EXHIBIT 10.6
SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT
THIS SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT (the "Amendment"),
dated as of November 30, 2000, is entered into between CONGRESS FINANCIAL
CORPORATION (SOUTHWEST), a Texas corporation ("Lender"), and ALLIED FASHION,
INC., a Delaware corporation ("Borrower").
RECITAL
A. Borrower and Lender have previously entered into that certain Loan and
Security Agreement dated April 2, 1999, as amended in the First Amendment to
Loan and Security Agreement dated June 22, 2000 (collectively the "Loan
Agreement"), pursuant to which Lender has made certain loans and financial
accommodations available to Borrower. Terms used herein without definition shall
have the meanings ascribed to them in the Loan Agreement.
B. Lender and Borrower wish to further amend the Loan Agreement under the
terms and conditions set forth in this Amendment. Borrower is entering into this
Amendment with the understanding and agreement that, except as specifically
provided herein, none of Lender's rights or remedies as set forth in the Loan
Agreement is being waived or modified by the terms of this 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) The following definitions are hereby added to Section 1 in
respective alphabetical order:
"Adjusted Eurodollar Rate shall mean, with respect to each Interest
Period for any Eurodollar Rate Loan, the rate per annum (rounded
upwards, if necessary, to the next one-sixteenth (1/16) of one (1%)
percent) determined by dividing (a) the Eurodollar Rate for such
Interest Period by (b) a percentage equal to: (i) one (1) minus (ii)
the Reserve Percentage. For purposes hereof, "Reserve Percentage"
shall mean the reserve percentage, expressed as a decimal,
prescribed by any United States or foreign banking authority for
determining the reserve requirement which is or would be applicable
to deposits of United States dollars in a non-United States or an
international banking office of Reference Bank used to fund a
Eurodollar Rate Loan or any Eurodollar Rate Loan made with the
proceeds of such deposit, whether or not the Reference Bank actually
holds or has made any such deposits or loans. The Adjusted
Eurodollar Rate shall be adjusted on and as of the effective day of
any change in the Reserve Percentage."
"Eurodollar Rate Loans shall mean any Loans or portion thereof on
which interest is payable based on the Adjusted Eurodollar Rate in
accordance with the terms hereof."
"Eurodollar Rate shall mean with respect to the Interest Period for
a Eurodollar Rate Loan, the interest rate per annum equal to the
arithmetic average of the rates of interest per annum (rounded
upwards, if necessary, to the next one-sixteenth (1/16) of one (1%)
percent) at which Reference Bank is offered deposits of United
States dollars in the London interbank market (or other Eurodollar
Rate market selected by Borrower and approved by Lender) on or about
9:00 a.m. (New York time) two (2) Business Days prior to the
commencement of such Interest Period in amounts substantially equal
to the principal amount of the Eurodollar Rate Loans requested by
and available to Borrower in accordance with this Agreement, with a
maturity of comparable duration to the Interest Period selected by
Borrower."
"Interest Period shall mean for any Eurodollar Rate Loan, a period
of approximately one (l), two (2), or three (3) months duration as
Borrower may elect, the exact duration to be determined in
accordance with the customary practice in the applicable Eurodollar
Rate market; provided, that, Borrower may not elect an Interest
Period which will end after the last day of the then-current term of
this Agreement."
"Interest Rate shall mean, as to Prime Rate Loans, a rate of one
quarter of one percent (.25%) per annum in excess of the Prime Rate
and, as to Eurodollar Rate Loans, a rate of two and three-quarters
of one percent (2.75%) per annum in excess of the Adjusted
Eurodollar Rate (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); provided, that, the Interest Rate shall mean the rate
of two and one quarter of one percent (2.25%) per annum in excess of
the Prime Rate as to Prime Rate Loans and the rate of four and
three-quarters of one percent (4.75%) per annum in excess of the
Adjusted Eurodollar Rate as to Eurodollar Rate Loans, at Lender's
option, without notice, (a) for the period (i) from and after the
date of termination or non-renewal hereof until Lender has received
full and final payment of all obligations (notwithstanding entry of
a judgment against Borrower) and (ii) from and after the date of the
occurrence of an Event of Default for so long as such Event of
Default is continuing as determined by Lender, and (b) on the
Revolving Loans at any time outstanding in excess of the amounts
available to Borrower under Section 2 (whether or not such
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excess(es), arise or are made with or without Lender's knowledge or
consent and whether made before or after an Event of Default)."
"Prime Rate Loans shall mean any Loans or portion thereof on which
interest is payable based on the Prime Rate in accordance with the
terms thereof."
"Reference Bank shall mean First Union National Bank, or such other
bank as Lender may from time to time designate."
(b) The definition of "Business Day" is hereby replaced in its
entirety to read as follows:
"Business Day shall mean any day other than a Saturday, Sunday, or
other day on which commercial banks are authorized or required to
close under the laws of the State of New York or the State of North
Carolina, and a day on which the Reference Bank and Lender are open
for the transaction of business, except that if a determination of a
Business Day shall relate to any Eurodollar Rate Loans, the term
Business Day shall also exclude any day on which banks are closed
for dealings in dollar deposits in the London interbank market or
other applicable Eurodollar Rate market."
(c) Section 1.28 of the Loan Agreement is hereby amended in its
entirety to read as follows:
"Maximum Credit shall mean, with reference to the Revolving Loans
and the Letter of Credit Accommodations, the amount of Fifteen
Million Dollars ($15,000,000)."
(d) Section 3.1 of the Loan Agreement is hereby replaced in its
entirety to read as follows:
"Interest.
a. Borrower shall pay to Lender interest on the outstanding
principal amount of the non-contingent Obligations at the Interest
Rate. All interest accruing hereunder on and after the date of any
Event of Default or termination or non-renewal hereof shall be
payable on demand.
b. Borrower may from time to time request that Prime Rate
Loans be converted to Eurodollar Rate Loans or that any existing
Eurodollar Rate Loans continue for an additional Interest Period.
Such request from Borrower shall specify the amount of the Prime
Rate Loans which will constitute Eurodollar Rate Loans (subject to
the limits set forth below) and the Interest Period to be applicable
to such Eurodollar Rate Loans. Subject to the terms and conditions
contained herein, three (3) Business Days after receipt by Lender of
such a request from Borrower, such Prime Rate Loans shall be
converted to Eurodollar
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Rate Loans or such Eurodollar Rate Loans shall continue, as the case
may be, provided, that, (i) no Event of Default, or event which with
notice or passage of time or both would constitute an Event of
Default exists or has occurred and is continuing, (ii) no party
hereto shall have sent any notice of termination or non-renewal of
this Agreement, (iii) Borrower shall have complied with such
customary procedures as are established by Lender and specified by
Lender to Borrower from time to time for requests by Borrower for
Eurodollar Rate Loans, (iv) no more than four (4) Interest Periods
may be in effect at any one time, (v) the aggregate amount of the
Eurodollar Rate Loans must be in an amount not less than $5,000,000
or an integral multiple of $1,000,000 in excess thereof, (vi) the
maximum amount of the Eurodollar Rate Loans at any time requested by
Borrower shall not exceed the amount equal to eighty (80%) percent
of the lowest principal amount of the Loans which it is anticipated
will be outstanding during the applicable Interest Period, in each
case as determined by Lender (but with no obligation of Lender to
make such Loans) and (vii) Lender shall have determined that the
Interest Period or Adjusted Eurodollar Rate is available to Lender
through the Reference Bank and can be readily determined as of the
date of the request for such Eurodollar Rate Loan by Borrower. Any
request by Borrower to convert Prime Rate Loans to Eurodollar Rate
Loans or to continue any existing Eurodollar Rate Loans shall be
irrevocable. Notwithstanding anything to the contrary contained
herein, Lender and Reference Bank shall not be required to purchase
United States Dollar deposits in the London interbank market or
other applicable Eurodollar Rate market to fund any Eurodollar Rate
Loans, but the provisions hereof shall be deemed to apply as if
Lender and Reference Bank had purchased such deposits to fund the
Eurodollar Rate Loans.
c. Any Eurodollar Rate Loans shall automatically convert to
Prime Rate Loans upon the last day of the applicable Interest
Period, unless Lender has received and approved a request to
continue such Eurodollar Rate Loan at least three (3) Business Days
prior to such last day in accordance with the terms hereof. Any
Eurodollar Rate Loans shall, at Lender's option, upon notice by
Lender to Borrower, convert to Prime Rate Loans in the event that
(i) an Event of Default or event which, with the notice or passage
of time, or both, would constitute an Event of Default, shall exist,
(ii) this Agreement shall terminate or not be renewed, or (iii) the
aggregate principal amount of the Prime Rate Loans which have
previously been converted to Eurodollar Rate Loans or existing
Eurodollar Rate Loans continued, as the case may be, at the
beginning of an Interest Period shall at any time during such
Interest Period exceed either (A) the aggregate principal amount of
the Loans then outstanding, or (B) the Revolving Loans then
available to Borrower under Section 2 hereof. Borrower shall pay to
Lender, upon demand by Lender (or Lender may, at its option, charge
any loan account of Borrower) any amounts required to compensate
Lender, the Reference Bank or any participant with Lender for any
loss (including loss of anticipated profits), cost or expense
incurred by such person, as a result of the conversion of Eurodollar
Rate Loans to Prime Rate Loans pursuant to any of the foregoing.
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d. Interest shall be payable by Borrower to Lender monthly in
arrears not later than the first day of each calendar month and
shall be calculated on the basis of a three hundred sixty (360) day
year and actual days elapsed. The interest rate on non-contingent
Obligations (other than Eurodollar Rate Loans) shall increase or
decrease by an amount equal to each increase or decrease in the
Prime Rate effective on the first day of the month after any change
in such Prime Rate is announced based on the Prime Rate in effect on
the last day of the month in which any such change occurs. In no
event shall charges constituting interest payable by Borrower to
Lender exceed the maximum amount or the rate permitted under any
applicable law or regulation, and if any such part or provision of
this Agreement is in contravention of any such law or regulation,
such part or provision shall be deemed amended to conform thereto.
e. In the event Borrower's Tangible Net Worth as defined in
Section 1.2 falls below seventy-five percent (75%) of the requisite
level as set forth in Section 9.15, the Interest Rate shall increase
by one-quarter of one percent (.25%)."
(e) Section 3.3 of the Loan Agreement is hereby amended to read in
its entirety as follows:
"Loan Servicing Fee. In addition to any fees or expenses payable by
Borrower under Section 9.16 hereof, Borrower shall pay to Lender an
annual loan servicing fee in an amount equal to Five Thousand
Dollars ($5,000),in respect of Lender's services for each year (or
part thereof) while this Agreement remains in effect and for so long
thereafter as any of the Obligations are outstanding, which fee
shall be fully earned as of the date hereof and on each annual
anniversary hereafter, such annual loan servicing fee to be payable
on a quarterly basis, in advance, with the first such quarterly
payment payable on the next scheduled quarterly payment and on the
first day of each quarter thereafter."
(f) Section 3.5 is hereby included in the Loan Agreement to read as
follows:
"Changes in Laws and Increased Costs of Loans.
a. Notwithstanding anything to the contrary contained herein,
all Eurodollar Rate Loans shall, upon notice by Lender to Borrower,
convert to Prime Rate Loans in the event that (i) any change in
applicable law or regulation (or the interpretation or
administration thereof) shall either (A) make it unlawful for
Lender, Reference Bank or any participant to make or maintain
Eurodollar Rate Loans or to comply with the terms hereof in
connection with the Eurodollar Rate Loans, or (B) shall result in
the increase in the costs to Lender, Reference Bank or any
participant of making or maintaining any Eurodollar Rate Loans by an
amount deemed by Lender to be material, or (C) reduce the amounts
received or receivable by Lender in respect thereof, by an amount
deemed by Lender to be
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material or (ii) the cost to Lender, Reference Bank or any
participant of making or maintaining any Eurodollar Rate Loans shall
otherwise increase by an amount deemed by Lender to be material.
Borrower shall pay to Lender, upon demand by Lender (or Lender may,
at its option, charge any loan account of Borrower) any amounts
required to compensate Lender, the Reference Bank or any participant
with Lender for any loss (including loss of anticipated profits),
cost or expense incurred by such person as a result of the
foregoing, including, without limitation, any such loss, cost or
expense incurred by reason of the liquidation or reemployment of
deposits or other funds acquired by such person to make or maintain
the Eurodollar Rate Loans or any portion thereof. A certificate of
Lender setting forth the basis for the determination of such amount
necessary to compensate Lender as aforesaid shall be delivered to
Borrower and shall be conclusive, absent manifest error.
b. If any payments or prepayments in respect of the Eurodollar
Rate Loans are received by Lender other than on the last day of the
applicable Interest Period (whether pursuant to acceleration, upon
maturity or otherwise), including any payments pursuant to the
application of collections under Section 6.3 or any other payments
made with the proceeds of Collateral, Borrower shall pay to Lender
upon demand by Lender (or Lender may, at its option, charge any loan
account of Borrower) any amounts required to compensate Lender, the
Reference Bank or any participant with Lender for any additional
loss (including loss of anticipated profits), cost or expense
incurred by such person as a result of such prepayment or payment,
including, without limitation, any loss, cost or expense incurred by
reason of the liquidation or reemployment of deposits or other funds
acquired by such person to make or maintain such Eurodollar Rate
Loans or any portion thereof."
(g) Section 12 of the Loan Agreement is replaced in its entirety to
read as follows:
"Term.
(a) This Agreement and the other Financing Agreements shall become
effective as of the date set forth on the first page hereof and
shall continue in full force and effect for a term ending on April
2, 2003. Regardless of the timing of termination, this Agreement and
all other Financing Agreements must be terminated simultaneously.
Upon the effective date of termination of the Financing Agreements,
Borrower shall pay to Lender, in full, all outstanding and unpaid
Obligations and shall furnish cash collateral to Lender in such
amounts as Lender determines are reasonably necessary to secure
Lender from loss, cost, damage or expense, including reasonable
attorneys' fees and legal expenses, in connection with any
contingent Obligations, including issued and outstanding Letter of
Credit Accommodations and checks or other payments provisionally
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credited to the Obligations and/or as to which Lender has not yet
received final and indefeasible payment. Such cash collateral shall
be remitted by wire transfer in Federal funds to such bank account
of Lender, as Lender may, in its discretion, designate in writing to
Borrower for such purpose. Interest shall be due until and including
the next Business Day, if the amounts so paid by Borrower to the
bank account designated by Lender are received in such bank account
later than 3:00 p.m., New York time.
(b) No termination of this Agreement or the other Financing
Agreements shall relieve or discharge Borrower of its respective
duties, obligations and covenants under this Agreement or the other
Financing Agreements until all Obligations have been fully and
finally discharged and paid, and Lender's continuing security
interest in the Collateral and the rights and remedies of Lender
hereunder, under the other Financing Agreements and applicable law,
shall remain in effect until all such Obligations have been fully
and finally discharged and paid.
(c) If for any reason this Agreement is terminated prior to the end
of the then current term or any agreed upon renewal term of this
Agreement, in view of the impracticality and extreme difficulty 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) 1% of the Maximum Credit from the date of this Agreement
to April 2, 2002
(ii) .5% of the Maximum Credit from April 3, 2002 to April 2,
2003
Such early termination fee shall be presumed to be the amount of damages
sustained by Lender as a result of such early termination and Borrower agrees
that it is reasonable under the circumstances currently existing. Lender shall
be entitled to such early termination fee upon the occurrence of any Event of
Default described in Sections 10.2(i) and 10.1(j) hereof, even if Lender does
not exercise its right to terminate this Agreement, but elects, at its option,
to provide financing to Borrower or permit the use of cash collateral under the
United States Bankruptcy Code; provided, however, if Lender waives such Event of
Default, does not exercise its rights to terminate this Agreement and continues
financing Borrower, such early termination fee shall not be due and payable by
Borrower at such time. The early termination fee provided for in this Section
12.1 shall be deemed included in the Obligations.
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Notwithstanding the foregoing, the early termination fee shall
be waived (a) if the termination is due to the refinancing of the
Obligations by First Union National Bank and if there is no Event of
Default or event or circumstance which, with notice or passage of
time or both, would become an Event of Default under this Agreement
or (b) if Borrower chooses to exercise the right to terminate this
Agreement and the other Financing Agreements upon any assignment by
Lender of its rights or obligations under or related to this
Agreement or the other Financing Agreements to a non-U.S. Lender,
defined as any Lender that is not a "United States person," within
the meaning of Section 7701(a)(30) of the Code.
2. Amendment Fee. Borrower shall pay Lender an amendment fee in the amount
of Twenty Five Thousand Dollars ($25,000) for the processing and approval of
this Amendment, which fee will be fully earned on the date of this Amendment.
3. Effectiveness of this Amendment. Lender must have received the
following items, in form and content acceptable to Lender, before this Amendment
is effective and before Lender is required to extend any credit to Borrower as
provided for by this Amendment.
(a) Amendment. This Amendment fully executed in a sufficient number
of counterparts for distribution to Lender and Borrower.
(b) Representations and Warranties. The representations and
warranties set forth herein and in the Loan Agreement must be true and
correct.
(c) Payment of Fee. Borrower shall pay the Amendment Fee required by
Section 2.
(d) Other Required Documentation. All other documents and legal
matters in connection with the transaction contemplated by this Amendment
shall have been delivered or executed or recorded and shall be in form and
substance satisfactory to Lender.
4. Representations and Warranties. The Borrower represents and warrants as
follows:
(a) Authority. The 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 the Borrower of this Amendment have been duly approved 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 Borrower. No other corporate proceedings are
necessary to consummate such transactions.
(b) Enforceability. This Amendment has been duly executed and
delivered by the Borrower. This Amendment and each Financing Agreement (as
amended or modified hereby) is the legal, valid and binding obligation of
Borrower, enforceable against
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Borrower in accordance with its terms, and is in full force and effect.
(c) Representations and Warranties. The representations and
warranties contained in each Financing Agreement (other than any such
representations or warranties that, by their terms, are specifically made
as of a date other than the date hereof) are correct on and as of the date
hereof as though made on and as of the date hereof.
5. 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 construed in accordance with the internal
laws of the State of New York governing contracts only to be performed in that
State.
6 . 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.
7. 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
Borrower to Lender.
(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 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.
8. Ratification. 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.
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9. Estoppel. To induce Lender to enter into this Amendment and to continue
to make advances to Borrower under the Loan Agreement, Borrower hereby
acknowledges and agrees that, after giving effect to this Amendment, as of the
date hereof, there exists no Event of Default and no right of offset, defense,
counterclaim or objection in favor of Borrower as against Lender with respect to
the Obligations.
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IN WITNESS WHEREOF, the parties have entered into this Amendment as of the
date first above written.
"BORROWER"
ALLIED FASHION INC.,
a Delaware corporation
By: /s/ G. BELLINO
------------------------------------
Title: President
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"LENDER"
CONGRESS FINANCIAL CORPORATION
(SOUTHWEST), a Texas corporation
By: /s/ JOE T. CURDY
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Title: AVP
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