Exhibit 10.10
THIRD AMENDMENT TO
LOAN AND SECURITY AGREEMENT
This
Third Amendment to the Loan and Security Agreement
(this
“
Amendment
” )
is dated as of this 21 day of April, 2008, by and among
I.C. Isaacs & Company, L.P. ,
as borrower (
“
Borrower
” ),
I.C. Isaacs & Company, Inc. and
Isaacs Design, Inc. ,
as guarantors (collectively, the “
Guarantors ”),
and
Wachovia Bank, National Association ,
as lender (
“
Bank
” ).
BACKGROUND
A.
Borrower
and Bank are parties to a certain Loan and Security Agreement
dated as of December 30, 2004 (as amended or otherwise
modified from time to time, the
“
Loan Agreement
” ),
and the other Loan Documents (as defined in the Loan Agreement).
Capitalized terms used herein and not otherwise defined shall have
the respective meanings set forth in the Loan
Agreement.
B.
Borrower
has informed Bank that Borrower and certain of its partners
are negotiating (i) an additional cash capital contribution by
such partners to Borrower in an amount equal to at least
$2,000,000, (ii) an additional cash capital contribution by
Borrower’s management in an amount equal to at least
$100,000, (iii) the deferral of four (4) months of royalty
payments owing to Latitude in an amount equal to at least
$1,500,000 through until no earlier than March 31, 2009 (the
“
Additional Deferred Royalties ”)
and (iv) the conversion to equity by such partners of at least
$2,800,000 of Debt owed by Borrower to such partners (collectively,
the “
Capital Infusion ”).
C.
The
parties have agreed, subject to the terms and conditions of
this Amendment, to amend the Loan Agreement.
NOW,
THEREFORE, with the foregoing Background hereinafter deemed
incorporated by this reference, the parties hereto, intending
to be legally bound, promise and agree as
follows:
1.
AMENDMENTS TO LOAN AGREEMENT
1.1
Definitions .
The following definitions contained in Section 1.1 of the Loan
Agreement are amended and restated as follows:
“
Applicable Margin ”
means (a) prior to January 1, 2009, (i) for any Prime Rate Loan,
0.25% and (ii) for any LIBOR Loan, 2.50%; and (b) on and all times
after January 1, 2009, the per annum rate of interest as determined
pursuant to Section 2.2.5 hereof.
“
Borrowing Base ”
means, at Borrower’s election, subject to the election
limitations contained in this Agreement as amended, an amount equal
to either Borrowing Base Option A, Borrowing Base Option B,
Borrowing Base Option AA or Borrowing Base Option C.
“
Deferred Royalties ”
means the sum of (a) the aggregate sum not to exceed $2,388,000
payable pursuant to the terms of the License Agreements, and
representing deferred 2004 royalty payments owing to Latitude and
(b) the Additional Deferred Royalties (as defined in that certain
Third Amendment to Loan and Security Agreement among Borrower,
Guarantors and Bank dated April 21, 2008).
1.2
New Definitions .
The following new definitions are hereby added to Section 1.1 of
the Loan Agreement:
“
Borrowing Base Option AA ”
means, on any date of determination thereof, an amount equal
to:
(i)
up
to 85% (or such lesser percentage as Bank may determine from
time to time in its reasonable discretion) of the total amount
of Eligible Accounts; provided that, the percentage shall be
reduced to the extent Borrower’s Dilution Rate exceeds
five percent (5%),
plus
(ii)
the
least of (a) $500,000, and (b) the lesser of (A) up to 45% (or
such lesser percentage as Bank may determine from time to time
in its reasonable discretion)
of
the total amount of Eligible Inventory and (B) up to 80% of the
NOLV of Eligible Inventory,
minus
(iii)
any
Reserves.
“
Borrowing Base Option C ”
means, on any date of determination thereof, an amount equal
to:
(i)
up
to 85% (or such lesser percentage as Bank may determine from
time to time in its reasonable discretion) of the total amount
of Eligible Accounts; provided that, the percentage shall be
reduced to the extent Borrower's Dilution Rate exceeds five
percent (5%),
plus
(ii)
the
least of (a) $8,000,000, and (b) the sum of (i) the lesser of
(A) up to 45% (or such lesser percentage as Bank may determine
from time to time in its reasonable discretion)
of
the total amount of Eligible Inventory and (B) up to 80% of the
NOLV of Eligible Inventory;
plus (ii)
the lesser of (A) up to 45% (or such lesser percentage as Bank may
determine from time to time in its reasonable discretion) of the
total amount of Eligible LC Inventory and (B) up to 80% of the NOLV
of Eligible LC Inventory,
minus
(iii)
any
Reserves.
1.3
Adjustment of Interest Rate .
Section 2.2.5 of the Loan Agreement is amended and restated as
follows:
2.2.5
Adjustment of Interest Rate .
Commencing on January 1, 2009, and thereafter on the first day of
each succeeding Interest Adjustment Period, the interest rate for
all Loans for each applicable Interest Adjustment Period shall be
determined based upon the prior calendar quarter’s average
Excess Availability (as determined by Bank, in its reasonable
discretion), in accordance with the following matrix:
|
Excess Availability
|
Applicable Margin
for Prime Rate Loans
|
Applicable Margin
for LIBOR Loans
|
|
Equal
to or less than $2,500,000
|
0.25%
|
2.50%
|
|
Greater
than $2,500,000 but equal to or less than
$5,000,000
|
0%
|
2.25%
|
|
Greater
than $5,000,000
|
-0.25%
|
2.00%
|
For
purposes of the foregoing (i) no downward rate adjustment
shall occur if an Event of Default has occurred and is
continuing on the applicable Interest Adjustment Date, such
adjustment to take effect only upon the cure or waiver in
writing of such Event of Default and (ii) if
Borrower
fails
to timely deliver the applicable compliance certificate and
monthly financial statements to Bank in accordance with this
Agreement on the date when due, then at Bank’s option,
the interest rates above shall be increased on such date to
the highest rate of interest pursuant to the above matrix,
which rate of interest shall continue in effect until such
compliance certificate and financial statements shall have
been delivered.
1.4
Letters of Credit Sublimit .
Section 2.10.1 of the Loan Agreement is amended and restated as
follows:
2.10.1
Issuance of Letters of Credit. Bank
shall from time to time issue, upon five (5) Business Days prior
written notice, extend or renew letters of credit for the account
of Borrower or its Subsidiaries; provided that (i) the aggregate
face amount of Letters of Credit issued by Bank which are
outstanding at any one time shall not exceed $2,000,000 at all
times during which Borrower has elected that the Borrowing Base to
be determined using Borrowing Base Option A, $8,000,000 at all
times during which Borrower has elected that the Borrowing Base to
be determined using Borrowing Base Option B, $2,000,000 at all
times during which Borrower has elected that the Borrowing Base to
be determined using Borrowing Base Option AA and $8,000,000 at all
times during which Borrower has elected that the Borrowing Base to
be determined using Borrowing Base Option C (ii) Bank shall have no
obligation to issue any Letter of Credit if, after giving effect
thereto, the principal amount of all Revolver Loans and the Letter
of Credit Obligations would exceed the lesser of the Borrowing Base
and the Revolver Commitment, and (iii) all other conditions
precedent to the issuance of each such Letter or Credit as set
forth herein are satisfied or waived in writing by Bank. All
payments made by Bank under any such Letters of Credit (whether or
not Borrower is the account party) and all fees, commissions,
discounts and other amounts owed or to be owed to Bank in
connection therewith, shall be paid on demand, unless Borrower
instructs Bank to make a Revolver Loan to pay such amount, Bank
agrees to do so, and the necessary amount remains available to be
drawn as a Revolver Loan hereunder. All Letter of Credit
Obligations shall be secured by the Collateral. Borrower shall
complete and sign such applications and supplemental agreements and
provide such other documentation as Bank may require. The form and
substance of all Letters of Credit, including expiration dates,
shall be subject to Bank’s approval, and Bank shall have no
obligation to issue any Letter of Credit which has a maturity date
later than ten (10) days prior to the Termination Date. Bank may
charge certain fees or commissions for the issuance, handling,
renewal or extension of a Letter of Credit. Borrower
unconditionally guarantees all obligations of any Subsidiary with
respect to Letters of Credit issued by Bank for the account of such
Subsidiary. Upon a Default, Borrower shall, on demand, deliver to
Bank good funds equal to 105% of Bank’s maximum liability
under all outstanding Letters of Credit, to be held as cash
Collateral for Borrower’s reimbursement obligations and other
Obligations.
1.5
Financial Covenants .
Article 7 of the Loan Agreement is amended and restated as
follows:
7.
Other Covenants of Borrower .
Borrower covenants and agrees that from the date hereof and until
payment in full of the Obligations and the termination of this
Agreement, Borrower and each Subsidiary shall comply with the
following additional covenants:
7.1
Excess Availability .
At all times during which Borrower has elected that the Borrowing
Base be determined using (a) Borrowing Base Option B, Borrower
shall maintain Excess Availability of at least $2,000,000;
provided, however that such amount shall be reduced to $1,500,000
for such calendar month at such time as Borrower has maintained a
Fixed Charge Coverage Ratio of not less than 1.20 to 1.00 as of the
end of a calendar month determined for the twelve (12) month period
then ending and (b) Borrowing Base Option C, Borrower shall
maintain Excess Availability of at least $1,000,000; provided,
however that such amount shall be increased to $1,500,000 for such
calendar month at such time as Borrower has maintained a Fixed
Charge Coverage Ratio of not less than 1.20 to 1.00 as of the end
of a calendar month determined for the twelve (12) month period
then ending (the “
Option C Collateral Block ”).
As used herein, “
Fixed Charge Coverage Ratio ”
means (i) EBITDA,
less the
sum of (A) all unfinanced Capital Expenditures made in the
Applicable Fiscal Period, and (B) any dividends and distributions
paid in the Applicable Fiscal Period, and (C) cash taxes paid in
the Applicable Fiscal Period (without benefit of any refunds), and
(D) cash payments made in the Applicable Fiscal Period with respect
to Capital Stock based incentive compensation, and (E) any
repurchases of Capital Stock made in the Applicable Fiscal Period,
divided by (ii) the sum of (A) the current portion of scheduled
principal amortization on Funded Debt for the Applicable Fiscal
period,
plus (B)
cash principal payments paid on Funded Debt for the Applicable
Fiscal Period (C) cash interest payments paid in the Applicable
Fiscal Period,
plus (D)
the amount of all Deferred Note Payments paid in the Applicable
Fiscal Period,
plus (E)
the amount of all Deferred Royalties paid in the Applicable Fiscal
Period. As
used herein, (i) “
EBITDA ”
means the sum of (A) consolidated net income of Borrower and its
Subsidiaries in the Applicable Fiscal Period (computed without
regard to any extraordinary items of gain or loss)
plus (B)
to the extent deducted from revenue in computing consolidated net
income for such period, the sum of (1) interest expense, (2) income
tax expense, (3) depreciation and amortization, and (4) non-cash
Capital Stock based incentive compensation, (ii)
“
Capital Expenditures ”
means for any period the aggregate cost of all capital assets
acquired by Borrower and its Subsidiaries during such period, as
determined in accordance with GAAP; (iii) “
Applicable Fiscal Period ”
means a period of twelve (12) consecutive, trailing calendar months
ending at the end of each prescribed calendar month and (iv)
“
Funded Debt ”
means (A) debt for borrowed funds, (B) debt for the deferred
payment by one (1) year or more of any purchase money obligation,
and (C)
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