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EXHIBIT 10.38
THIRD AMENDMENT AND WAIVER TO CREDIT AGREEMENT
THIS THIRD AMENDMENT AND WAIVER TO CREDIT AGREEMENT (this "Amendment") is
entered into as of November 1, 1995 by and among Fretter, Inc., a Michigan
corporation (the "Borrower"), the LENDERS listed on the signature pages hereof,
and BT COMMERCIAL CORPORATION, as Agent, in its capacity as Agent for the
Lenders. Words and phrases having defined meanings in the Existing Credit
Agreement referred to below shall have the same respective meanings when used
herein, unless otherwise expressly defined herein.
WITNESSETH:
WHEREAS, the parties hereto have entered into a Credit Agreement, dated as
of November 30, 1993, relating to a revolving credit facility in an amount not
to exceed $140,000,000 for the Borrower's ongoing working capital, letter of
credit and general corporate needs, as amended by that certain First Amendment
to Credit Agreement dated as of January 26, 1994 and that certain Second
Amendment to Credit Agreement dated as of October 28, 1994 (as so amended, the
"Existing Credit Agreement" and as amended by this Amendment, the "Credit
Agreement");
WHEREAS, in connection with the Borrower's closing of numerous retail
store locations and a decreased need for working capital financing the Borrower
has requested that the Lenders decrease their Commitments by an aggregate
amount equal to $90,000,000; and
WHEREAS, the Borrower and the Lenders desire to make certain other
amendments and modifications to the Existing Credit Agreement;
NOW THEREFORE, in consideration of the premises and the mutual agreements
set forth herein and for other consideration the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
1. Amendments to Existing Credit Agreement. Subject to and conditioned
upon the fulfillment of each of the conditions precedent set forth in Section 4
hereto:
1.1 Annex I to the Existing Credit Agreement is hereby amended by deleting
the terms thereof in their entirety and inserting Annex I attached hereto
therefor. On the effective date of this Amendment, the Borrower shall pay to
each Lender the amount by which the outstanding principal balance of the
Revolving Loans of each Lender exceeds such Lender's Commitment (as amended by
this Amendment) together with all accrued interest and fees owed to such Lender
(other than attorneys' fees and expenses). From and after the date hereof, any
such Lender whose Commitment, as listed on Annex I, is $0 shall no longer
constitute a "Lender" for purposes of the Credit Agreement with
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respect to any events or acts which occur after the date of such payment.
1.2 Section 1.1 (General Definitions) of the Existing Credit Agreement is
hereby amended by deleting the definition of Borrowing Base set forth therein
and inserting the following therefor:
Borrowing Base means the sum of:
(A) eighty-five percent (85%) of Eligible Accounts Receivable, plus;
(B) fifty percent (50%) of Eligible Inventory (provided, that the
percentage set forth in this clause B shall be sixty-five percent (65%)
from and including November 1, 1995 to and including January 31, 1996),
minus;
(C) the aggregate amount of reserves, if any, established by the
Agent under Section 2.1(b).
1.3 Section 1.1 of the Existing Credit Agreement is hereby further amended
by deleting the definition of EBITDA set forth therein and inserting the
following therefor:
EBITDA for a period means the consolidated net income (determined
without giving effect to preferred stock dividends declared during such
period and without regard to the cumulative tax effect, if any, of net
operating losses utilized on goodwill and net worth and determined as if
goodwill is amortized over a 30-year period) of the Borrower and its
Subsidiaries other than any Dixon Entities or Fretter Auto (excluding
extraordinary items) (a) plus all Interest Expense (less interest income,
if any), income tax expense, depreciation and amortization (including
amortization of any goodwill or other intangibles), (b) less gains and
plus losses attributable to any fixed asset sales, (c) plus or minus any
other non-cash charges which have been subtracted or added in calculating
consolidated net income of the Borrower and its Subsidiaries (other than
any Dixon Entities or Fretter Auto) and (d) plus amounts expended by the
Borrower in connection with the closing of its operations in the Boston
metropolitan area.
1.4 Section 1.1 of the Existing Credit Agreement is hereby further amended
by deleting the definition of Insolvency Event set forth therein and inserting
the following therefor:
Insolvency Event means, with respect to any Person, the occurrence
of any of the following: (a) a voluntary or involuntary petition for
bankruptcy or other relief involving that Person, its assets or its
liabilities under the Bankruptcy Code or any similar statute, (b) an
assignment of its assets for the benefit of creditors, (c)
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its failure or suspension of business operations, or (d) appointment of a
receiver or trustee for it or a substantial portion of its assets.
1.5 Section 1.1 of the Existing Credit Agreement is hereby further
amended by deleting the definition of Interest Expense set forth therein and
inserting the following therefor:
Interest Expense means the consolidated expense of the Borrower and
its Subsidiaries other than any Dixon Entities or Fretter Auto for
interest on Indebtedness, including, without limitation, amortization
of original issue discount, incurrence fees (to the extent included in
interest expense), the interest portion of any deferred payment
obligation and the interest component of any capital lease obligation;
provided, however, that the closing fees paid to the Agent and the
Lenders in connection with the execution and delivery of the Third
Amendment to this Credit Agreement (and the amortization thereof) shall
be deemed not to constitute Interest Expense.
1.6 Section 1.1 of the Existing Credit Agreement is hereby amended by
amending the definition of Eligible Inventory set forth therein by changing the
period at the end of subsection (f) thereof to a semi-colon, adding the word
"or" thereafter, and adding the following new subsection (g) as follows:
(g) it is in the possession or under the control of, or it is
located at any location that is owned by, leased by, operated by or under
the possession or control of, any of the Dixon Entities or Fretter Auto.
1.7 Section 1.1 of the Existing Credit Agreement is hereby amended by
adding the following defined terms to Section 1.1 in alphabetical order:
Dixon Entities means any of Dixons US, Silo Holdings, Inc., Silo,
Inc., Silo-Dixon, Inc., Silo California, Inc., Tipton Centers, Inc., BB
Lease Co., Silo Financial Services, Inc., and Silo Distribution Services,
Inc.
Fretter Auto means, collectively, Fretter Auto Sound, Inc., and its
wholly owned subsidiary, The New Haney's Company, Inc.
1.8 Section 3.1(a) of the Existing Credit Agreement is hereby amended by
deleting the term "$25,000,000" set forth therein and inserting the term
"$15,000,000" therefor.
1.9 Section 4.7(a) of the Existing Credit Agreement is hereby amended by
deleting the terms thereof in their entirety and inserting the following
therefor:
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(a) General Provisions. Subject to the provisions set forth
in the fee letter executed by the Borrower in favor of the Lenders in
connection with the Third Amendment and Waiver to this Credit Agreement,
if the Commitments are reduced or terminated for any reason (including
as a result of the occurrence of an Insolvency Event) prior to the
Expiration Date, the Borrower will pay to the Agent, for the ratable
benefit of the Lenders, a fee (the "Early Termination Fee") in an amount
equal to two percent (2%) of the amount of each such reduction.
1.10 Section 6.13 (No Defaults) of the Existing Credit Agreement is
hereby amended by adding the following sentence at the end thereof:
Neither the Borrower nor Fred Schmid Appliance & TV Co. ("Fred Schmid")
is in payment default under the term of any lease to which either of them
is a party or for which either of them is liable (contingently or
otherwise) covering any retail store or warehouse location of the
Borrower or Fred Schmid or any other Person, which default could
reasonably be expected to have a Material Adverse Effect.
1.11 Sections 8.1 (Consolidated Book Net Worth) and 8.2 (Consolidated
Net Income) of the Existing Credit Agreement are hereby amended by deleting the
terms thereof in their entirety.
1.12 Section 8.3 of the Existing Credit Agreement is hereby amended by
deleting the terms thereof in their entirety and inserting the following
therefor:
8.3 Interest Coverage Ratio. The Borrower shall have as of the
end of each of its fiscal quarters a ratio of EBITDA to Interest Expense
for such quarter of not less than 1.0 to 1.
1.13 Section 8.4 (Capital Expenditures) of the Existing Credit
Agreement is hereby amended by deleting the first sentence thereof in its
entirety and inserting the following therefor:
The Borrower and its Subsidiaries shall not make payments for Capital
Expenditures in excess of $25,000,000 in the aggregate per fiscal year;
provided, however that during the period commencing October 1, 1995
through the Expiration Date the Borrower and its Subsidiaries shall not
make payments for Capital Expenditure in excess of $5,000,000.
1.14 Section 8.5 (Debt Service) of the Existing Credit Agreement is
hereby amended by deleting the terms thereof in their entirety.
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1.15 Section 8.10 of the Existing Credit Agreement is hereby amended
by deleting the terms thereof in their entirety and inserting the following
therefor:
8.10 Restricted Payments. The Borrower shall not, and shall not
permit any of its Subsidiaries (other than Dixon Entities or Fretter
Auto) to, directly or indirectly, (a) declare or pay any dividend (other
than dividends payable solely in common stock of the Borrower) on, or
make any payment on account of, or set apart assets for a sinking or
other analogous fund for, the purchase, redemption, defeasance,
retirement or other acquisition of, any shares of any class of capital
stock of the Borrower or any warrants, options or rights to purchase any
such capital stock, whether now or hereafter outstanding, or make any
other distribution in respect thereof, either directly or indirectly,
whether in cash or property or in obligations of the Borrower or any of
its Subsidiaries except that any Subsidiary may declare and pay dividends
to the Borrower or any other Subsidiary except as provided herein; or (b)
make any optional payment or prepayment on or redemption (including,
without limitation, by making payments to a sinking or analogous fund) or
repurchase of any Indebtedness (other than Indebtedness pursuant to this
Credit Agreement) or of any Mandatory Redeemable Obligation; provided that
any Subsidiary may make payments on account of Indebtedness owing to the
Borrower or any other Subsidiary in accordance with the terms thereof,
except as provided herein. Notwithstanding anything to the contrary in
this Agreement, the Borrower shall not, and shall not permit any of its
Subsidiaries (other than Dixon Entities or Fretter Auto) to, declare or
pay any dividend to (other than dividends payable solely in common stock
of the Borrower), loan or transfer any funds to, pay any indebtedness on
account of, or transfer any Collateral to any Dixon Entities or Fretter
Auto; provided, however, that amounts in an aggregate amount not to
exceed $1,000,000 may be transferred by the Borrower to the Dixon
Entities or Fretter Auto to pay liabilities of such Persons for (i)
operating expenses in connection with the operation of the five stores
leased by the Dixon Entities and operated as Fred Schmid stores in the
State of Colorado, (ii) severance costs related to the termination of
employees of the Dixon Entities or Fretter Auto and (iii) COBRA
liabilities of Silo, Inc.
1.16 Section 8.17 (No Corporate Changes) of the Existing Credit
Agreement is hereby amended by deleting the last clause of Section 8.17, which
begins with the words "provided that", and replacing that clause with the
following:
provided that, notwithstanding the foregoing, none of the Dixon
Entities or Fretter Auto shall be merged or consolidated with the
Borrower or any Subsidiary (other than any of the Dixon Entities
or Fretter Auto).
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1.17 Section 9.1(f) of the Existing Credit Agreement is hereby
amended by deleting the terms thereof in their entirety and inserting the
following therefor:
(f) The Borrower or any other Credit Party (other than any such
other Credit Party having a net worth that is less than 5% of the
aggregate net worth of all of the Credit Parties and other than Fretter
Auto or any of the Dixon Entities) shall become the subject of an
Insolvency Event, and in the case of any Insolvency Event which is not
commenced by the Borrower or the applicable Credit Party, such Insolvency
Event is not resolved or dismissed within thirty (30) days.
1.18 Section 9.1 (Events of Default and Remedies) of the Existing
Credit Agreement is hereby further amended by inserting the following Section
9.1(k) at the end thereof:
(k) Maximum Outstanding Obligations. The Borrower shall fail to
reduce on at least one Business Day between January 24, 1996 and February
7, 1996 the aggregate outstanding balance of all Revolving Loans plus the
principal amount of all outstanding Letter of Credit Obligations with
respect to all Letters of Credit to an amount not greater than
$25,000,000.
2. Waiver of Early Termination Fee. Subject to and conditioned upon
the fulfillment of each of the conditions precedent set forth in Section 4
hereto, each of the Lenders hereby waives any Early Termination Fee which it
may have been entitled to pursuant to the terms of the Existing Credit
Agreement as a result of the reduction of the Commitments from $140,000,000 to
$50,000,000 pursuant to the terms of this Amendment.
3. Waiver of Existing Events of Default and Certain Future Events of
Default. Subject to and conditioned upon the fulfillment of each of the
conditions precedent set forth in Section 4 hereto, effective as of the date
hereof, each of the Lenders agrees to waive:
(i) the Events of Default under the Existing Credit Agreement which
have arisen directly as a result of the Borrower's failure to comply with
requirements of Section 8.1 (Consolidated Book Net Worth), 8.2
(Consolidated Net Income), or 8.3 (Interest Coverage Ratio) for the
period commencing August 1, 1995 through the date hereof;
(ii) the Events of Default under Section 9.1(h) of the Existing
Credit Agreement which have arisen solely as a result of the existence of
certain events of default under the Fixed Asset Loan Credit Documents or
the ITT Agreement for the period commencing August 1, 1995 through the
date hereof;
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(iii) any Event of Default which may arise upon or after the
commencement of an Insolvency Event (as defined in the Existing Credit
Agreement) by or against any Dixon Entities or Fretter Auto as a result
of the failure of any Dixon Entities or Fretter Auto to comply (or the
Borrower's failure to cause any of the Dixon Entities or Fretter Auto to
comply) with any requirement set forth in the Credit Agreement or any
other Credit Document applicable to any Dixon Entities or Fretter Auto;
and
(iv) Any Material Adverse Effect that consists of a material adverse
effect solely upon, or that is solely attributable to the initiation of
an Insolvency Event by or against, any Dixon Entities or Fretter Auto.
4. Conditions Precedent to Amendment and Waiver Effectiveness. The
amendments and modifications set forth in Section 1 and the waivers set forth
in Section 3 hereof shall become effective upon, and are expressly conditioned
upon, the fulfillment of each of the following conditions precedent (unless
waived by the Majority Lenders, or in the case of paragraph (h) below each of
the Lenders receiving the payments described therein):
(a) The Agent shall have received original executed
counterparts of this Amendment from the Borrower and each of the Lenders.
(b) The Agent shall have received a copy of a resolution of the
Board of Directors of the Borrower and each of its Subsidiaries
identified in Section 4(c) authorizing the execution and delivery of
this Amendment (or, in the case of Subsidiaries, the consent described in
Section 4(c) and the release described in Section 4(d)), certified by
the Secretary or an Assistant Secretary of the Borrower or the
Subsidiary, as applicable.
(c) Each Subsidiary of the Borrower which has executed a
Guarantee shall have executed a Consent satisfactory in form and
substance to the Agent reaffirming such Subsidiary's obligations under
its respective Guarantee and consenting to the Borrower's execution,
delivery and performance of this Amendment.
(d) The Agent shall have received a release in the form of
Exhibit A hereto executed by the Borrower and each Guarantor.
(e) The Agent shall have received an opinion of counsel of the
Borrower in form and substance satisfactory to the Agent.
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(f) The Agent and the Lenders shall have received the fees
provided in those certain letter agreements of even date herewith
executed by the Borrower.
(g) The Borrower and Michigan National shall have entered into
an amendment and waiver to the Fixed Asset Loan Credit Documents in form
and substance satisfactory to the Agent providing for, among other things,
the waiver of all existing defaults and events of defaults thereunder and
the amendment of certain covenants set forth therein.
(h) Concurrently with the effectiveness of this Amendment, the
Lenders shall have received the amounts required to be paid pursuant to
Section 1.1 of this Amendment.
5. Representations and Warranties. In order to induce the Lenders to
enter into this Amendment, the Borrower hereby represents and warrants to the
Lenders as follows:
(a) The execution, delivery and performance by the Borrower of
this Amendment (i) are within the Borrower's corporate powers, (ii) have
been duly authorized by all necessary corporate action, (iii) require no
action by or in respect of, or filing with, any governmental body,
agency or official, (iv) do not contravene, or constitute a default
under, any provision of any applicable law, statute, ordinance,
regulation, rule, order or other governmental restriction or of the
Articles or Certificate of Incorporation or By-Laws of the Borrower, (v)
do not contravene, or constitute a default under, any agreement,
judgment, injunction, order, decree, indenture, contract, lease,
instrument or other commitment to which the Borrower is a party or by
which the Borrower or any of its assets are bound and (vi) will not
result in the creation or imposition of any Lien upon any asset of the
Borrower under any existing indenture, mortgage, deed of trust, loan or
credit agreement or other agreement or instrument to which the Borrower
is a party or by which it or any of its assets may be bound or affected.
(b) This Amendment and the Existing Credit Agreement as
amended by this Amendment are the legal, valid and binding obligation of
the Borrower, and are enforceable against the Borrower in accordance with
their terms.
(c) The representations and warranties contained in the Existing
Credit Agreement and the other Credit Documents, except as expressly
modified, deleted, or waived in this Amendment, are true and correct in
all material respects on and as of the date hereof as though made on the
date hereof, except to the extent that such representations expressly
relate solely to an earlier date (in which case
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such representations and warranties were true and accurate on and as of
such earlier date).
(d) Except for the Events of Default which are being waived
pursuant to Sections 2 and 3 above, no Default or Event of Default has
occurred and is continuing.
6. Reference to and Effect Upon the Existing Credit Agreement. Upon
the effectiveness of this Amendment, each reference in the Existing Credit
Agreement to "the Agreement", "hereunder", "hereof", "herein", or words of like
import, shall mean and be a reference to the Existing Credit Agreement, as
amended hereby, and each reference to the Existing Credit Agreement in any
other Credit Document shall mean and be a reference to the Existing Credit
Agreement, as amended hereby.
7. Reaffirmation; Expenses. The Borrower hereby reaffirms to the
Agent and each of the Lenders that, except as modified hereby, the Existing
Credit Agreement and all of the Credit Documents remain in full force and
effect and have not been otherwise waived, modified or amended. Except as
expressly modified hereby, all of the terms and conditions of the Existing
Credit Agreement shall remain unaltered and in full force and effect. The
Borrower acknowledges that all legal expenses of the Agent related to this
Amendment shall be paid by the Borrower.
8. Choice of Law. This Amendment has been delivered in Chicago,
Illinois, and shall be governed by and construed in accordance the laws and
decisions of the State of Illinois without giving effect to the conflicts of
law principles thereunder.
9. Counterparts. This Amendment may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. One or more
counterparts of this Amendment may be delivered by telecopier, with the
intention that they shall have the same effect as an original counterpart
thereof.
[SIGNATURE PAGES FOLLOW]
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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed and delivered by their proper and duly authorized officers as of the
date set forth above.
BORROWER:
FRETTER, INC.,
a Michigan corporation
By
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Title:
AGENT:
BT COMMERCIAL CORPORATION,
as Agent
By
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Vice President
LENDERS:
BT COMMERCIAL CORPORATION
By
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Vice President
SANWA BUSINESS CREDIT CORPORATION
By
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Title:
HARRIS TRUST AND SAVINGS BANK
By
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Title:
LASALLE NATIONAL BANK
By
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Title:
MERCANTILE BUSINESS CREDIT, INC.
By
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Title:
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THE BANK OF NEW YORK COMMERCIAL
CORPORATION
By
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Title:
HELLER FINANCIAL, INC.
By
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Title:
NATIONSBANK BUSINESS CREDIT
By
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Title:
NATIONAL CANADA FINANCE CORP.
By
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Title:
By
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Title:
NBD BANK (f/k/a NBD BANK, N.A.)
By
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Title:
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CONSENT
By Subsidiary Guarantee dated as of November 30, 1993 (each a
"Guarantee"), each of the undersigned (the "Guarantors") guaranteed to the
Guaranteed Parties (as defined therein), subject to the terms, conditions and
limitations set forth therein, the prompt payment and performance of all of the
Guaranteed obligations (as defined therein). Each Guarantor consents to the
Borrower's execution of the foregoing Third Amendment and Waiver to Credit
Agreement and acknowledges the continued validity, enforceability and
effectiveness of the Guarantee executed by it with respect to all loans,
advances and extensions of credit to the Borrower, whether heretofore or
hereafter made, together with all interest thereon and all expenses in
connection therewith.
FRETTER AUTO SOUND, INC.
FRETTER ACQUISITION COMPANY, INC.
FRED SCHMID APPLIANCE & TV CO.
FRETTER REAL ESTATE COMPANY
SILO HOLDINGS, INC.
SILO, INC.
SILO CALIFORNIA, INC.
SILO-DIXON, INC.
DIXONS U.S. HOLDINGS, INC. FRETTER
WAREHOUSE COMPANY, INC.
By
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Title:
Dated: November 1, 1995
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ANNEX I
Name and Address of Lender Commitment
- - -------------------------- -----------
BT Commercial Corporation $15,000,000
233 South Wacker Drive
Suite 8400
Chicago, Illinois 60606
Attn: Wayne D. Hillock
Phone No.: 312-993-8155
Fax No: 312-993-8096
Sanwa Business Credit $13,000,000
Corporation
One South Wacker Drive
Chicago, Illinois 60606
Attn: Barbara A. Horton,
Account Executive
Phone: 312-853-8051
Fax: 312-782-6035
Harris Trust and Savings Bank $0
111 West Monroe Street
Chicago, Illinois 60690
Attn: M. Elizabeth Gilliam/
Patrick McDonnell-2West
Phone: 312-461-5111 (EG)
Phone: 312-461-5054 (PM)
Fax: 312-461-2591
LaSalle National Bank $15,000,000
120 South LaSalle Street
Suite 509
Chicago, Illinois 60603
Attn: Christopher G. Clifford,
Vice President
Phone: 312-781-8415
Fax: 312-750-6450
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Name and Address of Lender Commitment
- - -------------------------- ----------
Mercantile Business Credit, $0
Inc.
100 South Brentwood Blvd.
Suite 500
St. Louis, MO 63105
Attn: Jeanne Gieseke, Vice
President
Phone: 314-579-8447
Fax: 314-579-8502
The Bank of New York $0
Commercial Corporation
1290 Avenue of the Americas
3rd Floor
New York, NY 10104
Attn: Dan Murray, Vice
President
Phone: 212-408-4088
Fax: 212-408-4313
Heller Financial, Inc. $0
500 West Monroe, 18th Floor
Chicago, Illinois 60661
Attn: Joel Richards, Vice
President
Phone: 312-441-7439
Fax: 312-441-7026
NationsBank Business Credit, $7,000,000
Inc.
901 Main Street, 6th Floor
Dallas, TX 75202
Attn: Bart Bearden, Vice
President
Phone: 214-508-0433
Fax: 214-508-3501
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Name and Address of Lender Commitment
- - -------------------------- ----------
National Canada Finance Corp. $0
American Center Building
27777 Franklin Road, Suite
1570
Southfield, MI 48034
Attn: Jeffrey C. Angell,
Vice President
Phone: 810-354-4800
Fax: 810-354-1768
NBD Bank $0
1190 First National Building
Detroit, MI 48226
Attn: Bruce Thompson
Phone: 313-225-4337
Fax: 313-225-4355
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