EXHIBIT 10.3
SECOND AMENDMENT TO
LOAN AND SECURITY AGREEMENT
THIS SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT ("Second
Amendment") is made as of the 15th day of April, 2002 by and among Xxxxxx
Performance Products, Inc. ("Xxxxxx"), a Delaware corporation; Xxxxxx
Performance Systems, Inc. ("Xxxxxx Systems"), a Delaware corporation; Xxxxxx
Automotive Industries, Inc. ("Xxxxxx"), a California corporation; Lunati Cams,
Inc. ("Lunati"), a Tennessee corporation; Nitrous Oxide Systems, Inc. ("NOS"), a
California corporation; Earl's Supply, Inc. ("Earl's"), a California
corporation; Xxxxx Manufacturing, Inc. ("Xxxxx"), an Arizona corporation; Hooker
Industries, Inc. ("Hooker"), a California corporation and So-Cal Speed Shops,
Inc. ("So-Cal"), a Delaware corporation; the lenders who are signatories hereto
("Lenders"); and FLEET CAPITAL CORPORATION ("FCC"), a Rhode Island corporation
with an office at Xxx Xxxxx Xxxxxx Xxxxx, Xxxxx 0000, Xxxxxxx, Xxxxxxxx 00000,
as agent for Lenders hereunder (FCC, in such capacity, being "Agent"). Xxxxxx,
Xxxxxx Systems, Weiand, Lunati, NOS, Earl's, Biggs, Hooker and So-Cal are
hereinafter sometimes referred to individually as a "Borrower" and collectively
as "Borrowers."
W I T N E S S E T H:
WHEREAS, Borrowers (other than So-Cal), Agent and Lenders entered into
a certain Loan and Security Agreement dated as of December 29, 2000 as amended
by a certain First Amendment to Loan and Security Agreement dated as of April 9,
2001, by and among Borrowers (other than So-Cal), Agent and Lenders; (said Loan
and Security Agreement as so amended is hereinafter referred to as the "Loan
Agreement"); and
WHEREAS, So-Cal, pursuant to an Assumption and Consent Agreement dated
December 31, 2001, became a Borrower under the Loan Agreement and assumed all
covenants, rights, promises, agreements, terms, conditions, obligations, duties
and liabilities of Borrowers under the Loan Agreement.
WHEREAS, Borrowers desire to amend and modify certain provisions of the
Loan and Security Agreement and, subject to the terms hereof, Agent and Lenders
are willing to agree to such amendments and modifications;
NOW THEREFORE, in consideration of the premises, the mutual covenants
and agreements herein contained, and any extension of credit heretofore, now or
hereafter made by Agent and Lenders to Borrowers, the parties hereto hereby
agree as follows:
1. Definitions. All capitalized terms used herein without definition
shall have the meanings given to them in the Loan and Security Agreement.
2. Amended and Additional Definitions. The definitions of "Applicable
Margin," "Borrowing Base," and "Maximum Revolving Loan" contained in Appendix A
to the Loan Agreement are hereby deleted and the following are inserted in their
stead. The definitions of
"Inventory Limit" and "Working Capital Amount" are hereby inserted into Appendix
A to the Loan Agreement.
"Applicable Margin - the percentages set forth below with
respect to the Base Rate Revolving Credit Portion, the Base Rate Term
Portion, the LIBOR Revolving Credit Portion the LIBOR Term Portion and
unused line fees, which percentages shall be set on the Closing Date
and adjusted quarterly thereafter, commencing in respect to the
financial statements for the period ending June 30, 2002 by reference
to the Interest Coverage Ratio for the most recently ended four fiscal
quarters, as evidenced by financial statements for such fiscal period
delivered to Agent pursuant to Section 7.1.3(ii) in accordance with the
following:
Applicable Margin
-----------------
Interest LIBOR LIBOR Base Rate Base Rate Unused
Coverage Revolving Fixed Asset Revolving Fixed Asset Line
Ratio Credit Portion Portion Credit Portion Portion Fee
----- -------------- ------- -------------- ------- ---
less than or equal to 1.25 to 1 2.75% 2.75% .75% .75% .375%
>1.25 to 1, but less than or equal to 1.50 to 1 2.50% 2.50% .50% .50% .375%
>1.50 to 1, but less than or equal to 1.75 to 1 2.25% 2.25% .25% .25% .3125%
>1.75 to 1 2.00% 2.00% 0% 0% .250%
Each change in Applicable Margin shall be effective
prospectively as of the first day of the fiscal month of Xxxxxx next
following the fiscal month during which the applicable quarterly
Consolidated financial statements of Xxxxxx are delivered to Agent
pursuant to Section 7.1.3(ii).
From the Closing Date until April 1, 2002, the Applicable
Margin shall be 2.50% (LIBOR Revolving Credit Portion), 2.50% (LIBOR
Fixed Asset Portion), .50% (Base Rate Revolving Credit Portion), .50%
(Base Rate Fixed Asset Portion) and .375% (unused line fee). From April
1, 2002 until the first Adjustment date as provided above, the
Applicable Margin shall be 3.00% (LIBOR Revolving Credit Portion),
3.00% (LIBOR Fixed Asset Portion), 1.0% (Base Rate Revolving Credit
Portion), 1.0% (Base Rate Fixed Asset Portion) and .375% (unused line
fee). At any time when Xxxxxx has failed to deliver to Agent Xxxxxx'x
quarterly Consolidated financial statements in compliance with Section
7.1.3(ii) or Section 7.1.3(i) and such failure has not been cured to
Agent's reasonable satisfaction, the Applicable Margin shall be the
highest percentages set forth in the above schedule.
* * *
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Borrowing Base - as at any date of determination thereof, an
amount equal to the lesser of:
(i) the Maximum Revolving Loan minus the outstanding
principal balance of Mexican Revolving Credit Loans; or
(ii) an amount equal to:
(1) seventy-five percent (75%) of the net
amount of Eligible Accounts;
PLUS
(2) the lesser of (i) the Inventory Limit or
(ii) fifty-five percent (55%) of the value of that portion of
Eligible Inventory (other than Mexican Eligible Inventory)
consisting of raw materials, work-in-progress and finished
goods at such date calculated on the basis of the lower of
cost or market with cost calculated on a first-in, first-out
basis.
PLUS
(iii) the Working Capital Amount
For purposes hereof, the net amount of Eligible Accounts at
any time shall be the face amount of such Eligible Accounts less any
and all returns, rebates, discounts (which may, at Agent's option, be
calculated on shortest terms), credits, allowances or excise taxes of
any nature at any time issued, owing, claimed by Account Debtors,
granted, outstanding or payable in connection with such Accounts at
such time.
* * *
Inventory Limit - for any period listed below the amount set
forth opposite such period in the following schedule:
Period Inventory Limit
------ ---------------
April 4, 2002 to May 10, 2002 $16,000,000
May 11, 2002 and all times thereafter $15,500,000
* * *
Maximum Revolving Loan - for any period listed below, the
amount set forth opposite such period in the following schedule, as
such amounts may be further reduced from time to time pursuant to
Section 3.3.1 and/or Section 7.2.9 hereof:
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Period Maximum Revolving Loan
------ ----------------------
April 4, 2002 to April 14, 2002 $34,600,000
April 15, 2002 to April 16, 2002 $34,000,000
April 17, 2002 to April 19, 2002 $33,500,000
April 20, 2002 to May 4, 2002 $33,000,000
May 5, 2002 to May 10, 2002 $33,000,000
May 11, 2002 to May 26, 2002 $32,000,000
May 27, 2002 to June 14, 2002 $32,000,000
June 15, 2002 and all times thereafter $31,000,000
Upon three Business Days' notice Borrowers may reduce the
amount of the Maximum Revolving Loan by amounts not exceeding Five
Million Dollars ($5,000,000) within any calendar year or ten Million
Dollars ($10,000,000) within the Original Term. Any such reduction
shall be in a minimum amount of Two Million Dollars ($2,000,000) and
shall be an integral multiple of One Million Dollars ($1,000,000). Once
the Maximum Revolving Loan has been so reduced it may not be
subsequently increased.
* * *
Working Capital Amount - for any period listed below the
amount set forth opposite such period in the following schedule:
Period Working Capital Amount
------ ----------------------
April 4, 2002 to April 14, 2002 $3,400,000
April 15, 2002 to April 16, 2002 $3,400,000
April 17, 2002 to April 19, 2002 $3,000,000
April 20, 2002 to May 4, 2002 $2,500,000
May 5, 2002 to May 10, 2002 $2,000,000
May 11, 2002 to May 26, 2002 $1,000,000
May 27, 2002 and all times thereafter $ 0"
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3. Appraisals. Borrowers acknowledge and agree that Agent, at
Borrowers' sole expense, shall obtain updated appraisals of Borrowers' fixed
assets and Inventory.
4. PriceWaterhouse Coopers. Borrowers agree that Agent shall retain, at
Borrowers' sole expense, PriceWaterhouse Coopers LLP ("PWC") to perform a review
of Borrowers' accounting systems, personnel, inventory costing, the Ernst &
Young LLP ("E&Y") audit adjustment to the December 31, 2002 financial
statements, Projections for fiscal year 2002 and such other matters as Agent, in
its sole discretion, deems appropriate. Borrowers agree to use their best
efforts to assist and cooperate with PWC in connection with such review.
Borrowers acknowledge that Agent may establish Reserves in addition to those
established pursuant to Section 5 below based on the result of any PWC review.
5. Termination Charges. Section 4.2.3 of the Loan Agreement is hereby
deleted and the following is inserted in its stead:
"4.2.3 Termination Charges. (a) At the effective date of termination
of this Agreement for any reason, Borrowers shall pay to Agent for the
ratable benefit of Lenders (in addition to the then outstanding
principal, accrued interest and other charges owing under the terms of
this Agreement and any of the other Loan Documents) as liquidated
damages for the loss of the bargain and not as a penalty, an amount
equal to one-half of one percent (1/2%) of the Total Credit Facility if
termination occurs during the first 12-month period of the Original
Term (December 29, 2000 through December 28, 2001) and one-quarter of
one percent (1/4%) of the Total Credit Facility if termination occurs
during the second or third 12-month period of the Term (December 29,
2001 through December 28, 2002 and December 29, 2002 through December
28, 2003). If termination occurs on or after December 29, 2003, no
termination charge shall be payable.
(b) Any other prepayment of the Fixed Asset Loan shall be subject to
a prepayment fee equal to one-half of one percent (1/2%) of the amount
of any such prepayment if such prepayment is made during the first
12-month period of the Original Term (December 29, 2000 through
December 28, 2001) or one quarter of one percent (1/4%) of the amount
of any such prepayment if such prepayment is made during the second or
third 12-month period of the Original Term (December 29, 2001 through
December 28, 2002 and December 29, 2002 through December 28, 2003). No
such prepayment fee shall be payable in connection with any prepayment
made on or after December 29, 2003. Any prepayment fee paid in
connection with the prepayment of the Fixed Asset Loans shall reduce
the amount of any subsequent termination charge payable pursuant to
Section 4.2.3(a) above."
6. Financial Covenants. Exhibit P to the Loan Agreement is hereby
deleted and Exhibit P attached hereto is inserted in its place.
7. Fixed Asset Loans. Borrowers acknowledge and agree that Borrowers
shall not be permitted to request, and Lenders shall not be required to make,
Fixed Assets Loans, until such time as Borrowers' Fixed Charge Coverage Ratio
for the most recently ended four fiscal quarters equals or exceeds 1.0 to 1.
Lenders' obligations to make any Fixed Asset Loans requested after such time
shall be subject to the conditions of Section 1.2.1 and Section 3.1 of the Loan
Agreement.
8. E&Y Quarterly Review. Borrowers, at their expense, shall cause E&Y
(or another nationally recognized independent accounting firm acceptable to
Agent) to review Borrowers' quarterly financial statements for the remainder of
fiscal year 2002 and, if requested by Agent, for the remainder of the Original
Term. Any such review shall be conducted in accordance with applicable
Securities Exchange Commission Regulations.
9. Overadvance Fee. In order to induce Lenders to enter into this
Second Amendment, Borrowers shall pay to Lenders an overadvance fee in the
amount of One Hundred Fifty Thousand Dollars ($150,000). Said fee shall be due
and payable, fully earned and non-refundable upon the date hereof.
10. Conditions Precedent. This Second Amendment shall become effective
upon satisfaction of each of the following conditions precedent:
(A) This Second Amendment shall have been properly executed
and delivered by each of Borrowers, Agent and Lenders;
(B) Borrowers shall have paid to Agent, for the ratable
benefit of Lenders, the amendment fee payable pursuant to Section 9 above; and
(C) Kohlberg, pursuant to an agreement acceptable to Agent in
its sole discretion, shall have agreed to defer its management fees due in
calendar year 2002 until such time as Agent shall have received Borrowers'
annual audited financial statements for the fiscal year ending December 31, 2002
in accordance with Section 7.1.3(i) of the Loan Agreement and No Event of
Default has occurred and is continuing.
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The date on which all of the foregoing conditions precedent
have been satisfied is hereinafter referred to as "Second Amendment Effective
Date."
11. Waiver. As of the Second Amendment Effective Date, Agent and
Lenders shall be deemed to have waived compliance by Borrowers with the Interest
Coverage Ratio covenant contained in Exhibit P to Section 8.3 of the Loan
Agreement for the fiscal period ended December 31, 2001. The waiver contained in
this Section 10 of this Second Amendment shall not extend to any other Section
of the Loan Agreement other than Section 8.3 (the Interest Coverage Ratio of
Exhibit P to the Loan Agreement) or any other fiscal period other than the
fiscal period ending on December 31, 2001.
12. Execution in Counterparts. This Second Amendment may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
13. Continuing Effect. Except as otherwise specifically set out herein,
the provisions of the Loan and Security Agreement shall remain in full force and
effect.
(SIGNATURE PAGE FOLLOWS)
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(SIGNATURE PAGE TO SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT)
IN WITNESS WHEREOF, this Second Amendment has been duly executed as of
the day and year specified at the beginning hereof.
FLEET CAPITAL CORPORATION
("Agent" and a "Lender")
By: /s/ Xx Xxxxxxxxxx
_____________________________________
Name: Xx Xxxxxxxxxx
________________________________
Title: SVP - Fleet Capital
_______________________________
XXXXXX PERFORMANCE PRODUCTS, INC.
(a "Borrower")
By: /s/ Xxxx Xxxx
_____________________________________
Name: Xxxx Xxxx
________________________________
Title: President & CEO
_______________________________
XXXXXX PERFORMANCE SYSTEMS, INC.
(a "Borrower")
By: /s/ Xxxx Xxxx
_____________________________________
Name: Xxxx Xxxx
________________________________
Title: President & CEO
_______________________________
XXXXXX AUTOMOTIVE INDUSTRIES, INC.
(a "Borrower")
By: /s/ Xxxx Xxxx
_____________________________________
Name: Xxxx Xxxx
________________________________
Title: President & CEO
_______________________________
LUNATI CAMS, INC. (a "Borrower")
By: /s/ Xxxx Xxxx
_____________________________________
Name: Xxxx Xxxx
________________________________
Title: President & CEO
_______________________________
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NITROUS OXIDE SYSTEMS, INC. (a
"Borrower")
By: /s/ Xxxx Xxxx
-------------------------------------
Name: Xxxx Xxxx
--------------------------------
Title: President & CEO
-------------------------------
EARL'S SUPPLY COMPANY (a "Borrower")
By: /s/ Xxxx Xxxx
-------------------------------------
Name: Xxxx Xxxx
--------------------------------
Title: President & CEO
-------------------------------
XXXXX MANUFACTURING, INC. (a "Borrower")
By: /s/ Xxxx Xxxx
-------------------------------------
Name: Xxxx Xxxx
--------------------------------
Title: President & CEO
-------------------------------
HOOKER INDUSTRIES, INC. (a "Borrower")
By: /s/ Xxxx Xxxx
-------------------------------------
Name: Xxxx Xxxx
--------------------------------
Title: President & CEO
-------------------------------
SO-CAL SPEED SHOPS, INC. (a "Borrower")
By: /s/ Xxxx Xxxx
-------------------------------------
Name: Xxxx Xxxx
--------------------------------
Title: President & CEO
-------------------------------
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EXHIBIT P
FINANCIAL COVENANTS
CONSOLIDATED NET INCOME - with respect to any fiscal period, the net
income (or loss) of Xxxxxx determined in accordance with GAAP on a Consolidated
basis; provided, however, Consolidated Net Income shall not include: (a) the
income (or loss) of any Person (other than a subsidiary of any Borrower) in
which any Borrower or any of its wholly-owned subsidiaries has an ownership
interest unless received in a cash distribution or requiring the payment of
cash; (b) the income (or loss) of any Person accrued prior to the date it became
a Subsidiary of any Borrower or is merged into or consolidated with any
Borrower; (c) all amounts included in determining net income (or loss) in
respect of the write-up of assets on or after the Closing Date, including the
subsequent amortization or expensing of the written-up portion of the assets;
(d) extraordinary gains as defined under GAAP and extraordinary losses pursuant
to the extinguishment of debt, net of the related tax effects; and (e) gains (or
losses) from asset dispositions (other than sales of inventory).
EBITDA - with respect to any fiscal period, the sum of Xxxxxx'x
Consolidated Net Income plus amounts deducted in determining Consolidated Net
Income in respect of: (a) any provision for (or less any benefit from) income
taxes whether current or deferred; (b) amortization and depreciation expense;
(c) interest expense for such period, all as determined in accordance with GAAP.
INTEREST COVERAGE RATIO - with respect to any period of determination,
the ratio of (i) EBITDA for such period to (ii) Interest Expense, excluding
interest paid-in-kind for such period, all as determined in accordance with
GAAP.
INTEREST EXPENSE - with respect to any fiscal period, the interest
expense incurred for such period as determined in accordance with GAAP.
REQUIRED AMOUNT - shall be determined by reference to Xxxxxx'x EBITDA
for the most recently ended four fiscal quarters as set forth in the table
below:
EBITDA for the Most Recently Ended Twelve Months Required Amount
------------------------------------------------ ---------------
Greater than $32,000,000 $ 0
Less than or equal to $32,000,000 $1,000,000
but greater than $28,000,000
$2,000,000
Less than or equal to $28,000,000
P-1
COVENANTS
AVAILABILITY - Borrowers shall maintain at all times Availability of at
least the Required Amount.
INTEREST COVERAGE RATIO - Borrowers shall not permit the Interest
Coverage Ratio for any period set forth below to be less than the ratio set
forth opposite such period below:
PERIOD RATIO
------ -----
From the Closing Date to March 31, 2001 1.00 to 1.0
From the Closing Date to June 30, 2001 1.10 to 1.0
From the Closing Date to September 30, 2001 1.10 to 1.0
From the Closing Date to December 31, 2001 N/A
January 1, 2002 to March 31, 2002 1.20 to 1.0
January 1, 2002 to June 30, 2002 1.20 to 1.0
January 1, 2002 to September 30, 2002 1.20 to 1.0
January 1, 2002 to December 31, 2002 1.20 to 1.0
Four Quarters ending on each March 31, June 30, 1.25 to 1.0
September 30, December 31, 2003 and thereafter
P-2
