Exhibit 10.3

 

LETTER OF CREDIT AGREEMENT

 

LETTER OF CREDIT AGREEMENT (this “Agreement”), dated as of January 27, 2006,
between Sidney Silver (the “Account Party”), and GENERAL ELECTRIC CAPITAL
CORPORATION, a Delaware corporation, as agent (in such capacity, herein the
“Agent”) for certain lenders (the “Lenders”) under the Credit Agreement dated as
of January 6, 2006 (as the same may be amended, modified or supplemented from
time to time, the “Credit Agreement”) among (a) Agent, (b) Lenders, (c) The Rowe
Companies, Rowe Furniture, Inc. and Storehouse, Inc., as Borrowers
(individually, a “Borrower” and collectively, the “Borrowers”), and (d) the
other credit parties signatory thereto. Unless otherwise defined all capitalized
terms used herein shall have the meaning given to them in the Credit Agreement.

 

RECITALS:

 

WHEREAS, the Account Party is a shareholder of The Rowe Companies, and, as such,
will derive direct and indirect economic benefits from the making of the Loans
and other extensions of credit to the Borrower pursuant to the Credit Agreement
(which benefits are hereby acknowledged);

 

WHEREAS, Agent and Lenders have agreed to make certain modifications to the
Credit Agreement which will result in additional Loans and other extensions of
credit to the Borrowers, but only upon the condition, among others, that the
Account Party (a) provide the limited guaranty contained herein and (b) cause to
be issued by Wachovia Bank, National Association, for its account and for the
benefit of Agent a standby letter of credit having a face amount of $1,500,000
in the form of Exhibit A hereto (the “Letter of Credit”).

 

NOW, THEREFORE, in consideration of the premises and for other good and valuable
consideration receipt of which is hereby acknowledged, it is agreed as follows:

 

1. Guaranty. The Account Party hereby guarantees to the Lenders and the Agent
the full and punctual payment when due (whether at stated maturity, by required
pre-payment, by acceleration or otherwise), as well as the performance, of,
subject to the last sentence contained in this Section 1, all of the Obligations
including all such which would become due but for the operation of the automatic
stay pursuant to §362(a) of the Federal Bankruptcy Code and the operation of
§§502(b) and 506(b) of the Federal Bankruptcy Code. If for any reason any of the
Borrowers has no legal existence or is under no legal obligation to discharge
any of the Obligations, or if any of the Obligations have become irrecoverable
from any of the Borrowers by reason of any of the Borrowers’ insolvency,
bankruptcy or reorganization or by other operation of law or for any other
reason, this guaranty shall nevertheless be binding on the Account Party to the
same extent as if the Account Party at all times had been the principal obligor
on all such Obligations. Notwithstanding anything to the contrary contained
herein, (a) the Agent’s and each Lender’s remedies hereunder shall be recourse
only to the Letter of Credit, (b) the liability of the Account Party hereunder
shall be limited to $1,500,000 and (c) the Agent will not demand payment under
this guaranty except to the extent that the Agent is entitled to draw on the
Letter of Credit pursuant to Section 2 hereof.

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2. Drawings on Letter of Credit. Agent hereby agrees that, notwithstanding any
provisions of the Letter of Credit to the contrary, Agent shall not be entitled
to make drawings under the Letter of Credit unless and until: (a) (i) Agent has
completed the disposition of substantially all the collateral securing the
Obligations pursuant to the exercise of any rights or remedies under the Loan
Documents, as determined by Agent in its reasonable business judgment, or
(ii) in any proceeding under the Bankruptcy Code in which any of the Borrowers
are debtors, a court having jurisdiction over such proceeding enters an order
confirming a plan of reorganization that does not require payment in full in
cash of all of the Obligations; provided that, the proceeds of such disposition
(in the case of clause (a)(i)) or payments under such plan of reorganization (in
the case of clause (a)(ii)) are not sufficient to pay in full in cash all of the
Obligations (such shortfall being the “Deficiency”), (b) 18 months after
acceleration of the Obligations pursuant to the terms of the Credit Agreement or
the commencement of any proceeding under the Bankruptcy Code or any similar
proceeding in which any of the Borrowers are debtors, (c) the failure by any
Borrower to reasonably cooperate with the Agent with respect to any enforcement
action taken or proposed to be taken by the Agent pursuant to the terms of the
Loan Documents (the events in clauses (a)(i), (a)(ii), (b) and (c) each being
referred to herein as a “Payment Event”), or (d) at any time after the date
which is thirty (30) days prior to the stated expiry date of the Letter of
Credit; provided, further that, with respect to (x) drawings pursuant to clause
(a) above, Agent shall not be entitled to make drawings under the Letter of
Credit in an amount in excess of the Deficiency and (y) drawings pursuant to
clauses (b) and (c) above, Agent shall not be entitled to make drawings under
the Letter of Credit in an amount in excess of the Obligations at such time.
Except for drawings under clause (d) of this Section 2, the Agent hereby agrees
that any drawing under the Letter of Credit shall be made concurrently with a
drawing in the same amount under that certain standby letter of credit issued
for Gerald M. Birnbach’s account and for the benefit of Agent having a face
amount of $1,500,000, to the extent such letter of credit is valid and existing
at such time.

 

3. Proceeds of Letter of Credit. Agent shall apply (a) proceeds of any drawing
under the Letter of Credit referred to in clause (a) of Section 2 hereof to
satisfy any Deficiency and (b) proceeds of any drawing under the Letter of
Credit referred to in clauses (b) and (c) of Section 2 hereof to satisfy any
Obligations. Agent shall deposit proceeds of any drawing under the Letter of
Credit referred to in clause (d) of Section 2 hereof into a cash collateral
account (the “Cash Collateral Account”) maintained at a bank or financial
institution acceptable to Agent until the occurrence, if any, of a Payment
Event, at which time funds in the Cash Collateral Account shall be used solely
to satisfy, as applicable, (x) any Deficiency, pursuant to clause (a) of
Section 2 hereof, or (y) the Obligations, pursuant to clause (b) and/or clause
(c) of Section 2 hereof. Upon payment in full in cash of all of the Obligations
and the termination of any commitments to make further extensions of credit
under the Loan Documents, any funds remaining in the Cash Collateral Account
shall be paid to Account Party at c/o Barry Taff, Esq., Silver Freedman & Taff,
LLP., 1700 Wisconsin Avenue N.W., Washington, D.C. 20007 or as otherwise
required by law. The Cash Collateral Account shall be in the name of Agent and
shall be subject to the control of Agent, for the benefit of Agent and Lenders,
in a manner satisfactory to Agent. Account Party hereby pledges and grants to
Agent, on behalf of itself and Lenders, a security interest in all such funds
held in the Cash Collateral Account from time to time and all proceeds thereof,
as security for the payment of all amounts due in respect of the Obligations,
whether or not then due. This Agreement shall constitute a security agreement
under applicable law. Any interest earned on deposits in the Cash Collateral
Account shall be deposited in the Cash Collateral Account and held as additional
collateral, provided Agent shall be under no obligation to make any investments
with such funds.

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4. Cancellation. Agent agrees that Agent shall return the Letter of Credit to
the Account Party for cancellation upon the earlier of (a) Borrowers’ receipt of
the Equity Contribution and (b) payment in full in cash of all of the
Obligations and the termination of any commitments to make further extensions of
credit under the Loan Documents

 

5. Subordination, Fees, etc. The parties hereto hereby agree that all fees,
reimbursement obligations, interest and other consideration and other amounts
owing to the Account Party with respect to or in connection with the issuance,
any renewal or the drawing of the Letter of Credit shall be and hereby are
subordinated and the payment thereof is deferred until the full and final
payment in cash of the Obligations, whether now or hereafter incurred or owed by
the Credit Parties. Notwithstanding the immediately preceding sentence, the
Borrowers shall be permitted to pay, and the Account Party shall be permitted to
receive, (a) any regularly scheduled payment of Fees so long as at the time of
such payment, and after giving effect thereto, no Default or Event of Default
would exist and (b) reimbursement for all reasonable out-of-pocket expenses
(including legal fees) incurred by the Account Party in connection with the
issuance of the Letter of Credit and the related transactions and agreements.
For purposes hereof, “Fees” shall mean any fee required to be paid by the
Borrowers to the Account Party in connection with the issuance and any renewal
of the Letter of Credit; provided that (i) the aggregate of all Fees in
connection with the initial issuance of the Letter of Credit shall not exceed 2%
of the face amount of the Letter of Credit, (ii) the aggregate of all Fees in
connection with any renewal of the Letter of Credit during the initial year
after issuance shall not exceed 2% on the face amount of the Letter of Credit
and (iii) the aggregate of all Fees in connection with each renewal of the
Letter of Credit during any subsequent year shall not exceed 4% on the face
amount of the Letter of Credit.

 

6. Waivers. Until payment in full in cash of all of the Obligations and the
termination of any commitments to make further extensions of credit under the
Loan Documents, the Account Party shall not: (a) exercise any right against any
Credit Party, by way of subrogation, reimbursement, indemnity, contribution, or
the like; or (b) file any proof of any claim in competition with the Agent or
any Lender in respect of the Letter of Credit or any drawing thereunder in any
bankruptcy or insolvency proceedings of any nature with respect to any Credit
Party. Account Party hereby agrees that Agent and Lenders may exercise remedies
against all or part of any collateral held as security for the Obligations, and
apply any proceeds of such collateral to the Obligations, in such order as Agent
and Lenders, in their sole discretion, elect. Account Party agrees not to assert
and hereby waives, to the fullest extent permitted by law, (a) any right to
promptness, diligences, presentment, demand, protest, notice of acceptance,
notice of any Obligations incurred and all other notices of any kind, (b) any
right to request, plead or otherwise assert or otherwise claim the benefit of,
any marshaling, appraisement, valuation or other similar right of a creditor
that may otherwise be available under applicable law or any right to receive
notice of Agent’s and Lenders’ intended disposition of such collateral (or a
portion thereof), (c) all defenses which may be available by virtue of any
valuation, stay, moratorium law or other similar law now or hereafter in effect
and (d) all suretyship defenses generally. Neither Agent nor any Lender nor any
of their respective directors, officers, employees or agents shall be liable for
failure to demand, collect or realize upon any of such

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collateral or for any delay in doing so or shall be under any obligation to sell
or otherwise dispose of any such collateral upon the request of any Credit Party
or Account Party or any other Person or to take any other action whatsoever with
regard to any such collateral or any part thereof. Account Party hereby waives,
releases and discharges any and all rights, claims, causes of action,
liabilities, claims and demands, in law or equity, which Account Party has had,
now has, or may in the future have, arising out of or relating directly or
indirectly to the taking or not taking of any act or proceeding or not
proceeding with any action which Agent or any Lender may take pursuant to the
Loan Documents or any other documents or in an effort to collect in respect of
the Obligations.

 

7. Changes In Obligations. The Account Party consents to, and agrees that Agent
and Lenders shall have no liability to Account Party as a result of (and agrees
that none of the following shall require notice to or consent of the Account
Party or affect any of the Account Party’s obligations hereunder), (a) any
consent, forbearance or waiver which the Agent or any Lender might grant or give
any Credit Party and/or any other person liable or obligated for or on the
Obligations, (b) any amendment, cancellation, termination or modification of any
provision of any Loan Document or the Obligations or any compromise, settlement,
or release by the Agent or any Lender of the Obligations or of the obligations
of any such other person (whether or not jointly liable with the Account Party),
or (c) any release of any collateral securing the Obligations or securing the
obligations of any such other person.

 

8. Binding Effect, Amendments. This Agreement shall inure to the benefit of the
parties and their respective successors and assigns and shall be binding upon
the heirs, successors, representatives, and assigns of parties. No amendment,
modification, termination or waiver of any provision of this Agreement, or any
consent to any departure by any party therefrom, shall in any event be effective
unless the same shall be in writing and signed by Agent and Account Party. All
of the understandings, covenants, and agreements contained herein are solely for
the benefit of the parties, their respective successors and assigns and there
are no other parties, including any Credit Party or any of their creditors,
successors, or assigns, which are intended to be benefited, in any way, by this
Agreement.

 

9. Counterparts; Headings. This Agreement may be executed in counterparts, each
of which shall be an original and all of which, taken together, shall constitute
a single instrument. The headings in this Agreement are for convenience of
reference only, and shall not alter or otherwise affect the meaning hereof.

 

10. GOVERNING LAW; WAIVER OF JURY TRIAL. THIS AGREEMENT SHALL BE GOVERNED BY,
AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF
NEW YORK. THE PARTIES AGREE THAT ANY ACTIONS ARISING OUT OF OR IN CONNECTION
WITH THIS AGREEMENT SHALL BE TRIED AND LITIGATED IN THE STATE AND FEDERAL COURTS
LOCATED IN THE COUNTY OF NEW YORK, IN THE STATE OF NEW YORK. THE PARTIES HERETO
WANE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO
RESOLVE ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE, BETWEEN
AGENT AND ACCOUNT PARTY ARISING OUT OF, CONNECTED WITH, RELATED TO, OR
INCIDENTAL TO THIS AGREEMENT.

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11. Severability; No Strict Construction. Wherever possible, each provision of
this Agreement shall be interpreted in such a manner as to be effective and
valid under applicable law, but if any provision of this Agreement shall be
prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity without
invalidating the remainder of such provision or the remaining provisions of this
Agreement.

 

12. Transferability. The Account Party hereby agrees that the Agent may assign
or otherwise transfer this Agreement and the Letter of Credit pursuant to the
provisions of Section 9 of the Credit Agreement.

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the date first herein above set forth.

 

/s/ Sidney Silver

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Sidney Silver

GENERAL ELECTRIC CAPITAL

CORPORATION, as Agent

By:  

/s/ Charles D. Chiodo

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Name:  

Charles D. Chiodo

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Title:   Duly Authorized Signatory