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Exhibit 4.1(a)
FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT
THIS FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT (the "Amendment"),
dated as of May 10, 1996, is entered into between CONGRESS FINANCIAL
CORPORATION (WESTERN), a California corporation ("Lender"), with a place of
business at 225 South Lake Avenue, Suite 1000, Pasadena, California 91101 and
KRAUSE'S SOFA FACTORY, a California corporation, and its wholly owned
subsidiary, CASTRO CONVERTIBLE CORPORATION, a New York corporation (jointly and
severally, "Borrower"), with its chief executive office located at 200 N. Berry
Street, Brea, California 92621.
RECITAL
A. Borrower and Lender have previously entered into that certain Loan
and Security Agreement dated as of January 20, 1995 (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. Borrower has requested Lender to waive certain financial covenants
defaults, modify certain financial covenants, increase the advance rate on raw
materials and extend the term of the Loan Agreement.
C. Lender is willing 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. Working Capital. Section 9.13 of the Loan Agreement is hereby
amended to read in its entirety as follows:
"9.13 Working Capital. Borrower shall at all times, maintain
Working Capital of not less than a negative $8,000,000."
Any breach by Borrower of Section 9.13 of the Loan Agreement, known to Lender
as of the date hereof, is hereby waived.
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2. Adjusted Net Worth. Section 9.14 of the Loan Agreement is hereby
amended to read in its entirety as follows:
"9.14 Adjusted Net Worth. Borrower shall maintain Adjusted
Net Worth for the period from February 1, 1996 through May
30, 1996 of not less than a negative $4,500,000, and at all times
thereafter of not less than a negative $4,200,000."
Any breach by Borrower of Section 9.14 of the Loan Agreement, known to Lender
as of the date hereof, is hereby waived.
3. Extension of Term. The first sentence of Section 12.1(a) of the
Loan Agreement is hereby amended to read in its entirety as follows:
"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 January 20, 1998 (the "Renewal Date"), and
from year to year thereafter, unless sooner terminated
pursuant to the terms hereof."
4. Early Termination Fee. The first sentence of Section 12.1(c) of the
Loan Agreement is hereby amended to read in its entirety as follows:
"If for any reason this Agreement is terminated, except by
Lender in bad faith, prior to the end of the then current
term or 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 of three percent (3%) of the Maximum Credit through
January 20, 1998 and in the amount of one percent (1%) of
the Maximum Credit thereafter."
5. Effectiveness of this Amendment. Lender must have received the
following items, in form and substance acceptable to Lender, or evidence of the
occurrence thereof, before this Amendment is effective and before Lender is
required to extend any credit to Borrower as provided for by this Amendment.
The date on which all of the following conditions have been satisfied is the
"Closing Date".
(a) Amendment. This Amendment fully executed in a sufficient
number of counterparts for distribution to Lender and Borrower.
(b) Authorizations. Evidence that the execution, delivery and
performance by Borrower and each guarantor or subordinating creditor of
this Amendment and any instrument or agreement required under this
Amendment have been duly authorized.
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(c) Representations and Warranties. The Representations and
Warranties set forth in the Loan Agreement must be true and correct.
(d) Other Required Documentation. All other documents and
legal matters in connection with the transactions contemplated by this
Agreement shall have been delivered or executed or recorded and shall be
in form and substance satisfactory to Lender.
(e) Subordinated Debt. Borrower shall have received from
its Parent, Krause's Furniture, Inc., a Delaware corporation, a cash
capital contribution in the minimum amount of $500,000 as subordinated
debt or equity contributed on terms acceptable to Lender, and Parent
shall have acknowledged in a manner acceptable to Lender, that any such
subordinate debt or equity other than common stock is "Junior Debt"
subject to the terms and conditions of that certain Subordination
Agreement between Parent and Lender dated January 20, 1995 (the
"Subordination Agreement").
(f) Payment of Modification Fee. Lender shall have received
from Borrower a Modification Fee of $10,000 for the processing and
approval of this Amendment, which fee shall be fully earned upon
receipt.
6. Adjustment to Raw Material Advance Rate. In addition to the
amendments to the Loan Agreement provided for in paragraphs 2, 3 and 4 above,
Section 2.1(a)(ii) of the Loan Agreement will be amended to read in its
entirety as follows:
"(ii) notwithstanding the exclusion of raw materials from the
definition of Eligible Inventory, during the months of January,
July and August of each year, the lesser of (x) ten percent
(10%) (thirty-seven percent (37%) for the months of June, July
and August 1996 and January 1997) of the cost of raw materials
consisting of fabric and leather, valued at the lower of cost or
market, or (y) Five Hundred Thousand Dollars ($500,000) (Seven
Hundred Thousand Dollars ($700,000) for the months of June, July
and August 1996 and January 1997); less"
The effectiveness of the foregoing amendment to the advance rate for raw
materials is subject to the satisfaction of the following conditions:
(a) Borrower shall have received from its Parent a cash
capital contribution (in addition to the cash capital contribution set
forth in paragraph 5(e) above) in the minimum amount of $750,000, as
subordinated debt or equity on terms acceptable to Lender, and Parent
shall have acknowledged, in a manner acceptable to Lender, that any such
subordinated debt or equity other than common stock is "Junior Debt"
subject to the terms and conditions of the Subordination Agreement; and
(b) Lender shall have received, at such time as Borrower
pays the Modification Fee provided for in paragraph 5(f) above, an
additional fee of $15,000, which fee shall be fully earned upon receipt.
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7. 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 California governing contracts only to be performed in
that State.
8. 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.
9. Due Execution. The execution, delivery and performance of this
Amendment are within the power of Borrower, have been duly authorized 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.
10. Effect of Amendment. Except as set forth expressly herein, all
terms of the Loan Agreement and the other Financing Agreements shall be and
remain in full force and effect and shall constitute the legal, valid, binding
and enforceable obligations of Borrower to Lender. 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 Agreements, after giving effect
to this Amendment, such terms and conditions are hereby deemed modified and
amended accordingly to reflect the terms and conditions of the Loan Agreement
as modified and amended hereby.
11. 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.
12. 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
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Event of Default and no right of offset, defense, counterclaim or objection in
favor of Borrower as against Lender with respect to the Obligations.
IN WITNESS WHEREOF, the parties have entered into this Amendment as of
the date first above written.
KRAUSE'S SOFA FACTORY,
a California corporation
By:
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Title:
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CASTRO CONVERTIBLE CORPORATION,
a New York corporation
By:
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Title:
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CONGRESS FINANCIAL CORPORATION
(WESTERN),
a California corporation
By:
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Title:
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