Exhibit 10.19
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October 6, 1995
The Strouse, Adler Company
78 Olive Street
New Haven, CT 06507
Re: Modification of Credit Facilities
Ladies and Gentlemen:
We are pleased to advise you that, subject to the terms and conditions
set forth herein, Fleet Bank, National Association (the "Bank") has approved
the request of The Strouse, Adler Company (the "Borrower") for the modification
of its various existing credit facilities extended by the Bank pursuant to
that certain First Amended and Restated Master Credit Agreement dated as of
November 9, 1994 (the "Credit Agreement"). This letter sets forth the terms and
conditions on which the Bank will commit to modify such credit facilities.
Except as set forth in this letter, the existing terms and conditions applicable
to such credit facilities as set forth in the Credit Agreement shall remain in
full force and effect. All capitalized terms used but not otherwise defined
herein shall have the meanings ascribed to such terms in the Credit Agreement.
1. CREDIT FACILITIES.
A. Facility A. Revolving Line of Credit.
a. Amount. Section 1.22. of the Credit Agreement shall be amended to
provide that the Commitment Amount shall mean the amount of
$8,750,000.00 at all times following the Closing Date (as such
term is defined in Section 13 of this commitment).
b. Maturity. Section 1.108. of the Credit Agreement shall be amended
to provide that the Revolving Credit Termination Date shall be
October 31, 1996, at which time all outstanding principal,
accrued and unpaid interest and any other amounts due to the Bank
shall be immediately due and payable.
c. Inventory Cap. Section 1.62. of the Credit Agreement shall be
amended to provide for an Inventory Cap of $5,000,000.00 at all
times.
d. Overadvances. Section 1.90. of the Credit Agreement shall be
amended to provide that the Overadvance Limit shall be
$1,000,000.00 during the period commencing as of the Closing Date
and continuing through December 31, 1995 and $500,000.00 at all
times thereafter (with a thirty (30) day clean-up at any time
prior to July 31, 1996).
e. Interest Rate. Each Revolving Loan which is a Prime Rate Loan
shall bear interest at the Prime Rate plus one percentage points
(1.0%). Each Revolving Loan which is a Libor Loan shall bear
interest at the Libor Rate plus three percentage points (3.0%).
B. Facility B. Term Loan
a. Maturity. Section 1.80. of the Credit Agreement shall be amended
to provide that the Maturity Date shall be October 31, 1996, at
which time all outstanding principal, accrued and unpaid interest
and any other amounts due to the Bank shall be immediately due
and payable.
b. Principal Repayment. The existing amortization shall be
maintained but a mandatory prepayment of principal in an amount
equal to one-half of all amounts remaining with The Aristotle
Corporation (but not to exceed $500,000.00) following the
settlement of the litigation by, and claims of, the FDIC against
The Aristotle Corporation and its officers and directors and the
release of escrowed funds (said amount to be determined net of
legal fees paid to The Aristotle Corporation's legal counsel for
services rendered in connection with such litigation and/or
claims). Any applicable prepayment penalty or premium and
breakage costs shall be due and payable upon such prepayment.
c. Interest Rate. If, for any reason the Matched Rate shall be
discontinued with respect to the Term Loan, that portion of the
Term Loan which is a Prime Rate Loan shall bear interest at the
Prime Rate plus one percentage point (1.0%) and that portion of
the Term Loan which is a Libor Loan
shall bear interest at the Libor Rate plus three percentage
points (3.0%).
2. GENERAL PROVISIONS APPLICABLE TO CREDIT FACILITIES.
a. Late Payment Penalty. Any payment of principal, interest, fees or
expenses (other than payments of principal upon scheduled
maturity or upon acceleration) which is not paid with ten (10)
days of the date specified for payment shall be subject to a late
penalty equal to five percent (5%) of the amount due.
b. Default Rate. The definition of the term "Default Rate" shall be
amended to provide that the interest rate may be increased up to
three percentage points (3.0%) above the rate otherwise in effect
under the Credit Agreement upon the occurrence of an Event of
Default.
c. Restructuring/Waiver Fee. In consideration of the Bank's
agreement to amend and modify the terms and conditions of the
credit facilities and to waive certain Events of Default in lieu
of exercising its rights and remedies under the Credit Agreement,
the Notes and the Other Documents, the Borrower shall pay to the
Bank the amount of $50,000.00. This fee shall be payable in four
(4) equal installments on the Closing Date, December 1, 1995,
February 1, 1996 and April 1, 1996.
d. Negative Pledge/Use of Cash. The Aristotle Corporation shall
execute and deliver a negative pledge agreement in favor of the
Bank with respect to any monies remaining following the
settlement of the FDIC litigation and not applied as set forth in
Section 1.B. of this commitment to the Term Loan. In addition,
The Aristotle Corporation shall agree that none of such monies
shall be used for any purpose without the prior written consent
of the Bank until such time as the Term Loan is paid in full
other than (i) restoring the amount of Subordinated Indebtedness
due to The Aristotle Corporation by the Borrower to the amount of
$620,500.00 as required by section 2. h. of this commitment, (ii)
the normal and customary general operating expenses of The
Aristotle Corporation, including any payments in respect of
obligations to
the former shareholders of the Borrower) and (iii) for loans to
the Borrower.
e. Field Examinations. Section 7.6. of the Credit Agreement shall be
amended to provide that the Bank shall have the right to conduct
an audit on three (3) occasions during each twelve month period
and that any such audits shall be conducted at the Borrower's
expense up to a maximum of $8,000.00 during any such period. The
Bank shall have the right to conduct audits on more than three
(3) occasions upon the occurrence of an Event of Default.
f. Indebtedness. Section 1.58. of the Credit Agreement shall be
amended to read as follows:
"Indebtedness" means, as applied to any Person, without
duplication: (a) all indebtedness for borrowed money; (b) that
portion of obligations with respect to Capital Leases that is
properly classified as a liability on a balance sheet in
conformity with GAAP; (c) notes payable and drafts accepted
representing extensions of credit whether or not representing
obligations for borrowed money; (d) any obligation owed for all
or any part of the deferred purchase price of property or
services if the purchase price is due more than six months from
the date the obligation is incurred or is evidenced by a note or
similar written instrument; (e) all indebtedness secured by any
Encumbrance on any property or asset owned or held by that Person
regardless of whether the indebtedness secured thereby shall have
been assumed by that Person or is nonrecourse to the credit of
that Person and (f) any other obligations which would be
classified as liabilities on a balance sheet in conformity with
GAAP but for purposes of calculating "Indebtedness" of the
Borrower obligations in respect of the Jamaica manufacturing
facility shall be excluded.
g. Dividends. Section 8.7. of the Credit Agreement shall be amended
to provide that the Borrower may only pay dividends with the
prior written consent of the Bank. In connection therewith,
Section 9.2. of the Credit Agreement shall be repealed.
h. Subordinated Indebtedness. Section 8.10. of the Credit Agreement
shall be amended to provide that the Borrower shall not make any
principal payments or grant any collateral in respect of any
Subordinated Indebtedness (other than, as long as no Event of
Default has occurred and is continuing, payments under the Tax
Sharing Agreement) without the prior written consent of the Bank.
The Guarantors shall make a corresponding amendment to the
intercreditor and subordination agreements among the Borrower,
the Bank and themselves. In addition, The Aristotle Corporation
shall restore the amount of Subordinated Indebtedness due to it
from the Borrower to the amount of $620,500.00 from amounts
remaining with The Aristotle Corporation after the settlement of
the FDIC litigation and after the prepayment in respect of the
Term Loan required by Section 1 B. b. of this commitment.
i. Capital Expenditures. A new Section 8.17. shall be added to the
Credit Agreement to provide that the Borrower shall not make
Capital Expenditures in excess of $450,000.00 during the fiscal
year ending June 30, 1996 without the prior written consent of
the Bank.
j. Events of Default. Section 11.1. of the Credit Agreement shall be
amended to provide that the following shall constitute additional
Events of Default:
a. The failure of the Guarantors to restore the amount of
Subordinated Indebtedness due from the Borrower to the
Guarantors to the amount of $620,500.00 as set forth in
section 2. h. of this commitment.
b. The failure of the Borrower and the Guarantors to make the
mandatory prepayment in respect of the Term Loan as set
forth in section 1. B. of this commitment.
c. The failure of the Guarantors to restrict the use of any
monies remaining following the settlement of the litigation
by and claims of the FDIC in accordance with Section 2. d.
of this commitment until such time as the Term Loan is paid
in full.
In addition, corresponding amendments shall be made to
Section 11.1. to reflect that violations of any term,
covenant or agreement of the Credit Agreement as amended by
this commitment constitutes an Event of Default.
3. SECURITY.
a. In addition to all existing Collateral for the Obligations, the
payment and performance of all obligations in respect of the Term
Loan shall be unconditionally guaranteed by The Aristotle
Corporation and Aristotle Sub, Inc. (the "Guarantors"). The
guaranty of Aristotle Sub, Inc. shall be in addition to and not
in substitution for its existing limited guaranty of the
Obligations.
4. DOCUMENTATION. The Bank shall require such documentation to evidence
the amendment and modification of the credit facilities contemplated
by this commitment as is deemed necessary by the Bank and its legal
counsel in their sole and absolute discretion, which documentation
shall be acceptable in form and substance to the Bank and its legal
counsel, in their sole and absolute discretion.
5. FINANCIAL COVENANTS.
a. Section 9.1.1. of the Credit Agreement shall be amended as follows:
Net Worth. Borrower's Net Worth shall not be less than the following
amounts at all times during the following periods:
Amount Period
$3,100,000.00 Closing Date through
December 30, 1995
$3,250,000.00 December 31, 1995 through
March 30, 1996
$3,400,000.00 March 31, 1996 through
June 29, 1996
$3,700,000.00 June 30, 1996 and thereafter
b. Section 9.1.2. of the Credit Agreement shall be amended as follows:
Debt Service Coverage. Borrower shall not permit the ratio of its
EBITDA minus Capital Expenditures to its Total Debt Service to be less
than the following ratios at the end of each of the following Fiscal
Years:
Ratio Fiscal Year Ending
1.40 to 1.0 June 30, 1996
c. Section 9.1.3. of the Credit Agreement shall be amended as follows:
Total Debt to Net Worth Ratio. The ratio of Borrower's Total Debt to
its Net Worth shall not be greater than the following ratios at all
times during the following periods.
Ratio Period
4.25 to 1.0 Closing Date through
December 30, 1995
4.25 to 1.0 December 31, 1995 through
March 30, 1996
4.0 to 1.0 March 31, 1996 through
June 29, 1996
3.75 to 1.0 June 30, 1996 and thereafter
d. A new Section 9.1.5 shall be added to the Credit Agreement as follows:
Interest Coverage. Borrower shall not permit the ratio of its EBIT to
its Total Interest to be less than the following ratios (calculated on
a rolling basis) at the end of each of the following periods.
Ratio Period
1.5 to 1.0 July 1, 1995 through
December 31, 1995
1.5 to 1.0 July 1, 1995 through
March 31, 1996
1.75 to 1.0 July 1, 1995 through
June 30, 1996
e. Section 9.3.4 of the Credit Agreement shall be amended as follows:
"Total Debt Service" means, for any period, the aggregate amount of
Borrower's obligation to make payments of
principal, interest and other amounts in respect of all Total Debt and
Subordinated Debt for such period; provided, however, that for
purposes of the calculation of Total Debt Service, the obligation of
Borrower to make payments of principal with respect to the Revolving
Loan shall be considered a long term obligation not payable within any
such period.
f. A new Section 9.3.5. shall be added to the Credit Agreement as
follows:
"Total Interest" means, for any period, the Borrower's aggregate
obligation to make payments of interest in respect of Total Debt
during such period.
g. A new Section 9.3.6. shall be added to the Credit Agreement as
follows:
"EBIT" means, for any period, the net income (as such term is
understood under GAAP) but excluding any extraordinary items of gain
of Borrower before any provision (i) taxes paid or payable for such
period (other than real estate and sales and use taxes) and (ii) all
interest paid or accrued for such period in respect of all
Indebtedness.
6. CONDITIONS PRECEDENT TO AMENDMENT OF CREDIT FACILITIES.
The obligation of the Bank to amend and modify the credit facilities as
contemplated by this commitment is subject to the satisfaction of the
following conditions by Borrower in a manner acceptable to the Bank and/or
its legal counsel.
a. The absence of any Event of Default other than Events of Default which
have been waived by the Bank as of the date hereof.
b. The negotiation, execution and delivery by the Borrower, the
Guarantors and David Howell and Alfred Kniberg as agents for the
former shareholders of the Borrower of definitive documentation for
the credit facilities contemplated by this commitment as required by
Section 4 hereof in a form acceptable to the Bank and its legal
counsel, including, but not be limited to, such documentation as the
Bank may require to ratify and confirm (i) any and all liens, security
interests and other encumbrances in and to the Collateral and (ii) any
and all subordination, intercreditor and similar agreements.
c. The satisfaction by the Borrower of such other conditions as may be
required by the Bank or its legal counsel and which are customary for
transactions similar to the transactions contemplated by this
commitment including the delivery of evidence of corporate power and
authority to enter into the transactions contemplated by this
commitment, the delivery of appropriate legal opinions, the delivery
of title insurance policies, the valid, binding and legal effect of
all documentation required by this commitment, the absence of any
violation of Federal, state or local law and the filing and recording
of security documents.
7. INDEMNITY. The Borrower agrees to indemnify and hold the Bank and its
respective shareholders, directors, agents, officers, employees,
subsidiaries and affiliates harmless from and against any and all
damages, losses, obligations, payments, liabilities, claims, actions
or causes of action, fees or expenses (including legal fees) and other
matters incurred, sustained or paid by the Bank in connection with or
as a result of the transactions contemplated by this commitments,
except to the extent that any of the foregoing matters result from the
gross negligence or wilful misconduct of the Bank or any other
indemnified party.
8. ASSIGNMENT. The Borrower may not assign this commitment, and any
attempted assignment by the Borrower shall be null and void and
without legal effect.
9. AMENDMENTS. Amendments to this commitment must be in writing and
signed as to acceptance by the Bank, the Borrower and the Guarantors.
10. NO WAIVER. No delays on the part of the Bank in exercising any of its
rights under this commitment shall operate as a waiver thereof.
11. ENTIRE AGREEMENT. This commitment constitutes the entire obligation of
the Bank, and no covenant, promise, agreement, waiver, representation
or undertaking of any kind, whether written or oral not specifically
set forth herein shall be binding upon the Bank.
12. ACCEPTANCE. This commitment shall remain open for acceptance by the
Borrower until October 6, 1995.
13. CLOSING. The amendment and modification of the credit facilities
as contemplated by this commitment shall be closed in full
compliance with the terms and conditions of this commitment on or
before October 31, 1995 (the "Closing Date").
14. TERMINATION. This commitment shall automatically terminate at the
Bank's option and the Bank shall not be obligated to close the credit
facilities contemplated hereby if:
a. The Borrower shall fail to accept this commitment by
b. The Borrower shall fail to close all of the credit facilities
contemplated by this commitment on or before October 31, 1995.
c. The Bank should discover that any representation or warranty made
by the Borrower or the Guarantors in any statement or information
submitted to the Bank in connection with preparation of this
commitment should be false, incomplete, or incorrect in any
respect.
d. There should be a material adverse change in the business
operations or financial condition of the Borrower or the
Guarantors.
e. The Borrower or the Guarantors shall fail to meet any of the
conditions set forth in Section 6 of this commitment to the
satisfaction of the Bank or its legal counsel, in their sole
discretion.
f. An Event of Default other than an Event of Default which has been
waived by the Bank as of the date hereof shall occur.
15. GOVERNING LAW. This commitment and the loan documents to be delivered
pursuant hereto shall be construed under the laws of the State of
Connecticut.
16. FEES AND EXPENSES. The Borrower shall pay all fees and expenses
incurred by the Bank in connection with the closing of the credit
facilities contemplated by this commitment including the fees and
expenses of the Bank's appraisal, environmental consultants, auditors,
credit
examiners and legal counsel, Updike, Kelly & Spellacy, P.C., without
regard to whether a closing occurs.
17. PREJUDGMENT REMEDY WAIVER. The loan documents to be delivered pursuant
hereto will require that the Borrower and the Guarantors shall waive
such rights as may exist under state or federal laws to a hearing
prior to the Bank exercising its rights to attach the Borrower's or
the Guarantors' property after the occurrence of an event of default.
18. WAIVER OF TRIAL BY JURY. The loan documents to be delivered pursuant
hereto will require that the Borrower and the Guarantors shall waive
their right to a trial by jury in any suit, action or proceeding in
connection with the credit facilities contemplated by this commitment.
19. COUNTERPARTS. This commitment may be executed in one or more
counterparts with the same effect as if the signatures hereto and
thereto are upon the same instrument.
Very truly yours,
FLEET BANK, NATIONAL ASSOCIATION
By: /s/ Linda M. Smyth
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Name: Linda M. Smyth
Title: Vice President
The foregoing terms and conditions are accepted and agreed to this 6th day
of October, 1995.
BORROWER:
THE STROUSE, ADLER COMPANY
By: /s/ Paul McDonald
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Name: Paul McDonald
Title: Vice President, Finance
GUARANTORS:
THE ARISTOTLE CORPORATION
By: /s/ Paul McDonald
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Name: Paul McDonald
Title: Chief Financial Officer
ARISTOTLE SUB, INC.
By: /s/ Paul McDonald
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Name: Paul McDonald
Title: Chief Financial Officer