**Exhibit 10.25**

 

**FIFTH AMENDMENT AND MODIFICATION TOLOAN AND SECURITY AGREEMENT**

 

**THIS FIFTH AMENDMENT ANDMODIFICATION TO LOAN AND SECURITY AGREEMENT** (the **“Amendment”**)is made this 30th day of July, 2003, by and among **SHERWOOD BRANDS OF VIRGINIA, LLC**(**“VA”**), **SHERWOOD BRANDS, LLC**(**“MD”**), **SHERWOOD BRANDS OF RI, INC.**(**“RI”**),**ASHER CANDY, INC. (formerly known as AsherCandy Acquisition Corporation)**(**“Asher”**),**SHERWOOD BRANDS, INC.** (**“Guarantor”**) and **WACHOVIA BANK, NATIONAL ASSOCIATION**, formerly known as FirstUnion National Bank (the **“Lender”**).  VA, MD, RI and Asher are referred tocollectively as **“Borrowers”** oreach as a **“Borrower”**.

 

**BACKGROUND**

 

A.                                   Borrowers,Guarantor and Lender entered into that certain Loan and Security Agreementdated June 12, 2001 (as amended by that certain First Amendment andModification to Loan and Security Agreement dated April 30, 2002, that certainSecond Amendment and Modification to Loan and Security Agreement datedSeptember 5, 2002, that certain Third Amendment and Modification to Loan andSecurity Agreement dated April 7, 2003, that certain Fourth Amendment andModification to Loan and Security Agreement dated May 30, 2003 and as the samemay be further amended from time to time, the **“LoanAgreement”**).

 

B.                                     Borrowers,Guarantor and Lender desire to further amend the Loan Agreement in accordancewith the terms and conditions set forth herein.

 

**NOW, THEREFORE**,intending to be legally bound hereby, the parties hereto agree as follows:

 

1.                                     **MaximumRevolving Credit**.  **Section10.1(a)** of the Loan Agreement, **“Maximum Revolving Credit”**,is hereby amended by replacing the reference therein to **“$25,000,000.00”** with **“$18,000,000.00”**.** **Borrowers’ obligations in respectof sums due under Revolving Loans and Letters of Credit shall continue to be evidencedby that certain Amended and Restated Revolving Note from Borrowers to Lenderdated April 30, 2002 in the face amount of Twenty-Five Million Dollars($25,000,000.00).  However, the MaximumRevolving Credit shall be Eighteen Million Dollars ($18,000,000.00),notwithstanding the face amount of such Amended and Restated Revolving Note.

 

2.                                     **Subordinated Debt****.**

 

### (a)                                  On or before the date hereof, Borrowers shallreceive cash proceeds of a loan from Lana, LLC in an amount equal to TwoMillion Dollars ($2,000,000.00) (the **“SubordinatedDebt”**), which amount shall be applied to the outstanding principalbalance of the Revolving Loans.

 

### (b)                                 The Subordinated Debt shall be secured solelyby a security interest in the accounts receivable and inventory of Borrowers (the**“Subordinated Debt Collateral”**).

 

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### (c)                                  The Subordinated Debt and the SubordinatedDebt Collateral are fully subordinated to all Obligations and all liens,security interests, rights and remedies in favor of Lender in the SubordinatedDebt Collateral, pursuant to that certain Subordination Agreement of even dateherewith among Borrowers, Lender and Lana, LLC.

 

3.                                     **Permitted Out-of-Formula Amount.**

 

(a)                                  Inaddition to the sums otherwise available to Borrowers as Revolving Loanssupported by the Borrowing Base, Borrowers may borrow the following amounts forthe following periods (the **“PermittedOut-of-Formula Amount”**):

 
| **Period**                                                |   | **Permitted  Out-of-Formula Amount** |      |
|-----------------------------------------------------------|--------|--------------------------------------|-----------|
|                                                      |   |                                 |      |
| Date hereof through and including October 31, 2003        |   | $                                    | 1,000,000 |   |
|                                                      |   |                                 |      |
| November 1, 2003 through and including November 15, 2003  |   | $                                    | 600,000   |   |
|                                                      |   |                                 |      |
| November 16, 2003 through and including November 30, 2003 |   | $                                    | 350,000   |   |

 

(b)                                 Atall times after November 30, 2003, no Permitted Out-of-Formula Amount shall beavailable to Borrowers.

 

(c)                                  Notwithstandinganything in this Amendment to the contrary, in no event shall the sum of the(i) Revolving Loans and Letters of Credit supported by the Borrowing Base, plus(ii) Revolving Loans and Letters of Credit supported by the applicablePermitted Out-of-Formula Amount, exceed the Maximum Revolving Credit, less anyReserves.

 

4.                                     **Financial Covenants.**

 

(a)                                  Lender waives Borrowers’ compliance with theFixed Charge Coverage Ratio and Tangible Net Worth covenants set forth in **Section 6.19** of the Loan Agreement forthe fiscal periods ended October 30, 2002, January 31, 2003 and April 30, 2003only.

 

(b)                                 The foregoing waiver applies solely to theFixed Charge Coverage Ratio and Tangible Net Worth covenants and only for theperiods stated above.  Borrowers shallbe in compliance with such covenants, as amended, for all other periods.

 

(c)                                  **Subsections (a)-(c)** of **Section6.19**of the Loan Agreement are hereby deleted in their entiretyand replaced with the following:

 

“(a)                            Borrowers shall maintain Tangible Net Worthof not less than (i) $5,800,000.00 as of July 31, 2003; (ii) $6,800,000.00 asof October 31, 2003; (iii) $8,700,000.00 as of January 31, 2004 and of alltimes thereafter through April 29, 2004; (iv) $9,100,000.00 as of

 

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April 30, 2004; and (v)$7,250,000.00 as of July 31, 2004 and at all times thereafter.

 

(b)                                 Borrowers’ shall maintain a Fixed ChargeCoverage Ratio of not less than (i) negative 4.32 to 1.0 for twelve (12) monthperiod ending July 31, 2003; (ii) negative 3.70 to 1.0 for the twelve (12)month period ending October 31, 2003; (iii) negative 2.20 to 1.0 for the twelve(12) month period ending January 31, 2004; (iv) .90 to 1.0 for the twelve (12)month period ending April 30, 2004; (v) 1.75 to 1.0 for the twelve (12) monthperiod ending July 31, 2004; and (vi) 1.75 to 1.0 as of the end of each fiscalquarter of Borrowers’ after July 31, 2004, measured on a rolling four (4)quarter basis.

 

(c)                                  Borrowers and Guarantor shall not, directlyor indirectly, expend or commit to expend, for fixed or capital assets(including capital lease obligations) (collectively **“Capital Expenditures”**) in aggregate amount in excess of$1,100,000.00 in the fiscal year ending July 31, 2003 and in any fiscal yearthereafter.”

 

## 5.                                       **Addit****i****onal Collateral****.**

 

### (a)                                  Contemporaneously with the execution of thisAmendment, as additional security for the Obligations, Borrowers shall executeand deliver to Lender Deeds of Trust and collateral agreements granting toLender (i) a first priority mortgage lien on and security interest in the realproperty and improvements thereon owned by VA and located at 350 SherwoodDrive, Keysville, Virginia (together with all rents, leases and other rightswith respect thereto) and (ii) a second priority mortgage lien on and securityinterest in the real property and improvements thereon owned by VA and locatedat 807 South Main Street, Chase City, Virginia (together with all rents, leasesand other rights with respect thereto) (collectively, the **“Additional Collateral”**).  In connection with the AdditionalCollateral, contemporaneously with the execution of this Amendment, Borrowersshall cause to be delivered to Lender a title insurance policy insuringLender’s lien thereon, which policy shall be from an insurer and in form,content and amount satisfactory to Lender

 

### (b)                                 From and after the date hereof, references to**“Collateral”** under the LoanAgreement shall be deemed to include, without limitation, the AdditionalCollateral.

 

### (c)                                  On or before September 15, 2003, Borrowersshall cause to be delivered to Lender, at the sole cost and expense ofBorrowers (i) an appraisal on the Additional Collateral in form, content andprepared by an appraiser satisfactory to Lender and (ii) an environmental auditwith respect to the Additional Collateral in form, content and performed by anenvironmental engineer satisfactory to Lender.

 

6.                                     **Inventory****.**

 

### (a)                                  On or before September 30, 2003, atBorrowers’ sole cost and expense, Borrowers shall cause to be delivered toLender an appraisal on Borrowers’ inventory in form, content and from anappraiser acceptable to Lender.

 

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### (b)                                 On or before August 22, 2003, Borrowers,Lender and Borrowers’ customs broker shall enter in an agreement in the formattached hereto as **Exhibit “A”** regarding Borrowers’in-transit inventory and the documents of title with respect thereto.

 

### (c)                                  From and after the date hereof, and withoutin any way limiting the generality of any provisions of the Loan Agreement, thefollowing items of inventory, as determined by Lender from time to time, shallin no event be deemed Eligible Inventory:

####  

#### (i)                                     inventory which is equal to or greater than12 months old;

####  

#### (ii)                                  that portion of a particular item ofinventory which is in excess of the quantity of such item of inventory sold bythe Borrowers during the immediately preceding 12 month period;

####  

#### (iii)                               all inventory of a particular type (excluding new items of inventorywhich had not been previously offered for sale by Borrowers), regardless of theage thereof, if no sales of that type of inventory have been made within theimmediately preceding 12 month period; and

####  

#### (iv)                              inventory purchased or manufactured by Borrowers for a particularholiday season, during the applicable period shown on **Exhibit “B”** attachedhereto.  By way of example only,inventory purchased or manufactured by Borrowers and consisting of Christmascanes would not be Eligible Inventory for the period from December 26 throughand including March 1.

##  

7.                                     **Key****Man Life Insurance****.**  Onor before the date hereof, Borrowers shall cause to be delivered to Lender anassignment agreement (with the acknowledgment of the insurance issuer) in formand content satisfactory to Lender, with respect to a key-man life insurancepolicy on the life of Uziel Frydman in an amount equal to at least One MillionDollars ($1,000,000).

##  

8.                                     **Movement****of Equipment****.**

###  

### (a)                                In the event that Borrowers desire to moveany equipment of Borrowers to a location outside of the United States,Borrowers shall (i) provide Lender with at least 5 Business Days prior noticethereof (which notice shall include identification of the equipment beingmoved), and (ii) on or before the date such equipment is moved, pay to Lenderan amount (the **“Additional Term Loan Payment”**)equal to the value of such equipment as shown on that certain equipmentappraisal prepared by Michael Fox, Inc. dated September 24, 2002.

###  

### (b)                               Each Additional Term Loan Payment shall beapplied to the outstanding principal balance of Term Loan A and/or Term Loan Bas Lender shall determine.  Borrowersshall not be required to pay any prepayment premium with respect to anyAdditional Term Loan Payment.  TheAdditional Term Loan Payments shall be deemed to be applied to principalpayments due under Term Loan A and/or Term Loan B, as applicable, in theinverse order of maturity and shall not change the timing or amount of theregularly scheduled payments due thereunder.

###  

### (c)                                Nothing in this **Section 7**, nor the receipt by Lender of any AdditionalTerm Loan Payments, shall be deemed to be a release by Lender of its securityinterests in or rights and remedies with respect to any equipment in respect ofwhich an Additional Term Loan Payment is

 

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### made, all of which security interests, rightsand remedies shall continue in accordance with the terms and conditions of theLoan Agreement and each of the other Loan Documents.

 

9.                                     **K-Mart Receivables.**

 

(a)                                Withoutin any way limiting the generality of any provisions of the Loan Agreement,accounts receivable of Borrowers due from K-Mart (the **“K-Mart Receivables”**) which are createdafter the date of this Amendment shall in no event be deemed Eligible Accounts.

 

(b)                               Lender will consent to Borrowers enteringinto a factoring arrangement with a third party with respect to the K-MartReceivables, provided that the factor shall have an interest solely in theK-Mart Receivables and the proceeds thereof and all documentation in connectiontherewith shall be otherwise in form and content satisfactory to Lender.

 

10.                               **Collateral Servicing Fee.**  **Section10.5(f)** of the Loan Agreement is hereby amended by replacing thereference to **“$500”** therein with **“$1,900.00”**.  The foregoing increase shall be deemed effective beginning withthe month of June, 2003.

 

11.                               **Asher Candy, Inc.**

 

(a)                                Asherhas been deemed “administratively dissolved” by the State of Wyoming.

 

(b)                               Within ten (10) days following the datehereof, Borrower shall have completed all action necessary to cause Asher to bein good standing in the State of Wyoming and shall have delivered evidencesatisfactory to Lender of all such action.

 

(c)                                On or before October 30, 2003, Borrower shallcause to be delivered to Lender a good standing certificate for Asher from theState of Wyoming, which shall be in form and content satisfactory to Lender.

 

12.                               **Amendment Fee.**

 

(a)                                Borrowers shall pay to Lender an amendmentfee in the amount of $100,000.00 (the **“AmendmentFee”**), which has been fully earned by Lender as of the date hereof.

 

(b)                               The Amendment Fee shall be paid as follows:

 

#### (i)                                     $5,000.00 on the date of execution of thisAmendment; and

 

#### (ii)                                  $95,000.00 on the earlier of (1) December 1,2003, (2) the occurrence of an Event of Default and demand by Lender forpayment in full of the Obligations or (3) termination of the Loan Agreement forany reason.

 

13.                               **Further Agreements andRepresentations****.**  Each Borrower and Guarantor does hereby:

 

### (a)                                ratify, confirm and acknowledge that, asamended hereby, the Loan Agreement and the other Loan Documents are valid,binding and in full force and effect;

 

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### (b)                               covenant and agree to perform all of suchBorrower’s and Guarantor’s obligations under the Loan Agreement and the otherLoan Documents, as amended;

###  

### (c)                                acknowledge and agree that as of the datehereof, neither any Borrower nor Guarantor has any defense, set-off,counterclaim or challenge against the payment of any sums owing under any ofthe Obligations, as amended, or the enforcement of any of the terms of the LoanAgreement or of the other Loan Documents, as amended;

###  

### (d)                               acknowledge and agree that except asheretofore disclosed to Lender by Borrowers in writing, all representations andwarranties of Borrowers and Guarantor contained in the Loan Agreement and/orthe other Loan Documents, as amended, are true, accurate and correct on and asof the date hereof as if made on and as of the date hereof;

###  

### (e)                                represent and warrant that, after givingeffect to this Amendment, no Event of Default or event which with the deliveryof notice, passage of time or both would constitute an Event of Default existsor will exist and all information described in the foregoing Background is trueand accurate; and

###  

### (f)                                  covenant and agree that Borrowers’ orGuarantor’s failure to comply with the terms of this Amendment or any of thedocuments executed or delivered to Lender pursuant to the terms hereof shallconstitute an Event of Default under the Loan Agreement.

 

14.                               **Additional Documents;Further Assurances****.**  Borrowers and Guarantor covenant and agreesto execute and deliver to Lender, or to cause to be executed and delivered toLender contemporaneously herewith, at the sole cost and expense of Borrowers,all documents, agreements, statements, resolutions, certificates, consents andinformation as Lender may require in connection with the matters or actionsdescribed herein.  Borrowers andGuarantor further covenant and agree to execute and deliver to Lender or tocause to be executed and delivered at the sole cost and expense of Borrowers,from time to time, any and all other documents, agreements, statements,certificates and information as Lender shall reasonably request to evidence oreffect the terms hereof, the Loan Agreement, as amended, or any of the otherLoan Documents, or to enforce or to protect Lender’s interest in theCollateral.  All such documents,agreements, statements, etc., shall be in form and content acceptable to Lenderin its reasonable sole discretion.

##  

15.                               **Release****.** Borrowers and Guarantor acknowledge and agree that they have no claims,suits or causes of action against Lender and hereby remise, release and foreverdischarge Lender and its officers, directors, shareholders, employees, agents,successors and assigns from any claims, suits or causes of action whatsoever,in law or equity, which any Borrower or Guarantor has or may have arising fromany act, omission or otherwise, at any time up to and including the date ofthis Amendment.

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16.                               **Certain Fees, Costs,Expenses And Expenditures**.  Borrowers will pay all of the Lender’sexpenses in connection with the review, preparation, negotiation, documentationand closing of this Amendment and the consummation of the transactionscontemplated hereunder, including without limitation, fees, disbursements, expenses,appraisal costs and fees and expenses of counsel retained by Lender and allfees related to filings, recording of documents and searches, whether or notthe transactions contemplated hereunder are consummated.  Nothing contained herein shall limit in anymanner whatsoever Lender’s right to reimbursement under any of the LoanDocuments.

 

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17.                               **No Further Amendment; NoCourse of Dealing**.  Nothing contained herein constitutes anagreement or obligation by Lender to grant any further amendments with respectto any of the Loan Documents.  Except asexpressly set forth in **Section 3(a)**above, any waiver or implied waiver by Lender of any obligations or covenantsof Borrowers, Guarantor or any of them, under the Loan Documents is expresslyterminated and rescinded and Borrowers shall strictly perform and comply withall obligations and covenants under the Loan Documents.

 

18.                               **Inconsistencies.** To the extent of any inconsistencies betweenthe terms and conditions of this Amendment and the terms and conditions of theLoan Agreement, the terms and conditions of this Amendment shall prevail. Allterms and conditions of the Loan Agreement not inconsistent herewith shallremain in full force and effect and are hereby ratified and confirmed byBorrowers.

 

19.                               **Construction.**  Anycapitalized terms used in this Amendment not otherwise defined shall have themeaning as set forth in the Loan Agreement.

 

20.                               **Binding Effect.**  ThisAmendment, upon due execution hereof, shall be binding upon and inure to thebenefit of the parties hereto and their respective successors and assigns.

 

21.                               **Governing Law.**  This Amendment shall be governed andconstrued in accordance with the laws of the Commonwealth of Pennsylvania.

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22.                               **Severability**.  Theprovisions of this Amendment and all other Loan Documents are deemed to beseverable, and the invalidity or unenforceability of any provision shall notaffect or impair the remaining provisions which shall continue in full forceand effect.

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23.                               **No Third Party Beneficiaries**.  Therights and benefits of this Amendment and the Loan Documents shall not inure tothe benefit of any third party.

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24.                               **Headings**.  Theheadings of the Articles, Sections, paragraphs and clauses of this Amendmentare inserted for convenience only and shall not be deemed to constitute a partof this Amendment.

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25.                               **Counterparts**. This Amendment may be executed in any number of counterparts, all ofwhich taken together shall constitute one and the same instrument, and any ofthe parties hereto may execute this Amendment by signing any such counterpart.

 

**(SIGNATURES ON FOLLOWING PAGE)**

 

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**IN WITNESS WHEREOF**,the parties hereto, intending to be legally bound hereby, have caused this Amendmentto be executed the day and year first above written.

** **
| **LENDER:**                              |                                 | **BORROWERS:**                        |
|------------------------------------------|--------------------------------------|---------------------------------------|
|                                     |                                 |                                  |
| **WACHOVIA BANK,  NATIONAL ASSOCIATION** |                                 | **SHERWOOD BRANDS OF VIRGINIA,  LLC** |
|                                     |                                 | a Virginia limited liability company  |
|                                     |                                 |                                  |
| By:                                      | /s/ George C. Kyvernitis             |                                  |   | By: | **SHERWOOD BRANDS, INC.**, |
|                                     | George C. Kyvernitis, Vice President |                                  |   | Sole Member |
|                                     |                                 |                                  |   |   |
|                                     |                                 |                                  | By: | /s/  Amir Frydman |   |
|                                     |                                 |                                  |   | Amir  Frydman |
|                                     |                                 |                                  |
|                                     |                                 | **SHERWOOD BRANDS, LLC**,             |
|                                     |                                 | a  Maryland limited liability company |
|                                     |                                 |                                  |
|                                     |                                 | By:                                   | **SHERWOOD BRANDS, INC.,** |
|                                     |                                 |                                  | Sole  Member |
|                                     |                                 |                                  |   |
|                                     |                                 |                                  | By: | /s/  Amir Frydman |   |
|                                     |                                 |                                  |   | Amir  Frydman |
|                                     |                                 |                                  |   | Executive  Vice President |
|                                     |                                 |                                  |
|                                     |                                 | **SHERWOOD BRANDS OF RI, INC.**       |
|                                     |                                 |                                  |
|                                     |                                 | By:                                   | /s/ Amir Frydman |   |
|                                     |                                 |                                  | Amir Frydman |
|                                     |                                 |                                  | Executive Vice President |
|                                     |                                 |                                  |
|                                     |                                 | **ASHER CANDY, INC.**                 |
|                                     |                                 |                                  |
|                                     |                                 | By:                                   | /s/ Amir Frydman |   |
|                                     |                                 |                                  | Amir Frydman |
|                                     |                                 |                                  | Executive Vice President |
|                                     |                                 |                                  |
|                                     |                                 |                                  |
|                                     |                                 | **GUARANTOR:**                        |
|                                     |                                 |                                  |
|                                     |                                 | **SHERWOOD BRANDS, INC.**             |
|                                     |                                 |                                  |
|                                     |                                 | By:                                   | /s/ Amir Frydman |   |
|                                     |                                 |                                  | Amir Frydman |
|                                     |                                 |                                  | Executive Vice President |
|                                          |                                      |                                       |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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**EXHIBIT “B”**

 
| **Type of Inventory**                      |   | **Period of  Exclusion from Eligible Inventory**     |
|--------------------------------------------|--------|------------------------------------------------------|
|                                       |   |                                                 |
| Christmas Canes                            |   | December 26 through and  including March 1           |
|                                       |   |                                                 |
| Christmas Gift items                       |   | December 26 through and  including April 30          |
|                                       |   |                                                 |
| All other Christmas  Categories            |   | December 26 through and  including June 30           |
|                                       |   |                                                 |
| Valentines items                           |   | February 15 through and  including May 31            |
|                                       |   |                                                 |
| Easter items consisting of  finished goods |   | Day after Easter through  and including September 30 |
|                                       |   |                                                 |
| Halloween items                            |   | October 31 through and  including March 31           |

 

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