EXHIBIT 10.1 AMENDMENT NO. 2 TO CREDIT AGREEMENT.
AMENDMENT NO. 2 TO CREDIT AGREEMENT
This AMENDMENT NO. 2 TO CREDIT AGREEMENT (this "Amendment") is entered into
as of this 1st day of August, 2002, by NAVARRE CORPORATION, a Minnesota
corporation, ("Borrower"), GENERAL ELECTRIC CAPITAL CORPORATION, as agent (the
"Agent") for itself and the Lenders under and as defined in the Credit Agreement
(as hereinafter defined), and the Lenders. Unless otherwise specified herein,
capitalized terms used in this Amendment shall have the meanings ascribed to
them by the Credit Agreement (as hereinafter defined).
RECITALS
WHEREAS, the Borrower, the Agent and the Lenders have entered into that
certain Credit Agreement, dated as of October 3, 2001 (as amended, supplemented,
restated or otherwise modified from time to time, the "Credit Agreement");
WHEREAS, the Borrower desires to form a new Subsidiary to be named Encore
Acquisition Corporation in the state of Minnesota ("Encore Acquisition");
WHEREAS, Encore Acquisition will purchase the assets of Encore Software,
Inc., a California corporation ("Encore Software") pursuant to that certain
Amended and Restated Asset Purchase Agreement dated as of July 10, 2002, between
Borrower, as buyer and Encore Software, as seller (together with any exhibits,
schedules and any other annexes or supplements thereto, as amended, pursuant to
that certain Amendment No. 1 to Amended and Restated Asset Purchase Agreement
dated as of July 31, 2002, (the "Amendment No 1 to Encore Purchase Agreement")
between Borrower and Encore Software (including an assignment by Borrower to
Encore Acquisition), the "Purchase Agreement") for an aggregate purchase price
not to exceed $11,000,000 (the "Purchase Price"), which transaction will be
referred to herein as the "Purchase"; and
WHEREAS, the Borrower, Agent and the Lenders desire to amend certain
provisions on the Credit Agreement as herein set forth.
NOW THEREFORE, in consideration of the foregoing recital, mutual agreements
contained herein and for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Borrower, the Agent, and
Lenders hereby agree as follows:
SECTION 1. AMENDMENTS.
(a) Section 6.1 of the Credit Agreement is hereby amended and restated
to read in its entirety as follows:
"6.1. Mergers, Subsidiaries, Etc. Without the prior written consent of the
Agent (which consent may be provided or withheld in the Agent's sole
discretion), no Credit Party shall directly or indirectly, by operation of law
or otherwise, (a) form or acquire any Subsidiary, or (b) merge with, consolidate
with, acquire all or substantially all of the assets or Stock of, or otherwise
combine with or acquire, any Person; provided, however that (i) the Borrower may
form Encore Acquisition and (ii) Encore Acquisition may acquire the assets of
Encore Software pursuant to and in accordance with the Encore Purchase
Agreement."
(b) Section 6.2 of the Credit Agreement is hereby amended and restated
to read in its entirety as follows:
"6.2. Investments; Loans and Advances. No Credit Party shall make or permit
to exist any investment in, or make, accrue or permit to exist loans or advances
of money to, any Person, through the direct or indirect lending of money,
holding of securities or otherwise, except that: (a) Borrower may hold
investments comprised of notes payable, or stock or other securities issued by
Account Debtors to Borrower pursuant to negotiated agreements with respect to
settlement of such Account Debtor's Accounts in the ordinary course of business,
so long as the aggregate amount of such Accounts so settled by Borrower does not
exceed $500,000; (b) each Credit Party may maintain its existing investments in
its Subsidiaries as of the Closing Date; (c) Borrower may maintain Eligible
Certificate of Deposits; (d) so long as no Default or Event of Default has
occurred and is continuing and there is no outstanding Revolving Loan balance,
Borrower may make investments, subject to Control Letters in favor of Agent for
the benefit of Lenders or otherwise subject to a perfected security interest in
favor of Agent for the benefit of Lenders, in (i) marketable direct obligations
issued or unconditionally guaranteed by the United States of America or any
agency thereof maturing within one year from the date of acquisition thereof,
(ii) commercial paper maturing no more than one year from the date of creation
thereof and currently having the highest rating obtainable from either Standard
& Poor's Ratings Group or Moody's Investors Service, Inc., (iii) certificates of
deposit maturing no more than one year from the date of creation thereof issued
by commercial banks incorporated under the laws of the United States of America,
each having combined capital, surplus and undivided profits of not less than
$300,000,000 and having a senior unsecured rating of "A" or better by a
nationally recognized rating agency (an "A Rated Bank"), (iv) time deposits
maturing no more than 30 days from the date of creation thereof with A Rated
Banks and (v) mutual funds that invest solely in one or more of the investments
described in clauses (i) through (iv) above; (e) advances to Vendors described
in Part A of Disclosure Schedule 6.2; (f) advances to Vendors as long as the
aggregate outstanding amount of advances to Vendors permitted solely pursuant to
Section 6.2(e) and this Section 6.2(f) does not exceed $7,278,000 at any time
(provided, however, that the amount set forth in this Section 6.2(e) shall be
reduced from time to time by the amount of advances to Vendors permitted by
Section 6.2(e) and/or Section 6.2(f) which have been, or should be in accordance
with Borrower's policies, written off as uncollectible); (g) advances to Vendors
described in Part B of Disclosure Schedule 6.2; (h) advances by a Credit Party
to its employees expressly permitted by Section 6.4(b) hereof; (i) on or about
July 31, 2002, Borrower may make an investment through a loan in Encore
Acquisition in an aggregate amount not to exceed $6,000,000, (j) Borrower may
make loans to Encore Acquisition in an aggregate outstanding principal amount
not to exceed, at any time, the lesser of (i) $5,000,000 and (ii) an amount
equivalent to the book value of the Accounts and Inventory of Encore Acquisition
at such time, as long as there is at least one 30 day consecutive period between
April 1 and June 30 of each year when the outstanding balance of such loans is
zero and (k) other investments not exceeding $100,000 in the aggregate at any
time outstanding."
(c) Section 6.3 of the Credit Agreement is hereby amended and restated
to read in its entirety as follows:
"6.3. Indebtedness.
(a) No Credit Party shall create, incur, assume or permit to exist any
Indebtedness, except (without duplication) (i) Indebtedness secured by purchase
money security interests and Capital Leases permitted in Section 6.7(c), (ii)
the Loans and the other Obligations, (iii) unfunded pension fund and other
employee benefit plan obligations and liabilities to the extent they are
permitted to remain unfunded under applicable law, (iv) existing Indebtedness
described in Disclosure Schedule (6.3) and refinancings thereof or amendments or
modifications thereof that do not have the effect of increasing the principal
amount thereof or changing the amortization thereof (other than to extend the
same) and that are otherwise on terms and conditions no less favorable to any
Credit Party, Agent or any Lender, as determined by Agent, than the terms of the
Indebtedness being refinanced, amended or modified, (v) Indebtedness permitted
pursuant to Section 6.2(j) hereof and (vi) Indebtedness of Encore Acquisition to
the Borrower in an aggregate amount not to exceed $7,200,000, Indebtedness of
Borrower to Encore Software incurred pursuant to Section 5 of the Amendment No.
1 to Encore Purchase Agreement in an aggregate principal amount not to exceed
$1,150,000, and Indebtedness incurred by Encore Acquisition under the Comerica
Loan Agreement; provided that, no Credit Party (other than Encore Acquisition)
shall guarantee, grant liens on its assets (including, without limitation, the
equity interests in Encore Acquisition) to secure, or otherwise be directly or
indirectly liable for any such Indebtedness or related obligations.
(b) No Credit Party shall, directly or indirectly, voluntarily purchase,
redeem, defease or prepay any principal of, premium, if any, interest or other
amount payable in respect of any Indebtedness, other than (i) the Obligations;
(ii) Indebtedness secured by a Permitted Encumbrance if the asset securing such
Indebtedness has been sold or otherwise disposed of in accordance with Sections
6.8(b) or (c); (iii) Indebtedness permitted by Section 6.3(a)(iv) upon any
refinancing thereof in accordance with Section 6.3(a)(iv); and (iv) other
Indebtedness not in excess of $250,000; and (v) as otherwise permitted in
Section 6.14."
(d) Section 6.7 of the Credit Agreement is hereby amended and restated to
read in its entirety as follows:
"6.7 Liens
No Credit Party shall create, incur, assume or permit to exist any Lien on
or with respect to its Accounts or any of its other properties or assets
(whether now owned or hereafter acquired) except for (a) Permitted Encumbrances;
(b) Liens in existence on the date hereof and summarized on Disclosure Schedule
(6.7) securing Indebtedness described on Disclosure Schedule (6.3) and permitted
refinancings, extensions and renewals thereof, including extensions or renewals
of any such Liens; provided that the principal amount so secured is not
increased and the Lien does not attach to any other property; and (c) (i) Liens
created after the date hereof by conditional sale or other title retention
agreements (including Capital Leases) or in connection with purchase money
Indebtedness with respect to Equipment and Fixtures acquired by any Credit Party
in the ordinary course of business, involving the incurrence of an aggregate
amount of purchase money Indebtedness and Capital Lease Obligations of not more
than $250,000 outstanding at any one time for all such Liens (provided that such
Liens attach only to the assets subject to such purchase money debt and such
Indebtedness is incurred within 20 days following
such purchase and does not exceed 100% of the purchase price of the subject
assets) and (ii) Liens in favor of Comerica Bank solely to secure Indebtedness
permitted pursuant to Section 6.3(vi) hereof. In addition, no Credit Party shall
become a party to any agreement, note, indenture or instrument, or take any
other action, that would prohibit the creation of a Lien on any of its
properties or other assets in favor of Agent, on behalf of itself and Lenders,
as additional collateral for the Obligations, except operating leases, Capital
Leases or Licenses which prohibit Liens upon the assets that are subject
thereto."
(e) All references to "Bankers Trust Company" in the Credit Agreement are
hereby deleted and "Deutsche Bank Trust Company Americas" is inserted in place
thereof.
(f) The following terms are hereby added to Annex A of the Credit
Agreement:
"Comerica Bank" means Comerica Bank-California, a California corporation.
"Comerica Loan Agreement" means that certain Loan and Security Agreement
dated as of August 2, 2002 between Encore Acquisition and Comerica
Bank-California (as amended, restated or otherwise modified from time to time).
"Encore Acquisition" means Encore Acquisition Corporation, a Minnesota
corporation and a Subsidiary of Borrower.
"Encore Purchase Agreement" that certain Amended and Restated Asset
Purchase Agreement dated as of July 10, 2002, between Borrower, as buyer and
Encore Software, as seller for a purchase price in an amount not to exceed
$11,000,000 (together with any exhibits, schedules and any other annexes or
supplements thereto, as amended, pursuant to that certain Amendment No. 1 to
Amended and Restated Asset Purchase Agreement dated as of July 31, 2002, (the
"Amendment No. 1 to Encore Purchase Agreement") between Borrower and Encore
Software (including an assignment by Borrower to Encore Acquisition).
"Encore Software" means Encore Software, Inc., a California corporation.
(g) Annex G of the Credit Agreement is hereby amended by inserting new
subsections (c) and (d) immediately after subsection (b) thereof which will read
as follows:
"(c) Minimum Encore Acquisition EBITDA. Encore Acquisition shall have,
(i) for the Fiscal Quarter ending on or before December 31, 2002, at
the end of such Fiscal Quarter, EBITDA plus interest income for the 3-month
period then ended of not less than $0;
(ii) for the Fiscal Quarter ending on or before March 31, 2003, at the
end of such Fiscal Quarter, EBITDA plus interest income for the 6-month
period then ended of not less than $1,000,000;
(iii) for the Fiscal Quarter ending on or before June 30, 2003, at the
end of such Fiscal Quarter, EBITDA plus interest income for the 9-month
period then ended of not less than $750,000; and
(iv) for the Fiscal Quarter ending on or before September 30, 2003 and
for each Fiscal Quarter thereafter, at the end of such Fiscal Quarter,
EBITDA plus interest income for the 12-month period then ended of not less
than $1,000,000."
"(d) Minimum Fixed Charge Coverage Ratio. Borrowers and their Subsidiaries
shall have on a consolidated basis, for the Fiscal Quarter ending on or before
September 30, 2003 and for each Fiscal Quarter thereafter, at the end of each
such Fiscal Quarter, for the 12-month period then ended, a ratio of (A) EBITDA
plus interest income received during such period to (B) the sum of (i) the
aggregate of all Interest Expense paid or accrued during such period, plus (ii)
scheduled payments of principal with respect to Indebtedness during such period,
plus (iii) Capital Expenditures during such period, plus (iv) income taxes paid
in cash during such period, of not less than 1.2:1."
SECTION 2 EFFECTIVENESS. The effectiveness of this Amendment is subject to
the satisfaction of the following conditions precedent:
(a) this Amendment shall have been duly executed and delivered by Borrower,
Agent and each Lender;
(b) the Agent shall have received evidence that the Purchase has been
consummated in accordance with the terms of the Purchase Agreement and related
documentation;
(c) the Agent shall have received a certified copy of each of the Purchase
Agreement and that certain Settlement Agreement and General Release dated as of
August 2, 2002 by and among Comerica Bank-California, Encore Software and Encore
Acquisition, each of which shall be in form and substance satisfactory to Agent;
(d) the Agent shall have received a certified copy of the order (the
"Order") entered by the Bankruptcy Court authorizing the terms and conditions of
the Purchase Agreement and the Purchase (which Order shall provide that Encore
Acquisition should obtain the assets of Encore which are the subject of the
Purchase free and clear of any and all liens, interests and encumbrances in
accordance with 11 U.S.C. Section 363(f)), and such Order shall be in form and
substance satisfactory to Agent;
(e) the Borrower shall have paid to the Agent an amendment fee of $37,500;
(f) the Agent shall have received a certified copy of the Comerica Loan
Agreement and related documents (collectively, the "Comerica Documents"), and
the Comerica Documents shall be in form and substance satisfactory to Agent;
(g) Agent shall have received (i) copies of the UCC, tax and judgment lien
searches conducted in respect of Encore Acquisition, in form and substance
satisfactory to Agent and (ii) an officer's certificate with respect to Encore
Acquisition, in form and substance satisfactory to Agent, attaching articles of
incorporation, by-laws, a good standing and an incumbency certificate; provided
that the Borrower hereby covenants and agrees that Borrower will deliver to
Agent a copy of the board resolutions in respect of the Encore Acquisition, in
form and substance satisfactory to Agent, within seven (7) days following the
date hereof;
(h) the Agent shall have received a duly executed original of the opinion
of Winthrop & Weinstine, P.A., in form and substance satisfactory to Agent and
its counsel, with respect to the due authorization, execution, delivery and
performance by each Credit Party signatory hereto of this Amendment or the other
Loan Documents executed in connection herewith and the enforceability of the
Credit Agreement as amended hereby and the Loan Documents executed in connection
herewith; and
(i) the Agent shall have received executed copies of all Loan Documents
required by
the Agent in connection with this Amendment, including, without limitation, (i)
a guaranty by Encore Acquisition in favor of Agent, (ii) a security agreement
between Encore Acquisition and Agent, and (iii) a pledge agreement executed by
the Borrower in favor of Agent pledging all of the Stock of Encore Acquisition
to Agent (along with the share certificates representing such Stock and stock
powers for each such share certificate).
SECTION 3. REPRESENTATIONS AND WARRANTIES. In order to induce the Agent and
each Lender to enter into this Amendment, the Borrower hereby represents and
warrants to the Agent and each Lender, which representations and warranties
shall survive the execution and delivery of this Amendment, that:
(a) all of the representations and warranties contained in the Credit
Agreement and in each Loan Document are true and correct as of the date hereof
after giving effect to this Amendment; and
(b) the execution, delivery and performance by the Borrower of this
Amendment has been duly authorized by all necessary corporate action required on
its part and this Amendment is the legal, valid and binding obligation of the
Borrower enforceable against the Borrower in accordance with its terms, except
as its enforceability may be affected by the effect of bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to or affecting the rights or remedies of creditors generally.
SECTION 4. REFERENCE TO AND EFFECT UPON THE CREDIT AGREEMENT.
(a) Except as specifically set forth above, the Credit Agreement and the
other Loan Documents shall remain in full force and effect and are hereby
ratified and confirmed.
(b) The amendments and limited waivers set forth herein are effective
solely for the purposes set forth herein and shall be limited precisely as
written, and shall not be deemed to (i) be a consent to any amendment, waiver or
modification of any other term or condition of the Credit Agreement or any other
Loan Document, (ii) operate as a waiver or otherwise prejudice any right, power
or remedy that the Agent or the Lenders may now have or may have in the future
under or in connection with the Credit Agreement or any other Loan Document or
(iii) constitute a waiver of any provision of the Credit Agreement or any Loan
Document, except as specifically set forth herein. Upon the effectiveness of
this Amendment, each reference in the Credit Agreement to "this Agreement",
"herein", "hereof" and words of like import and each reference in the Credit
Agreement and the Loan Documents to the Credit Agreement shall mean the Credit
Agreement as amended hereby. This Amendment shall be construed in connection
with and as part of the Credit Agreement.
SECTION 5. COSTS AND EXPENSES. As provided in Section 11.3 of the Credit
Agreement, the Borrower agrees to reimburse Agent for all fees, costs, and
expenses, including the reasonable fees, costs, and expenses of counsel or other
advisors for advice, assistance, or other representation in connection with this
Amendment.
SECTION 6. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF ILLINOIS.
SECTION 7. HEADINGS. Section headings in this Amendment are included herein
for convenience of reference only and shall not constitute part of this
Amendment for any other purposes.
SECTION 8. COUNTERPARTS. This Amendment may be executed in any number of
counterparts, each of which when so executed shall be deemed an original, but
all such counterparts shall constitute one and the same instrument.
(signature page follows)
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Amendment No. 2 to Credit Agreement as of the date first written above.
BORROWER:
NAVARRE CORPORATION
By:
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Name:
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Title:
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GENERAL ELECTRIC CAPITAL
CORPORATION, AS AGENT AND LENDER
By:
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Name:
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