EXHIBIT 10.26
AMENDMENT NO. 2 TO
LOAN AND SECURITY AGREEMENT
AMENDMENT NO. 2 TO LOAN AND SECURITY AGREEMENT dated as of May 8, 2003
("Amendment No. 2") by and between CONVERSE INC., formerly known as Footwear
Acquisition, Inc., a Delaware corporation, ("Borrower") and CONGRESS
FINANCIAL CORPORATION, a Delaware corporation ("Lender").
W I T N E S S E T H :
WHEREAS, Borrower and Lender have entered into financing arrangements
pursuant to which Lender has made and may make loans and advances and provide
other financial accommodations to Borrower as set forth in the Loan and Security
Agreement, dated April 30, 2001, by and between Borrower and Lender, as amended
by Amendment No. 1 to Loan and Security Agreement, dated as of April 23, 2002
(as the same now exists and may hereafter be further amended, modified,
supplemented, extended, renewed, restated or replaced, the "Loan Agreement") and
the agreements, documents and instruments at any time executed and/or delivered
in connection therewith or related thereto (collectively, together with the Loan
Agreement, the "Financing Agreements"); and
WHEREAS, Borrower and Lender have agreed to certain amendments to the Loan
Agreement as more particularly contained herein;
NOW, THEREFORE, in consideration of the mutual conditions and agreements
and covenants set forth herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Section Definitions.
1.1 Additional Definitions. As used herein, the following terms shall have
the respective meanings given to them below and the Loan Agreement shall be
deemed and is hereby amended to include, in addition and not in limitation, each
of the following definitions:
""Amendment No. 2" shall mean this Amendment No. 2 to
the Loan and Security Agreement by and among Borrower
and Lender, as the same now exists or may hereafter
be amended, modified, supplemented, extended,
renewed, restated or replaced."
1.2 Amendment to Definitions.
(a) The definition of "Borrowing Base" set forth in Section 1.8 of the
Loan Agreement is hereby amended by deleting subsection (b) thereof and
substituting the following subsection (b) therefor:
"(b) the lesser of: (i) the lesser of: (A) sixty-six (66%) percent of
the Value of Eligible Inventory and (B) eighty-five (85%) percent of
the Net Recovery Percentage multiplied by the Value of Eligible
Inventory (the "Inventory Advance Rate"), and (ii) $60,000,000 at all
times during 2003, $65,000,000 at all times during 2004 and $70,000,000
at all times during 2005 and thereafter, plus"
(b) The definition of "Eligible Accounts" set forth in Section 1.21 of
the Loan Agreement is hereby amended by deleting subsection 1.21(o) thereof and
substituting the following therefor:
"(o) such Accounts of a single account debtor or its affiliates do not
constitute more than ten (10%) percent of all otherwise Eligible
Accounts, except that (i) the Accounts of the Account Debtors set forth
on Schedule 1.21(o) or their respective Affiliates may constitute up to
twenty (20%) percent of all otherwise Eligible Accounts, and (ii) the
Accounts of only a single account debtor of Borrower acceptable to
Lender and designated by Borrower to Lender in writing on or about May
8, 2003 may constitute up to the lesser of: (A) sixty (60%) percent of
all otherwise Eligible Accounts or (B) the dollar amount indicated with
respect to the corresponding period below (but the portion of the
Accounts not in excess of such percentages or amount, as applicable,
may be deemed Eligible Accounts):
Period Amount
---------------------- -----------
May 8, 2003 through and $45,000,000
including June 30, 2004
July 1, 2004 through and $70,000,000
including September 30, 2004
October 1, 2004 through and $45,000,000
including June 30, 2005
July 1, 2005 through and $80,000,000
including September 30, 2005
September 30, 2005 and at all $55,000,000
times thereafter
(c The definition of "Interest Rate" set forth in Section 1.42 of the
Loan Agreement is hereby amended and restated in its entirety as follows:
"(a) Subject to clauses (b), (c), and (d) of this
definition below:
(i) as to Prime Rate Loans, a per annum rate equal to the
Prime Rate, and
(ii) as to Eurodollar Rate Loans, a rate equal to two and
one-quarter (2 1/4%) percent per annum (the "Eurodollar Rate
Margin") plus the Adjusted Eurodollar Rate (in each case, based on
the Eurodollar Rate applicable for the Interest Period selected by
Borrower as in effect three (3) Business Days after the date of
receipt by Lender of the request of Borrower for such Eurodollar
Rate Loans in accordance with the terms hereof, whether such rate is
higher or lower than any rate previously quoted to Borrower).
Notwithstanding the foregoing, in the event that Borrower shall not
maintain a Consolidated Pre-Tax Net Income of greater than one
($1.00) Dollar in any fiscal year, Interest Rate shall mean (a)
subject to clauses (b), (c), and (d) of this definition below: (i)
as to Prime Rate Loans, a rate equal to one-quarter (1/4%) percent
per annum plus the Prime Rate, and (ii) as to Eurodollar Rate Loans,
a rate equal to two and one-half (2 1/2%) percent per annum (the
"Eurodollar Rate Margin") plus the Adjusted Eurodollar Rate (in each
case, based on the Eurodollar Rate applicable for the Interest
Period selected by Borrower as in effect three (3) Business Days
after the date of receipt by Lender of the request of Borrower for
such Eurodollar Rate Loans in accordance with the terms hereof,
whether such rate is higher or lower than any rate previously quoted
to Borrower)."
(d) The definition of "License Income Availability" set forth in
Section 1.48 of the Loan Agreement is hereby amended and restated in its
entirety as follows:
"1.48 "License Income Availability" shall mean $12,000,000. The
License Income Availability shall reduce on a monthly basis as
follows: commencing June 8, 2003 and on the first (1st) day of each
month thereafter, by an amount equal to $250,000 per month."
(e) The definition of "Maximum Credit" set forth in Section 1.53 of the
Loan Agreement is hereby amended and restated in its entirety as follows:
"1.53 "Maximum Credit" shall mean the amount of $125,000,000."
1.3 Interpretation. For purposes of this Amendment No. 2, all terms used
herein, including but not limited to, those terms used and/or defined herein or
in the recitals hereto shall have the respective meanings assigned thereto in
the Loan Agreement, as amended by this Amendment No. 2.
Section 2. Amendments to Loan Agreement.
2.1 Schedule 1.21(o) to the Loan Agreement is hereby amended by deleting
the reference therein to "Sports Authority" and substituting "Mervyn's and Gart
Sports Company" therefor.
2.2 Section 2.1(d) of the Loan Agreement is hereby amended and restated in
its entirety as follows:
"(d) Except in Lender's discretion, the aggregate amount of the Loans
and the Letter of Credit Accommodations outstanding at any time shall not
exceed the Maximum Credit, and (b) the aggregate amount of Loans based
upon License Income Availability outstanding at any time shall not exceed
(i) as of the date of Amendment No. 2, sixty (60%) percent of License
Income (as hereafter defined), (ii) as of the one-year anniversary of
Amendment No. 2, fifty (50%) percent of License Income and (iii) as of the
two-year anniversary of Amendment No. 2, forty (40%) percent of License
Income. For purposes hereof, "License Income" shall mean income of
Borrower in respect of Licensor Agreements for the immediately preceding
twelve (12) month period as determined by Lender. In the event that the
outstanding amount of any component of the Loans, or the aggregate amount
of the outstanding Loans and Letter of Credit Accommodations, exceed the
amounts available under the lending formulas, the sublimits for Letter of
Credit Accommodations set forth in Section 2.2(e) and in this Section
2.1(d), the limits set forth in this Section 2.1(d) with respect to
License Income Availability, or the Maximum Credit, as applicable, such
event shall not limit, waive or otherwise affect any rights of Lender in
that circumstance or on any future occasions and Borrower shall, upon
demand by Lender, which may be made at any time or from time to time,
immediately repay to Lender the entire amount of any such excess(es) for
which payment is demanded.
2.3 Section 2.2(e) is hereby amended by deleting the reference therein to
"$20,000,000" and substituting "$50,000,000" therefor.
2.4 Section 3.4 of the Loan Agreement is hereby amended by deleting the
reference therein to "one-half (1/2%) percent per annum" and substituting
"three-eighths (3/8%) percent per annum" therefor.
2.5 Section 7.3(d) of the Loan Agreement is hereby amended by deleting
the phrase "no more than twice in any twelve (12) month period" set forth
therein and substituting the phrase "no more than three (3) times in any twelve
(12) month period" therefor.
2.6 Section 9.23 of the Loan Agreement is hereby amended and restated in
its entirety as follows:
"9.23 Minimum Excess Availability. So long as any of the Obligations
remain outstanding, Borrower shall at all times maintain Excess
Availability, as determined by Lender, in an amount equal to not
less than Seven Million Five Hundred Thousand ($7,500,000) Dollars."
2.7 Section 9.18 of the Loan Agreement is hereby amended and restated in
its entirety as follows:
1
"9.18 Adjusted Net Worth. Borrower shall, at all times, maintain
Adjusted Net Worth of not less than (a) $60,000,000 from May 8, 2003
through and including June 29, 2003, (b) $65,000,000 from June 30, 2003
through and including December 30, 2003, (c) $70,000,000 from December 31,
2003 through and including December 30, 2004, and (d) $80,000,000 from
December 31, 2004 and at all times thereafter; provided, that, the amount
of the Adjusted Net Worth required to be maintained by Borrower under this
Section 9.18 shall be decreased, on a dollar-for-dollar basis, by: (i) the
amount of any dividend payments made pursuant to and in accordance with
the terms and conditions of Sections 9.11(b) and 9.11(c) and (ii) the
amount paid by Borrower to redeem any preferred Capital Stock of Borrower
with proceeds of (A) a public offering of Capital Stock of Borrower, or
(B) a credit facility of Borrower with Wachovia Bank, National Association
secured only by the payments to be received by Borrower under the Licensor
Agreements; provided, that, in the case of (A) and (B) above, Lender shall
have given its prior written consent to any such offering or facility and
subject to and in accordance with such terms and conditions as Lender may
establish with respect to such consent."
2.8 Section 12.1(a) of the Loan Agreement is hereby amended by deleting
the phrase "three (3) years from the date hereof" in the first sentence thereof
and substituting the phrase "May 8, 2006" therefor.
2.9 Section 12.1(c) of the Loan Agreement is hereby amended and restated
in its entirety as follows:
"(c) If for any reason this Agreement is terminated prior to May 8,
2006 in view of the impracticality and extreme difficult of
ascertaining actual damages and by mutual agreement of the parties
as to a reasonable calculation of Lender's lost profits as a result
thereof, Borrower agrees to pay to Lender, upon the effective date
of such termination, an early termination fee in the amount set
forth below if such termination is effective in the period
indicated:
Amount Period
------ ------
(i) one-half (1/2%) From May 8, 2003 to and
percent of the Maximum including May 7, 2005
Credit
(ii) one-quarter (1/4%) From May 8, 2005 to and
percent of the Maximum including May 7, 2006.
Credit
Section 3. Representations, Warranties and Covenants. In addition to the
continuing representations, warranties and covenants heretofore or hereafter
made by Borrower to Lender pursuant to the other Financing Agreements, Borrower
hereby represents, warrants and covenants with and to Lender that this Amendment
No. 2 has been duly executed and delivered by Borrower and is in full force and
effect as of the date of this Amendment No. 2 and the agreements and obligations
of Borrower contained herein constitute legal, valid and binding obligations of
Borrower enforceable against Borrower in accordance with their respective terms.
Section 4. Conditions Precedent. The effectiveness of the amendments
contained herein shall be subject to, Lender having received, in form and
substance reasonably satisfactory to Lender: (a) an original of this Amendment
No. 2, duly authorized, executed and delivered by Borrower and Lender, and (b)
payment by Borrower to Lender in immediately available funds of the fee referred
to in Section 5 hereof.
Section 5. Amendment Fee. In addition to all other fees, charges, interest
and expenses payable by Borrower to Lender under the Loan Agreement and the
other Financing Agreements, Borrower shall pay to Lender, contemporaneously with
the effectiveness of this Amendment, an amendment fee in the amount of $850,000,
which fee shall be fully earned and nonrefundable as of the date hereof and may
be charged to any loan account of Borrower.
Section 6. Provisions of General Application
6.1 Effect of this Amendment. Except as modified pursuant hereto, no other
changes or modifications to the Loan Agreement are intended or implied and in
all other respects the Loan Agreement is hereby specifically ratified, restated
and confirmed by all parties hereto as of the effective date hereof. To the
extent of conflict between the terms of this Amendment No. 2 and the Loan
Agreement, the terms of this Amendment No. 2 shall control. The Loan Agreement
and this Amendment No. 2 shall be read and construed as one agreement.
6.2 Further Assurances. The parties hereto shall execute and deliver such
additional documents and take such additional action as may be reasonably
necessary or desirable to effectuate the provisions and purposes of this
Amendment No. 2.
6.3 Governing Law. The rights and obligations hereunder of each of the
parties hereto shall be governed by and interpreted and determined in accordance
with the laws of the State of New York, but excluding any principles of
conflicts of law or other rule of law that would result in the application of
the law of any jurisdiction other than the laws of the State of New York.
6.4 Binding Effect. This Amendment No. 2 shall be binding upon and inure
to the benefit of each of the parties hereto and their respective successors and
assigns.
6.5 Survival of Representations and Warranties. All representations and
warranties made in this Amendment No. 2 or any other document furnished in
connection with this Amendment No. 2 shall survive the execution and delivery of
this Amendment No. 2 and the other documents, and no investigation by Lender
shall affect the representations and warranties or the right of Lender to rely
upon them.
6.6 Counterparts. This Amendment No. 2 may be executed in any number of
counterparts, but all of such counterparts shall together constitute but one and
the same agreement. In making proof of this Amendment No. 2, it shall not be
necessary to produce or account for more than one counterpart thereof signed by
each of the parties hereto. This Amendment No. 2 may be executed and delivered
via telecopier with the same force and effect as if it were a manually executed
and delivered counterpart.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 2 to
be duly executed and delivered by their authorized officers as of the date and
year first above written.
CONVERSE INC., formerly known as
Footwear Acquisition, Inc.
By: /s/ Xxxxxxx Xxxxx
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Title: Executive Chairman
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By: /s/ Xxxx Xxxxx
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Title: Chief Financial Officer
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AGREED:
CONGRESS FINANCIAL CORPORATION
By: /s/ Xxxx Xxxxxx
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Title: Senior Vice President
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