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EXHIBIT 10.8
November 13, 1997
Big 5 Corp.
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▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Dear Sirs:
We refer to the Financing Agreement, dated March 8, 1996 (as previously amended,
the "Agreement") between United Merchandising Corp., a California corporation,
as borrower ("UMC") and The CIT Group/Business Credit, Inc., as agent and lender
(individually the "Agent", and together with the other lenders, the "Lenders").
Capitalized terms not otherwise defined herein shall be as defined in the
Agreement. UMC has informed the Lenders of its intent to merge with and into Big
5 Corp., a Delaware corporation (hereafter the "Company"), with the result,
among other things, that the Company will be the new borrower under the
Agreement. Additionally, the Company's parent, Big 5 Corporation, a Delaware
corporation, as guarantor will merge with and into Big 5 Holdings Corp., a
Delaware corporation, with the result that Big 5 Holdings Corp. will be the new
Guarantor. The Company and the Lenders hereby agree that the Agreement is
amended, as follows:
1. All references to "United Merchandising Corp., a California
corporation" in the Agreement are hereby deleted in every instance where they
appear, and "Big 5 Corp., a Delaware corporation" is inserted in lieu thereof.
2. The definitions of "Anniversary Date", "Early Termination Date", "Early
Termination Fee", "EBITDA" and "Net Worth" set forth in Section 1 of the
Agreement are hereby deleted in their entirety, and the following are inserted
in lieu thereof:
"ANNIVERSARY DATE shall mean the date occurring one (1) year from the date
of November 13, 1997 and the same date in every year thereafter, provided,
however, that if the Company gives notice, in accordance with Section 10 of this
Financing Agreement, to terminate on an Anniversary Date and such date is not a
Business Day, then the Anniversary Date shall be the next succeeding Business
Day."
"EARLY TERMINATION DATE shall mean the date on which the Company
terminates this Financing Agreement or the Line of Credit which date is prior to
the fifth Anniversary Date."
"EARLY TERMINATION FEE shall: i) mean the fee the Agent for the account of
the Lenders is entitled to charge the Company in the event the Company
terminates the Line of Credit or this Financing Agreement on a date prior to the
fifth Anniversary Date; and ii) be determined by calculating the sum of (a) the
average daily balance of the Revolving Loans for the period from the date of
this Amendment Letter to the Early Termination Date and (b) the average daily
undrawn face amount of the Letters of Credit outstanding for the period from the
date of this Amendment Letter to the Early Termination Date and multiplying that
sum by three tenths of one percent (.30%) per annum for the number of days from
the Early Termination Date to the fifth Anniversary Date".
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"EBITDA shall mean, in any period, the net income (or net loss) of the
Company and its Subsidiaries, on a consolidated basis plus i) all amounts
deducted in determining net income in respect of Interest Expense, income tax
obligations (paid or accrued), depreciation expense and amortization expenses,
non-cash straight line rent expense and all other non-cash items, each
determined in accordance with GAAP consistently applied and ii) any
extraordinary loss associated with the extinguishment of (a) the debt due
General Electric Capital Corporation by the Company, or (b) the Subordinated
Debt."
"NET WORTH shall mean Total Assets of the Company and its Subsidiaries, on
a consolidated basis, in excess of Total Liabilities, and determined in
accordance with GAAP, on a consistent basis with the latest audited statements
of the Company and its Subsidiaries.
3. The definition of "Line of Credit" set forth in Section 1 of the
Agreement is hereby amended by deleting the dollar amount of "$100,000,000.00"
set forth therein, and inserting in lieu thereof the dollar amount of
"$125,000,000.00".
4. The definition of "Line of Credit Fee" set forth in Section 1 of the
Agreement is hereby amended by deleting the percentage of "three eight's of one
percent (.375%)" in subclause y, and inserting in lieu thereof the percentage of
"three hundred twenty-five hundredths of one percent (.325%)".
5. The definition of "Parent" set forth in Section 1 of the Agreement is
hereby deleted in its entirety, and the following is inserted in lieu thereof:
"PARENT shall mean Big 5 Holdings Corp., a Delaware corporation."
6. The definition of "Permitted Indebtedness" set forth in Section 1 of
the Agreement is hereby amended by deleting the words "Subordinated Debt" in
clause viii), and inserting in lieu thereof the words "Senior Notes".
7. The following definition of "Senior Notes" is hereby inserted between
the definitions of "Revolving Loans" and "Settlement Date":
"Senior Notes shall mean the Company issued 10 7/8% Senior Notes due
2007 in the amount of $131,000,000.00."
8. Paragraph 1 of Section 3 of the Agreement is hereby amended by deleting
the second sentence thereof, and inserting the following in lieu thereof: "Such
loans and advances shall be in amounts up to seventy percent (70%) during the
months of November, December, January and February of each year, and sixty-five
percent (65%) during the months of March through October of each year".
9. Paragraph 1 of Section 7 of the Agreement is hereby deleted in its
entirety, and the following is inserted in lieu thereof:
"1. Interest on the Revolving Loans (other than Libor Loans) shall
be payable monthly as of the end of each month and shall be an amount equal to
the sum of the Chase Manhattan Bank Rate and the applicable following
percentage:
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i) 0.75%, if the Company's EBITDA (as evidenced by the most recent
fiscal quarter's financial statement) for the four fiscal quarters then ended,
is less than $25,000,000;
ii) 0.50%, if the Company's EBITDA (as evidenced by the most recent
fiscal quarter's financial statement) for the four fiscal quarters then ended,
is equal to or greater than $25,000,000 and less than $30,000,000;
iii) 0.25%, if the Company's EBITDA (as evidenced by the most recent
fiscal quarter's financial statement) for the four fiscal quarters then ended,
is equal to or greater than $30,000,000 and less than $35,000,000;
iv) 0.00%, if the Company's EBITDA (as evidenced by the most recent
fiscal quarter's financial statement) for the four fiscal quarters then ended,
is equal to or greater than $35,000,000;
in all instances the applicable percentage will become effective the month
following receipt of the financial statements evidencing that a change of rate
is appropriate and will be computed on a per annum basis, on the average of the
net balances (other than Libor Loans) owing by the Company in the Company's
account at the close of each day during such month. Interest on the Revolving
Loans which are Libor Loans shall be payable monthly as of the end of each month
and shall be an amount equal to the sum of the applicable Libor on each then
outstanding Revolving Loan which is a Libor Loan and the applicable following
percentage:
i) 2.50%, if the Company's EBITDA (as evidenced by the most recent
fiscal quarter's financial statement) for the four fiscal quarters then ended,
is less than $25,000,000;
ii) 2.25%, if the Company's EBITDA (as evidenced by the most recent
fiscal quarter's financial statement) for the four fiscal quarters then ended,
is equal to or greater than $25,000,000 and less than $30,000,000;
iii) 2.00%, if the Company's EBITDA (as evidenced by the most recent
fiscal quarter's financial statement) for the four fiscal quarters then ended,
is equal to or greater than $30,000,000 and less than $35,000,000;
iv) 1.75%, if the Company's EBITDA (as evidenced by the most recent
fiscal quarter's financial statement) for the four fiscal quarters then ended,
is equal to or greater than $35,000,000 and less than $40,000,000;
v) 1.50%, if the Company's EBITDA (as evidenced by the most recent
fiscal quarter's financial statement) for the four fiscal quarters then ended,
is equal to or greater than $40,000,000;
in all instances the applicable percentage will become effective the month
following receipt of the financial statements evidencing that a change of rate
is appropriate and will be computed on a per annum basis, on the average of the
net balances owing by the Company on such Libor Loan at the close of each day
during such month. The Company may elect to use Libor as to any new or then
outstanding Revolving Loans provided x) there is then no unwaived Default or
Event of Default, and y) the Company has so advised the Agent of its election to
use Libor and the Libor Period selected no later than three (3) Business Days
prior to the proposed borrowing or, in the case of a Libor election with respect
to a then
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outstanding Revolving Loan, three (3) Business Days prior to the conversion of
any then outstanding Revolving Loans to Libor Loans and z) the election and
Libor shall be effective, provided, there is then no unwaived Default or Event
of Default, on the fourth Business Day following said notice. The Libor
elections must be for $100,000.00 or whole multiples thereof. If no such
election is timely made or can be made, then the Agent shall use the Chase
Manhattan Bank Rate and the applicable percentage set forth above to compute
interest. In the event of any change in the Chase Manhattan Bank Rate, the
interest rate hereunder shall change, as of the first day of the month following
any change, so as to reflect the changed Chase Manhattan Bank Rate. The rates
hereunder shall be calculated based on a 365-day year. The Agent shall be
entitled to charge the Company's account at the rate provided for herein when
due until all Obligation have been paid in full."
10. Paragraphs 8, 10, and 11 of Section 6 of the Agreement are hereby
deleted in their entirety, and the following are inserted in lieu thereof:
"8. The Company and its Subsidiaries shall have, as of the end of
each fiscal quarter, on a consolidated basis, a Net Worth, as defined herein, of
not less than ($50,000,000.00).
10. The Company and its Subsidiaries shall have, on a consolidated
basis, Working Capital, as defined herein, of not less than (i) $60,000,000.00,
as of the fiscal year ending December 31, 1997, and (ii) $70,000,000.00, as of
the end of each fiscal quarter thereafter.
11. If the Company's Availability on any one (1) Business Day of the
sixty (60) days immediately preceding the date on which the Company must deliver
to the Agent the Company's Consolidated Balance Sheet as of the relevant quarter
end was less than $5,000,000.00, then the Company and its Subsidiaries, shall
have, on a consolidated basis, at all times a Fixed Charged Coverage Ratio of no
less than 1.15 to 1.0."
11. Clause G. of Paragraph 9 of Section 6 of the Agreement is hereby
amended by:
(i) deleting the word "or" after the semi-colon (;) before z);
(ii) inserting the following at the end of said clause:
"or aa) in cash, to the Parent, on or after May 15, 2003,
provided that such dividends may not be declared and paid if a Default or Event
of Default is then in existence or will be in existence after giving effect to
such dividends, and provided further that such dividends may not be declared and
paid if they are prohibited under the terms and conditions of the Senior Notes;"
12. Paragraph 12 of Section 6 of the Agreement is hereby deleted in its
entirety.
13. Paragraph 1 of Section 9 of the Agreement is hereby amended by:
(i) deleting clause (j) thereof, and inserting the following in lieu
thereof: "(j) The Company shall default in the payment of, or other performance
under, any indenture or other instrument evidencing the Senior Notes, or any
other recourse indebtedness of the Company in excess of $3,000,000.00, if as a
result of such default, the maturity of any Indebtedness evidenced by any such
indenture or instrument is accelerated prior to its stated maturity."
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(ii) (A) by deleting the words "Subordinated Debt" where they appear
in clause (k), and inserting the words "Senior Notes" in lieu thereof, and (B)
by deleting the period (.) at the end of clause (k), and inserting the following
in lieu thereof:
"; provided, however, that the Company at any time and from
time-to-time prior to November 15, 2000 may redeem up to an aggregate
thirty-five percent (35%) of the aggregate principal amount of the Senior Notes
originally outstanding, but only with the net cash proceeds received by the
Company from equity offerings by, or capital contributions from, Parent."
14. The word "third" in the first and fourth sentence of Section 10 is
hereby deleted, and the word "fifth" is inserted in lieu thereof.
15. The Company hereby represents and warrants to Lenders:
(i) the Company, as the surviving entity of its merger with UMC,
has, by operation of law, assumed all of the Obligations (as that term is
defined in the Agreement), to the Agent and the Lenders, and has further assumed
all duties and responsibilities of UMC under the Agreement; and
(ii) that all funds advanced to the Company under the Agreement will
be used for working capital and general corporate purposes.
16. The Company, as security for the prompt payment in full of all loans
and advances made and to be made to the Company from time to time by the Agent
on behalf of the Lenders pursuant to the Agreement, as well as to secure the
payment in full of the other Obligations, hereby pledges and grants to the Agent
for the benefit of the Lenders a continuing general lien upon and security
interest in all of its:
(a) present and hereafter acquired Inventory;
(b) present and future Accounts;
(c) present and future Documents of Title; and
(d) present and future General Intangibles.
The security interests granted hereunder shall extend and attach to:
(a) All Collateral which is presently in existence and which is
owned by the Company or in which the Company has any interest (but only to the
extent of such interest), whether held by the Company or others for its account;
and
(b) All Inventory and any portion thereof which may be returned,
rejected, reclaimed or repossessed by either the Agent or the Company from any
of the Company's customers.
17. In reliance on the above stated representations and warranties of
the Company, the Lenders consent (i) to the merger of UMC into the Company, and
the Company's assumption of all Obligations, duties and responsibilities of UMC
under the Agreement, and (ii) the merger of Big 5 Corporation into Guarantor,
and the Guarantor's assumption of all Obligations (as that term is defined in
the Guaranty) under the Guaranty. The Lenders hereby waive any Event of Default
existing as a result of the mergers, the assumptions, and the recapitalization
of the Company, as such recapitalization is described in the four page document
attached hereto as Exhibit A, and the Agent and each Lender hereby acknowledge
and consent to each of the transactions described in said Exhibit A.
18. The Company shall pay to the Agent on behalf of all Lenders who
committed to the amendments evidenced hereby to the Agent by October 23, 1997, a
fee in the amount of $125,000.00, which fee will be charged to the loan account
in full on the date that this Amendment Letter is executed, and which fee will
be shared with such Lenders based on the October 23, 1997 allocated commitment.
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Except as otherwise hereinabove provided, no other amendment or modification of
the Agreement is hereby intended or implied. If the foregoing is in accordance
with your understanding, please so indicate by signing and returning to us the
enclosed copy of this letter.
Very truly yours,
The CIT Group/Business Credit, Inc. (as Agent
and Lender)
By: /s/
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Title: Vice President
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Read and Agreed to:
Big 5 Corp. (fka United Merchandising Corp.)
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇
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Title: Senior Vice President
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BT Commercial Corporation (as Lender)
By:
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Title:
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National Bank of Canada (as Lender)
By:
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Title:
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Sanwa Business Credit Corporation (as Lender)
By:
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Title:
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Transamerica Business Credit (as Lender)
By:
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Title:
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