AMENDED AND RESTATED LOAN AGREEMENT
Exhibit 10.7
AMENDED AND RESTATED LOAN AGREEMENT
WACHOVIA BANK, NATIONAL ASSOCIATION
Xxxxxxxxx, Xxxxx Xxxxxxxx 00000
(Hereinafter referred to as the “Bank”)
Xxxxxxxxx, Xxxxx Xxxxxxxx 00000
(Hereinafter referred to as the “Bank”)
PORTRAIT INNOVATIONS, INC.
0000 Xxxxxxx Xxxx Xxxx., Xxxxx 000
Xxxxxxxxx, Xxxxx Xxxxxxxx 00000
(Hereinafter referred to as “Borrower”)
0000 Xxxxxxx Xxxx Xxxx., Xxxxx 000
Xxxxxxxxx, Xxxxx Xxxxxxxx 00000
(Hereinafter referred to as “Borrower”)
This Amended and Restated Loan Agreement (this “Agreement”) is entered into as of the
30th day of October, 2009, by and between Bank and Borrower, and amends and restates in
its entirety that certain Loan Agreement dated as of the 19th day of March, 2009, by and between
Bank and Borrower, as amended by that certain First Amendment to Loan Agreement dated as of the
25th day of June, 2009.
This Agreement applies to the loan (the “Loan”) evidenced by that certain Amended and Restated
Promissory Note dated the date hereof, in the original principal sum of up to $20,000,000.00, made
by Borrower to Bank, as modified from time to time (the “Note”) and all Loan Documents. The terms
“Loan Documents” and “Obligations,” as used in this Agreement, are defined in the Note.
Relying upon the covenants, agreements, representations and warranties contained in this Agreement,
Bank is willing to extend credit to Borrower upon the terms and subject to the conditions set forth
herein, and Bank and Borrower agree as follows:
REPRESENTATIONS. Borrower represents, as of the date of this Agreement and as of the date of each
Advance under the Note: Accurate Information. All information now and hereafter furnished to Bank
in connection with the Loan is and will be true, correct and complete in all material respects.
Any such information relating to Borrower’s financial condition will accurately reflect Borrower’s
financial condition as of the date(s) thereof (including all contingent liabilities of every type),
and Borrower further represents that its financial condition has not changed materially or
adversely since the date(s) of such documents. Authorization; Non-Contravention. The execution,
delivery and performance by Borrower of this Agreement and other Loan Documents to which it is a
party are within its power, have been duly authorized as may be required and, if necessary, by
making appropriate filings with any governmental agency or unit and are the legal, binding, valid
and enforceable obligations of Borrower and any guarantors; and do not (i) contravene, or
constitute (with or without the giving of notice or lapse of time or both) a violation of any
provision of applicable law, a violation of the organizational documents of Borrower, or a default
under any agreement, judgment, injunction, order, decree or other instrument binding upon or
affecting Borrower, (ii) result in the creation or imposition of any lien (other than the lien(s)
created by the Loan Documents) on any of Borrower’s assets, or (iii) give cause for the
acceleration of any obligations of Borrower to any other creditor. Asset Ownership. Borrower has
good and marketable title to all of the properties and assets reflected on the balance sheets and
financial statements supplied Bank by Borrower, and all such properties and assets are free and
clear of mortgages, security deeds, pledges, liens, charges, and all other encumbrances, except as
granted to Bank or otherwise disclosed to Bank by Borrower in writing and approved by Bank
(“Permitted Liens”). To Borrower’s knowledge, no default has occurred under any Permitted Liens
and no claims or interests adverse to Borrower’s present rights in its properties and assets have
arisen. Discharge of Liens and Taxes. Borrower has duly filed, paid and/or discharged all taxes
or other claims that may become a lien on any of its property or assets, except to the extent that
such items are being appropriately contested in good faith and an adequate reserve for the payment
thereof is being maintained. Sufficiency of Capital.
Borrower is not, and after consummation of this Agreement and after giving effect to all
indebtedness incurred and liens created by Borrower in connection with the Note and any other Loan
Documents, will
not be, insolvent within the meaning of 11 U.S.C. § 101, as in effect from time to
time. Compliance with Laws. Borrower, its parent company, Portrait Innovations Holding Company, a
Delaware corporation (“PHC”), and each subsidiary and affiliate of Borrower, if applicable, are in
compliance in all material respects with all federal, state and local laws, rules and regulations
applicable to its properties, operations, business, and finances, including, without limitation,
any federal or state laws relating to liquor (including 18 U.S.C. § 3617, et seq.) or narcotics
(including 21 U.S.C. § 801, et seq.) and/or any commercial crimes; all applicable federal, state
and local laws and regulations intended to protect the environment; and the Employee Retirement
Income Security Act of 1974, as amended (“ERISA”), if applicable. None of Borrower, PHC or any
affiliate or subsidiary Borrower is a Sanctioned Person or has any of its assets in a Sanctioned
Country or does business in or with, or derives any of its operating income from investments in or
transactions with, Sanctioned Persons or Sanctioned Countries in violation of economic sanctions
administered by OFAC. The proceeds from the Loan will not be used to fund any operations in,
finance any investments or activities in, or make any payments to, a Sanctioned Person or a
Sanctioned Country. “OFAC” means the U.S. Department of the Treasury’s Office of Foreign Assets
Control. “Sanctioned Country” means a country subject to a sanctions program identified on the
list maintained by OFAC and available at
xxxx://xxx.xxxxx.xxx/xxxxxxx/xxxxxxxxxxx/xxxx/xxx/xxxxx.xxxxx, or as otherwise published from time
to time. “Sanctioned Person” means (i) a person named on the list of Specially Designated
Nationals or Blocked Persons maintained by OFAC available at
xxxx://xxx.xxxxx.xxx/xxxxxxx/xxxxxxxxxxx/xxxx/xxxxxxxx/xxxxx.xxxxx, or as otherwise published from
time to time, or (ii) (A) an agency of the government of a Sanctioned Country, (B) an organization
controlled by a Sanctioned Country, or (C) a person resident in a Sanctioned Country to the extent
subject to a sanctions program administered by OFAC. Organization and Authority. Borrower, PHC
and each subsidiary of Borrower, as applicable, is duly created, validly existing and in good
standing under the laws of the state of its organization, and has all powers, governmental
licenses, authorizations, consents and approvals required to operate its business as now conducted.
Borrower, PHC and each subsidiary of Borrower, as applicable, is duly qualified, licensed and in
good standing in each jurisdiction where qualification or licensing is required by the nature of
its business or the character and location of its property, business or customers, and in which the
failure to so qualify or be licensed, as the case may be, in the aggregate, could have a material
adverse effect on the business, financial position, results of operations, properties or prospects
of Borrower, PHC or such subsidiary. No Litigation. There are no material pending or, to
Borrower’s knowledge, threatened suits, claims or demands against Borrower, PHC or any subsidiary
of Borrower that have not been disclosed to Bank by Borrower in writing, and approved by Bank.
ERISA. Each employee pension benefit plan, as defined in ERISA, maintained by Borrower meets, as
of the date hereof, the minimum funding standards of ERISA and all applicable regulations thereto
and requirements thereof, and of the Internal Revenue Code of 1986, as amended. No “Prohibited
Transaction” or “Reportable Event” (as both terms are defined by ERISA) has occurred with respect
to any such plan. Indemnity. Borrower will indemnify Bank and its affiliates from and against any
losses, liabilities, claims, damages, penalties or fines imposed upon, asserted or assessed against
or incurred by Bank arising out of the inaccuracy or breach of any of the representations contained
in this Agreement or any other Loan Documents.
AFFIRMATIVE COVENANTS. Borrower agrees that from the date hereof and until final payment in full
of the Obligations, unless Bank shall otherwise consent in writing, Borrower will: Access to Books
and Records. Allow Bank, or its agents, during normal business hours, access to the books, records
and such other documents of Borrower as Bank shall reasonably require, and allow Bank, at
Borrower’s expense, to inspect, audit and examine the same and to make extracts therefrom and to
make copies thereof. Business Continuity. Conduct its business substantially in accordance with
Borrower’s business plan as approved by Borrower’s board of directors and submitted to Bank prior
to the date hereof (the “Business Plan”). Compliance with Other Agreements. Comply with all terms
and conditions contained in this Agreement, and any other Loan Documents, and swap agreements, if
applicable, as defined in 11 U.S.C. § 101, as in effect from time to time. Estoppel Certificate.
Furnish,
within 15 days after request by Bank, a written statement duly acknowledged of the amount due under
the Loan and whether, to the knowledge of Borrower, offsets or defenses exist against the
Obligations.
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Insurance. Maintain adequate insurance coverage with respect to its properties and
business against loss or damage of the kinds and in the amounts customarily insured against by
companies of established reputation engaged in the same or similar businesses including, without
limitation, commercial general liability insurance, workers compensation insurance, and business
interruption insurance; all acquired in such amounts and from such companies as Bank may reasonably
require. Maintain Properties. Maintain, preserve and keep its property in good repair, working
order and condition, making all replacements, additions and improvements thereto necessary for the
proper conduct of its business, unless prohibited by the Loan Documents. Non-Default Certificate
From Borrower. Deliver to Bank, with the Financial Statements required below, a certificate signed
by Borrower, in the form attached hereto as Exhibit A, if Borrower is an individual, or by
a principal financial officer of Borrower warranting that no “Default” as specified in the Loan
Documents nor any event which, upon the giving of notice or lapse of time or both, would constitute
such a Default, has occurred and demonstrating Borrower’s compliance with the financial covenants
contained herein and certifying as to the Funded Debt to EBITDA Ratio and corresponding Applicable
Margin under the Note for such time period. Notice of Default and Other Notices. (a) Notice of
Default. Furnish to Bank immediately upon becoming aware of the existence of any condition or
event which constitutes a Default (as defined in the Loan Documents) or any event which, upon the
giving of notice or lapse of time or both, is reasonably likely to become a Default, written notice
specifying the nature and period of existence thereof and the action which Borrower is taking or
proposes to take with respect thereto. (b) Other Notices. Promptly notify Bank in writing of
(i) any material adverse change in its financial condition or its business; (ii) any default under
any material agreement, contract or other instrument to which it is a party or by which any of its
properties are bound, or any acceleration of the maturity of any indebtedness owing by Borrower;
(iii) any material adverse claim against or affecting Borrower or any part of its properties;
(iv) the commencement of, and any material determination in, any litigation with any third party or
any proceeding before any governmental agency or unit affecting Borrower; and (v) at least 30 days
prior thereto, any change in Borrower’s name or address as shown above, and/or any change in
Borrower’s structure. Deposit Relationship. Maintain its primary depository and cash management
account with Bank. Other Financial Information. Deliver promptly such other information regarding
the operation, business affairs, and financial condition of Borrower which Bank may reasonably
request. Payment of Debts. Pay and discharge when due, and before subject to penalty or further
charge, and otherwise satisfy before maturity or delinquency, all obligations, debts, taxes, and
liabilities of whatever nature or amount, except those which Borrower in good faith disputes.
Reports and Proxies. Deliver to Bank, promptly, a copy of all financial statements, reports,
notices, and proxy statements, sent by Borrower to stockholders, and all regular or periodic
reports required to be filed by Borrower with any governmental agency or authority.
NEGATIVE COVENANTS. Borrower agrees that from the date hereof and until final payment in full of
the Obligations, unless Bank shall otherwise consent in writing, Borrower will not: Change in
Fiscal Year. Change its fiscal year. Change of Management; Control. Allow Xxxx Xxxxxx to be
replaced as president and chief executive officer of Borrower, or make or suffer a change of
ownership that effectively changes control of Borrower from current ownership; provided, however,
that Bank’s consent shall not be required in connection with the exercise of conversion rights of
the holders of preferred stock of Borrower existing on the date hereof or the exercise of warrants
by holders existing on the date hereof. Other Debt. Create or permit to exist any other debt
(other than existing capital lease obligations in the aggregate amount of not greater than
$300,000), without the prior written consent of Bank. Encumbrances. Create, assume, or permit to
exist any mortgage, security deed, deed of trust, pledge, lien, charge or other encumbrance on any
of its assets which have been pledged to Bank to secure the Obligations, whether now owned or
hereafter acquired, other than: (i) security interests required by the Loan Documents; (ii) liens
for taxes contested in good faith; or (iii) Permitted Liens. Guarantees. Guarantee or otherwise
become responsible for obligations of any other person or persons, other than the endorsement of
checks and drafts for collection in the ordinary course of business. Investments. Purchase any
stock, securities, or evidence of indebtedness of any other person or entity except
investments in direct obligations of the United States Government and certificates of deposit of
United States commercial banks having a tier 1 capital ratio of not less than 6% and then in an
amount not
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exceeding 10% of the issuing bank’s unimpaired capital and surplus. Cross-Default.
Default in payment or performance of any of its obligations under any other loans, contracts, or
agreements with Bank or Bank’s affiliates, nor permit any of Borrower’s subsidiaries or Borrower’s
direct owner, PHC, to default under any loans, contracts, or agreements with Bank or its
affiliates. Default on Other Contracts or Obligations. Default on any material contract with or
obligation when due to a third party or default in the performance of any obligation to a third
party incurred for money borrowed in an amount in excess of $100,000,00. Government Intervention.
Permit the assertion or making of any seizure, vesting or intervention by or under authority of any
governmental entity, as a result of which the management of Borrower or any guarantor is displaced
of its authority in the conduct of its respective business or such business is curtailed or
materially impaired. Judgment Entered. Permit the entry of any monetary judgment or the
assessment against, the filing of any tax lien against, or the issuance of any writ of garnishment
or attachment against any property of or debts due Borrower in an amount in excess of $50,000.00
which is not discharged or execution is not stayed within 30 days of entry. Retire or Repurchase
Capital Stock. Retire or otherwise acquire any of its capital stock.
ANNUAL FINANCIAL STATEMENTS. Borrower shall deliver to Bank, within 120 days after the close of
each fiscal year, audited financial statements reflecting its operations during such fiscal year,
including, without limitation, a balance sheet, profit and loss statement and statement of cash
flows, with supporting schedules and in reasonable detail, prepared in conformity with generally
accepted accounting principles, applied on a basis consistent with that of the preceding year. If
audited statements are required, all such statements shall be examined by an independent certified
public accountant reasonably acceptable to Bank. The opinion of such independent certified public
accountant shall not be acceptable to Bank if qualified due to any limitations in scope imposed by
Borrower or any other person or entity. Any other qualification of the opinion by the accountant
shall render the acceptability of the financial statements subject to Bank’s approval.
PERIODIC FINANCIAL STATEMENTS. Borrower shall deliver to Bank, within 60 days after the end of
each fiscal quarter, unaudited management-prepared quarterly financial statements including,
without limitation, a balance sheet, profit and loss statement and statement of cash flows, with
supporting schedules; all in reasonable detail and prepared in conformity with generally accepted
accounting principles, applied on a basis consistent with that of the preceding year. Such
statements shall be certified as to their correctness by a principal financial officer of Borrower
and in each case, if audited statements are required, subject to audit and year-end adjustments.
FINANCIAL COVENANTS. Borrower agrees to the following provisions from the date hereof until final
payment in full of the Obligations, unless Bank shall otherwise consent in writing, using the
financial information for Borrower, its subsidiaries, affiliates and its holding or parent company,
as applicable:
Capital Expenditures. Capital expenditures during each fiscal quarter shall be permitted, provided
that the maximum aggregate fiscal year-to-date amount of capital expenditures (exclusive of
construction allowances) set forth opposite the applicable fiscal quarter in the table below is not
exceeded, and provided that Borrower is in compliance with the other financial covenants set forth
in this Agreement:
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| Fiscal Quarter Ending in: | Maximum Aggregate Fiscal Year-To-Date Amount: | |||
October 2009 |
$ | 11,750,000 | ||
January 2010 |
$ | 13,250,000 | ||
April 2010 |
$ | 5,000,000 | ||
July 2010 |
$ | 10,000,000 | ||
October 2010 |
$ | 16,000,000 | ||
January 2011 |
$ | 18,000,000 | ||
April 2011 |
$ | 6,000,000 | ||
July 2011 |
$ | 13,000,000 | ||
Adjusted Funded Debt to EBITDAR Ratio. Borrower shall maintain an Adjusted Funded Debt to EBITDAR
Ratio, in each case, as of the applicable period, of not more than 4.00 to 1.00, with EBITDAR to be
measured on a rolling four quarters basis and Funded Debt to be measured as of the fiscal quarter
ending October 31, 2009, and quarterly thereafter. “Adjusted Funded Debt” shall mean Funded Debt
plus a multiple of eight times rolling four quarter rent expense. “EBITDAR” shall mean EBITDA plus
rent. “Funded Debt” shall mean, as applied to any person or entity, the sum of all indebtedness
for borrowed money (including, without limitation, capital lease and synthetic lease obligations,
subordinated debt (including debt subordinated to the Bank), and unreimbursed drawings under
letters of credit), or any other monetary obligation evidenced by a note, bond, debenture or other
agreement or similar instrument of that person or entity.
Minimum EBITDA. (a) Borrower shall achieve the following minimum quarterly EBITDA levels, in each
case calculated at the end of the referenced fiscal quarter for such quarter then ended:
| Fiscal Quarter Ending in: | Maximum Quarterly EBITDA: | |||
October 2009 |
$ | 800,000 | ||
January 2010 |
$ | 10,500,000 | ||
May 2010 |
$ | 1,500,000 | ||
August 2010 |
$ | 2,500,000 | ||
October 2010 |
$ | 1,000,000 | ||
January 2011 |
$ | 12,500,000 | ||
May 2011 |
$ | 2,000,000 | ||
July 2011 |
$ | 3,000,000 | ||
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(b) In addition, Borrower shall achieve the following minimum annual EBITDA levels calculated
quarterly on a rolling four quarters basis:
| Fiscal Quarter Ending in: | Minimum Quarterly EBIDTA: | |||
October 2009 |
$ | 15,000,000 | ||
January 2010 |
$ | 15,000,000 | ||
May 2010 |
$ | 16,000,000 | ||
August 2010 |
$ | 16,000,000 | ||
October 2010 |
$ | 16,000,000 | ||
January 2011 |
$ | 17,500,000 | ||
May 2011 |
$ | 18,000,000 | ||
July 2011 |
$ | 18,000,000 | ||
“EBITDA” shall mean the sum of earnings, before interest, taxes, depreciation and amortization.
Fixed Charge Coverage Ratio. Borrower shall, in each case, as of the applicable period, maintain a
Fixed Charge Coverage Ratio of not less than 1.00 to 1.00. This covenant shall be calculated
quarterly, on a rolling four quarters basis. “Fixed Charge Coverage Ratio” shall mean EBITDA minus
dividends divided by the sum of interest expense, current maturities of long term debt
(excluding the Loan) and capital leases, depreciation expense and actual taxes paid.
Dividends. Borrower shall not, during any fiscal quarter, declare or pay dividends or make other
distributions to its shareholders; provided, however, that with respect to the fiscal years ending
January 31, 2010, and January 30, 2011, Borrower may declare or pay dividends or make other
distributions to its shareholders in an amount not to exceed $625,000.00 per fiscal quarter, which
amount, if not paid with respect to the applicable fiscal quarter, may be deferred and paid at a
later date (the “Deferred Dividends”); provided, that (i) all Deferred Dividends shall be paid not
later than 120 days after the end of the applicable fiscal year, and (ii) with respect to any
portion of the Deferred Dividends paid after January 31, 2010, or January 30, 2011, as applicable,
Borrower shall deliver to Bank a Certificate as to financial covenant compliance giving effect to
the quarterly distribution amount(s) on a pro forma basis as if such payment(s) had occurred during
the applicable fiscal year. Said amounts may be paid only after providing for the prior
satisfaction of all accrued taxes and debt service. In addition to the foregoing, Borrower may
from time to time (A) make distributions, in an aggregate amount not to exceed $100,000 to PHC, to
be used by PHC to redeem common stock of former employees of Borrower, and (B) make distributions
to PHC for PHC’s prompt payment of its taxes, organizational fees and expenses, audit preparation
fees and expenses, tax return preparation fees and expenses and similar out of pocket fees and
expenses. In no event, however, shall Borrower declare or pay a dividend or make any other
distribution if a Default (as defined in the Loan Documents) then exists or would occur as a result
of such declaration or payment.
CONDITIONS PRECEDENT. The obligations of Bank to make the loan and any advances pursuant to this
Agreement are subject to the following conditions precedent: Fees. Bank shall have received from
Borrower payment of all fees and expenses of Bank in connection with the making of such Loan,
including, without limitation, (i) the Amendment Fee described in the Note and (ii) reasonable fees
and expenses of Bank’s counsel. Additional Documents. Receipt by Bank of all security documents
and such additional supporting documents as Bank or its counsel may reasonably request.
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IN WITNESS WHEREOF, Borrower and Bank, on the day and year first written above, have caused
this Agreement to be duly executed under seal.
| BANK: WACHOVIA BANK, NATIONAL ASSOCIATION |
||||
| By: | /s/ Cavan X. Xxxxxx | (SEAL) | ||
| Name: | Cavan X. Xxxxxx | |||
| Title: | Senior Vice President | |||
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| BORROWER: PORTRAIT INNOVATIONS, INC., a Delaware corporation |
||||
| By: | /s/ Xxxx Xxxxxx | (SEAL) | ||
| Name: | Xxxx Xxxxxx | |||
| Title: | President and Chief Executive Officer | |||
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EXHIBIT A
NON-DEFAULT CERTIFICATE
In accordance with the terms of the Loan Agreement dated as of October ___, 2009, by and between
WACHOVIA BANK, NATIONAL ASSOCIATION and PORTRAIT INNOVATIONS, INC. (“Borrower”), I hereby certify
that:
| 1. | I am a principal financial officer of Borrower; | |
| 2. | The enclosed financial statements are prepared in accordance with generally accepted accounting principles; | |
| 3. | No Default (as defined in the Loan Documents) or any event which, upon the giving of notice or lapse of time or both, would constitute such a Default, has occurred. | |
| 4. | Borrower is in compliance with the Financial Covenant(s) set forth in the Loan Documents, as demonstrated by the calculations contained in the Covenant Compliance Certificate attached hereto as Schedule 1. |
| Name: | ||||
| Title: | ||||
SCHEDULE 1
COVENANT COMPLIANCE CERTIFICATE
Borrower Name: PORTRAIT INNOVATIONS, INC.
For the fiscal ended
ALL CAPITALIZED TERMS USED BUT NOT DEFINED HEREIN SHALL HAVE THE MEANINGS GIVEN IN THE LOAN
DOCUMENTS.
| COVENANT | ACTUAL | REQUIRED | ||||||||
