EXHIBIT 10.28
FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT
THIS FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT (this "Amendment"),
dated as of November 18, 2002, is entered into by and among the lenders
signatory hereto (the "Lenders"), THE CIT GROUP/BUSINESS CREDIT, INC., a New
York corporation, as agent (in such capacity, "Agent") for the Lenders, MTS,
INCORPORATED, a California corporation, and THREE A'S HOLDINGS, L.L.C., a
Delaware limited liability company (each a "Borrower" and collectively,
"Borrowers").
RECITALS
A. Borrowers, Agent and the Lenders have previously entered into
that certain Loan and Security Agreement, dated October 9, 2002 (the "Loan
Agreement"), pursuant to which the Lenders have made certain loans and financial
accommodations available to Borrowers. Terms used herein without definition
shall have the meanings ascribed to them in the Loan Agreement.
B. Agent, the Lenders and Borrowers now wish to amend the Loan
Agreement on the terms and conditions set forth herein.
C. Borrowers are entering into this Amendment with the
understanding and agreement that, except as specifically provided herein, none
of Agent's or any Lender's rights or remedies as set forth in the Loan Agreement
is being waived or modified by the terms of this Amendment.
AMENDMENT
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants herein contained, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:
1. Amendments to Loan Agreement.
(a) Section 1.49(a)(i) of the Loan Agreement is hereby
amended to read as follows:
"(i) the Borrowing Base (as calculated without giving
effect to the reserves provided for as items (a) and
(h) of the definition of Availability Reserves)"
(b) Section 1.123 of the Loan Agreement is hereby amended
and restated to read in its entirety as follows:
"1.123 "Required Lenders" shall mean, at any time,
either (a) those Lenders whose Pro Rata Shares
aggregate sixty-six and two-thirds percent (66 2/3%)
or more of the aggregate of the Loan Commitments of
all Lenders, or if the Loan Commitments shall have
been terminated, Lenders to whom at least sixty-six
and two-thirds percent (66 2/3%) of the then
outstanding principal amount of the Obligations are
owing or (b) those Lenders, other than The CIT
Group/Business Credit, Inc., whose Pro Rata Shares
aggregate fifty-one percent (51%) or more of the
aggregate of the Loan Commitments of all Lenders, or
if the Loan Commitments shall have been terminated,
Lenders, other than The CIT Group/Business Credit,
Inc., to whom at least fifty-one percent (51%) of the
then outstanding principal amount of the Obligations
are owing. The satisfaction of the requirements of
either clause (a) or clause (b) in any instance shall
be deemed to constitute action by the Required
Lenders."
(c) Section 3.1(a)(i)(A) of the Loan Agreement is hereby
amended to read as follows:
"(A) one and one-half percent (1.50%) if at any time
during the fiscal quarter preceding such month Excess
Availability was $25,000,000 or less,"
(d) Section 4.2(d) of the Loan Agreement is hereby
amended and restated to read in its entirety as follows:
"(d) Other Documentation. Agent and Lenders shall
have received such other legal documentation, in form
and substance satisfactory to Agent and Lenders, as
Agent or any Lender may require with respect to the
Real Property and Agent's (for the ratable benefit of
the Lenders) liens thereon."
(e) The last sentence of Section 4.3 of the Loan
Agreement is hereby amended to read as follows:
"Each borrowing by Borrowers hereunder shall
constitute a representation and warranty by Borrowers
as of the date of such loan or advance that each of
the representations, warranties and covenants
contained in this Agreement have been satisfied and
are true and correct, except as Borrowers, Agent and
the Required Lenders shall otherwise agree herein or
in a separate writing."
(f) The third sentence of Section 6.4(a) of the Loan
Agreement is hereby amended to read as follows:
"Notwithstanding the foregoing, if an Event of
Default shall have occurred and be continuing, Agent
shall apply payments received or collected from a
Borrower or for the account of any Borrower
(including the monetary proceeds of collections or of
realization upon any Collateral) as follows: first,
to pay any indemnities or expense reimbursements
(including Special Agent Advances and interest
thereon) then due to Agent from Borrowers; second, to
pay, pro rata, any indemnities or expense
reimbursements then due to Lenders from Borrowers;
third, to pay any fees then due to Agent from
Borrowers; fourth, to pay, pro rata, any fees
(including the early
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termination fee payable in accordance with Section
3.3(b) hereof) then due to Lenders from Borrowers;
fifth, to pay interest due in respect of the
Revolving Loans, the Term Loan, and any Overadvances;
sixth, to pay interest due in respect of any Real
Estate Loans; seventh, to pay the outstanding
principal balance of the Revolving Loans and any
Overadvances; eighth, if such payments are received
or collected in connection with the exercise of
Agent's and the Lender's rights and remedies with
respect to the Mortgage on the Broadway Property
shall have been disposed of in a manner permitted
under the terms of this Agreement, to pay the
outstanding principal balance of the Term Loan;
ninth, to pay the outstanding principal balance of
the Real Estate Loans; tenth, to be held by Agent as
cash collateral for all issued and outstanding Letter
of Credit Accommodations in an amount equal to one
hundred five percent (105%) of the aggregate face
amounts of such Letter of Credit Accommodations; and
eleventh, to pay any other Obligations, including the
outstanding balance of the Term Loan, if any, in such
order and in such amounts as Agent may determine in
its sole and reasonable discretion; provided,
however, any application of payments to Loans, Letter
of Credit Accommodations, interest, fees or other
amounts payable to all Lenders shall in each such
instance be made for the pro rata benefit of the
Lenders."
(g) The ninth sentence of Section 6.10(d) of the Loan
Agreement is hereby amended to read as follows:
"For purposes of voting or consenting to matters with
respect to this Agreement and the other Financing
Agreements and determining Pro Rata Shares, such
Defaulting Lender shall be deemed not to be a Lender
and such Defaulting Lender's Loan Commitment shall be
deemed to be zero (0); provided, however, (i) a
Defaulting Lender's Loan Commitment may not be
increased without the consent of such Defaulting
Lender and (ii) none of the Obligations may be
forgiven nor any of the fees or rates of interest
provided for herein may be reduced without the
consent of all Lenders and Defaulting Lenders."
(h) Sections 9.5(b)(i)-(iii) are hereby amended and
restated to read in their entirety as follows:
"(i) In the event of any loss or damage by fire
or other casualty, insurance proceeds relating to
Inventory shall first reduce the then outstanding
Revolving Loans and then any other Obligations (in
the manner set forth in this Agreement) then
outstanding. During the continuance of a Default or
Event of Default, such insurance proceeds shall be
applied in the manner set forth in this Agreement.
(ii) In the event any part of the Real Property
or Equipment is damaged by fire or other casualty and
the insurance proceeds for such
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damage or other casualty is less than or equal to
$100,000, Agent shall promptly apply such insurance
proceeds to reduce the then outstanding Revolving
Loans and then any other Obligations (in the manner
set forth in this Agreement) then outstanding. Upon
the occurrence of a Default or Event of Default, such
insurance proceeds shall be applied to the
Obligations in the manner set forth in this
Agreement.
(iii) Absent the occurrence of an Event of Default
(which has not been waived in writing as required
hereunder), and provided that (A) Borrowers have
sufficient business interruption insurance to replace
the lost profits of any facility of any Borrower and
(B) the insurance proceeds received with respect to
damage or other casualty incurred with respect to
Real Property or Equipment are in excess of $100,000,
Borrowers may elect (by delivering written notice to
Agent) to replace, repair or restore such Real
Property or Equipment to substantially the equivalent
condition prior to such fire or other casualty as set
forth herein. If Borrowers do not, or cannot, elect
to use the insurance proceeds as set forth above,
Agent may, subject to the rights of any holders of
encumbrances permitted under Section 9.8 hereof which
are senior to those of Agent and the Lenders, apply
such insurance proceeds to reduce the then
outstanding Revolving Loans or other Obligations (in
the manner set forth in this Agreement); during the
existence of an Event of Default, such insurance
proceeds shall be applied to the Obligations in the
manner set forth in this Agreement."
(i) Section 9.6(b)(v) of the Loan Agreement is hereby
amended and restated to read in its entirety as follows:
"(v) from time to time, such further information
regarding the business affairs and financial
condition of such entities Agent may reasonably
request, including, without limitation (A) the
accountant's management practice letter and (B)
annual consolidated and consolidating projections in
form satisfactory to Agent. Without limiting the
generality of the foregoing, or any other provision
of this Agreement, on or before December 15 of each
year, Borrowers shall have delivered consolidated and
consolidating projections for the following fiscal
year (exclusive of and in addition to any such
projections provided to Agent at or prior to the
Closing Date) and each fiscal year thereafter
occurring during the term of this Agreement, each in
form satisfactory to Agent."
(j) Section 9.7(b)(iv) of the Loan Agreement is hereby
amended by deleting clause (D) of such section.
(k) Section 9.10(d)(i)(B) of the Loan Agreement is hereby
amended to read as follows:
"(B) a security agreement granting to Agent, for
itself and the ratable benefit of the Lenders, a
first security interest and lien (except as
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otherwise consented to in writing by Agent and the
Lenders) upon all of the assets of such Subsidiary,
and"
(l) Section 10.2(b)(vi) of the Loan Agreement is hereby
amended to read as follows:
"(vi) sell, lease, transfer, assign, deliver or
otherwise dispose of any and all Collateral
(including entering into contracts with respect
thereto, public or private sales at any exchange,
broker's board, at any office of Agent or elsewhere)
at such prices or terms as Agent may deem reasonable,
for cash, upon credit or for future delivery, with
Agent or any Lender having the right to purchase the
whole or any part of the Collateral at any such
public sale, all of the foregoing being free from any
right or equity of redemption of any Borrower, which
right or equity of redemption is hereby expressly
waived and released by each Borrower; provided,
however, any such sale, lease, transfer, assignment,
delivery or other disposal of Collateral having a
value of $1,000,000 or more shall be at prices or
terms as Agent and the Required Lenders may deem
reasonable, and/or"
(m) Section 10.2(f) of the Loan Agreement is hereby
amended and restated to read in its entirety as follows:
"(f) Agent shall apply the cash proceeds of
Collateral actually received by it from any sale,
lease, foreclosure or other disposition of the
Collateral to payment of the Obligations in the
manner set forth in this Agreement. Borrowers shall
remain liable to Agent and Lenders for the payment of
any deficiency with interest at the highest rate
provided for herein and all costs and expenses of
collection or enforcement, including attorneys' fees
and legal expenses."
(n) Section 11.3(a) of the Loan Agreement is hereby
amended by changing the words "Section 11.3(a)" contained therein to, in each
case, "Section 11.3".
(o) Section 11.3(b) of the Loan Agreement is hereby
amended by adding the following subsections (xii) and (xiii):
"(xii) the amendment of Sections 6.4(a), 9.5(b)(i),
9.5(b)(ii), 9.5(b)(iii) or 10.2(f) hereof; or
(xiii) the amendment of Section 6.10(b) to provide
for settlements on a basis less frequent than
weekly."
(p) The first sentence of Section 12.11(c) is hereby
amended to read as follows:
"Without in any manner limiting Agent's authority to
act without any specific or further authorization or
consent by the Required Lenders, each
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Lender agrees to confirm in writing, upon request by
Agent, the authority to release Collateral conferred
upon Agent under this Section."
(q) Section 14.2(h) of the Loan Agreement is hereby
amended and restated to read in its entirety as follows:
"(h) An Event of Default shall exist or continue
or be continuing until such Event of Default is
waived in accordance with Section 11.3 or is cured in
a manner satisfactory to Agent and the Required
Lenders, if such Event of Default is capable of being
cured as reasonably determined by Agent and the
Required Lenders."
(r) The first portion of clause (ii) of Section 14.6(a)
is hereby amended to read as follows:
"(ii) assign all, or if less than all a portion
equal to at least $5,000,000 in the aggregate for the
assigning Lender or assigning Lenders, of such
Lender's Loan Commitment, pro rata share of the Loans
made pursuant to such assigned Loan Commitment and
the related rights and obligations related thereto
under this Agreement to one or more Eligible
Transferees, each of which assignees shall become a
party to this Agreement as a Lender by execution of
an Assignment and Acceptance; provided, that,"
2. Effectiveness of this Amendment. This Amendment shall be
effective upon Agent's receipt of this Amendment and the attached
Acknowledgement by Guarantors, each fully executed in a sufficient number of
counterparts for distribution to all parties..
3. Representations and Warranties. Borrowers represents and
warrants as follows:
(a) Authority. Each Borrower has the requisite corporate
power and authority to execute and deliver this Amendment, and to perform its
obligations hereunder and under the Financing Agreements (as amended or modified
hereby) to which it is a party. The execution, delivery and performance by each
Borrower of this Amendment have been duly approved by all necessary corporate
action and no other corporate proceedings are necessary to consummate such
transactions.
(b) Enforceability. This Amendment has been duly executed
and delivered by each Borrower. This Amendment and each Financing Agreement (as
amended or modified hereby) is the legal, valid and binding obligation of each
Borrower, enforceable against such Borrower in accordance with its terms, and is
in full force and effect.
(c) Due Execution. The execution, delivery and
performance of this Amendment are within the power of each Borrower, have been
duly authorized by all necessary corporate action, have received all necessary
governmental approval, if any, and do not contravene any law or any contractual
restrictions binding on any Borrower.
4. Choice of Law. The validity of this Amendment, its
construction, interpretation and enforcement, the rights of the parties
hereunder, shall be determined under, governed by, and
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construed in accordance with the internal laws of the State of California
governing contracts only to be performed in that State.
5. Counterparts. This Amendment may be executed in any number of
counterparts and by different parties and separate counterparts, each of which
when so executed and delivered, shall be deemed an original, and all of which,
when taken together, shall constitute one and the same instrument. Delivery of
an executed counterpart of a signature page to this Amendment by telefacsimile
shall be effective as delivery of a manually executed counterpart of this
Amendment.
6. Reference to and Effect on the Financing Agreements.
(a) Upon and after the effectiveness of this Amendment,
each reference in the Loan Agreement to "this Agreement", "hereunder", "hereof"
or words of like import referring to the Loan Agreement, and each reference in
the other Financing Agreements to "the Loan Agreement", "thereof" or words of
like import referring to the Loan Agreement, shall mean and be a reference to
the Loan Agreement as modified and amended hereby.
(b) Except as specifically amended above, the Loan
Agreement and all other Financing Agreements, are and shall continue to be in
full force and effect and are hereby in all respects ratified and confirmed and
shall constitute the legal, valid, binding and enforceable obligations of each
Borrower to Agent and the Lenders.
(c) The execution, delivery and effectiveness of this
Amendment shall not, except as expressly provided herein, operate as a waiver of
any right, power or remedy of Agent or any Lender under any of the Financing
Agreements, nor constitute a waiver of any provision of any of the Financing
Agreements.
(d) To the extent that any terms and conditions in any of
the Financing Agreements shall contradict or be in conflict with any terms or
conditions of the Loan Agreement, after giving effect to this Amendment, such
terms and conditions are hereby deemed modified or amended accordingly to
reflect the terms and conditions of the Loan Agreement as modified or amended
hereby.
7. Ratification. Each Borrower hereby restates, ratifies and
reaffirms each and every term and condition set forth in the Loan Agreement, as
amended hereby, and the Financing Agreements effective as of the date hereof.
8. Integration. This Amendment, together with the other Financing
Agreements, incorporates all negotiations of the parties hereto with respect to
the subject matter hereof and is the final expression and agreement of the
parties hereto with respect to the subject matter hereof.
9. Severability. In case any provision in this Amendment shall be
invalid, illegal or unenforceable, such provision shall be severable from the
remainder of this Amendment and the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
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IN WITNESS WHEREOF, the parties have entered into this Amendment as of
the date first above written.
M T S, INCORPORATED,
a California corporation
By: ______________________________________
Name: Michael T. Solomon
Title: President
THREE A'S HOLDINGS, L.L.C.,
a Delaware limited liability company
By: ______________________________________
Name: Michael T. Solomon
Title: Manager
THE CIT GROUP/BUSINESS CREDIT, INC.,
a New York corporation,
as Agent and as a Lender
By: ______________________________________
Name: Kelly Wu
Title: Vice President
CONGRESS FINANCIAL CORPORATION
(WESTERN),
a California corporation
By: ______________________________________
Name: ____________________________________
Title: ___________________________________
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FLEET RETAIL FINANCE, INC.,
a ____________ corporation
By: ______________________________________
Name: Sally A. Sheehan
Title: Director
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ACKNOWLEDGEMENT BY GUARANTORS
Dated as of November 18, 2002
Each of the undersigned, being a Guarantor (each a "Guarantor" and
collectively, the "Guarantors") under their respective Guaranty and Security
Agreements, each dated as of October 9, 2002, made in favor of Agent (as
amended, modified or supplemented, each a "Guaranty" and collectively, the
"Guaranties"), hereby acknowledges and agrees to the foregoing First Amendment
to Loan and Security Agreement (the "Amendment") and confirms and agrees that
its Guaranty is and shall continue to be, in full force and effect and is hereby
ratified and confirmed in all respects except that, upon the effectiveness of,
and on and after the date of the Amendment, each reference in such Guaranty to
the Loan Agreement (as defined in the Amendment), "thereunder", "thereof" or
words of like import referring to the "Loan Agreement", shall mean and be a
reference to the Loan Agreement as amended or modified by the Amendment.
Although Agent has informed Guarantors of the matters set forth above, and
Guarantors have acknowledged the same, each Guarantor understands and agrees
that neither Agent nor any Lender has any duty under the Loan Agreement, the
Guaranties or any other agreement with any Guarantor to so notify any Guarantor
or to seek such an acknowledgement, and nothing contained herein is intended to
or shall create such a duty as to any advances or transaction hereafter.
TOWER RECORDS, INCORPORATED,
a Delaware corporation
By: ______________________________________
Name: Michael T. Solomon
Title: President
8775 SUNSET, INC.,
a California corporation
By: ______________________________________
Name: Michael T. Solomon
Title: President
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COLUMBUS & BAY, INC.,
a California corporation
By: ______________________________________
Name: Michael T. Solomon
Title: President
JEREMY'S HOLDINGS, LLC,
a Delaware limited liability company
By: ______________________________________
Name: Michael T. Solomon
Title: Manager
R.T. RECORDS, INCORPORATED,
a California corporation
By: ______________________________________
Name: Michael T. Solomon
Title: President
TOWER DIRECT LLC.,
a Delaware limited liability company
By: ______________________________________
Name: Michael T. Solomon
Title: Manager
33RD STREET RECORDS, INCORPORATED,
a Delaware corporation
By: ______________________________________
Name: Michael T. Solomon
Title: President
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T.R. SERVICES, INCORPORATED,
a California corporation
By: ______________________________________
Name: Michael T. Solomon
Title: President
IRELAND TR, INCORPORATED,
a California corporation
By: ______________________________________
Name: Michael T. Solomon
Title: President
PIPERNICK CORP.,
a Delaware corporation
By: ______________________________________
Name: Michael T. Solomon
Title: President
TR ARGENTINA, INCORPORATED,
a California corporation
By: ______________________________________
Name: Michael T. Solomon
Title: President
TR ISRAEL, INCORPORATED,
a California corporation
By: ______________________________________
Name: Michael T. Solomon
Title: President
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TR MEXICO, INCORPORATED,
a California corporation
By: ______________________________________
Name: Michael T. Solomon
Title: President
TOWER GRAPHICS, INCORPORATED,
a California corporation
By: ______________________________________
Name: Michael T. Solomon
Title: President
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