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WAIVER AND SEVENTH AMENDMENT, dated as of December 29, 1995
(this "Waiver and Amendment"), to the Loan and Security
Agreement, dated as of December 15, 1993 (as heretofore amended,
supplemented or otherwise modified, the "Loan Agreement"),
between BankAmerica Business Credit, Inc. (the "Lender") and
▇▇▇▇▇▇▇▇'▇ Inc. (the "Borrower").
W I T N E S S E T H :
WHEREAS, the Lender and the Borrower are parties to the Loan
Agreement;
WHEREAS, the Borrower has requested that the Lender amend
the Loan Agreement in certain respects and waive compliance with
certain provisions contained therein; and
WHEREAS, the Lender is willing to agree to such amendment
and waiver but only on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and for
other good and valuable consideration, the receipt of which is
hereby acknowledged, the parties hereto hereby agree as follows:
Section 1. Defined Terms. Unless otherwise defined herein,
capitalized terms used herein have the respective meanings
ascribed thereto in the Loan Agreement.
Section 2. Amendment of Loan Agreement and Letter of Credit
Agreement. The Loan Agreement and Letter of Credit Agreement
shall be, and upon the fulfillment of the conditions set forth in
Section 7 hereof are, amended as follows:
2.1 Section 1.1 of the Loan Agreement (Defined Terms)
is hereby amended by:
(a) deleting in its entirety the definition "Adjusted
Tangible Net Worth" and substituting therefor the following:
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"'Adjusted Tangible Net Worth' means, at any date:
(a) the book value (after deducting related depreciation,
obsolescence, amortization, valuation, and other proper
reserves as determined in accordance with GAAP) at which the
Adjusted Tangible Assets would be shown on a balance sheet
of the Borrower and its Subsidiaries on a consolidated basis
at such date prepared in accordance with GAAP: less (b) the
amount at which the Borrower's and its Subsidiaries'
liabilities on a consolidated basis would be shown on such
balance sheet; provided, that "Adjusted Tangible Net Worth"
shall exclude (i) the effect of the establishment (or
reversal) after December 15, 1993 of a minimum pension
liability in accordance with the Financial Accounting
Standards Board's Statement of Financial Accounting
Standards No. 87, (ii) any net gain or loss from the sale
after the effective date of the Waiver and Seventh Amendment
of any assets of the Borrower (other than Inventory in the
ordinary course of business), (iii) the effect of any store
closing charges taken or incurred by the Borrower with
respect to the closing of any of its stores after the
effective date of the Waiver and Seventh Amendment and on or
before March 31, 1997, (iv) any discount of the promissory
note issued by Kmart described in Section 6 of the Waiver
and Seventh Amendment and (v) the severance costs relating
to the termination of employees of the Borrower employed at
the Borrowers headquarters."
(b) deleting in its entirety the definition
"Applicable Percent" and substituting therefor the following:
"'Applicable Percent' shall mean fifty percent (50%);
provided, that if the Borrower shall satisfy in full the
terms and conditions set forth in Section 6 of the Waiver
and Seventh Amendment, "Applicable Percent" shall mean
fifty-five percent (55%) unless and until the Borrower shall
notify the Lender in writing that the "Applicable Percent"
shall no longer be fifty-five percent (55%), in which case
the Applicable Percent shall mean fifty percent (50%)."
(c) deleting in its entirety the definition
"Availability" and substituting therefor the following:
"'Availability' means:
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(a) the lesser at any point in time of:
(i) $75,000,000 or (ii) the sum of (A) fifty percent (50%)
of the Net Amount of Eligible Accounts of the Borrower plus
(B) an amount equal to the Applicable Percent of the value
of Eligible Inventory of the Borrower, calculated in
accordance with GAAP at the lower of average cost
(determined in accordance with the Borrower's accounting
practices) or market value plus (C) an amount equal to fifty
percent (50%) of the undrawn amount of all Letters of Credit
issued to secure the payment by the Borrower of the purchase
price of inventory purchased by the Borrower in the ordinary
course of its business, minus
(b) the sum of: (i) the unpaid principal balance of
Revolving Loans at that time plus the amount, if any, of
(A) amounts drawn under the Letters of Credit to the extent
not already included in the Revolving Loans, and (B) the
undrawn amount of all Letters of Credit plus (ii) reserves,
in the Lender's sole discretion, for accrued interest on the
Revolving Loans plus (iii) subject to the provisions of
Section 6.2(b), reserves with respect to rent payments due
and owing by the Borrower relating to premises leased by the
Borrower for which a landlord's waiver, in form and
substance satisfactory to the Lender, has not been obtained
plus (iv) reserves for rebates due the Borrower on Inventory
purchases made by the Borrower and reserves for shrinkage of
Inventory (in each instance in this clause (iv) to the
extent not reflected in the valuation of such Inventory as
provided in clause (a)(ii)(B) above) plus (v) reserves in
the Lenders sole discretion with respect to any individual
store of the Borrower in the event that operating losses
(before allocation of selling, general and administrative
expenses of the Borrower) for any such store exceed $250,000
plus (vi) in the event that the Applicable Percent is fifty-
five percent (55%) and only so long as such percentage is
fifty-five percent (55%), in the Lenders sole discretion
(A) reserves with respect to sales of those stores described
on Schedule 6 to the Waiver and Seventh Amendment in an
amount equal to 50% of the excess of (x) the aggregate Net
Cash Proceeds generated from sales of such stores over (y)
$4,000,000 and (B) reserves in the event that the Borrower
accepts in full payment of the promissory note issued by
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Kmart to be pledged to the Lender under Section 6 of the
Waiver and Seventh Amendment less than the full outstanding
principal amount thereof plus (vii) all other reserves which
the Lender in its sole discretion (exercised in good faith)
deems necessary or desirable to maintain with respect to the
Borrower's account, including, without limitation, any
amounts which the Lender may be obligated to pay in the
future for the account of the Borrower."
(d) deleting in their entirety the definitions "Bank
of Boston Letter of Credit" and "Insurance Company Letters of
Credit".
(e) adding the phrase "the acquisition of" immediately
after the words "in respect of the cost of" in the definition
"Capital Expenditures".
(f) adding the following definition in the correct
alphabetical order:
"'Waiver and Seventh Amendment' means that certain
Waiver and Seventh Amendment, dated as of December 29, 1995,
between the Borrower and the Lender."
2.2 Section 2.3 of the Loan Agreement (Letters of
Credit) is hereby amended by deleting that portion of clause (a)
of the third sentence thereof commencing with the phrase "the sum
of (i)" and substituting therefor the amount "$15,000,000".
2.3 Section 3.1 of the Loan Agreement (Interest) is
hereby amended by:
(a) deleting the phrase "one percent (1.00%)" in the
first sentence of paragraph (a) thereof and substituting therefor
the phrase "one and three-quarters percent (1-3/4%)".
(b) deleting the phrase "three percent (3.00%)" in the
second sentence of paragraph (a) thereof and substituting
therefor the phrase "three and three-quarters percent (3-3/4%)".
2.4 Section 6.10 of the Loan Agreement (Collection of
Accounts; Payments) is hereby amended by:
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(a) adding the following sentence immediately after
the second sentence of clause (a) thereof:
"Notwithstanding anything herein to the contrary, the
Lender may deliver any such notice to the bank at any time
in the Lender's sole discretion (whether or not an Event or
Event of Default has occurred or is continuing).
(b) deleting the phrase "during the continuance of an
Event of Default" in the penultimate sentence of clause (a)
thereof and substituting therefor the following:
"in the Lender's sole discretion (whether or not an
Event or an Event of Default has occurred or is
continuing)".
2.5 Section 6.15 of the Loan Agreement (Power of
Attorney) is hereby amended by deleting the phrase "during the
continuance of an Event or an Event of Default" in clause (i) of
paragraph (a) thereof.
2.6 Section 7.2 of the Loan Agreement (Financial
Information) is hereby amended by adding the following paragraphs
(l) and (m) thereto:
"(l) As soon as available, but in any event not later
than 45 days after the close of each fiscal quarter of the
Borrower, a report detailing for the fiscal quarter just
ended and for the period from the beginning of the Fiscal
Year to the end of such fiscal quarter the cash and Net Cash
Proceeds generated by the Borrower from its asset sales and
the cash store closing expenses of the Borrower.
(m) As soon as available, but in any event not later
than 45 days after the close of each fiscal quarter of the
Borrower, operating profit and loss statements for each
store of the Borrower."
2.7 Section 9.18 of the Loan Agreement (Capital
Expenditures) is hereby amended by deleting in its entirety the
penultimate paragraph thereof.
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2.8 Section 9.20 of the Loan Agreement (Minimum
Interest Coverage) is hereby amended by deleting such Section in
its entirety and substituting therefor the following:
"9.20 Minimum Interest Coverage. The Borrower shall
not permit the ratio (the "Interest Coverage Ratio") of
(a) Adjusted Net Earnings from Operations for any period
specified below plus interest expense of the Borrower and
its Subsidiaries for such period and provision for income
taxes of the Borrower and its Subsidiaries for such period
plus depreciation and amortization expense of the Borrower
and its Subsidiaries for such period to (b) interest expense
of the Borrower and its Subsidiaries for such period to be
less than the ratio set forth opposite any such period:
Period Ratio
Second fiscal quarter of 1996 Fiscal Year 2.85/1
Third fiscal quarter of 1996 Fiscal Year 3.20/1
Fourth fiscal quarter of 1996 Fiscal Year 2.75/1"
2.9 Section 9.21 of the Loan Agreement (Adjusted
Tangible Net Worth) is hereby amended by deleting such Section in
its entirety and substituting therefor the following:
"9.21 Adjusted Tangible Net Worth. The Borrower
shall not permit Adjusted Tangible Net Worth to be less than
the following amounts on any of the following respective
dates:
Date Amount
Last day of first fiscal quarter
of 1996 Fiscal Year $86,000,000
Last day of second fiscal quarter
of 1996 Fiscal Year $88,000,000
Last day of third fiscal quarter of
1996 Fiscal Year $91,000,000
Last day of 1996 Fiscal Year $93,000,000
Last day of first fiscal quarter of
1997 Fiscal Year and each fiscal quarter
thereafter $86,000,000"
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2.10 Section 9.22 of the Loan Agreement (Fixed
Maturity Coverage) is hereby amended by deleting the ratio
"1.3/1" opposite the phrase "1996 Fiscal Year and each Fiscal
Year thereafter" in the chart therein contained and substituting
therefor the ratio "1.1/1".
2.11 New Sections 9.24 and 9.25 are added to the Loan
Agreement and read as follows:
"9.24 Sufficient Cash From Asset Sales. The Borrower
shall generate sufficient cash (as reasonably determined by
the Lender) from the sale of its assets out of the ordinary
course of business in order to timely pay all of its cash
store closing expenses.
9.25 Proceeds of Store Sales and Note. Without
limitation of any obligation of the Borrower contained
elsewhere in any Loan Document to remit Proceeds and other
payments arising from the sale or other disposition of its
property, the Borrower agrees to promptly remit (and in any
event within two Business Days after its receipt thereof) to
the Lender to be applied to the payment of the Obligations
(x) all Net Cash Proceeds derived from the sale or other
disposition of any stores described on Schedule 6 to the
Waiver and Seventh Amendment which constitute Collateral and
(y) all payments received by the Borrower on or with respect
to the promissory note issued by Kmart described in Section
6 of the Waiver and Seventh Amendment if such promissory
note constitutes Collateral."
2.12 Section 10.16 of the Loan Agreement (Collection
Account) is hereby amended by deleting the phrase "after an Event
has occurred" contained therein and substituting therefor the
phrase "in the Lender's sole discretion (whether or not an Event
or Event of Default has occurred or is continuing)".
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2.13 Section 12.1 of the Loan Agreement (Term and
Termination) is hereby amended by deleting the phrase "the third
anniversary of the Closing Date" and substituting therefor the
date "April 30, 1997".
2.14 Section 13.10 of the Loan Agreement (Fees and
Expenses) is hereby amended by deleting the amount "$500" in
clause (f) thereof and substituting therefor the amount "$575".
2.15 Section 8 of the Letter of Credit Agreement is
hereby amended by deleting the phrase "one and one-quarter
percent (1.25%)" in the first sentence thereof and substituting
therefor the phrase "one and three-quarters percent (1-3/4%)".
Section 3. Representations and Warranties. To induce
the Lender to enter into this Waiver and Amendment, the Borrower
hereby represents and warrants to the Lender as follows, with the
same effect as if such representations and warranties were set
forth in the Loan Agreement:
(a) The Borrower has the corporate power and authority
to enter into this Waiver and Amendment and has taken or will
take all corporate action required to authorize or ratify its
execution and delivery of this Waiver and Amendment and its
performance of the Loan Agreement and Letter of Credit Agreement,
as amended hereby (as so amended, the "Amended Agreements").
This Waiver and Amendment has been duly executed and delivered by
the Borrower and the Amended Agreements constitute the valid and
binding obligations of the Borrower, enforceable against the
Borrower in accordance with their respective terms. The
execution, delivery and performance by the Borrower of this
Waiver and Amendment and the Amended Agreements will not violate
the Borrower's certificate of incorporation or by-laws or any
agreement or legal requirement binding on the Borrower.
(b) On the date hereof and after giving effect to the
terms of this Waiver and Amendment, (i) the Loan Agreement and
the other Loan Documents are in full force and effect and
constitute the Borrower's binding obligations, enforceable
against the Borrower in accordance with their respective terms;
(ii) no Event or Event of Default has occurred and is continuing;
and (iii) the Borrower does not have any defense to or setoff,
counterclaim or claim against payment of the Obligations and
enforcement of the Loan Documents based upon a fact or
circumstance existing or occurring on or prior to the date
hereof.
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Section 4. Waiver. Subject to fulfillment of the
conditions set forth in Section 7 hereof, the Lender hereby
waives compliance with (i) Section 9.21 (Adjusted Tangible Net
Worth) of the Loan Agreement for December 31, 1995,
(ii) Sections 9.20 (Minimum Interest Coverage) and 9.22 (Fixed
Maturity Coverage) of the Loan Agreement for the Fiscal Year
ended December 31, 1995, (iii) paragraph (q) of Section 11.1
(Events of Default) of the Loan Agreement and (iv) paragraph (p)
of Section 11.1 (Events of Default) of the Loan Agreement with
respect to Project-Pro's, Inc. so long as the aggregate amount of
debts of such Subsidiary Guaranteed by the Borrower shall not at
any time exceed $2,500,000.
Section 5. Forbearance. Subject to fulfillment of the
conditions set forth in Section 7 hereof and the provisions of
this Section 5, the Lender hereby agrees that it shall not on or
before April 30, 1997 exercise any rights or remedies which are
available to the Lender solely as a result of the occurrence of
an Event of Default under Section 11.1(e) of the Loan Agreement
arising from the failure of the Borrower to repay in full on
January 1, 1996 the Borrower's 14% debentures due January 1,
1996, but only if (x) neither any holder of such debentures nor
the trustee therefor shall (A) obtain any judgments or other
judicial remedies or relief against the Borrower or any of its
properties or (B) commence the exercise of any rights or remedies
to attach or otherwise obtain any interest in any property of the
Borrower and (y) no Person or Persons (other than Chemical Bank)
to whom the Borrower owes indebtedness or other obligations
(including, without limitation, lease obligations) of $2,000,000
or more in the aggregate for all such Persons shall have obtained
any judgments or other judicial remedies or relief against the
Borrower or any of its properties, in each instance under clauses
(x) and (y) above, as a result, directly or indirectly
(including, without limitation, by virtue of cross-default
provisions), of such failure of the Borrower to repay such
debentures on their scheduled maturity. The foregoing shall not
constitute a waiver of such Event of Default or of the Lenders
rights and remedies with respect to such Event of Default nor of
any other Event of Default that may occur (including, without
limitation, under Section 11.1(e) of the Loan Agreement) nor
shall the foregoing constitute a forbearance of any of the
Lenders rights and remedies for any other Event of Default which
may arise with respect to or as a result of such debentures
(including, without limitation, any failure to timely make any
payments of principal on the debentures if the payment due
January 1, 1996 is extended or deferred to one or more later
dates or the filing of any involuntary petition or the
commencement of an action or other proceeding against the
Borrower otherwise seeking relief under any bankruptcy or
insolvency law).
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The Borrower agrees that (i) it shall not, directly or
indirectly, amend, modify, supplement or waive compliance with
(or consent to any of the foregoing) any provision of the
Borrowers 14% debentures due January 1, 1996 (including, without
limitation, any modification of the payment terms thereof) or the
indenture related thereto without the prior written consent of
the Lender in each instance and (ii) the failure to comply with
clause (i) of this sentence shall constitute an Event of Default
and shall invalidate and terminate the forbearance of the
exercise by the Lender of rights and remedies as provided in the
first sentence of this Section 5.
Section 6. Additional Collateral. In addition to the
conditions set forth in Section 7 hereof, as a condition to the
Applicable Percent becoming fifty-five percent (55%) as
contemplated in Section 2.1(b) hereof the Borrower shall obtain
the written consent of the Lender thereto and shall satify the
following:
(a) The Borrower shall duly execute and deliver to the
Lender mortgages or deeds of trust (each such mortgage or deed of
trust, as it may be amended, modified or supplemented from time
to time in accordance with its terms, a "Mortgage") in respect of
real property owned by the Borrower set forth on Schedule 6
hereto (such real property, the "Mortgage Collateral") so as to
create in the Lender's favor, upon recordation thereof, a valid,
perfected and enforceable first priority mortgage and lien on the
Mortgage Collateral and all improvements thereon or therein, such
Mortgages to be in form and substance satisfactory to the Lender.
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(b) The Borrower shall cause the Mortgages to be duly
recorded in the appropriate recording office or offices and shall
pay all fees and taxes payable in connection therewith.
(c) The Borrower shall furnish to the Lender, at the
Borrower's expense, one or more policies of mortgagee title
insurance, in form, substance and amount satisfactory to the
Lender, insuring that each of the Mortgages is a valid and
perfected first priority mortgage and lien in favor of the Lender
on the interest of the Borrower in the real property and
improvements described therein, and that the Borrower has good
and marketable title thereto, issued by a title insurance company
reasonably satisfactory to the Lender, together with satisfactory
evidence that all title insurance premiums therefor have been
fully paid. The Borrower shall furnish to the Lender certified
surveys of real property and such legal opinions, environmental
questionnaires, certificates, agreements and documents as the
Lender may reasonably request with respect to the Mortgages and
the Mortgage Collateral. The Borrower shall additionally provide
to the Lender with respect to any real property to be subject to
a Mortgage on or prior to the taking of such Mortgage such
appraisals of such real property as shall be requested by the
Lender or required under applicable law, including, without
limitation, the Financial Institution Reform, Recovery and
Enforcement Act of 1989, as amended (FIRREA).
(d) The Borrower shall duly execute and deliver to the
Lender a pledge agreement, in form and substance satisfactory to
the Lender, pursuant to which the Borrower shall grant to the
Lender a valid, perfected and enforceable first priority security
interest in the promissory note dated September 26, 1995 by Kmart
to the order of the Borrower in the original principal amount of
$15,800,000. The Borrower shall deliver such promissory note to
the Lender duly endorsed to the order of the Lender in a manner
satisfactory to the Lender. The Borrower shall furnish to the
Lender such legal opinions, agreements and documents with respect
to such pledge agreement and promissory note as the Lender may
reasonably request.
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(e) The Lender shall receive any and all consents and
approvals, in form and substance satisfactory to the Lender, as
are necessary to permit the granting of the first priority
perfected security interests and liens contemplated under this
Section 6 or to avoid the occurrence of a default under any
agreement or document to which the Borrower is a party or by
which it or any of its properties may be bound, including,
without limitation, the Borrowers 14% debentures due January 1,
1996.
Section 7. Effectiveness. This Waiver and Amendment
shall be effective upon fulfillment of the following conditions:
(a) the receipt by the Lender of a counterpart hereof
duly executed by the Borrower; and
(b) the receipt by the Lender of a waiver and
amendment fee in the amount of $150,000.
Section 8. Limited Effect. This Waiver and Amendment
shall be limited solely to the matters expressly set forth herein
and shall not (a) constitute an amendment or waiver of any other
term or condition of the Loan Agreement or of any instrument or
agreement referred to therein or (b) subject to Section 5 hereof,
prejudice any right or rights which the Lender may now have or
may have in the future under or in connection with the Loan
Agreement or any instrument or agreement referred to therein.
Except as expressly waived or amended hereby, all of the
covenants and provisions of the Loan Agreement and the Letter of
Credit Agreement are and shall continue to be in full force and
effect.
Section 9. GOVERNING LAW. THIS WAIVER AND AMENDMENT
SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE
WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK.
Section 10. Counterparts. This Waiver and Amendment
may be executed by the parties hereto in any number of separate
counterparts, each of which shall be an original, and all of
which taken together shall be deemed to constitute one and the
same instrument.
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IN WITNESS WHEREOF, the parties hereto have caused this
Waiver and Amendment to be duly executed and delivered by their
respective proper and duly authorized officers as of the day and
year first above written.
BANKAMERICA BUSINESS CREDIT, INC.
By: ____________________________
Name:
Title:
▇▇▇▇▇▇▇▇'▇ INC.
By: ____________________________
Name:
Title: