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EXHIBIT 4.7
[FOOTHILL LETTERHEAD]
VIA TELECOPY
December 9, 1999
Gantos, Inc.
0000 X. Xxxx Xxxxxx, 0xx Xxxxx
Xxxxxxxx, XX 00000
Attention: President
RE: Gantos, Inc. (the "Borrower") - Existing Defaults; Full Reservation of
Rights; Limitations on Advances.
Ladies and Gentlemen:
Reference is made to the Loan and Security Agreement dated November 18,
1998 by and among the Borrower and Foothill, as Agent (the "Agent"), and the
Lenders (as amended by a certain First Amendment to Loan and Security Agreement
dated as of February 28, 1999 by and among the Borrower and Foothill as Agent
and the Lenders, as further amended by a certain Second Amendment to Loan and
Security Agreement dated as of August 27, 1999 by and among the Borrower and
Foothill as Agent and the Lenders (the "Second Amendment"), as further amended
by and through the date of this letter agreement, and as hereafter amended
and/or restated from time to time, the "Loan Agreement"). Capitalized terms not
defined herein shall have the meaning set forth in the Loan Agreement. Reference
is further made to the Notice of Existing Defaults and Reservation of Rights
dated December 1, 1999 (the "Notice") pursuant to which the Lenders formally
notified the Borrower (i) of certain Events of Default under the Loan Agreement,
(ii) that any further advances under the Loan Agreement would only be made in
the Lenders' discretion, and (iii) that the Lenders were reserving all of their
rights to enforce the provisions of the Loan Agreement and the other Loan
Documents at law, at equity or otherwise.
1. Existing Defaults
The Borrower acknowledges and agrees that as of the date hereof it is
in default of its obligations to the Lenders by reason of the occurrence of the
following Events of Default:
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- Failure to meet the rolling three week sales covenant set
forth on amended Schedule 7.21 for the weeks ended October 16,
23, and 30, 1999 and November 6, 13, 20, and 27, 1999;
- Failure to meet the weekly purchase covenant set forth on
amended Schedule 7.21 for the weeks ended October 8 and 16,
1999;
- Failure to meet the monthly purchase covenant set forth on
amended Schedule 7.21 for the months of August and September
1999; and
- Failure to deliver timely financial statements to the
Lenders for the month of October 1999 (collectively, the
"Existing Defaults").
The above list of Existing Defaults represents only the Events of
Default which the Lenders can confirm based on the financial information and
reports delivered by the Borrower as of the date of this letter.
2. Cash Budget
As required by the Notice, on December 6, 1999, the Borrower delivered
to the Lenders a detailed weekly cash budget for December 1999, a copy of which
is attached hereto as Exhibit A (the "Budget").
3. Acknowledgment of Existing Defaults; No Forbearance Obligations;
Limitations on Advances
(a) The Borrower acknowledges and confirms to the Lenders that the
Borrower is in default of its obligations under the Loan Agreement by reason of
the occurrence of the Existing Events of Default listed in Section 1 hereof. The
Borrower acknowledges and agrees with the Lenders that by reason of the
occurrence and continuance of the Existing Events of Default, the Lenders are
currently and shall remain, at all times hereafter, entitled to exercise the
full range of their rights and remedies against the Borrower under the Loan
Documents and applicable law, without defense or counterclaim of any kind on the
part of the Borrower.
(b) The Borrower further acknowledges and agrees that as set forth in
the Notice, any advances under the Loan Agreement are and shall continue to be
made in the Lenders' sole discretion. Without limiting the foregoing, any
discretionary advances so funded by the Lenders shall be (i) subject to the
applicable advance rates, borrowing base limitations and related provisions set
forth in the Loan Agreement, and (iii) limited to the amount necessary to fund
projected disbursements set forth in the Budget through the date of any such
requested advance.
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(c) The Borrower acknowledges and agrees that the provisions of this
letter agreement are not intended to and shall not be claimed by the Borrower to
constitute an agreement by the Lenders to continue funding advances to the
Borrower or to forbear from exercising their existing rights and remedies in
respect of Existing Events of Defaults under the Loan Documents, all of which
are expressly reserved and are not, and shall in no way be deemed or construed
as, a waiver by the Lenders of such Existing Events of Default or any other
Event of Default now existing or occurring subsequent to the date hereof. The
Borrower further acknowledges and agrees that the Lenders' failure to exercise
or delay in exercising such rights and remedies shall not constitute a waiver
thereof or of the Existing Events of Default, or create a course of dealing or
any obligation on the part of the Lenders to forbear from exercising any or all
such rights or remedies at any time in the Lenders' sole discretion, and any
such claims on the part of the Borrower are hereby waived.
4. Representations and Warranties; Confirmation of Representations,
Warranties.
This letter agreement has been duly authorized, executed and delivered
by the Borrower. The Loan Agreement, as amended hereby, each of the other Loan
Documents, as amended by and through the date hereof and all Indebtedness of the
Borrower incurred thereunder, constitute the legal, valid and binding
obligations of the Borrower, enforceable against the Borrower in accordance with
their respective terms. The Borrower, by execution of this letter agreement,
certifies to the Agent and each of the Lenders that each of the representations
and warranties set forth in the Loan Agreement and the other Loan Documents
(except those that expressly relate to an earlier date) is true and correct as
of the date hereof.
5. Covenants.
Until such time as the Borrower shall have paid its Obligations to the
Lenders in full, the Borrower covenants and agrees with the Lenders that the
Borrower shall comply with all of the terms and conditions contained in the Loan
Documents, including but not limited to the following:
(a) The Budget. The Borrower's weekly financial results shall not
negatively vary from the Budget in any category or in the aggregate.
(b) Reports. In addition to the financial reporting requirements in the
Loan Agreement, the Borrower shall supply the Lenders' with the following
information:
- By 1:00 p.m. each business day, the Borrower shall supply
the Lenders with a (i) a list of disbursements in accordance with
the Budget; and (ii) notice of all notices of default, written or
oral, relating to any of the Borrower's contracts, agreements or
leases;
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- On or before December 16, 1999 the Borrower shall supply the
Lenders with a detailed weekly cash budget for the months of
January through March, 2000; and
- All such other information as the Lenders may from time to
time reasonably request;
(c) Examination of Xxxxxxxx's Books. The Borrower shall permit the
Lenders to examine the Borrower's books on demand, at the Lenders' discretion.
Any such examination shall be at the Borrower's expense;
(d) Financial Crisis Management. The Borrower shall continue to retain
a financial crisis manager from Deloitte Touche LLP or another financial
consulting firm acceptable to the Lenders; and
(e) Storewide Sales; Consultant. On or before December 9, 1999, the
Borrower shall deliver to the Lenders (i) a list of at least 15 stores at which
the Borrower will commence "all items on sale" promotional sales on December 11,
1999, and (ii) an agreement between the Borrower and a third party consultant
engaged by the Borrower to advise the Borrower in connection with the sales
referenced in clause (i) and in the next succeeding sentence; such consultant
and agreement to be satisfactory to the Lenders. On or before December 13, 1999,
the Borrower will present the Lenders with an additional list of stores at which
it will commence "all items on sale" promotional sales as soon as practicable.
(f) Bankruptcy Counsel. The Borrower will engage bankruptcy counsel by
the close of business on December 13, 1999.
(g) Lease Valuation. On or before December 17, 1999, the Company will
deliver to the Lenders an orderly liquidation valuation of the Company's
leasehold interests from a "lender's" perspective, prepared by an independent
third party acceptable to the Lenders.
6. Compliance with Loan Documents.
The Borrower hereby represents and warrants to the Agent and the Lenders
that, other that the Existing Events of Default, all of the conditions precedent
to lending specified in Section 3 of the Loan Agreement have been and continue
to be satisfied as of the date hereof. Without limiting the generality of the
foregoing, the Borrower hereby confirms that, other than the Existing Events of
Default, it is in compliance with all of the terms and provisions set forth in
the Loan Agreement and each of the other Loan Documents, as amended hereby, on
its part to be observed or performed on or prior to the date hereof.
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7. Without in any manner limiting the provisions of Section 3 above,
the Borrower acknowledges that the Lenders have informed the Borrower that they
intend to immediately cease making advances and exercise their rights and
remedies under the Loan Documents and applicable law upon the occurrence of any
of the following:
(a) Payment. The Borrower fails to make any payment required to be
made to the Lenders or the Agent under this letter agreement or the Loan
Agreement;
(b) Budget. The Borrower fails to comply with the Budget;
(c) Representations. Any representation or warranty made by, or on
behalf of, the Borrower in this letter agreement or in any certificate or other
document delivered in connection herewith shall prove to have been untrue or
incorrect in any material respect;
(d) Covenants. The Borrower shall fail to fully perform or comply
with any term, covenant or provisions of this letter agreement (including
without limitation those under Section 5 hereof);
(e) Bankruptcy, Etc. The Borrower shall become insolvent or fail to
pay its debts as they mature, or the Borrower shall be adjudicated as bankrupt
or insolvent, or any case or proceeding shall be commenced by or against the
Borrower in bankruptcy or liquidation or for its reorganization or readjustment
of the indebtedness of the Borrower under any applicable bankruptcy or
insolvency laws, or any receiver, administrator, liquidator or trustee or
similar official shall be appointed for the Borrower or any of its property, or
the Borrower shall make an assignment for the benefit of creditors, or any
similar event shall take place with respect to the Borrower or the Borrower
shall sell all or a substantial part of its assets, whether in a single
transaction or a series of transactions;
(f) Material Adverse Change. There shall have occurred any event,
circumstance or condition that the Lenders, in their sole discretion, believe
could cause a Material Adverse Change; or
(g) Loan Documents. There shall have occurred any Event of Default
under or as defined in any of the Loan Documents.
8. Remedies.
The failure of the Lenders to insist upon the strict performance of any
term, condition or other provision hereof or to exercise any right or remedy
hereunder shall not constitute a waiver by the Lenders of any such term,
condition or other provision or Event of Default (including but not limited to
the Existing Events of Default); and any waiver of any such term, condition or
other provision of any such Event of Default shall not affect or alter this
letter agreement or the other Loan Documents, and each and every term, condition
and other provision of this letter agreement and the other Loan Documents
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shall, in such event, continue in full force and effect and shall be operative
with respect to any other then existing or subsequent Event of Default.
9. No Novation; Effect; Counterparts; Governing Law.
The Loan Agreement and each of the other Loan Documents shall be
unaffected hereby and shall remain in full force and effect; this letter
agreement shall not be deemed a novation of the Loan Agreement or any other Loan
Document. The Borrower hereby acknowledges, confirms and ratifies its
obligations under the Loan Agreement and each of the other Loan Documents. This
letter agreement may be executed in any number of counterparts, and by the
different parties on separate counterparts, each of which, when so executed and
delivered, shall be an original, but all the counterparts shall together
constitute one instrument. This letter agreement shall be governed by the
internal laws of The Commonwealth of Massachusetts (without reference to
conflicts of law principles) and shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and permitted assigns. The
Borrower shall pay all reasonable out-of-pocket expenses of the Agent and the
Lenders in connection with the preparation, execution and delivery of this
letter agreement and all such expenses shall constitute Lender Group Expenses.
10. Miscellaneous.
The Borrower, by execution hereof, acknowledges and confirms that for
all purposes of the Loan Agreement and the other Loan Documents, the letter
agreement shall be a "Loan Document" and the term "Loan Agreement" shall mean
the Loan Agreement as amended by and through the date of this letter agreement
and as further amended and/or restated from time to time hereafter.
The undersigned Lenders have not waived any terms of the Loan Agreement
and expressly reserve their rights to enforce all provisions of the Loan
Agreement and the other Loan Documents at law, in equity or otherwise. The
undersigned Lenders do not hereby obligate themselves to grant any waiver or
extension at any time in the future.
Please acknowledge your agreement with the foregoing by signing in the
space indicated below.
FOOTHILL CAPITAL CORPORATION,
For itself and as Agent
By:
(Title)
PARAGON CAPITAL, LLC, as a Lender
By:
(Title)
ACKNOWLEDGED AND AGREED
GANTOS, INC.
By:
(Title)
cc: Xxxxxxx X. Xxxxxxxx, Esq.
Xxxxx X. Xxxxxxxxx, Esq.
