EXHIBIT 10.3

 

April 14, 2005

 

The Rowe Companies and

its subsidiaries

1650 Tysons Boulevard, Suite 710

McLean, Virginia 22102

 

Ladies and Gentlemen:

 

Reference is made to that certain Loan and Security Agreement dated May 15, 2002
(as at any time amended, the “Loan Agreement”), among The Rowe Companies, a
Nevada corporation, Rowe Diversified, Inc., a Delaware corporation, Rowe
Furniture Wood Products, Inc., a California corporation, Rowe Properties, Inc.,
a California corporation, Storehouse, Inc., a Georgia corporation
(“Storehouse”), and Rowe Furniture, Inc., a Virginia corporation (hereinafter
referred to collectively as “Borrowers” and individually as a “Borrower”), the
various financial institutions (collectively, “Lenders”) named in the Loan
Agreement, and Fleet Capital Corporation, in its capacity as collateral and
administrative agent for the Lenders (together with its successors in such
capacity, “Agent”). Capitalized terms used herein and not otherwise defined
herein shall have the meaning ascribed to such terms in the Loan Agreement.

 

Borrowers have advised Agent and Lenders of Borrowers’ intention to (i) revise
their method of accounting for certain leases of retail store locations for
Storehouse to account for the Capital Lease Revision (as defined below) and (ii)
restate prior period financial statements to reflect the Capital Lease Revision.
Borrowers have informed Agent and Lenders that there will be no cash effect
either historically or for future cash flows and no Material Adverse Effect as a
result of the Capital Lease Revision. For purposes hereof, the “Capital Lease
Revision” shall mean the acceleration of the recognition of rent expense by
including periods in which Storehouse has control of leased property for a
retail store location before the store is open in the calculation of
straight-line rent expense over the term of the lease and the recognition of
construction allowances contributed by landlords as additional fixed assets and
recording as corresponding liabilities deferred rent credits in order to be
consistent with the interpretation by the Office of the Chief Accountant of the
Securities and Exchange Commission (the “SEC”) of the Statement of Financial
Accounting Standards 13 “Accounting for Leases,” Financial Accounting Standards
Board Technical Bulletin 88-1 “Issues Related to Accounting for Leases,” and
Financial Accounting Standards Board Technical Bulletin 85-3 “Accounting for
Leases with Scheduled Rent Increases,” as set forth in the SEC’s letter to the
American Institute of Certified Public Accountants, dated February 7, 2005.

 

Borrowers have requested that Agent and Lenders (i) consent to Borrowers’
revision of their method of accounting for certain leases of retail store
locations for Storehouse and all

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historical financial statements and the financial statements for the Fiscal
Quarter ending on or about February 27, 2005, solely to account for the Capital
Lease Revision, and (ii) amend the Loan Agreement to allow for an increase in
the amount of permitted Capital Expenditures for each of the 2002, 2003 and 2005
Fiscal Years and the Fiscal Quarter ending on or about February 27, 2005, and to
allow for a decrease in the Fixed Charge Coverage Ratio for the 12 Reporting
Periods ending on November 28, 2004, each occurring solely as a result of the
Capital Lease Revision. Agent and Lenders have agreed to do so subject to the
terms and conditions set forth herein.

 

Agent and Lenders hereby consent to Borrowers’ revision of their method of
accounting for certain leases of retail store locations for Storehouse and all
historical financial statements and the financial statements for the Fiscal
Quarter ending on or about February 27, 2005, solely to account for the Capital
Lease Revision, provided that (i) the Capital Lease Revision has no cash effect
either historically or for future cash flows and no Material Adverse Effect,
(ii) the Capital Lease Revision does not change the timing of payments or
amounts paid under related leases and (iii) no Default or Event of Default
exists at the time of making, or as a result of, the Capital Lease Revision.
Borrowers shall deliver to Agent and Lenders, within sixty (60) days after the
date hereof, the revised financial statements identifying the impact of the
Capital Lease Revision in comparison to financial statements previously
delivered to Agent and Lenders, including the Projections, and identifying the
impact on Capital Expenditures for the remaining second, third and fourth Fiscal
Quarters of 2005.

 

The parties hereto agree that, subject to the conditions set forth above, the
Loan Agreement is hereby amended as follows:

 

(a) Effective as of November     , 2002, by deleting Section 9.2.9 of the Loan
Agreement and by substituting in lieu thereof the following:

 

9.2.9. Capital Expenditures: Make Capital Expenditures (including expenditures
by way of capitalized leases but excluding (i) the effect of any SunTrust Lease
Adjustment and (ii) amounts expensed to repair or restore damaged or destroyed
Equipment or Real Estate, to the extent of insurance or condemnation proceeds
received for application (and actually applied for such purpose pursuant to
Section 7.1.2(ii) hereof)) which in the aggregate, as to all Borrowers and their
Subsidiaries, exceed $4,300,000 during Borrowers’ 2002 Fiscal Year, $5,000,000
during Borrowers’ 2003 Fiscal Year, $9,000,000 during Borrowers’ 2004 Fiscal
Year, $2,600,000 during Borrowers’ Fiscal Quarter ending on or about February
27, 2005, $3,500,000 during Borrowers’ two Fiscal Quarters ending on or about
May 31, 2005, $4,500,000 during Borrowers’ three Fiscal Quarters ending on or
about August 31, 2005, $5,600,000 during Borrowers’ 2005 Fiscal Year or
$7,000,000 during any Fiscal Year of Borrowers thereafter.

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(b) Effective as of November 28, 2004, by deleting Section 9.3.1 of the Loan
Agreement and by substituting in lieu thereof the following:

 

9.3.1 Consolidated Fixed Charge Coverage Ratio. Maintain a Consolidated Fixed
Charge Coverage Ratio of not less than the ratio shown below for the period
corresponding thereto:

 

Period

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   Ratio

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The 12 Reporting Periods ending on

November 28, 2004

   0.60 to 1.0

The 12 Reporting Periods ending on

or about February 28, 2006 and ending

on the last day of each Fiscal Quarter thereafter

   1.1 to 1.0

 

Each Borrower hereby represents and warrants to Agent and Lenders, to induce
Agent and Lenders to enter into this letter agreement, that there will be no
cash effect either historically or for future cash flows and no Material Adverse
Effect as a result of the Capital Lease Revision and that the Capital Lease
Revision will not change the timing of payments or amounts paid under related
leases.

 

For purposes hereof, Agent and Lenders acknowledge that the lower stated
earnings in the historical financial statements for the 2002, 2003 and 2004
Fiscal Years of Borrowers arising solely as a result of the Capital Lease
Revision shall not be deemed to be a Material Adverse Effect.

 

Each Borrower hereby: (i) ratifies and reaffirms the Obligations, each of the
Loan Documents and all of such Borrower’s covenants, duties, indebtedness and
liabilities under the Loan Documents; (ii) acknowledges and stipulates that (a)
the Loan Agreement and the other Loan Documents executed by such Borrower are
legal, valid and binding obligations of such Borrower that are enforceable
against such Borrower in accordance with the terms thereof, (b) all of the
Obligations are owing and payable without defense, offset or counterclaim (and
to the extent there exists any such defense, offset or counterclaim on the date
hereof, the same is hereby waived by such Borrower) and (c) the security
interests and Liens granted by such Borrower in favor of Agent are duly
perfected, first priority security interests and Liens (except as otherwise
specifically provided in the Loan Documents); (iii) represents and warrants to
Agent and Lenders, to induce Agent and Lenders to enter into this letter
agreement, that (a) no Default or Event of Default exists on the date hereof,
(b) the execution, delivery and performance of this letter agreement have been
duly authorized by all requisite corporate action on the part of such Borrower,
(c) this letter agreement has been duly executed and delivered by such Borrower
and (d) all of the representations and warranties made by such Borrower in the
Loan Agreement are true and correct on and as of the date hereof; (iv) agrees
that, upon the effectiveness of this letter agreement, each reference in the
Loan Agreement to “this Agreement,” “hereunder,” or words of like import shall
mean and be a reference to the Loan Agreement, as amended by this letter

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agreement; (v) agrees that this letter agreement shall be part of the Loan
Agreement and a breach of any representation, warranty or covenant herein shall
constitute an Event of Default; (vi) agrees that this letter agreement shall be
governed by and construed in accordance with the internal laws of the State of
Georgia; (vii) agrees that this letter agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
assigns; (viii) agrees that, except as otherwise expressly provided in this
letter agreement, nothing herein shall be deemed to amend or modify any
provision of the Loan Agreement or any of the other Loan Documents, each of
which shall remain in full force and effect; (ix) agrees that this letter
agreement is not intended to be, nor shall it be construed to create, a novation
or accord and satisfaction, and the Loan Agreement as herein modified shall
continue in full force and effect; (x) agrees that this letter agreement may be
executed in any number of counterparts and by different parties to this letter
agreement on separate counterparts, each of which, when so executed, shall be
deemed an original, but all such counterparts shall constitute one and the same
agreement; (xi) agrees that any signature delivered by a party by facsimile
transmission shall be deemed to be an original signature hereto; (xii) agrees to
take such further actions as Agent and Lenders shall reasonably request from
time to time in connection herewith to evidence or give effect to the amendments
set forth herein or any of the transactions contemplated hereby; and (xiii)
agrees that section titles and references used in this letter agreement shall be
without substantive meaning or content of any kind whatsoever and are not a part
of the agreements among the parties hereto. To the fullest extent permitted by
Applicable Law, the parties hereto each hereby waives the right to trial by jury
in any action, suit, counterclaim or proceeding arising out of or related to
this letter agreement.

 

The parties hereto have caused this letter agreement to be duly executed under
seal and delivered by their respective duly authorized officers on the date
first written above.

 

AGENT:

FLEET CAPITAL CORPORATION,

as Agent

By:  

/s/ Douglas Cowan

    Title:  

Vice President

 

 

LENDERS: FLEET CAPITAL CORPORATION, By:  

/s/ Douglas Cowan

    Title:  

/s/ Douglas Cowan

 

[Signatures continued on following page]

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THE CIT GROUP/COMMERCIAL

SERVICES, INC.

        By:  

/s/ Dan Upchurch

       

    Title:

 

Vice President

        BORROWER: ATTEST:       THE ROWE COMPANIES

/S/ Garry W. Angle

      By:  

/s/ Gerald M. Birnbach

Garry W. Angle, Assistant Secretary

[CORPORATE SEAL]

         

Gerald M. Birnbach,

Chairman of the Board and President

 

 

ATTEST:       ROWE DIVERSIFIED, INC.

/s/ Debbie Jacks

      By:  

/s/ Gerald M. Birnbach

Debbie Jacks, Secretary

[CORPORATE SEAL]

         

Gerald M. Birnbach,

Chairman of the Board and President

 

ATTEST:      

ROWE FURNITURE WOOD

PRODUCTS, INC.

/s/ Garry W. Angle

      By:  

/s/ Gerald M. Birnbach

Garry W. Angle, Assistant Secretary

[CORPORATE SEAL]

         

Gerald M. Birnbach,

Chairman of the Board and President

 

 

 

[Signatures continued on following page]

 

 

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ATTEST:      

ROWE PROPERTIES, INC.

 

/s/ Garry W. Angle

      By:  

/s/ Gerald M. Birnbach

Garry W. Angle, Assistant Secretary

[CORPORATE SEAL]

         

Gerald M. Birnbach,

Chairman of the Board and President

 

 

ATTEST:       STOREHOUSE, INC.

/s/ Garry W. Angle

      By:  

/s/ Gerald M. Birnbach

Garry W. Angle, Assistant Secretary

[CORPORATE SEAL]

         

Gerald M. Birnbach,

Chairman of the Board

 

ATTEST:       ROWE FURNITURE, INC.

/s/ Garry W. Angle

      By:  

/s/ Gerald M. Birnbach

Garry W. Angle, Assistant Secretary

[CORPORATE SEAL]

         

Gerald M. Birnbach,

Chairman of the Board