EXHIBIT 10.46
March 9, 1999
Empire Industries, Inc.
501 Daniel Street
Tarboro, North Carolina
Re: Eighth Amendment to Loan and Security Agreement
Gentlemen:
Reference is made to that certain Loan and Security Agreement (as amended,
the "Loan Agreement") dated as of May 29, 1996 among Empire Industries, Inc.,
LaSalle National Bank as collateral agent and administrative agent ("Agent") for
itself ("LaSalle") and each other lender now or hereafter a party to the Loan
Agreement (LaSalle and each such other lender are sometimes collectively
referred to as "Lenders") and all other Lenders. Borrower has requested that
Agent and Lenders agree to amend the Loan Agreement in certain respects. Agent
and Lenders are willing to do so on the terms and subject to the conditions set
forth herein. Capitalized terms not otherwise defined herein shall have the
meanings ascribed to such terms in the Loan Agreement.
NOW, THEREFORE, in consideration of the foregoing recitals, the mutual
covenants and agreements set forth herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:
1. The Loan Agreement is hereby amended as follows:
(a) Paragraph 12(o) and 12(p) of the Loan Agreement are hereby amended and
restated in their entirety, as follows:
"(o) Borrower's Tangible Net Worth shall not at any time be less than
the amount set forth below during the corresponding month:
Period Minimum Tangible Net Worth
------ --------------------------
January, 1999 -$19,348,008
February, 1999 -$19,708,144
March, 1999 -$20,038,480
Period Minimum Tangible Net Worth
------ --------------------------
April, 1999 -$19,958,506
May, 1999 -$20,169,624
June, 1999 -$20,695,743
July, 1999 -$20,860,701
August, 1999 -$19,549,206
September, 1999 -$17,627,182
October, 1999 -$15,966,752
November, 1999 -$15,388,726
December, 1999 -$15,355,378
provided, that the Minimum Tangible Net Worth requirements set forth above
shall be adjusted dollar-for-dollar by the amount of any customary year-end
accounting adjustments not reflected in Borrower's November 1998 unaudited
financial statements; provided further, that for the periods commencing
after December 31, 1999, Minimum Tangible Net Worth will be determined by
agreement of the parties hereto based on the projections to be provided by
Borrower for the 2000 fiscal year of Borrower, which projections must be in
form and substance satisfactory to Agents and Lenders; provided, that if
the parties cannot agree to Minimum Tangible Net Worth levels prior to
January 1, 2000, Agents and Lenders may unilaterally set such levels in
their sole discretion; and "Tangible Net Worth" being defined for purposes
of this Agreement as Borrower's shareholders' equity (including retained
earnings) less the book value of all intangible assets as determined solely
by Collateral Agent on a consistent basis plus the amount of LIFO reserve
plus the amount of any debt subordinated to Agents and Lenders on the date
hereof, all as determined under generally accepted accounting principles
applied on a basis consistent with the financial statement most recently
presented to Collateral Agent prior to the date hereof except as set forth
herein;
(p) The ratio during each period of (i) the sum of Borrower's Net
Income before provision for amortization and depreciation expense reducing
Net Income during such period, to (ii) the sum of all scheduled payments of
principal during such period with respect to indebtedness for borrowed
money (including, without limitation, all curtailments of availability
under Paragraph 3 of Exhibit A of this Agreement other than curtailments of
availability under
subparagraph (f) of Paragraph (3) of Exhibit A of this Agreement), purchase
money indebtedness and capitalized lease obligations, shall not be not less
than 0.9 to 1.0 for the three (3) fiscal quarter period ending September
30, 1999, or 1.1 to 1.0 as of the last day of each fiscal quarter
thereafter, commencing with the fiscal quarter ending December 31, 1999,
for the four (4) fiscal quarter period ending on such date, all as
determined under generally accepted accounting principles applied on a
basis consistent with the financial statement most recently presented to
Collateral Agent prior to the date hereof except as set forth herein;"
(b) Paragraph 12(u) of the Loan Agreement is hereby amended and restated in
their entirety to read as follows:
"(u) Borrower will not permit its Net Income for the 1999 fiscal year
to be less than Two Million Eight Hundred Thousand Dollars ($2,800,000)."
(c) Paragraph (1) of Exhibit A to the Loan Agreement is hereby amended and
restated in its entirety, as follows:
"(1) LOAN LIMIT: Each Lender, severally and not jointly, agrees to make its
Pro Rata Share of such Loans as Borrower shall request from time to
time from the date hereof, subject to the terms and conditions set
forth in this Agreement, up to the sum of the following sublimits (the
"Loan Limit"):
a. Up to eighty-five percent (85%) of the face amount (less
maximum discounts, credits and allowances which may be taken by or
granted to Account Debtors in connection therewith) of Borrower's
Eligible Accounts; plus
b. Up to sixty-five percent (65%) of the lower of the cost or
market value of Borrower's Eligible Inventory consisting solely of
finished goods (other than finished goods which are in transit); plus
c. Up to fifty percent (50%) of the lower of the cost or market
value of Borrower's Eligible Inventory consisting solely of finished
goods or finished components of goods which are in transit or Five
Hundred Thousand Dollars ($500,000), whichever is less; plus
d. Up to fifty percent (50%), of the lower of the costs or market
value of Borrower's Eligible Inventory consisting solely of raw
materials less than one (1) year old; plus
e. Up to forty percent (40%) of the lower of the cost or market
value of Borrower's Eligible Inventory consisting solely of
work-in-process or Two Million Dollars ($2,000,000), whichever is
less; plus
f. Subject to Paragraph (2) of this Exhibit A, up to fifty
percent (50%) against the face amount of commercial Letters of Credit
issued by Issuing Bank for the purpose of purchasing Inventory,
provided that such commercial Letters of Credit are in form and
substance satisfactory to Collateral Agent; plus
g. Subject to Paragraphs (3)(a) and (3)(c) hereof, up to Four
Million One Hundred Sixty-Six Thousand Six Hundred Sixty-Six and
70/100 Dollars ($4,166,666.70) with respect to Borrower's Equipment;
plus
h. Subject to Paragraphs (3)(b) and (3)(d) hereof, up to Two
Million Five Hundred Thousand Dollars ($2,500,000) with respect to
Borrower's real property located at 501 Daniel Street, Tarboro, North
Carolina; plus
i. Subject to Paragraph (3)(f) hereof, up to Nine Million Dollars
($9,000,000) as a special accommodation; minus
j. Such reserves as Collateral Agent elects, in its reasonable
discretion, to establish from time to time, including, without
limitation, a reserve to pay royalties or other licensee fees with
respect to patents, trademarks and copyrights licensed by Borrower in
connection with the production or sale of Inventory, in the event that
Collateral Agent becomes aware that such license fees or royalties are
not being paid in a timely fashion or following the occurrence and
during the continuance of an Event of Default and a reserve of ten
percent (10%) with respect to Eligible Accounts as a result of the
high level of dilution of Borrower's Accounts;
provided that the advances at subparagraphs (b), (c), (d), (e) and (f)
above shall in no event exceed the aggregate amount of Twenty-Five Million
Dollars ($25,000,000); and
further provided, that the aggregate amount of Loans outstanding at any
time shall in no event exceed Forty Million Dollars ($40,000,000) (the
"Aggregate Maximum Loan Amount").
(d) Paragraph (3) of Exhibit A to the Loan Agreement is hereby amended to
amend and restate subparagraphs (a) and (b) in their entirety, as follows:
"(a) The availability described in Paragraph (1)(g) of this Exhibit A shall
be automatically curtailed by an amount equal to Eighty-Three Thousand
Three Hundred Thirty-Three and 33/100 Dollars ($83,333.33) per month,
commencing on February 28, 1999, and continuing on the last day of
each month thereafter, until the earlier to occur of (i) the date on
which said availability shall be reduced in full and (ii) the date
upon
which this Agreement terminates pursuant to Paragraph 10 of the
Agreement.
(b) The availability described in Paragraph (1)(h) of this Exhibit A shall
be automatically curtailed by an amount equal to Fifty Thousand
Dollars ($50,000.00) per month, commencing on February 28, 1999, and
continuing on the last day of each month thereafter until the earliest
to occur of (i) the date on which said availability shall be reduced
in full, (ii) the date on which Borrower refinances the Loans made
with respect to the availability described in Paragraph (1)(g) of this
Exhibit A, at which time such availability will be reduced in full,
and (iii) the date upon which this Agreement terminates pursuant to
Paragraph 10 of the Agreement."
(e) Paragraph (3) of Exhibit A to the Loan Agreement is hereby amended to
amend and restate subparagraph (e) in its entirety, as follows:
"(e) The availability reductions set forth in Paragraphs (3)(a), (3)(b),
(3)(c) and (3)(d) above shall not reduce the Maximum Loan Amount of
any Lender or reduce the aggregate Loan Limit of Forty Million Dollars
($40,000,000) set forth in Paragraph (1) of this Exhibit A."
(f) Paragraph (3) of Exhibit A is hereby amended to amend and restate
subparagraph (f) in its entirety, as follows:
"(f) The availability described in Paragraph (1)(i) above shall be
curtailed by an amount equal to One Million Five Hundred Thousand
Dollars ($1,500,000) per month commencing September 30, 1999, and
continuing on the last day of each month thereafter until the earliest
to occur of (i) the date on which such availability shall be reduced
in full, (ii) the date on which this Agreement terminates pursuant to
Paragraph 10 of this Agreement. The availability reductions described
in this Paragraph (3)(f) shall not reduce the Maximum Loan Amount of
any Lender or reduce the aggregate Loan Limit of Forth Million Dollars
($40,000,000) set forth in Paragraph 1 of this Exhibit A."
(g) Paragraph (4) of Exhibit A to the Loan Agreement is hereby amended and
restated in its entirety as follows:
"(4) INTEREST RATE: Subject to the terms and conditions set forth below,
(a) all Loans made pursuant to subparagraphs (1)(a), (1)(b), (1)(c),
(1)(d), (1)(e), (1)(f), and (1)(g) of this Exhibit A shall bear
interest at the rate of one and one-half percent (1.5%) per annum in
excess of LaSalle's publicly announced prime rate (which is not
intended to be LaSalle's lowest or most favorable rate in effect at
any time) (the "Prime Rate") in effect from time to time, and (b) all
Loans
made pursuant to subparagraphs (1)(h) and (1)(i) of this Exhibit A
shall bear interest at the rate of two percent (2.00%) per annum in
excess of the Prime Rate. Interest shall be payable on the last
business day of each month, in arrears. Each rate of interest set
forth herein shall increase or decrease with each increase or decrease
in the Prime Rate, effective on the effective date of each such change
in the Prime Rate. Following the occurrence and during the continuance
of an Event of Default, the Loans shall bear interest at a rate equal
to two percent (2.00%) in excess of the rate otherwise applicable to
such Loans. For purposes of calculating interest payable hereunder,
Loans shall be deemed to be outstanding first against the availability
under subparagraphs (h) and (i) of Paragraph 1 of this Exhibit A and
then against the availability under the remaining subparagraphs of
Paragraph 1 of this Exhibit A.
(h) Subparagraph (6)(a) of Exhibit A to the Loan Agreement is hereby
amended and restated in its entirety, as follows:
"(a) Unused Line Fee: Borrower shall pay to Collateral Agent for the
benefit of Lenders, an unused line fee equal to one-half of one
percent (0.50%) per annum, based on a three hundred sixty (360) day
year, of the difference between Forty Million Dollars ($40,000,000)
and the average daily loan balance plus the average daily outstanding
face amount of all Letters of Credit. Such fee shall be fully earned
by Lenders and paid to Collateral Agent monthly in arrears on the last
Business Day of each month."
(i) Each Lender's Maximum Loan Amount is hereby amended to be as follows:
LaSalle National Bank $17,600,000
Congress Financial Corporation (Central) $14,400,000
FINOVA Capital Corporation $ 8,000,000
2. This Amendment shall not become effective until (i) this Amendment is
fully executed by all parties hereto, (ii) The CIT Group/Credit Finance, Inc.
has assigned its interest in the Loans to LaSalle and (iii) Borrower executes
replacement Secured Promissory Notes in favor of each Lender in an amount equal
to each such Lender's new Maximum Loan Amount. Furthermore, until the items
described in clauses (a) and (b) below are completed to the satisfaction of
Agent, the availability described in subparagraph (l)(i) of Exhibit A to Loan
Agreement shall be limited to Four Million Five Hundred Thousand Dollars
($4,500,000): (a)(i) Borrower causes Parent to pledge the remaining stock of
Empire Toys (Hong Kong) Limited ("Empire Hong Kong") to Agent, (ii) Empire Hong
Kong guaranties the Loans by Agent and Lenders to Borrower and secures such
guaranty with liens upon substantially all of its assets (and executes all
documents, instruments and agreements
as Agent shall require in connection therewith), and (b)(i) each of Apple
Sports, Inc., Dorsen Sports, Inc. and Apple Golf Shoes, Inc. (the "Apple
Companies") guaranties the Loans and grants security interests in their assets
to secure such liens, (ii) the existing loan documents between LaSalle and the
Apple Companies are amended and restated and additional documents are provided
to the extent necessary to reflect a syndicated loan facility with LaSalle as
Agent and the other Lenders hereunder as lenders to the Apple Companies with the
same Pro Rata Shares of such loan facilities as such Lenders' Pro Rata Shares
hereunder, and (iii) Borrower guaranties the loans by Agent and Lenders to the
Apple Companies. Finally, if the items described in clause (a) above are not
completed within thirty (30) days of the date hereof, or the items described in
clause (b) above are not completed within fifteen (15) days of the date hereof,
such events shall constitute Events of Default.
3. Except as expressly consented to and amended hereby, the Loan Agreement
and Exhibit A thereto remain unchanged and of full force and effect in
accordance with the terms thereof.
LASALLE NATIONAL BANK, as Collateral Agent,
Administrative Agent and Lender
By /s/ Robert Corsentino
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Its SVP
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Consented and agreed to this 9th day of March, 1999.
CONGRESS FINANCIAL CORPORATION (CENTRAL), as a Lender
By /s/ Brett Mook
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Its VP
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FINOVA CAPITAL CORPORATION, as a Lender
By /s/ Bruce Mettel
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Its Authorized Signer
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Accepted and agreed to this 9th day of March, 1999.
EMPIRE INDUSTRIES, INC.
By /s/ William H. Craig
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Its Executive Vice President - CFO
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The undersigned Guarantor hereby acknowledges that it has read the foregoing
amendment and all previous amendments and hereby reaffirms its guaranty of the
obligations of Borrower this 9th day of March, 1999.
EMPIRE OF CAROLINA, INC.
By /s/ William H. Craig
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Its Executive Vice president - CFO
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