1
EXHIBIT 10.1
AMENDMENT NO. 3 TO LOAN AND SECURITY AGREEMENT
SOLO SERVE CORPORATION
1610 Cornerway Boulevard
San Antonio, Texas 78219
June 26, 1996
Congress Financial Corporation (Southwest)
1201 Main Street
Dallas, Texas 75250
Gentlemen:
Congress Financial Corporation (Southwest) ("Lender") and Solo Serve
Corporation ("Borrower") have entered into certain financing arrangements
pursuant to the Loan and Security Agreement, dated June 20, 1995, between
Lender and Borrower, as amended by Amendment No. 1 to Loan and Security
Agreement, dated October 27, 1995 and Amendment No. 2 to Loan and Security
Agreement, dated January 31, 1996 (and as amended hereby and as the same may
hereafter be amended, modified, supplemented, extended, renewed, restated or
replaced, the "Loan Agreement", together with all agreements, documents and
instruments at any time executed and/or delivered in connection therewith or
related thereto, collectively, the "Financing Agreements").
Borrower has requested that Lender agree to certain amendments to the
Loan Agreement and the other Financing Agreements, and Lender is willing to
agree to such amendments, subject to the terms and conditions contained herein.
By this Amendment, Lender and Borrower desire and intend to evidence such
amendments.
In consideration of the foregoing and the agreements and covenants
contained herein, the parties hereto agree as follows:
1. Definitions.
(a) Additional Definitions. As used herein, the
following terms shall have the respective meanings given to them below, and the
Loan Agreement is hereby amended to include, in addition and not in limitation,
each of the following definitions:
(i) "Amendment No. 3" shall mean this
Amendment No. 3 to Loan and Security Agreement between Lender and Borrower.
(ii) "GAC" shall mean General Atlantic
Corporation, a Delaware corporation, and its successors and assigns.
2
(iii) "GAC L/C" shall mean the irrevocable standby
letter of credit, in form and substance satisfactory to Lender, to be obtained
by GAC for the benefit of Lender, to be issued or confirmed by a U.S. bank, in
the face amount of $1,500,000.
(b) Interpretation. All capitalized terms used herein
shall have the meanings assigned thereto in the Loan Agreement, unless
otherwise defined herein.
2. Amendments.
(a) Section 2.1(a) of the Loan Agreement is hereby
deleted in its entirety and replaced with the following:
"(a) Subject to, and upon the terms and conditions contained
herein, Lender agrees to make Revolving Loans to Borrower from time to
time in amounts requested by Borrower up to the amount equal to:
(i) the least of the following: (A) either the
amount equal to: (1) sixty percent (60%) for any date of determination
occurring from July 1 through December 10 of the Value of Eligible
Inventory, or (2) fifty-five percent (55%) for any other date of
determination, of the Value of Eligible Inventory or (B) the amount
equal to: (1) the percentage equal to eighty (80%) percent of the
appraised value of the Eligible Inventory expressed as a percentage of
cost of a "going out of business" sale as set forth in the most recent
appraisal delivered to Lender pursuant to Section 7.3 hereof (net of
liquidation expenses) multiplied by (2) the Value of Eligible
Inventory or (C) the Maximum Credit; less
(ii) an amount equal to the sum of (i) either (a)
forty percent (40%) for any date of determination from July 1 through
December 10 or (b) forty-five percent (45%) for any other date of
determination, of the then undrawn amounts of Letter of Credit
Accommodations issued for the purpose of purchasing Eligible
Inventory, plus (ii) one hundred percent (100%) of the face amount of
the outstanding Letter of Credit Accommodations issued for any purpose
other than as set forth in Section 2.1(a)(ii)(A) above; less
(iii) the amount equal to all Obligations
outstanding at any time and from time to time (other than Obligations
otherwise set forth in Section 2.1(a)(ii) hereof); less
(iv) any Availability Reserves."
(b) Section 2.2(c) of the Loan Agreement is hereby
deleted in its entirety and replaced with the following:
-2-
3
"(c) No Letter of Credit Accommodations shall be available
unless on the date of the proposed issuance of any Letter of Credit
Accommodations, the Revolving Loans available to Borrower (subject to
the Maximum Credit, any Availability Reserves and any other
limitations imposed by Section 2.1 hereof) are equal to or greater
than: (i) if the proposed Letter of Credit Accommodation is for the
purpose of purchasing Eligible Inventory, the sum of (A) forty percent
(40%) for any date of determination from July 1 through December 10
and (B) forty-five percent (45%) for any other date of determination,
of the sum of (1) the cost of such Eligible Inventory plus (2)
freight, taxes, duty and other amounts which Lender estimates must be
paid in connection with such Inventory upon arrival and for delivery
to one of Borrower's locations for Eligible Inventory within the
United States of America and (ii) if the proposed Letter of Credit
Accommodation is for any other purpose, an amount equal to one hundred
(100%) percent of the face amount thereof and all other commitments
and obligations made or incurred by Lender with respect thereto.
Effective on the issuance of each Letter of Credit Accommodation, the
amount of Revolving Loans which might otherwise be available to
Borrower shall be reduced by the applicable amount set forth in
Section 2.2(c)(i) or Section 2.2(c)(ii)."
(c) Section 2 of the Loan Agreement is hereby amended by
adding a new Section 2.5 thereto as follows:
"2.5 GAC L/C. The GAC L/C shall remain in full force and
effect for the initial and any renewal term of this Agreement and for
a period of one hundred twenty (120) days after the date of the
termination of this Agreement and the full and final payment of all
Obligations other than contingent Obligations for which cash
collateral or other security acceptable to Lender has been furnished
to Lender. In the event of any draw by Lender on the GAC L/C, Lender
may, at its option, either apply the amount of such draw received by
Lender to the repayment of the Obligations in such order and manner as
Lender may determine (and, subject to the right of Lender to establish
an Availability Reserve in an amount equal to the funds received
pursuant to such draw) or to hold any or all of the funds received by
Lender pursuant to such draws as cash collateral, on terms and
conditions acceptable to Lender (and in such event Borrower shall
execute and deliver to Lender such other agreements with respect
thereto as Lender may require). Borrower does not have and shall not
have any property or other interest in the GAC L/C or in any funds
available or drawn thereunder. Lender may from time to time review
(a) the financial condition and credit or other applicable rating of
the bank which is the issuer and which is the U.S. confirming bank of
the GAC L/C and (b) other matters which are reasonable for Lender to
consider in connection with the GAC L/C. In the event of any change
(a) in such financial condition or credit, or other applicable rating
of such
-3-
4
issuing or confirming bank or (b) involving such other matters, within
thirty (30) days after the request from Lender, Borrower shall cause
GAC to provide a replacement letter or letters of credit payable to
Lender with the same terms and for the same amounts as the GAC L/C
issued and confirmed by such other United States banks as may be
acceptable to Lender. This Section 2.5 shall survive the repayment of
the Obligations and the termination or non-renewal of this Agreement.
(d) Section 9.8 of the Loan Agreement is hereby amended
by adding a new Section 9.8(g) thereto as follows:
"(g) liens and security interests in favor of GAC to
secure the indebtedness of Borrower to GAC permitted under Section
9.9(f) below; provided, that, the priority and rights with respect
thereto of Lender and GAC are subject to an intercreditor agreement
between GAC and Lender in form and substance satisfactory to Lender."
(e) Section 9.9 of the Loan Agreement is hereby amended
by adding a new Section 9.9(f) thereto as follows:
"(f) indebtedness of Borrower to GAC pursuant to financing
arrangements and documents, agreements, and/or instruments described
on Exhibit A to Amendment No. 3; provided, that, (i) such indebtedness
is subject to an intercreditor agreement between GAC and Lender in
form and substance satisfactory to Lender, (ii) Borrower shall not,
directly or indirectly, (A) amend, modify, alter or change the terms
of such indebtedness or any agreement, document or instrument related
thereto as in effect on the date hereof, or (B) redeem, retire,
defease, purchase or otherwise acquire such indebtedness, or set aside
or otherwise deposit or invest any sums for such purpose and (iii)
Borrower shall furnish to Lender all notices or demands in connection
with such indebtedness either received by Borrower or on its behalf,
promptly after the receipt thereof, or sent by Borrower or on its
behalf, concurrently with the sending thereof, as the case may be."
(f) Section 9.11 of the Loan Agreement is hereby amended
by adding a new Section 9.11(iv) thereto as follows:
"(iv) the terms and provisions of Section 2.1(a) and 2.2(c) hereof
shall be the terms and provisions of such Sections as were in effect
immediately prior to the effectiveness of Amendment No. 3."
(g) Section 9.15 of the Loan Agreement is hereby deleted
in its entirety and replaced with the following:
"9.15 Adjusted Net Worth. Borrower shall at all times maintain
Adjusted Net Worth of not less than $4,250,000."
-4-
5
(h) Section 10.1 of the Loan Agreement is hereby amended
by adding a new Section 10.1(r) thereto as follows:
"(r)" (i) Lender receives notice from the issuer or
confirming bank of the GAC L/C that the GAC L/C will not be extended
or renewed or (ii) the GAC L/C shall otherwise not be extended or
renewed or (iii) the GAC L/C shall not remain in full force and effect
for the initial and any renewal term of this Agreement and for a
period of one hundred twenty (120) days after the date of the
termination of this Agreement and the full and final payment of all
Obligations other than contingent Obligations for which cash
collateral or other security acceptable to Lender has been furnished
to Lender or (iv) the GAC L/C shall cease to be in full force and
effect or (v) the GAC L/C shall be void or invalid or (vi) the
validity of the GAC L/C shall be contested by the issuer or confirming
bank thereof or by the applicant with respect thereto or (vii)
Borrower, or the issuer or confirming bank of the GAC L/C shall fail
to honor any draw thereunder in accordance with its terms, deny it has
any further liability or obligation thereunder or shall revoke,
terminate or purport to revoke or terminate the GAC L/C, or (viii) any
injunctive relief or restraining order is sought or granted which does
or would, if granted, limit or impair the right of Lender to draw
under the GAC L/C in accordance with the terms thereof or retain any
funds drawn thereunder."
(i) Each of Sections 12.1(c)(i), 12.1(c)(ii),
12.1(c)(iii) and 12.1(c)(iv) of the Loan Agreement is hereby deleted in its
entirety and replaced with the following:
"(i) 2% of Maximum Credit the date of Amendment No. 3
to and including the first
anniversary of the date of
Amendment No. 3
(ii) 1% of Maximum Credit after the first anniversary
of the date of Amendment No.
3 and within the current term
or within any subsequent
renewal term of this
Agreement"
3. Representations, Warranties and Covenants. In addition to the
continuing representations, warranties and covenants heretofore or hereafter
made by Borrower to Lender pursuant to the Financing Agreements, Borrower
hereby represents, warrants and covenants with and to Lender as follows (which
representations, warranties and covenants are continuing and shall survive the
execution and delivery hereof and shall be incorporated into and made a part of
the Financing Agreements):
-5-
6
(a) No Event of Default exists on the date of this
Amendment (after giving effect to the amendments to the Financing Agreements
made by this Amendment).
(b) This Amendment has been duly executed and delivered
by Borrower and is in full force and effect as of the date hereof, and the
agreements and obligations of Borrower contained herein constitute legal, valid
and binding obligations of Borrower enforceable against Borrower in accordance
with their respective terms.
4. Conditions Precedent. The effectiveness of the amendments
contained herein shall be subject to the satisfaction of the following
conditions precedent in a manner satisfactory to Lender and its counsel:
(a) the receipt by Lender of an original of this
Amendment, duly authorized, executed and delivered by Borrower;
(b) no Event of Default shall have occurred and be
continuing and no event shall have occurred or condition be existing and
continuing which, with notice or passage of time or both, would constitute an
Event of Default;
(c) the receipt by Lender of an original of the GAC L/C;
(d) the receipt by Lender of a true, correct and complete
copy of each of the agreements, documents and/or instruments between Borrower
and GAC with respect to the secured indebtedness of Borrower in favor of GAC
described in the intercreditor agreement, dated on or about the date of
Amendment No. 3, between Lender and GAC, each duly authorized, executed and
delivered by the parties thereto;
(e) the receipt by Lender of an original of the
intercreditor agreement, dated on or about the date of Amendment No. 3, between
Lender and GAC with respect to the secured indebtedness of Borrower in favor of
each of Lender and GAC, duly authorized, executed and delivered by the parties
thereto; and
(f) the receipt by Lender of the certified (i)
certificate or articles of incorporation of GAC, (ii) bylaws of GAC, (iii) good
standing certificates of GAC from its state of incorporation and where
qualified to do business and (iv) resolutions of GAC in connection with the
transactions contemplated by this Amendment.
5. Effect of this Amendment. Except as modified pursuant hereto,
no other changes or modifications to the Financing Agreements are intended or
implied and in all other respects the Financing Agreements are hereby
specifically ratified, restated and confirmed by all parties hereto as of the
effective date hereof. To the extent of conflict between the terms of this
Amendment and the other Financing Agreements, the terms of this
-6-
7
Amendment shall control. The Loan Agreement and this Amendment shall be read
and construed as one agreement.
6. Further Assurances. The parties hereto shall execute and
deliver such additional documents and take such additional action as may be
necessary or desirable to effectuate the provisions and purposes of this
Amendment.
7. Governing Law. The rights and obligations hereunder of each
of the parties hereto shall be governed by and interpreted and determined in
accordance with the laws of the State of Texas (without giving effect to
principles of conflicts of law).
8. Binding Effect. This Amendment shall be binding upon and
inure to the benefit of each of the parties hereto and their respective
successors and assigns.
9. Counterparts. This Amendment may be executed in any number of
counterparts, but all of such counterparts shall together constitute but one
and the same agreement. In making proof of this Amendment, it shall not be
necessary to produce or account for more than one counterpart thereof signed by
each of the parties hereto.
Please sign the enclosed counterpart of this Amendment in the space
provided below, whereupon this Amendment, as so accepted by Lender, shall
become a binding agreement between Borrower and Lender.
Very truly yours,
SOLO SERVE CORPORATION
By: /s/ DAVID P. DASH
------------------------------------
Title: President
---------------------------------
AGREED:
CONGRESS FINANCIAL CORPORATION
(SOUTHWEST)
By: /s/ Edward B. Franco
----------------------------------
Title: Vice President
-------------------------------
-7-
8
EXHIBIT A
GAC Borrower Agreements
Letter of Credit and Security Agreement, dated as of the date
hereof, by and between GAC and Borrower.
-8-