Exhibit 10.1


 


AMENDMENT NO. 2 TO THE SEVENTH
AMENDED AND RESTATED LOAN AND

SECURITY AGREEMENT


 


This AMENDMENT No. 2 TO
THE SEVENTH AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT (together with all
exhibits and schedules attached hereto, this “Amendment”)
is entered into this 12th day of September, 2003 by and among FLEET CAPITAL
CORPORATION (“Fleet”), a Rhode Island corporation, individually as a Lender and
as Agent (“Agent”) for itself and any other financial institution which is or
becomes a party thereto (each such financial institution, including Fleet, is
referred to hereinafter individually as a “Lender” and collectively as the
“Lenders”), THE CIT GROUP/BUSINESS CREDIT, INC., individually as a Lender and
as Co-Administrative Agent, the other financial institutions party thereto as
Lenders, RESTORATION HARDWARE, INC., a Delaware corporation (“Lead Borrower”)
and THE MICHAELS FURNITURE COMPANY, INC., a California corporation (“Michaels,”
together with the Lead Borrower, the “Borrowers”) (each, an “Amendment Party” and, collectively, the “Amendment Parties”), and is made with
reference to the following facts:


 


RECITALS


 


A.                                   WHEREAS,
Borrowers, the Agent, the Co-Administrative Agent and the Lenders (each a “Party” and, collectively, the “Parties”) have previously entered into that
certain Seventh Amended and Restated Loan and Security Agreement dated as of
November 26, 2002, as amended by a First Amendment dated as of
April 28, 2003 (as amended, modified or supplemented from time to time,
the “Loan Agreement”) and various
agreements and instruments collateral thereto (collectively with the Loan
Agreement, the “Loan Documents”).  All capitalized terms used herein, unless
otherwise defined herein, shall have the meanings set forth in the Loan
Documents.


 


B.                                     WHEREAS,
the Amendment Parties desire to amend the Loan Agreement on the terms and
subject to the conditions of this Amendment.


 


NOW THEREFORE, in
consideration of the foregoing recitals and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the Amendment Parties agree as follows:


 


ARTICLE I

AMENDMENTS TO LOAN AGREEMENT


 


1.1                               Section 1.2 of the
Loan Agreement is hereby amended to read in full as follows:


 


“Agent may make Revolving
Credit Loans on behalf of Lenders at a time when an Overadvance exists or would
be caused by the making of such Revolving Credit Loans


 


1

















 


on behalf of Lenders,
where such Revolving Credit Loans (without duplication) are either (a) Protective
Advances, or (b) are made when Availability equals zero and made during the
period July 1 through November 15 of any calendar year and are not
extant for more than ninety (90) days (which need not be consecutive) during
any such period absent consent of Majority Lenders; provided however, in no
event shall (x) the making of any Overadvance cause any Lender to exceed that
Lender’s Revolving Loan Commitment, (y) the aggregate outstanding amount of
Overadvances exceed $7,500,000 at any one time and (z) the aggregate amount of
Protective Advances exceed the lesser of $5,000,000 or 5% of the Borrowing
Base; provided further that, notwithstanding the foregoing, no Overadvance may
be made, other than a Protective Advance, (A) in the period July 1 through
July 31 or (B) that would result in the aggregate outstanding amount of
Overadvances exceeding $5,000,000 unless, at the time of making such
Overadvance, Borrowers’ Consolidated EBITDA for the most recent twelve month
period for which financial statements have been delivered to Agent equals or
exceeds $18,000,000.  In each case,
after the expiration of such period, no such event or occurrence shall cause or
constitute a waiver by any Lender of its right to refuse to make any further
Revolving Credit Loans at any time that an Overadvance exists or would result
therefrom.  Agent may not (i) make
Revolving Credit Loans on behalf of Lenders under this subsection 1.2 to
the extent such Revolving Credit Loans would cause a Lender’s share of the
Revolving Credit Loans to exceed such Lender’s Revolving Loan Commitment minus
such Lender’s Revolving Loan Percentage of the LC Amount or (ii) make Revolving
Credit Loans after the end of the Term.”


 


1.2                               Section 1.5 of the
Loan Agreement is hereby amended by deleting the reference to “$25,000,000” in
the proviso to clause (ii) of the first sentence and inserting a reference to
“$30,000,000” in lieu thereof.


 


1.3                               Section 4.1 of the
Loan Agreement is hereby amended by deleting the reference to “June 30,
2004” and substituting a reference to “June 30, 2006” in lieu thereof.


 


1.4                               Section 8.2.8 of
the Loan Agreement is hereby amended by deleting clause (4) and inserting the
following in lieu thereof:


 


“(4) for the fiscal year
ending February 1, 2005 (“Fiscal Year 2004”), $24,000,000;”


 


1.5                               Section 8.2.8 of
the Loan Agreement is hereby further amended by adding the following at the end
thereof:


 


“(5) for the fiscal year
ending February 1, 2006 (“Fiscal Year 2005”), $24,000,000; and


 


(6) for the fiscal period
beginning February 2, 2006 through June 30, 2006, $12,000,000,


 


provided that in
Fiscal Year 2004 and in any fiscal year thereafter, Borrowers shall not make
any Capital Expenditure if the ratio of (i) Consolidated EBITDA minus
Consolidated Net Capital Expenditures minus the provisions for current
taxes based on income of Borrowers and their


 


2

















 


Subsidiaries and
payable in cash with respect to such period minus Distributions to (ii)
Consolidated Fixed Charges, in each case on a pro forma basis giving effect to
the actual Capital Expenditure, for the twelve month period most recently ended
for which financial statements have been delivered to Agent is less than
1.1:1.0.”


 


1.6                               Section 8.2.17 of
the Loan Agreement is hereby amended by deleting clause (v)(C) and inserting
the following in lieu thereof:


 


“(C)                          Fiscal
Year 2004:  seven Stores”


 


1.7                               Section 8.2.17 of
the Loan Agreement is hereby further amended by adding the following new
clauses (v)(D) and (v)(E) at the end thereof:


 


“(D)                         Fiscal Year
2005:  ten Stores


 


(E)                                 Period
ending June 30, 2006:  seven
Stores”


 


1.8                               Appendix A of the Loan
Agreement is hereby amended to add the following definitions:


 


“Cash Interest Expense” –
means, for any period, total interest expense (including that portion
attributable to Capitalized Lease Obligations in accordance with GAAP and
capitalized interest) of Borrowers and their Subsidiaries on a Consolidated
basis with respect to all outstanding Indebtedness of Borrowers and their
Subsidiaries, including all commissions, discounts and other fees and charges
owed with respect to letters of credit and bankers’ acceptance financing, net
costs under interest rate agreements and amounts referred to in Section 2
payable to Agent or Lenders that are considered interest expense in accordance
with GAAP, but excluding, however, any such amounts referred to in
Section 2 payable on or before November 26, 2002, excluding, however,
any interest expense not payable in cash (including amortization of discount
and amortization of debt issuance costs).


 


“Fiscal Year 2004” – as
defined in Section 8.2.8.


 


“Fiscal Year 2005” – as
defined in Section 8.2.8.


 


“Fixed Charges” – means,
without duplication, for any period, the sum of the amounts for such period of
(i) Consolidated Cash Interest Expense and (ii) scheduled principal payments in
respect of Consolidated Indebtedness, all of the foregoing as determined on a
Consolidated basis for Borrowers and their Subsidiaries in conformity with
GAAP.


 


1.9                               Appendix A of the Loan
Agreement is hereby amended by deleting the definition of the term “Applicable
Margin” and inserting the following in lieu thereof:


 


“Applicable Margin” – the
percentages set forth below with respect to the Base Rate Revolving Portion and
the LIBOR Revolving Portion:


 


	
   

  	
  Actual EBITDA for the Prior

  Twelve Months

  	
   

  	
  LIBOR Revolving

  Portion

  	
   

  	
  Base Rate Revolving

  Portion

  	
   

  
	
  Tier I

  	
  >$20,000,000

  	
   

  	
  1.75

  	
  %

  	
  0.75

  	
  %

  
	
  Tier II

  	
  > $15,000,000
  <= $20,000,000

  	
   

  	
  2.25

  	
  %

  	
  1.00

  	
  %

  
	
  Tier III

  	
  > $10,000,000
  <= $15,000,000

  	
   

  	
  2.75

  	
  %

  	
  1.50

  	
  %

  
	
  Tier IV

  	
  <= $10,000,000

  	
   

  	
  3.25

  	
  %

  	
  1.75

  	
  %

  



 


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In calculating EBITDA for
the prior twelve months for purposes of the above grid, EBITDA shall include,
in the sole and complete discretion of the Agent, one-time non–cash additions
that are not offset by future cash charges. 
The interest rate shall be adjusted based on the Borrowers’ fiscal
quarter-end financial statements, effective immediately upon such determination
by the Agent, which shall be made promptly following receipt of such financial
statements.


 


1.10                        Exhibit 3.1.10 of the Loan
Agreement is hereby amended by deleting in its entirety Exhibit 3.1.10 of the
Loan Agreement and replacing it with Exhibit 3.1.10 attached hereto.


 


1.11                        Exhibit 6.1.1 of the Loan
Agreement is hereby amended by deleting in its entirety Exhibit 6.1.1 of the
Loan Agreement and replacing it with Exhibit 6.1.1 attached hereto.


 


1.12                        Exhibit 6.5 of the Loan
Agreement is hereby amended by deleting in its entirety Exhibit 6.5 of the Loan
Agreement and replacing it with Exhibit 6.5 attached hereto.


 


1.13                        Exhibit
7.1.1 of the Loan Agreement is hereby amended by deleting in its entirety
Exhibit 7.1.1 of the Loan Agreement and replacing it with Exhibit 7.1.1
attached hereto.


 


1.14                        Exhibit 7.1.4 of the Loan Agreement
is hereby amended by deleting in its entirety Exhibit 7.1.4 of the Loan
Agreement and replacing it with Exhibit 7.1.4 attached hereto.


 


1.15                        Exhibit 7.1.5 of the Loan
Agreement is hereby amended by deleting in its entirety Exhibit 7.1.5 of the
Loan Agreement and replacing it with Exhibit 7.1.5 attached hereto.


 


1.16                        Exhibit 7.1.14 of the Loan
Agreement is hereby amended by deleting in its entirety Exhibit 7.1.14 of the
Loan Agreement and replacing it with Exhibit 7.1.14 attached hereto.


 


1.17                        Exhibit 7.1.16 of the Loan
Agreement is hereby amended by deleting in its entirety Exhibit 7.1.16 of the
Loan Agreement and replacing it with Exhibit 7.1.16 attached hereto.


 


1.18                        Exhibit 7.1.22 of the Loan
Agreement is hereby amended by deleting in its entirety Exhibit 7.1.22 of the
Loan Agreement and replacing it with Exhibit 7.1.22 attached hereto.


 


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1.19                        Exhibit 7.1.23 of the Loan
Agreement is hereby amended by deleting in its entirety Exhibit 7.1.23 of the Loan
Agreement and replacing it with Exhibit 7.1.23 attached hereto.


 


1.20                        Exhibit 8.1.3 of the Loan
Agreement is hereby amended by deleting in its entirety Exhibit 8.1.3 of the
Loan Agreement and replacing it with Exhibit 8.1.3 attached hereto.


 


1.21                        Section 7 of the Loan
Agreement is hereby amended by adding Section 7.1.29 to read in full as
follows:


 


“Restoration Hardware
of Blackhawk, Incorporated. 
Restoration Hardware of Blackhawk, Incorporated, a California
corporation and a Subsidiary of the Lead Borrower, (i) has no assets other than
a leasehold interest in the property located at Blackhawk Plaza, 3446 Blackhawk
Plaza Circle, Suite D7-14, Danville, California 94506 and (ii) has conducted,
and conducts, no operations, other than acting as named lessee under the
Shopping Center Lease, dated as of November 3, 1997, by and between
Blackhawk Plaza Investors, LLC (as successor in interest to K/B Fund III) and
Restoration Hardware of Blackhawk, Incorporated (as amended, modified, or
supplemented from time to time) in connection with the property described in
clause (i) above.”


 


ARTICLE II


ADDITIONAL
AGREEMENTS


 


2.1                               Borrowers shall pay on
the Second Amendment Effective Date, $350,000 (the “Fees”) to the Agent, for the pro rata benefit of the Lenders.


 


ARTICLE III

CONDITIONS PRECEDENT


 


This Amendment shall
become effective upon satisfaction of the following conditions (the date of
satisfaction of such conditions being referred to herein as the “Second Amendment Effective Date”):


 


3.1                               Execution and delivery
to the Agent of counterparts hereof by the Borrowers, the Lenders, the Agent
and the Co-Administrative Agent.


 


3.2                               Delivery to the Agent of
an opinion of counsel to the Borrowers in form and substance satisfactory to
the Agent and its counsel.


 


3.3                               Delivery to the Agent of
resolutions of the Boards of Directors of the Borrowers, approving and
authorizing the execution, delivery and performance of this Amendment,
certified as of the Second Amendment Effective Date by their corporate
secretaries or assistant secretaries as being in full force and effect without
modification or amendment.


 


3.4                               The Borrowers shall have
paid the Fees.


 


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ARTICLE IV

MISCELLANEOUS


 


4.1                               Each of the Borrowers
reaffirms and restates the representations and warranties set forth in
Section 7 of the Loan Agreement, as amended by this Amendment (the “Amended Agreement”), and, after giving
effect to the transactions contemplated herein, all such representations and
warranties shall be true and correct in all material respects on and as of the
date hereof (except insofar as such representations and warranties expressly
relate to an earlier date).


 


4.2                               Each of the Borrowers
warrants and represents (which warranty and representation shall survive the
execution and delivery hereof) that:


 


(a)                                  It
has the corporate power and authority to execute and deliver this Amendment,
and to carry out the terms and provisions of this Amendment and the Amended
Agreement and the transactions contemplated hereby and thereby, and has taken
or caused to be taken all necessary corporate action to authorize the execution
and delivery of this Amendment and the performance of this Amendment and the
Amended Agreement and the transactions contemplated hereby and thereby;


 


(b)                                 No
consent of any other person (including, without limitation, its shareholders or
creditors), and no action of, or filing with any governmental or public body or
authority is required to authorize, or is otherwise required in connection with
the execution and delivery of this Amendment and the performance of this
Amendment and the Amended Agreement;


 


(c)                                  The
execution and delivery of this Amendment and the performance of this Amendment
and the Amended Agreement will not violate any law, statute or regulation, or
any order or decree of any court or governmental instrumentality, or conflict
with, or result in the breach of, or constitute a default under any contractual
obligation; and


 


(d)                                 This
Amendment has been duly executed and delivered by a duly authorized officer,
and this Amendment and the Amended Agreement constitute a legal, valid and
binding obligation of it, enforceable in accordance with their terms, subject
to laws affecting the enforcement of creditors’ rights generally and the
exercise of judicial discretion in accordance with general principles of
equity.


 


4.3                               The Loan Documents,
subject to the foregoing terms and conditions provided by this Amendment,
constitute the complete agreement of the Parties with respect to the subject
matters referred to herein and supersede all prior or contemporaneous
negotiations, promises, agreements, or representations, all of which have
become merged and finally integrated into the Loan Documents and this
Amendment.  No agreements or
undertakings varying, modifying, amending, extending, discharging or
terminating the same shall be binding upon any Party unless in writing signed
by a duly authorized official or agent thereof.  No waiver by any Party of any breach hereunder shall be deemed a
waiver of any other or subsequent breach.


 


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4.4                               Each Borrower agrees to
pay, on demand, all attorneys’ fees and costs incurred in connection with the
negotiation, documentation, and execution of this Amendment.  If any legal action or proceeding shall be
commenced at any time by any Party in connection with its interpretation or
enforcement, the prevailing Party or Parties in such action or proceeding shall
be entitled to reimbursement of its reasonable attorneys’ fees and costs in
connection therewith, in addition to all other relief to which the prevailing
Party or Parties may be entitled.  Each
of the Amendment Parties waives its right to a trial by jury in any action to
enforce, defend, or interpret, or otherwise concerning this Amendment.


 


4.5                               Except as herein
expressly amended, the Loan Agreement is ratified and confirmed in all respects
and shall remain in full force and effect in accordance with its terms.


 


4.6                               This Amendment and all
rights and obligations hereunder, including matters of construction, validity,
and performance, shall be governed by and construed under the laws of the State
of California and shall inure to the benefit of and shall be binding upon the
successors, heirs and assigns of the Parties.


 


4.7                               All references to the
Loan Agreement contained in the Loan Agreement and the other Loan Documents and
the other documents and instruments delivered pursuant to or in connection
therewith shall mean the Loan Agreement, as amended hereby and as may in the
future be amended, restated, supplemented or modified from time to time.


 


4.8                               This Amendment may be
executed in counterparts, each of which shall be deemed an original and all of
which together shall constitute one and the same instrument.


 


4.9                               Delivery of an executed
counterpart of a signature page to this Amendment by telecopier shall be
effective as delivery of a manually executed counterpart of this Amendment.


 


4.10                        The Parties hereby acknowledge
and agree that the Lead Borrower’s restatements of financial results for itself
and its Subsidiaries for (a) the fiscal years ended February 3, 2001 and
February 2, 2002 and each of the affected quarterly periods therein, as
applicable, and (b) the first two fiscal quarters of the fiscal year ended
February 2, 2003, and its filings with the Securities and Exchange
Commission in connection therewith, are not a material misrepresentation for
the purposes of Section 10.1.2 of the Loan Agreement, nor are they a
breach of a covenant for the purposes of Sections 10.1.3 and 10.1.4 of the Loan
Agreement, and no Event of Default shall be deemed to have occurred or to be
continuing as a result thereof or in connection therewith.


 


4.11                        The Parties hereby acknowledge
and agree that the Lead Borrower’s failure to disclose or properly maintain the
existence of Restoration Hardware of Blackhawk, Incorporated, including without
limitation as to its good standing, tax filings or otherwise, is not a material
misrepresentation for the purposes of Section 10.1.2 of the Loan
Agreement, and no Event of Default shall be deemed to have occurred or to be
continuing as a result thereof or in connection therewith.


 


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IN WITNESS WHEREOF, the
parties hereto have executed this Amendment as of the date first above written.


 


	
   

  	
  RESTORATION HARDWARE,
  INC.,

  the Lead Borrower

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Kevin W. Shahan

  	
   

  
	
   

  	
   

  
	
   

  	
  Name:

  	
  Kevin
  W. Shahan

  	
   

  
	
   

  	
   

  
	
   

  	
  Title:

  	
  VP/CFO

  	
   

  
	
   

  	
   

  
	
   

  	
  THE MICHAELS FURNITURE
  COMPANY,

  as a Borrower

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Thomas M. Bazzone

  	
   

  
	
   

  	
   

  
	
   

  	
  Name:

  	
  Thomas
  M. Bazzone

  	
   

  
	
   

  	
   

  
	
   

  	
  Title:

  	
  Director

  	
   

  
	
   

  	
   

  
	
   

  	
  FLEET CAPITAL
  CORPORATION, a Rhode

  Island corporation, as Agent and as a Lender

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Matthew R. Van Steenhuyse

  	
   

  
	
   

  	
   

  
	
   

  	
  Name:

  	
  Matthew
  R. Van Steenhuyse

  	
   

  
	
   

  	
   

  
	
   

  	
  Title:

  	
  Senior Vice President

  	
   

  
	
   

  	
   

  
	
   

  	
  THE CIT
  GROUP/BUSINESS CREDIT,

  INC., as the Co-Administrative Agent and as a

  Lender

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Adrian Avalos

  	
   

  
	
   

  	
   

  
	
   

  	
  Name:

  	
  Adrian
  Avalos

  	
   

  
	
   

  	
   

  
	
   

  	
  Title:

  	
  Vice President

  	
   

  
							



 


Signature Pages to Amendment No. 2
to the Seventh Amended and Restated

Loan and Security Agreement