SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT
THIS SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT (this "Second
Amendment") is made and entered into as of December 14, 2001, by and between The
Right Start, Inc., a California corporation (the "Borrower") and Xxxxx Fargo
Retail Finance, LLC, successor to Paragon Capital LLC (the "Lender"). This
Amendment amends certain provisions of that certain Loan and Security Agreement
dated as of January 23, 2001 (as amended by and through the date of this
Amendment, including by that First Amendment to Loan and Security Agreement made
and entered into as of September 15, 2001, and as hereafter amended and/or
restated from time to time, the "Loan Agreement") by and between the Borrower
and the Lender.
BACKGROUND
Certain Events of Default (collectively referred to herein as the
"Existing Events of Default") have occurred and are continuing under the Loan
Agreement, such Existing Events of Default arising as a result of (a) the
Borrower's failure to comply with the following Financial Performance Covenants:
(i) the Annualized Inventory Turnover Rate covenant for the accounting periods
ending closest to June 2, 2001, July 7, 2001, August 4, 2001, September 1, 2001
and October 6, 2001 and (ii) the Minimum Excess Availability covenant for the
months ending August 31, 2001, September 30, 2001 and October 31, 2001; (b)
arrangements in connection with the letter of credit support provided by Related
Entities; (c) the Borrower's failure to report changes in Executive Pay; and (d)
the matters disclosed on Exhibit A hereto.
The Borrower has requested that the Lender agree to the waiver of the
Existing Events of Default that have occurred prior to the date of this Second
Amendment and to certain amendments to the Loan Agreement. The Lender is willing
to provide the requested waiver and amendments but only upon the terms and
conditions hereinafter set forth. Defined terms used herein and not otherwise
defined shall have the same meanings herein as in the Loan Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Borrower and the Lender hereby
agree as follows:
SECTION I. AMENDMENTS AND WAIVER
1. The Loan Agreement is hereby amended by deleting existing Exhibit
9-10 (Business Plan) and replacing it with the substitute Exhibit 9-10 attached
to this Amendment.
2. Effective as of November 1, 2001, the Loan Agreement is hereby
amended by deleting existing Exhibit 9-11 (Financial Performance Covenants) and
replacing it with the substitute Exhibit 9-11 attached to this Amendment.
3. The Loan Agreement is hereby amended by deleting existing Exhibits
set forth on Exhibit A attached to this Amendment and replacing them with the
substitute Exhibits or adding to them the additional Exhibits on Exhibit A
attached to this Amendment.
4. The Loan Agreement is hereby amended by adding the following
sentence to the end of Section 5-21 thereof: "Notwithstanding the foregoing, it
shall not be a violation of this Section 5-21 for the Borrower to enter into a
one-time transaction with Related Entities in which it issues notes in an
aggregate principal amount of up to $5 million and warrants to purchase up to
100,000 shares of Borrower's common stock to such Related Entities in order to
obtain letter of credit support of $5 million in connection with the financing
arrangements under the ZB Loan and Security Agreement."
5. The Lender hereby waives the Events of Default arising under Section
5-22 of the Loan Agreement solely as a result of the Borrower's failure to
report changes in Executive Pay.
SECTION II. REPRESENTATIONS AND WARRANTIES; Confirmation of
Representations, Warranties, Exhibits and Schedules
to the Loan Agreement
This Second Amendment has been duly authorized, executed and delivered
by the Borrower. The Loan Agreement, as amended hereby, and each of the 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
Amendment, certifies to the Lender that each of the representations and
warranties set forth in the Loan Agreement and the 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
Amendment, and that, as of the date hereof, no Event of Default other than the
Existing Events of Default has occurred and is continuing under the Loan
Agreement or any other Loan Document. The Borrower acknowledges and agrees that
this Second Amendment shall become a part of the Loan Agreement and shall be a
Loan Document.
Section III. Waiver of Existing Events of Default
Upon the execution of this Second Amendment and the satisfaction of the
conditions set forth in Section IV of this Second Amendment, the Lender shall be
deemed to have waived the Existing Events of Default under the Loan Agreement
and the other Loan Documents. The Borrower acknowledges and agrees that the
foregoing provisions of this Section III relate solely to the Existing Events of
Default, as specified herein, and shall in no way be deemed or construed as a
waiver by the Lender of any other Default or Event of Default under the Loan
Agreement or any other Loan Document now existing or occurring subsequent to the
date of this Second Amendment. The Lender expressly reserves the full extent of
its rights under the Loan Agreement, the other Loan Documents and applicable law
in respect of any Default or Event of Default existing on the date hereof and
not specified herein as an Existing Event of Default.
SECTION IV. Conditions Precedent
As a condition to the obligation of the Lender to execute this
Amendment, and to the effectiveness of the provisions hereof, each of the
following conditions precedent shall have been satisfied or waived in writing by
the Lender:
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(a) The Lender shall have received from the Borrower:
(i) this Second Agreement, fully executed by each of the
parties hereto;
(ii) such other instruments, certificates or documents as
the Lender shall reasonably request, each of which shall be in
form and substance satisfactory to the Lender, for the purpose of
implementing or effectuating the provisions of the Loan Agreement
and the other Loan Documents, each as amended hereby; and
(iii) a second amendment fee of $10,000.
(b) All reasonable costs and expenses incurred by the Lender in
connection with this Amendment and the other agreements, instruments and
transactions contemplated hereby (including the reasonable fees and expenses of
Xxxxxx, Hall & Xxxxxxx, special counsel to the Lender) shall have been paid by
the Borrower.
Section V. No Novation; Effect; Counterparts; Governing Law.
Except to the extent specifically amended hereby, the Loan Agreement,
each of the Security Documents and all other Loan Documents shall be unaffected
hereby and shall remain in full force and effect. The Borrower hereby
acknowledges, confirms and ratifies its obligations under the Loan Agreement,
the Master Note, and each of the Loan Documents. The Borrower hereby covenants,
acknowledges and confirms to the Lender that the term "Loan Agreement" shall
mean the Loan Agreement as amended through the date of this Second Amendment and
as further amended and/or restated from time to time. This Second 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 Second Amendment shall be governed by the internal laws of The Commonwealth
of Massachusetts (without reference to conflicts of law principles) and shall be
binding upon and inure to the benefit of the parties hereto and the respective
successors and assigns. The Borrower shall pay all reasonable out-of-pocket
expenses of the Lender in connection with the preparation, execution and
delivery of this Second Amendment.
[THE BALANCE OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]
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IN WITNESS WHEREOF, the parties hereto have executed this Amendment to
the Loan Agreement as a sealed instrument as of the date first above written.
THE RIGHT START, INC.
By: /s/ Xxxxxxx X. Xxxxxxxx
Xxxxxxx X. Xxxxxxxx
Executive Vice President
XXXXX FARGO RETAIL FINANCE, LLC
By: /s/ Xxxxxx Xxxxxx
Xxxxxx Xxxxxx,
Senior Vice President
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EXHIBIT 9-11
The Right Start, Inc.
1/18/01
Covenants:
FINANCIAL AND INVENTORY COVENANTS
(Based on current applicable approved business plan set forth on Exhibit 9-12):
Minimum Excess Availability
Measured at month end, on a rolling two-month average basis, Excess Availability
shall be no less than 85% of Excess Availability for the same periods projected
in the Business Plan.
Maximum Capital Expenditures
Measured every six months, beginning July 2001, year-to-date Capital
Expenditures for each six-month period shall not exceed 110% of the total.
Capital Expenditures for the same period projected in the Business Plan.
Ratio of Inventory Receipts to Cost of Sales
Measured monthly (i) on a trailing three-month basis, the ratio of Inventory
Receipts to Cost of Goods Sold shall be no less than 85% of the ratio projected
in the Business Plan and (ii) the annualized twelve month average inventory
turnover rate not less than 2.7 times. Annualized inventory turnover shall be
calculated as the rolling twelve-months Cost of Goods Sold divided by the
corresponding rolling twelve-months average EOM Inventory at Cost. Average EOM
Inventory at Cost shall be calculated as the total Company Inventory less
inventory allocated to Right Xxxxx.xxx, in each case, at the end of each month
during the period for which the calculation is made. Inventory Receipts shall
mean the cost to the Company of all Inventory received by the Company plus
freight-in. Cost of Goods Sold shall mean an amount calculated consistently from
an accounting perspective with the Cost of Goods Sold on the Company's Borrowing
Base certificate provided at Closing.
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EXHIBIT A
EXHIBIT 5-3(a)(ii)
Parent merged with American Recreation Centers, Inc. and RS Merger Corp. in
1988 and purchased the assets of Small People, Inc. and Jimash Corporation in
1993 and Blasiar, Inc. (DBA Alert Communications Company) in 1996. Parent
purchased the limited liability company interests of Xxxxxxx-RS, LLC and formed
TS in 2001. TS purchased substantial assets of FAO and QFS in 2001.
EXHIBIT 5-6
Indebtedness
1. Intercompany payables between the Company and ZB Company, Inc. in amounts up
to $750,000.
2. Trade obligations and accruals in the ordinary course of business.
3. Purchase money indebtedness including capital leases.
4. Unsecured indebtedness.
5. Indebtedness arising under agreements providing for indemnification,
adjustment of purchase price or similar obligations, or obligations to perform
bids, trade contracts, leases, statutory obligations or surety and appeal bonds,
performance bonds and other similar obligations incurred in the ordinary course
of business.
6. Indebtedness to secure workers' compensation, unemployment insurance and
other social security legislation obligations.
7. Indebtedness of the Company incurred under the ZB Loan Agreement, the Parent
Guaranty and the Parent Pledge.
8. Indebtedness of the Company incurred in exchange for or the net proceeds of
which are used to extend, refinance, renew, replace, substitute or refund
Indebtedness referred to above.
9. Indebtedness of $5 million to providers of a $5 million letter of credit to
the extent amounts are drawn under such letter of credit extended in 2001.
10. $4.9 million in aggregate principal amount of Subordinated Convertible
Pay-in-Kind Notes due 2004 issued to Athanor Holdings, LLC.
11. $3.0 million in liquidation preference of Series A Mandatorily Redeemable
Preferred Stock
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Guaranties
Amount and Description
Primary Obligor of Obligation Guaranteed Beneficiary of Guaranty
The Company All obligations of XX Xxxxx Fargo
Company, Inc. under the Retail Finance, LLC,
ZB Loan Agreement as Agent
EXHIBIT 5-7
Insurance Policies
See Attached Certificate of Insurance.
EXHIBIT 5-9
Leases
See Attached Exhibit 5-9.
