borrowers shall maintain a minimum Net Worth of
$12,000,000."
(o) Subsection (g) of Section 9.16 of the Agreement is hereby amended
to read as follows:
"(g) all out-of-pocket expenses and costs heretofore and from
time to time hereafter incurred by Lender during the course of periodic
field examinations of the Collateral and Borrowers' operations, plus a
per diem charge
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at the rate of $750 per person per day for Lender's examiners in the
field and office;"
(p) A new Section 9.18 shall be added to the Agreement which shall
read as follows:
"9.18 UMC Shares. On or before the fifth (5th) Business Day of
each month commencing March 2002, Borrowers shall cause Parent to
deliver to Lender a certificate, signed by the chief financial officer
of Parent, certifying that as of the last Business Day of the
immediately preceding month the aggregate market value of Parent's
ownership interest in the shares of United Microelectronics Corp. ("UMC
Shares") (calculated on the basis of the reported trading price for UMC
Shares on the Taiwan Stock Exchange (Taiwan Weighted Index) and reported
in US Dollars at then existing currency conversion rates), is at least
$40,000,000, and that such UMC Shares are free of liens, claims and
encumbrances of any kind; provided, however, UMC Shares that Parent is
restricted from selling under that certain Stock Custody Agreement of
July, 1999 with the Taiwan Stock Exchange, or otherwise, may be included
in such calculations but only for periods on or before July 31, 2002 and
only so long as such UMC Shares are properly classified as "current
assets" under GAAP (i.e. they will be released from any such
restrictions within 12 months of the date of such certification)."
(q) The first sentence of Section 12.1(a) of the Agreement is hereby
amended to read as follows:
"This Agreement and the other Financing Agreements shall become
effective as of the date set forth on the first page hereof and shall
continue in full force and effect for a term ending on March 1, 2003
(the "Renewal Date"), and from year to year thereafter, unless sooner
terminated pursuant to the terms hereof."
(r) Exhibit A and Schedules 8.4, 8.8 and 9.11 to the Agreement are
hereby deleted in their entirety and replaced with Exhibit A and Schedules 8.4,
8.8 and 9.11 attached to this Amendment and made a part hereof.
3. REPRESENTATIONS AND WARRANTIES. Borrowers hereby affirm to Lender
that all of Borrowers' representations and warranties set forth in the Agreement
are true, complete and accurate in all respects as of the date hereof.
4. NO DEFAULTS. Borrowers hereby affirm to Lender that no Event of
Default has occurred and is continuing as of the date hereof.
5. CONDITIONS PRECEDENT. The effectiveness of this Amendment is
expressly conditioned upon the following:
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(a) Payment by Borrowers to Lender of an amendment fee in the
aggregate amount of $250,000, such fee to be charged to Borrowers' loan account
pursuant to the Agreement;
(b) Receipt by Lender from SonicBlue Incorporated, a Delaware
corporation ("Parent"), of a reaffirmation of that certain Intercreditor
Agreement, dated February 23, 2001, by and between Lender and Parent;
(c) Receipt by Lender of an updated Information Certificate, dated as
of even date herewith; and
(d) Receipt by Lender of an executed copy of this Amendment.
6. CONDITION SUBSEQUENT. No later than thirty (30) days following the
date hereof, Borrowers shall deliver to Lender: (a) a fully executed landlord
waiver, in form and substance acceptable to Lender in Lender's sole discretion,
for each of the leasehold interests listed on Exhibit "B" attached hereto; and
(b) a fully executed Control Agreement in form and substance acceptable to
Lender in Lender's sole discretion, for each of the deposit accounts set forth
on Schedule 8.8 attached hereto.
The obligation of Lender to make advances or otherwise extend credit
hereunder is subject to the fulfillment and satisfaction of the foregoing
conditions subsequent, and the failure by Borrowers to so perform or use their
best efforts to cause to be performed such condition, as the case may be, shall
constitute an Event of Default under the Agreement.
7. COSTS AND EXPENSES. Borrowers shall pay to Lender all of Lender's
out-of-pocket costs and expenses (including, without limitation, the fees and
expenses of its counsel, which counsel may include any local counsel deemed
necessary, search fees, filing and recording fees, documentation fees, appraisal
fees, travel expenses, and other fees) arising in connection with the
preparation, execution, and delivery of this Amendment and all related
documents.
8. LIMITED EFFECT. In the event of a conflict between the terms and
provisions of this Amendment and the terms and provisions of the Agreement, the
terms and provisions of this Amendment shall govern. In all other respects, the
Agreement, as amended and supplemented hereby, shall remain in full force and
effect.
9. COUNTERPARTS; EFFECTIVENESS. This Amendment may be executed in any
number of counterparts and by different parties on separate counterparts, each
of which when so executed and delivered shall be deemed to be an original. All
such counterparts, taken together, shall constitute but one and the same
Amendment. This Amendment shall become effective upon the execution of a
counterpart of this Amendment by each of the parties hereto.
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IN WITNESS WHEREOF, the parties hereto have executed this Amendment
Number Seven to Second Amended and Restated Loan and Security Agreement as of
the date first set forth above.
CONGRESS FINANCIAL CORPORATION
(WESTERN),
a California corporation
By: /s/ Xxxxxxx X. Xxxxx
----------------------------------
Name: Xxxxxxx X. Xxxxx
--------------------------------
Title: V.P.
-------------------------------
SENSORY SCIENCE CORPORATION,
a Delaware corporation
By: /s/ Xxxxx X. Xxxxxxx
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
CALIFORNIA AUDIO LABS, LLC,
a California limited liability company
By: /s/ Xxxxx X. Xxxxxxx
---------------------------------
Name:
--------------------------------
Title:
-------------------------------
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EXHIBIT "A"
INFORMATION CERTIFICATE
EXHIBIT "B"
LEASEHOLD INTERESTS
0000 Xxxx Xxxxx Xx.
Xxxxxxx, XX 00000
00000 X. XxXxxx Xx
Xxxxxxxxxx, XX 00000
000 Xxxxxxxx Xxxxxxxx Xx
Xxxxxxxx, XX 00000
0000 Xxxxxxx Xxxxx Xxx
Xxxxxxx Xxxxx, XX 00000
Val Express 1-Matrix Xx
Xxxxxx Xxxxxxxx, XX 00000
SCHEDULE 8.4
EXISTING LIENS
SCHEDULE 8.8
BANK ACCOUNTS
SCHEDULE 9.11
PERMITTED DIVIDENDS AND OTHER DISTRIBUTIONS OF CAPITAL STOCK
Each of the undersigned has executed a continuing guaranty (each,
individually, a "Guaranty") in favor of CONGRESS FINANCIAL CORPORATION
(WESTERN), a California corporation ("Lender"), respecting the obligations of
SENSORY SCIENCE CORPORATION, a Delaware corporation ("Sensory"), and CALIFORNIA
AUDIO LABS, LLC, a California limited liability company ("Cal-Audio", and
collectively, jointly and severally, with Sensory, the "Borrowers") owing to
Lender. Each of the undersigned acknowledges the terms of the above Amendment
and reaffirms and agrees that: its Guaranty remains in full force and effect;
nothing in such Guaranty obligates Lender to notify the undersigned of any
changes in the financial accommodations made available to the Borrowers or to
seek reaffirmations of the Guaranty; and no requirement to so notify the
undersigned or to seek reaffirmations in the future shall be implied by the
execution of this reaffirmation.
In addition to the foregoing, SonicBlue Incorporated, a Delaware
corporation, for good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, hereby covenants and agrees to provide the
certificates referred to in Section 9.18 and the financial statements referred
to in Section 9.6(a) of the Agreement, as amended by the above Amendment.
SONICBLUE INCORPORATED,
a Delaware corporation
By: /s/ Xxxx X. Xxxx
-----------------------------------
Name:
--------------------------------
Title:
-------------------------------
SENSORY SCIENCE CORPORATION,
a Delaware corporation
By: /s/ Xxxxx X. Xxxxxxx
-----------------------------------
Name:
--------------------------------
Title:
-------------------------------
CALIFORNIA AUDIO LABS, LLC,
a California limited liability company
By: /s/ Xxxxx X. Xxxxxxx
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
