Exhibit 99.1
FIRST AMENDMENT TO CREDIT AND SECURITY AGREEMENT
This Amendment, dated as of November 30, 2000, is made by and among The
Leather Factory, Inc., a Delaware corporation ("TLF Delaware"), The Leather
Factory, Inc., a Texas corporation ("TLF Texas"), The Leather Factory, Inc., an
Arizona corporation, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ & Company, Inc., a New York corporation
("RCC"), Hi-Line Leather & Manufacturing Company, a California corporation (each
an " Original Borrower" and collectively the "Original Borrowers"), and Leather
Tan Acquisition, Inc., a Texas corporation (the "New Borrower" and with the
Original Borrowers, the "Borrowers") and ▇▇▇▇▇ Fargo Business Credit, Inc., a
Minnesota corporation (the "Lender").
Recitals
The Original Borrowers and the Lender, have entered into a Credit and
Security Agreement dated as of November 22, 1999 (as amended, restated or
supplemented from time to time, the "Credit Agreement"). Capitalized terms used
in these Recitals shall have the meanings given to them in the Credit Agreement
and as set forth below.
The Original Borrowers have requested that the Lender amend the Credit
Agreement to include the New Borrower as a party, and the New Borrower has
agreed to become a party to the Credit Agreement and to be jointly and severally
liable for all Obligations of the Original Borrowers to the Lender incurred
thereunder. The Borrowers have also requested that certain other amendments be
made to the Credit Agreement. The Lender is willing to grant these requests upon
the terms and conditions set forth herein.
ACCORDINGLY, the parties hereto hereby agree as follows:
1. Defined Terms. Capitalized terms used in this Amendment which are
defined in the Recitals above or in the Credit Agreement shall have the same
meanings as defined therein, unless otherwise defined herein.
"`Acquisition Documents' means that certain Asset Purchase
Agreement by and among the New Borrower and the Sellers and all other
documents executed and delivered in connection therewith."
"`Eligible Borrower' means Leather Tan Acquisition, Inc., or
TLF Texas, or RCC and "Eligible Borrowers" means Leather Tan
Acquisition, Inc., TLF Texas, and RCC."
"Eligible Inventory Advance Rate" and "Eligible Inventory Cap"
mean during each period set forth below the percentage and the dollar
amount, respectively, set forth next to such period:
----------------------------- -------------------- -----------------------------
Period Eligible Inventory Eligible Inventory Cap
Advance Rate
----------------------------- -------------------- -----------------------------
First Amendment Effective
Date - 12/31/2000 60% $5,500,000
----------------------------- -------------------- -----------------------------
1/1/2001 - 1/31/2001 60% $5,500,000
----------------------------- -------------------- -----------------------------
2/1/2001 - 2/28/2001 59% $5,500,000
----------------------------- -------------------- -----------------------------
3/1/2001 - 3/31/2001 58% $5,500,000
----------------------------- -------------------- -----------------------------
4/1/2001 - 4/30/2001 57% $5,500,000
----------------------------- -------------------- -----------------------------
5/1/2001 - 5/31/2001 56% $5,500,000
----------------------------- -------------------- -----------------------------
6/1/2001 - 6/30/2001 55% $5,500,000
----------------------------- -------------------- -----------------------------
7/1/2001 - 7/31/2001 54% $5,500,000
----------------------------- -------------------- -----------------------------
8/1/2001 - 8/31/2001 53% $5,500,000
----------------------------- -------------------- -----------------------------
9/1/2001 - 9/30/2001 52% $5,500,000
----------------------------- -------------------- -----------------------------
10/1/2001 - 10/31/2001 51% $5,500,000
----------------------------- -------------------- -----------------------------
11/1/2001 - 11/30/2001 50% $5,500,000
----------------------------- -------------------- -----------------------------
12/1/2001 and thereafter 50% $5,000,000
----------------------------- -------------------- -----------------------------
"`First Amendment" means that certain First Amendment to
Credit and Security Agreement, dated as of November 30, 2000."
"`First Amendment Effective Date' means the date that all of
the conditions in paragraph 11 of the First Amendment have been
satisfied."
"`New Borrower' means Leather Tan Acquisition, Inc., a Texas
corporation."
"`Sellers' means TLC DIRECT, INC., a Texas corporation, and
TANDY LEATHER DEALER, INC., a Texas corporation."
2. Financial Covenants. Sections 6.12 through 6.14 and Section 7.11 are
amended to read as follows:
"Section 6.12 - Reserved.
"Section 6.13 Minimum Book Net Worth. The Parent Borrower will
maintain, as of each date listed below or as of the end of each month during
each period described below, its Book Net Worth at an amount not less than the
amount set forth opposite such date or period:
Date/Period Minimum Book Net Worth
----------- ----------------------
November 30, 2000 through $1,000,000 greater than Book Net
December 30, 2000 Worth on December 31, 1999
December 31, 2000 $1,250,000 greater than Book Net
Worth on December 31, 1999
January 1, 2001 through March 30, 2001 $50,000 less than Book Net Worth on
December 31, 2000
March 31, 2001 through June 29, 2001 $150,000 greater than Book Net Worth
on December 31, 2000
June 30, 2001 through September 29, 2001 $250,000 greater than Book Net Worth
on December 31, 2000
September 30, 2001 through $400,000 greater than Book Net Worth
December 30, 2001 on December 31, 2000
December 31, 2001 $600,000 greater than Book Net Worth
on December 31, 2000
January 1, 2002 through March 30, 2002 $50,000 less than Book Net Worth
on December 31, 2001
March 31, 2002 $150,000 greater than Book Net Worth
on December 31, 2001
"Section 6.14 Minimum Net Income. The Parent Borrower will achieve as
of each date set forth below or as of the end of each month during each period
described below, Net Income, of not less than the amount set forth opposite such
date or period (numbers in parentheses are negative):
Date/Period Minimum Net Income
----------- ------------------
September 30, 2000 through December 30, 2000 $1,000,000
December 31, 2000 $1,250,000
January 1, 2001 through March 30, 2001 ($50,000)
March 31, 2001 through June 29, 2001 $150,000
June 30, 2001 through September 29, 2001 $250,000
September 30, 2001 through December 30, 2001 $400,000
December 31, 2001 $600,000
January 1, 2002 through March 30, 2002 ($50,000)
March 31, 2002 $150,000
"Section 7.11 Capital Expenditures. The Borrowers will not
incur or contract to incur Capital Expenditures of more than $500,000
in the aggregate during the fiscal year ending December 31, 2001, or
any fiscal year thereafter."
3. Acquisition Documents. The Borrowers have furnished to the Lender
true, complete and correct copies of all Acquisition Documents. The Acquisition
Documents have not subsequently been amended, supplemented or modified. The
Acquisition Documents constitute the complete understanding among the parties
thereto in respect of the matters and transactions covered thereby. The
Acquisition Documents have been duly executed and delivered by the parties
thereto and are in full force and effect. All representations and warranties
made by the Borrowers in the Acquisition Documents, and, to the best knowledge
of the Borrowers after due inquiry, all representations and warranties made by
the other parties to the Acquisition Documents, are true and correct in all
material respects.
4. Consent to Acquisition and Waiver of Compliance. The Borrowers have
requested that the Lender consent to the Borrowers using $2,850,000 of the
proceeds of the Advances to acquire certain assets under the Acquisition
Documents. The Lender hereby grants such consent. This consent and waiver shall
be effective only in this specific instance and it shall not entitle the
Borrowers to any other or further consent or waiver in any similar or other
circumstances.
5. Assumption of Loan Documents. The New Borrower hereby irrevocably
assumes and promises to pay and perform all of the covenants, obligations,
liabilities and duties of the Original Borrowers arising under the Loan
Documents from and after the First Amendment Effective Date and agrees that as
of the First Amendment Effective Date the New Borrower shall be a primary
obligor, under each such document.
6. Collateral. The Borrowers hereby expressly acknowledge and agree
that the Collateral has been at all times and shall continue to be encumbered by
and subject to the Security Interest. The New Borrower agrees that as of the
First Amendment Effective Date it shall be a debtor and borrower under the
Credit Agreement for all purposes, including (without limitation) for purposes
of granting to the Lender a first perfected security interest in all Collateral
whether owned as of the First Amendment Effective Date or acquired thereafter
and the New Borrower hereby grants to the Lender as of the First Amendment
Effective Date a security interest in all of its right, title and interest in
the Collateral. All financing statements currently outstanding naming the
Original Borrowers as debtors shall continue in full force and effect to perfect
the Lender's Security Interest in the Collateral and the New Borrower shall
execute and deliver to the Lender such new financing statements as the Lender
may require to perfect the Lender's Security Interest in all Collateral.
7. Acknowledgment of Outstanding Principal Balance and Enforceability
of Loan Documents. The Borrowers hereby acknowledge and agree (i) that as of
November 30, 2000, the outstanding principal balance of the Revolving Note was
$3,350,380.26, with interest paid through October 31, 2000, and (ii) that all
Loan Documents are and shall remain in full force and effect, are enforceable
against the Borrowers in accordance with their terms and are subject to no
defenses, off-sets or counterclaims on behalf of either the New Borrower or the
Original Borrowers.
8. Changing Borrower Names. Effective as of the First Amendment
Effective Date, the Loan Documents are hereby amended by adding the name of the
New Borrower wherever the names of the Original Borrowers are set forth so as to
add the New Borrower as a party to each Loan Document as if it were a party as
of the date such Loan Document was executed.
9. New Compliance Certificate. Exhibit C to the Credit Agreement is
hereby amended in its entirety and replaced with Exhibit A to this Amendment.
10. No Other Changes. Except as explicitly amended by this Amendment,
all of the terms and conditions of the Credit Agreement shall remain in full
force and effect and shall apply to any advance or letter of credit thereunder.
11. Conditions Precedent. This Amendment shall be effective upon
receipt by the Lender of an executed original hereof, together with the
following, each in form and substance acceptable to the Lender in its sole
discretion:
(a) A certificate of the secretary or assistant secretary of the Parent
Borrower certifying (i) that attached to such certificate are true and
correct copies of the executed Acquisition Documents and (ii) that all
conditions precedent to the obligations of each party under the
Acquisition Documents have been satisfied or waived.
(b) A certificate of the New Borrower's secretary or assistant
secretary certifying (i) that attached to such certificate are
resolutions of the New Borrower's board of directors, and if required,
shareholders, authorizing the execution, delivery and performance of
this Amendment, (ii) that attached to such certificate are true and
correct copies of the New Borrower's articles of incorporation and
bylaws, and (iii) that attached to or incorporated in such certificate
are the facsimile signatures of the New Borrower's officers or agents
authorized to execute and deliver this Amendment and all other
instruments, agreements and certificates, on the New Borrower's behalf.
(c) A current certificate issued by the Secretary of State of the New
Borrower's jurisdiction of organization, certifying that the New
Borrower is in compliance with all applicable organizational
requirements of such State.
(d) Such UCC-1 financing statements naming the New Borrower as debtor
and the Lender as secured party as the Lender may deem necessary or
useful to perfect the Security Interest.
(e) Current searches of appropriate filing offices showing that (i) no
state or federal tax liens have been filed and remain in effect against
the New Borrower or the Sellers, (ii) no financing statements or
assignments of patents, trademarks or copyrights have been filed and
remain in effect against the New Borrower or the Sellers except those
financing statements and assignments of patents, trademarks or
copyrights relating to Permitted Liens, to assets of the Sellers not
purchased by the New Borrower, or to liens held by Persons who have
agreed in writing that upon receipt of proceeds of the Advances, they
will deliver UCC releases and/or terminations and releases of such
assignments of patents, trademarks or copyrights satisfactory to the
Lender, and (iii) the Lender has duly filed all financing statements
necessary to perfect the Security Interest, to the extent the Security
Interest is capable of being perfected by filing.
(f) Updated certificates of the insurance required under the Credit
Agreement, with all hazard insurance containing a lender's loss payable
endorsement in the Lender's favor and with all liability insurance
naming the Lender as an additional insured.
(g) A true and correct copy of any and all leases entered into after
the date of the Credit Agreement pursuant to which any Borrower is
leasing any Premises, together with a landlord's disclaimer and consent
with respect to each such lease.
(h) An opinion of counsel to the Borrowers, addressed to the Lender.
(i) The First Amendment to Copyright Security Agreement of even date
herewith.
(j) Such other documents as the Lender in its sole discretion may
require.
12. Representations and Warranties. The Borrowers hereby represent and
warrant to the Lender as follows:
(a) The Borrowers have all requisite power and authority to execute
this Amendment and to perform all of their obligations hereunder and
under the Loan Documents and this Amendment has been duly executed and
delivered on behalf of the Borrowers and constitutes the legal, valid
and binding agreement of the Borrowers, enforceable against them in
accordance with its terms.
(b) The execution, delivery and performance by the Borrowers of this
Amendment has been duly authorized by all necessary action and does not
(i) require any authorization, consent or approval by any governmental
department, commission, board, bureau, agency or instrumentality,
domestic or foreign (ii) violate any provision of any law, rule or
regulation or of any order, writ, injunction or decree presently in
effect, having applicability to the Borrowers, or the organizational
agreements applicable to the Borrowers, or (iii) result in a breach of
or constitute a default under any indenture or credit agreement or any
other agreement, lease or instrument to which any Borrower is a party
or by which any properties of any Borrower may be bound or affected.
(c) All of the representations and warranties contained in Article V of
the Credit Agreement are correct on and as of the date hereof as though
made on and as of such date, except to the extent that such
representations and warranties relate solely to an earlier date.
13. References. All references in the Credit Agreement to "this
Agreement" shall be deemed to refer to the Credit Agreement as amended hereby;
and any and all references in the Loan Documents hereto to the Credit Agreement
shall be deemed to refer to the Credit Agreement as amended hereby.
14. No Other Waiver. Except as set forth in Paragraph 4 hereof, the
execution of this First Amendment and acceptance of any documents related hereto
shall not be deemed to be a waiver of any Default or Event of Default under the
Credit Agreement or breach, default or event of default under any Security
Document or other document held by the Lender, whether or not known to the
Lender and whether or not existing on the date of this Amendment.
15. Release. The Borrowers hereby absolutely and unconditionally
release and forever discharge the Lender, and any and all participants, parent
corporations, subsidiary, affiliated corporations, insurers, indemnitors,
successors and assigns, together with all of the present and former directors,
officers, agents and employees of any of the foregoing, from any and all claims,
demands or causes of action of any kind, nature or description, whether arising
in law or equity or upon contract or tort or under any state or federal law or
otherwise, which any Borrower has had, or now has, or has made claim to have
against any such person for or by reason of any act, omission, matter, cause or
thing whatsoever arising from the beginning of time to and including the date of
this Amendment, whether such claims demands and causes of action are matured or
unmatured or known or unknown.
16. Costs and Expenses. The Borrowers hereby reaffirm their agreement
under the Credit Agreement to pay or reimburse the Lender on demand for all
costs and expenses incurred by the Lender in connection with the Loan Documents
and all other documents contemplated thereby, including without limitation all
reasonable fees and disbursements of legal counsel. Without limiting the
generality of the foregoing, the Borrowers specifically agree to pay all fees
and disbursements of counsel to the Lender for the services performed by such
counsel in connection with the preparation of this Amendment and the documents
and instruments incidental hereto. The Borrowers hereby agree that the Lender
may, at any time or from time to time in its sole discretion and without further
authorization by the Borrowers, make a loan to the Borrowers under the Credit
Agreement, or apply the proceeds of any loan, for the purpose of paying any such
fees, disbursements, costs and expenses.
17. Counterparts. This Amendment may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original and all of which counterparts, taken together, shall constitute one in
the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the day and year first above written.
▇▇▇▇▇ FARGO BUSINESS CREDIT, INC. THE LEATHER FACTORY, INC., a Delaware
corporation, THE LEATHER FACTORY, INC., an
Arizona corporation, THE LEATHER FACTORY,
INC., a Texas corporation, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
& COMPANY, INC., HI-LINE LEATHER &
MANUFACTURING COMPANY, and LEATHER TAN
ACQUISITION, INC.
By /s/▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ By /s/▇▇▇▇ ▇▇▇▇▇▇▇▇
---------------------------- ----------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇
Its Vice President Its President
Exhibit A to First Amendment
to Credit and Security Agreement
Compliance Certificate
----------------------
To: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇▇▇ Fargo Business Credit, Inc.
Date: __________________, 200__
Subject: The Leather Factory, Inc.
Financial Statements
In accordance with our Credit and Security Agreement dated as
of November 22, 1999, and a First Amendment to Credit and Security Agreement
dated as of November __, 2000 (the "Credit Agreement"), attached are the
financial statements of The Leather Factory, Inc., a Delaware corporation, The
Leather Factory, Inc., a Texas corporation, The Leather Factory, Inc., an
Arizona corporation, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ & Company, Inc., a New York corporation,
Hi-Line Leather & Manufacturing Company, a California corporation, and Leather
Tan Acquisition, Inc., a Texas corporation (collectively, the "Borrowers" and
each "Borrower") as of and for ________________, __________ (the "Reporting
Date") and the year-to-date period then ended (the "Current Financials"). All
terms used in this certificate have the meanings given in the Credit Agreement.
I certify that the Current Financials have been prepared in
accordance with GAAP, subject to year-end audit adjustments, and fairly present
the Borrowers' financial condition and the results of its operations as of the
date thereof.
Events of Default. (Check one):
------------------
|_| The undersigned does not have knowledge of the occurrence of a
Default or Event of Default under the Credit Agreement.
|_| The undersigned has knowledge of the occurrence of a Default
or Event of Default under the Credit Agreement and attached
hereto is a statement of the facts with respect to thereto.
The Borrowers acknowledge that pursuant to Section 2.9(d) the
Lender may impose the Default Rate at any time during the
resulting Default Period.
Financial Covenants. I further hereby certify as follows:
-------------------
1. Minimum Book Net Worth. Pursuant to Section 6.13 of the Credit
Agreement, as of the Reporting Date the Parent Borrower's Book Net
Worth was $____________ which |_| satisfies |_| does not satisfy the
requirement that such amount be not less than $_____________ on the
Reporting Date as set forth in table below:
----------------------------- ----------------------------------
Date/Period Minimum Book Net Worth
----------- ----------------------
----------------------------- ----------------------------------
November 30, 2000 through $1,000,000 greater than Book Net
December 30, 2000 Worth on December 31, 1999
----------------------------- ----------------------------------
December 31, 2000 $1,250,000 greater than Book Net
Worth on December 31, 1999
----------------------------- ----------------------------------
January 1, 2001 through $50,000 less than Book ▇▇▇
▇▇▇▇▇ ▇▇, ▇▇▇▇ ▇▇▇▇▇ on December 31, 2000
----------------------------- ----------------------------------
March 31, 2001 through $150,000 greater than Book Net
June 29, 2001 Worth on December 31, 2000
----------------------------- ----------------------------------
June 30, 2001 through $250,000 greater than Book Net
September 29, 2001 Worth on December 31, 2000
----------------------------- ----------------------------------
September 30, 2001 through $400,000 greater than Book Net
December 30, 2001 Worth on December 31, 2000
----------------------------- ----------------------------------
December 31, 2001 $600,000 greater than Book Net
Worth on December 31, 2000
----------------------------- ----------------------------------
January 1, 2002 through $50,000 less than Book ▇▇▇
▇▇▇▇▇ ▇▇, ▇▇▇▇ ▇▇▇▇▇ on December 31, 2001
----------------------------- ----------------------------------
March 31, 2002 $150,000 greater than Book Net
Worth onDecember 31, 2001
----------------------------- ----------------------------------
2. Minimum Net Income. Pursuant to Section 6.14 of the Credit
Agreement, the Parent Borrower's Earnings Before Taxes for the ________
period ending on the Reporting Date, was $____________, which |_|
satisfies |_| does not satisfy the requirement that such amount be not
less than $_____________ during such period as set forth in table
below:
--------------------------------------------- --------------------------------
Date/Period Minimum Net Income
----------- ------------------
--------------------------------------------- --------------------------------
September 30, 2000 through December 30, 2000 $1,000,000
--------------------------------------------- --------------------------------
December 31, 2000 $1,250,000
--------------------------------------------- --------------------------------
January 1, 2001 through March 30, 2001 ($50,000)
--------------------------------------------- --------------------------------
March 31, 2001 through June 29, 2001 $150,000
--------------------------------------------- --------------------------------
June 30, 2001 through September 29, 2001 $250,000
--------------------------------------------- --------------------------------
September 30, 2001 through December 30, 2001 $400,000
--------------------------------------------- --------------------------------
December 31, 2001 $600,000
--------------------------------------------- --------------------------------
January 1, 2002 through March 30, 2002 ($50,000)
--------------------------------------------- --------------------------------
March 31, 2002 $150,000
--------------------------------------------- --------------------------------
3. Capital Expenditures. Pursuant to Section 7.11 of the Credit
Agreement, for the year-to-date period ending on the Reporting Date,
the Borrowers have expended or contracted to expend during the
_____________ year ended ______________, 200___, for Capital
Expenditures, $__________________ in the aggregate and at most
$______________ in any one transaction, which ? satisfies ? does not
satisfy the requirement that such expenditures not exceed $__________
in the aggregate and $___________ for any one transaction during such
year.
4. Salaries. As of the Reporting Date, the Borrowers ? are ? are not in
compliance with Section 7.18 of the Credit Agreement concerning
salaries.
Attached hereto are all relevant facts in reasonable detail to
evidence, and the computations of the financial covenants referred to
above. These computations were made in accordance with GAAP.
THE LEATHER FACTORY, INC., a Delaware
Corporation, THE LEATHER FACTORY, INC., a
Texas corporation, THE LEATHER FACTORY,
INC., an Arizona corporation, ▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇ & COMPANY, INC., HI-LINE LEATHER &
MANUFACTURING COMPANY, and LEATHER TAN
ACQUISITION, INC.
By ____________________________
Its Chief Financial Officer/ Chief Executive
Officer/Chief Operating Officer