Loehmann's, Inc.
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended May 1, 1999
Commission File Number: 0-28410
LOEHMANN'S, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 22-2341356
- ---------------------------------------- -------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2500 Halsey Street
Bronx, New York 10461
- ---------------------------------------- -------------------------
(Address of principal executive offices) (zip code)
(718) 409-2000
--------------
(Registrant's telephone number, including area code)
Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
Number of shares outstanding of Registrant's Common Stock and Class B
Convertible Common Stock, as of June 9, 1999; 9,052,607 and 26,087 respectively.
<PAGE>
Loehmann's, Inc.
Leohmann's Inc.
Quarter ended May 1, 1999
Contents
Part I---Financial Information
Item 1. Financial Statements (Unaudited)
Balance Sheets--May 1, 1999 and January 30, 1999 ........................... 1
Statements of Operations--Quarter ended
May 1, 1999 and May 2, 1998 .............................................. 2
Statements of Cash Flows--Quarter ended
May 1, 1999 and May 2, 1998 .............................................. 3
Notes to Financial Statements .............................................. 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ............................... 5
Part II--Other Information
Item 1. Legal Proceedings ................................................. 9
Item 3. Defaults Upon Senior Securities ................................... 9
Item 5. Other Information ................................................. 9
Item 6. Exhibits and Reports on Form 8-K .................................. 10
Signature .................................................................. 11
<PAGE>
Loehmann's, Inc.
Balance Sheets (Unaudited)
<TABLE>
<CAPTION>
May 1, January 30,
1999 1999
------------------------------------
(In thousands, except
share amounts)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 2,082 $ 1,325
Accounts receivable and other assets 6,917 4,883
Merchandise inventory 83,732 69,605
------------------------------------
Total current assets 92,731 75,813
Property, equipment and leaseholds, net 70,419 71,462
Deferred debt issuance costs and other assets, net 2,923 3,195
Purchase price in excess of net assets acquired 37,899 38,223
------------------------------------
Total assets $ 203,972 $ 188,693
====================================
Liabilities and common stockholders' equity
Current liabilities:
Accounts payable $ 40,207 $ 25,544
Accrued expenses 17,714 16,031
Long-term debt in default 95,000 0
Accrued interest 5,515 2,688
Current portion of long-term debt 70 70
------------------------------------
Total current liabilities 158,506 44,333
Long-term debt:
Revolving Line of Credit 41,795 41,880
11-7/8% senior secured notes 0 95,000
Revenue bonds and notes 2,605 2,523
------------------------------------
Total long-term debt 44,400 139,403
Other noncurrent liabilities 327 339
Common stockholders' equity:
Common stock, 25,000,000 shares authorized; 9,052,607 shares issued and
outstanding at May 1, 1999 and January
30, 1999 90 90
Class B convertible common stock, 469,237 shares authorized;
26,087 shares issued and outstanding at May 1, 1999 and
January 30, 1999 142 142
Additional paid-in capital 81,758 81,758
Accumulated deficit (81,251) (77,372)
Total common stockholders' equity 739 4,618
------------------------------------
Total liabilities and common stockholders' equity $ 203,972 $ 188,693
====================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
<PAGE>
Loehmann's, Inc.
Statements of Operations (Unaudited)
<TABLE>
<CAPTION>
Quarter Ended
------------------------------------------------
May 1, May 2,
1999 1998
----------------------- -----------------------
(In Thousands, except per share amounts)
<S> <C> <C>
Net sales $ 108,231 $ 110,227
Cost of sales 73,679 73,182
----------------------- -----------------------
Gross profit 34,552 37,045
Sales, general and administrative expenses 31,543 28,604
Depreciation and amortization 3,190 3,135
----------------------- -----------------------
Operating (loss) income (181) 5,306
Interest expense, net 3,660 3,540
----------------------- -----------------------
(Loss) income before income taxes (3,841) 1,766
Provision for income taxes 38 24
----------------------- -----------------------
Net (loss) income applicable to common stock $ (3,879) $ 1,742
======================= =======================
Basic earnings per share $ (0.43) $ 0.19
======================= =======================
Diluted earnings per share $ (0.43) $ 0.19
======================= =======================
Weighted average number of common shares 9,079 9,025
outstanding
Weighted average number of common shares and
common share equivalents outstanding 9,079 9,188
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
Loehmann's, Inc.
Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
Quarter Ended
------------------------------------
May 1, May 2,
1999 1998
----------------- ------------------
(In Thousands)
<S> <C> <C>
Cash flows from operating activities
Net (loss) income $ (3,879) $ 1,742
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 3,190 3,135
Changes in current assets and liabilities:
Accounts receivable and other assets (2,034) (1,645)
Merchandise inventory (14,127) (10,253)
Accounts payable 14,663 9,802
Accrued expenses 1,772 (4,093)
Accrued interest 2,827 2,835
----------------- ---------------
Net changes in current assets and liabilities 3,101 (3,354)
Net change in other non current assets and liabilities 65 (67)
----------------- ---------------
Net adjustments 6,356 (286)
----------------- ---------------
Net cash provided by operating activities 2,477 1,456
----------------- ---------------
Cash flows from investing activities
Capital expenditures (1,628) (2,890)
----------------- ---------------
Net cash (used in) investing activities (1,628) (2,890)
----------------- ---------------
Cash flows from financing activities
(Repayments) borrowings under credit facility, net (85) 1,817
Other financing activities, net (7) (18)
----------------- ---------------
Net cash (used in) provided by financing activities (92) 1,799
----------------- ---------------
Net increase in cash and cash equivalents 757 365
Cash and cash equivalents at beginning of period 1,325 1,767
----------------- ---------------
Cash and cash equivalents at end of period $ 2,082 $ 2,132
================= ===============
Supplemental disclosure of cash flow information
Cash interest paid during period $ 796 $ 513
================= ==================
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
Loehmann's, Inc.
Notes to Financial Statements
1. Basis of Presentation
The balance sheet at May 1, 1999 and the statements of operations and cash flows
for the quarters ended May 1, 1999 and May 2, 1998 include, in the opinion of
management, all adjustments (consisting of only normal recurring adjustments)
considered necessary for a fair presentation.
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information.
Certain information and footnote disclosures normally included in financial
statements required by generally accepted accounting principles have been
omitted. Operating results for the quarter ended May 1, 1999 are not necessarily
indicative of the results that may be expected for the fiscal year ended January
30, 1999. It is suggested that these unaudited financial statements be read in
conjunction with the financial statements and notes for the fiscal year ended
January 30, 1999 included in the Company's Annual Report on Form 10-K for such
year.
2. Subsequent Events
On May 18, 1999 (the "Petition Date"), the Company filed a petition for relief
(the "Chapter 11 Case") under chapter 11 of the United States Bankruptcy Code
(the "Bankruptcy Code") in the United States Bankruptcy Court for the District
of Delaware (the "Bankruptcy Court"). Since the Petition Date, the Company has
continued to operate as a debtor-in-possession under the Bankruptcy Code. As a
result of the filing of the Chapter 11 Case, all pending litigation against the
Company became automatically stayed as provided in the Bankruptcy Code.
On May 18, 1999, interim financing arrangements with Congress Financial
Corporation (the "Interim Financing Arrangements") were approved by the
Bankruptcy Court. The Interim Financing Arrangements provided for a credit line
of $20 million in excess of the amount of the outstanding indebtedness at the
Petition Date, which was $47.9 million. The Interim Financing Arrangements
covered the period from May 18, 1999 to June 7, 1999. On June 7, 1999, the
Bankruptcy Court entered a final order approving a $75 million
debtor-in-possession financing (the "DIP Facility") with Congress Financial
Corporation. The DIP Facility expires on the earlier of (a) the second
anniversary of the DIP Facility, (b) the effective date of a plan of
reorganization for the Company, or (c) acceleration following the occurrence of
an event of default, and grants to the lender a first priority security interest
in substantially all the assets of the Company. Availability under the DIP
Facility is subject to certain inventory-related borrowing base requirements. As
of June 5, 1999 the Company had borrowings of $32.4 million and letters of
credit of $2.9 million outstanding under the DIP Facility, with $17.1 million
remaining of availability for borrowings under the DIP Facility. The Company
intends to use the DIP Facility during pendency of the Chapter 11 Case to
finance its working capital expenditure requirements.
As previously disclosed, as a result of the chapter 11 filing, the Company did
not make the interest payment on its 11 7/8% Senior Notes due 2003 (the "Senior
Notes"), which payment was due on May 17, 1999. The Senior Notes have been
reclassified as long-term debt in default in the current liabilities section of
the Balance Sheet.
4
<PAGE>
Loehmann's, Inc.
3. Income Taxes
The provision for income taxes primarily represents alternative minimum tax and
state and local taxes for states that do not allow net operating loss
carryforwards.
4. Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles for interim financial information requires
management to make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Actual amounts could differ
from the estimates.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Reorganization
Due to sales, gross margin and EBITDA levels in April being under plan,
especially in the latter part of the month, there was substantial risk that the
Company would be unable to secure sufficient trade credit for the second half of
the 1999 fiscal year. As a result, on May 18, 1999 the Company filed a petition
for relief under chapter 11 of the Bankruptcy Code in the United States
Bankruptcy for the District of Delaware. Since the Petition Date, the Company
has continued to operate as a debtor-in-possession under the Bankruptcy Code.
The Company's management is in the process of developing a reorganization
strategy and is evaluating its operations. Until a reorganization plan is
confirmed by the Court, payments of prepetition liabilities are limited to those
approved by the Court.
As a result of the chapter 11 filing, the Company has defaulted on certain
indebtedness. See "Part II - Item 3 - Defaults Upon Senior Securities."
In its Chapter 11 Case, the Company may, with court approval, sell assets and
settle liabilities, including for amounts other than those reflected in the
financial statements. The administrative and reorganization expense resulting
from the chapter 11 filing will unfavorably affect results. Moreover, future
results may be adversely affected by other claims and factors resulting from the
chapter 11 filing.
Liquidity and Capital Resources
For the quarter ended May 1, 1999, net cash provided by operating activities
totaled $2.5 million primarily from $3.1 of working capital. Net cash used in
investing activities totaled $1.6 million during the quarter ended May 1, 1999,
primarily for expenditures related to the new warehouse facility of $0.4 million
and for Year 2000 upgrades of $0.6 million.
On May 18, 1999, interim financing arrangements with Congress Financial
Corporation (the "Interim Financing Arrangements") were approved by the
Bankruptcy Court. The Interim Financing Arrangements provided for a credit line
of $20 million in excess of the amount of the
5
<PAGE>
Loehmann's, Inc.
outstanding indebtedness at the Petition Date, which was $47.9 million. The
Interim Financing Arrangements covered the period from May 18, 1999 to June 7,
1999.
On June 7, 1999, the Bankruptcy Court approved the DIP Facility. The DIP
Facility provides for a revolving line of credit and a letter of credit facility
aggregating $75.0 million. The DIP Facility expires on the earlier of (a) the
second anniversary of the DIP Facility, (b) the effective date of a plan of
reorganization for the Company, or (c) acceleration following the occurrence of
an event of default. The availability of the revolving line of credit and
letters of credit under the DIP Facility is subject to certain inventory-related
borrowing base requirements. The indebtedness under the DIP Facility bears
interest at variable rates based on LIBOR plus 2.25% or the prime rate plus
0.5%. The DIP Facility contains certain customary covenants (including
limitations on indebtedness, liens and restricted payments) but does not contain
any financial covenants. The DIP Facility is secured by substantially all of the
Company's assets. As of June 5, 1999 the Company had borrowings of $32.4 million
and letters of credit of $2.9 million outstanding under the DIP Facility, with
$17.1 million of remaining availability for borrowings under the DIP Facility.
The Company intends to use the DIP Facility during pendency of the Chapter 11
Case to finance its working capital expenditure requirements.
The Company believes that cash generated from operations and funds available
under the DIP Facility will be sufficient to satisfy its cash requirements
through fiscal 1999.
Result of Operations - Comparison of the Quarters Ended May 1, 1999 and May 2,
1998
Net sales for the thirteen week period ended May 1, 1999, were $108.2 million as
compared to $110.2 million for the comparable period in the prior year, a
decrease of approximately $2.0 million or 1.8%. Comparable store sales (sales at
stores that were in operation for both periods) decreased by 1.8%.
Gross profit for the thirteen week period ended May 1, 1999, was $34.6 million
as compared to $35.1 million for the same period in the prior year. Gross margin
decreased to 31.9% from 32.4% in the prior year period. The decrease in margin
percent was primarily a result of higher markdowns.
Selling, general and administrative expenses for the thirteen week period ended
May 1, 1999, were $31.5 million as compared to $28.6 million during the same
period in the prior year, an increase of $2.9 million, or 10.3%. The increase
was due primarily to i) advertising expenses of $3.8 million in the first
quarter of 1999 compared to $1.8 million in the first quarter of the prior year
and ii) increased occupancy costs of $0.6 million due to new stores and the new
warehouse facility.
Depreciation and amortization expense for the thirteen week period ended May 1,
1999, was $3.2 million as compared to $3.1 million for the same period in the
prior year.
Net interest expense for the thirteen week period ended May 1, 1999 was $3.6
million as compared to $3.5 million for the same period in the prior year, an
increase of approximately $0.1 million or 3.4%. The increase in net interest
expense primarily resulted from interest expense incurred on increased
borrowings under the revolving line of credit.
6
<PAGE>
Loehmann's, Inc.
Year 2000
The "Year 2000 Issue" is caused by the fact that computers read dates as two
digit numbers. For example, a computer reads the year "1998" as "98". As a
result, in the year 2000, computers may be unable to distinguish between the
year 1900 and the year 2000, possibly resulting in computer malfunctions or
failures.
The efficient operation of the Company's business is dependent in part on its
computer software programs and operating system (collectively, Programs and
Systems). These Programs and Systems are used in several key areas of the
Company's business, including purchasing, inventory management, point-of-sale
and financial reporting, as well as in various administrative functions. Certain
of these Programs and Systems are maintained by third-party software providers.
The Company is in the process of addressing the Year 2000 issue, and as a result
of this process, the Company has identified three phases of its Year 2000
Project: i) inventory, ii) assessment, and iii) remediation and testing. The
Company has completed its inventory and assessment of its computer and
application software, as well as non-information technology equipment. Plans for
establishing compliance have been developed, which include, among other things:
the identification of which non-compliant hardware and software will be upgraded
or replaced, the timetable and resources (both internal and external) required
to achieve those objectives, and the estimated costs. The Company expects to
complete remediation and testing of its Programs and Systems by August 1999.
Approximately 70% of the necessary upgrades have occurred to date. The majority
of this work has been performed by third-party software providers, often as part
of existing software maintenance agreements.
The Company is in the process of identifying and communicating with its service
providers, financial institutions and suppliers to determine their Year 2000
state of readiness and the extent to which the failure of any of these systems
may impact the Company's operations.
Based upon current information, the Company estimates that the costs of
addressing the Year 2000 issue have not been material and are expected to
continue to be immaterial. The planned expenditures for the Company's Year 2000
project are approximately $1.5 million, of which approximately 60% has been
spent. Although the Company is not currently aware of any material operational
issues or costs associated with preparing its systems for the Year 2000, there
can be no assurance that there will not be a delay in, or increased costs
associated with, the implementation of the necessary systems and changes to
address the Year 2000 issues.
The Company believes that it is difficult to identify its most likely worst case
Year 2000 scenario. However, a reasonable worst case scenario would be the
failure of major third-party software suppliers to finish their upgrades to both
store and financial systems. Continuing failures in these areas could have a
material adverse effect on the Company's results of operations. To date, the
Company has not established a contingency plan for Year 2000 issues. Where
needed, the Company will establish contingency plans, based on actual testing
experience, to limit, to the extent possible, the effect of Year 2000 issues on
the Company's results of operations. Any such plans would necessarily be limited
to situations which the Company can reasonably be expected to control. The
Company expects contingency plans to be in place by July 31, 1999.
7
<PAGE>
Loehmann's, Inc.
The cost of the project and the date on which the Company believes it will
complete the Year 2000 modifications are based on management's estimates. Based
on the testing done to date, the Company currently believes that the Year 2000
issue will not pose significant operational problems for its computer systems.
However, due to uncertainties inherent in the Year 2000 issue, the Company will
develop various courses of action to mitigate the effect of any unforeseen
disruptions resulting from failures either by the Company's computer systems, or
those of other companies on which the Company's systems and operations rely.
Notwithstanding any such contingency plans, if the required modifications and
conversions are not made, or are not completed on a timely basis, or the systems
of third parties ( i.e. suppliers and financial institutions) with whom the
Company relies on directly, or indirectly, to be Year 2000 compliant, are not
operational, the Year 2000 could have a material adverse effect on the future
results of operations.
8
<PAGE>
Loehmann's, Inc.
Part II--Other Information
Item 1. Legal Proceedings.
On the Petition Date, the Company filed a petition for relief under the
Bankruptcy Code in the United States Bankruptcy Court for the District of
Delaware. For more information, see Note 2 - "Subsequent Events."
In its Annual Report on Form 10-K for the fiscal year ended January 30, 1999
(the "Form 10-K"), the Company described an action brought by Forty Three
Apparel, Inc. against the Company, Robert Friedman (the Chief Executive Officer
of the Company), his wife Debbie Friedman and the Bigio Group, LLC a company
affiliated with Ms. Friedman.
The lawsuit has been stayed with respect to the Company as a result of the
Company's filing a voluntary petition for relief under chapter 11.
Item 3. Defaults Upon Senior Securities.
As previously disclosed, as a result of the chapter 11 filing, the Company did
not make the interest payment on its 11-7/8% Senior Notes due 2003, which
payment was due on May 17, 1999. As of the Petition Date, $100.6 million in
unpaid principal and interest of such notes was outstanding. Since the notes are
an unsecured obligation, the Company may not pay interest during its Chapter 11
Case.
Prior to its Chapter 11 Case, the Company had a $7.9 million unsecured term loan
with Fleet Bank, N.A. The term loan was supported by a letter of credit issued
under the Company's secured credit facility with Congress Financial Corporation.
After the chapter 11 filing, Fleet Bank, N.A. drew on the letter of credit to
pay off the term loan. As a result, the indebtedness under the DIP Facility was
increased by $7.9 million.
Item 5. Other Information
Trading Market
Trading in the Company's common stock was halted by the Nasdaq National Market
on May 18, 1999. The Company's common stock was delisted from the Nasdaq
National Market, effective at the close of business on May 27, 1999. The Company
no longer meets the Nasdaq National Market maintenance requirements. The Company
has been advised that the common stock is now being traded on the OTC Bulletin
Board. No assurance can be given as to the continuing existence or liquidity of
any trading market for the common stock.
9
<PAGE>
Loehmann's, Inc.
Other Information
This Quarterly Report on Form 10-Q and in particular Management's Discussion and
Analysis of Financial Condition and Results of Operations contain
forward-looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended. The Company's actual results of operations and
future financial condition may differ materially from those expressed or implied
in any such forward-looking statements as a result of many factors, including
factors that may be beyond the Company's control. The Company is currently
operating its business as debtor-in-possession under chapter 11 and continuation
of the Company as a going concern is contingent upon its ability to comply with
its debtor-in-possession financing facility, the Company's ability to generate
sufficient cash from operations and its ability to obtain financing sources to
meet its future obligations. Other factors that may cause actual results of
operations and future financial condition to differ from those expressed or
implied in any forward-looking statements contained herein include adverse
changes in relationships with key factors and vendors, changes in consumer
preferences, competition from existing and potential competitors and general
economic conditions.
The Company cautions that the foregoing list of important factors is not
exclusive. The Company does not undertake to update any forward-looking
statements contained herein or that may be made from time to time by or on
behalf of the Company.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Ratification and Amendment Agreement, dated as of May 19,
1999, by and between Loehmann's, Inc. as Debtor and
Debtor-In-Possession in a case pending under Chapter 11 of the
Bankruptcy Code, and Congress Financial Corporation.
27 Financial Data Schedule (for SEC use only)
(b) No reports on Form 8-K were filed during the quarter ended May 1, 1999.
10
<PAGE>
Loehmann's, Inc.
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: June 15, 1999
Loehmann's, Inc.
By /s/ Robert Glass
---------------------
Robert Glass
President, Chief Operating Officer and Director
11
RATIFICATION AND AMENDMENT AGREEMENT
------------------------------------
RATIFICATION AND AMENDMENT AGREEMENT (the "Ratification Agreement" or
"Agreement") dated as of May __, 1999, by and between LOEHMANN'S, INC., a
Delaware corporation, as Debtor and Debtor-in-Possession in a case pending under
Chapter 11 of the Bankruptcy Code (as hereinafter defined) ("Debtor" or
"Borrower"), and CONGRESS FINANCIAL CORPORATION, a Delaware corporation
("Lender").
W I T N E S S E T H:
--------------------
WHEREAS, on May 18, 1999 Debtor commenced a case under Chapter 11 of
Title 11 of the United States Code in the United States Bankruptcy Court for the
District of Delaware and Debtor has retained possession of its assets and is
authorized under the Bankruptcy Code to continue the management and operation of
its business as debtor-in-possession pursuant to Sections 1107 and 1108 of the
Bankruptcy Code; and
WHEREAS, prior to the commencement of the Chapter 11 Case (as
hereinafter defined), Lender made loans and advances to Debtor secured by
substantially all assets and properties of Debtor as set forth in the Existing
Financing Agreements (as hereinafter defined); and
WHEREAS, Debtor has applied to Lender for a revolving credit, term loan
and letter of credit facility in an aggregate amount not to exceed $75,000,000;
and
WHEREAS, the Bankruptcy Court (as hereinafter defined) has entered a
Financing Order (as hereinafter defined) pursuant to which Lender may make
post-petition loans, advances and other financial accommodations to Debtor
secured by all assets and properties of Debtor as set forth in the Financing
Order and the Financing Agreements (as hereinafter defined); and
WHEREAS, the Financing Order provides that as a condition to the making
of such post-petition loans, advances and other financial accommodations, Debtor
shall execute and deliver this Ratification Agreement; and
WHEREAS, Debtor desires to reaffirm its obligations pursuant to the
Financing Agreements and acknowledge its continuing liabilities to Lender
thereunder in order to induce Lender to make such post-petition loans and
advances to Debtor; and
WHEREAS, Debtor has also requested that Lender make amendments to the
Loan Agreement (as hereinafter defined) and Lender is willing to do so subject
to the terms and conditions contained herein.
NOW, THEREFORE, in consideration of the foregoing, the mutual covenants
and agreements contained herein and other good and valuable consideration, the
receipt and sufficiency
<PAGE>
of which are hereby acknowledged, Lender and Debtor mutually covenant, warrant
and agree as follows:
1. DEFINITIONS
1.1 Additional Definitions. As used herein, the following terms shall
have the respective meanings given to them below and the Existing Financing
Agreements shall be deemed and are hereby amended to include, in addition and
not in limitation, each of the following definitions:
(a) "Bankruptcy Code" shall mean the United States Bankruptcy
Code, being Title 11 of the United States Code as enacted in 1978, as the same
has heretofore been or may hereafter be amended, recodified, modified or
supplemented, together with all rules, regulations and interpretations
thereunder or related thereto.
(b) "Bankruptcy Court" shall mean the United States Bankruptcy
Court or the United States District Court for the District of Delaware or any
court having jurisdiction over the Chapter 11 case from time to time.
(c) "Chapter 11 Case" shall mean the Chapter 11 Case of Debtor
pending in the Bankruptcy Court.
(d) "Eurodollar Rate Revolving Loans" shall mean any Revolving
Loans, or portion thereof, on which interest is payable based on the Adjusted
Eurodollar Rate in accordance with the terms hereof.
(e) "Eurodollar Rate Term Loans" shall mean any Term Loans, or
portion thereof, on which interest is payable based on the Adjusted Eurodollar
Rate in accordance with the terms hereof.
(f) "Existing Financing Agreements" shall mean the Financing
Agreements as in effect immediately prior to the Petition Date.
(g) "Financing Agreements" shall mean, collectively, the Loan
Agreement (as defined below), this Agreement and the other Existing Financing
Agreements, together with all supplements, agreements, notes, documents,
instruments and guarantees at any time executed and/or delivered in connection
therewith or related thereto, as all of the same now exist or may hereafter be
amended, modified, supplemented, extended, renewed, restated or replaced.
(h) "Financing Order" shall mean the Interim Financing Order,
the Permanent Financing Order and such other orders relating thereto or
authorizing the granting of credit by Lender to Debtor on an emergency, interim
or permanent basis pursuant to Section 364 of the Bankruptcy Code as may be
issued or entered by the Bankruptcy Court in the Chapter 11 Case.
2
<PAGE>
(i) "Interim Financing Order" shall have the meaning ascribed
thereto in Section 8(f) hereto.
(j) "Leasehold Mortgage" shall mean the Leasehold Mortgage and
Security Agreement by Debtor in favor of Lender upon the Debtor's premises
commonly known as 5740 Broadway, Bronx, New York 10463.
(k) "Loan Agreement" shall mean the Loan and Security
Agreement, dated May 12, 1998, by and between Lender and Debtor, as the same now
exists or may hereafter be amended, modified, supplemented, extended, renewed,
restated or replaced.
(l) "Permanent Financing Order" shall mean a Permanent
Financing Order entered by the Bankruptcy Court authorizing the secured
financing under the Financing Agreements as ratified and amended hereunder on
the terms and conditions set forth in this Ratification Agreement and, inter
alia, modifying the automatic stay, authorizing and granting the senior security
interests and liens in favor of Lender described in this Ratification Agreement
and in the Financing Order, and granting super-priority expense claims to Lender
with respect to all obligations due Lender. The Permanent Financing Order shall
authorize post-petition financing under the terms set forth in this Ratification
Agreement in an amount acceptable to Lender, in its sole discretion, and it
shall contain such other terms or provisions as Lender and its counsel shall
require.
(m) "Permitted Liens" shall mean the liens permitted under
Section 9.8 of the Loan Agreement and the liens, to the extent such liens are
valid, perfected, properly recorded and existing, set forth on Exhibit G to the
Exhibit Supplement attached to the motion seeking approval of this Agreement.
(n) "Petition Date" shall mean May 18, 1999.
(o) "Post-Petition Collateral" shall mean, collectively, all
now existing or hereafter acquired real and personal property of the Debtor's
estate, wheresoever located, of any kind or nature, upon which Lender is granted
a security interest or lien pursuant to the Financing Agreements or the
Financing Order or any other order entered or issued by the Bankruptcy Court,
and shall include, without limitation:
(i) All of the Collateral (as defined in the Loan
Agreement);
(ii) all present and future Accounts;
(iii) all present and future contract rights,
general intangibles (including, but not
limited to, tax and duty refunds, registered
and unregistered patents, trademarks, service
marks, copyrights, trade names, applications
for the foregoing, trade secrets, goodwill,
processes, drawings, blueprints, customer
lists, licenses, choses in action and other
claims and existing and future leasehold
interests in equipment, real estate and
fixtures) chattel paper, documents,
instruments,
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securities and other investment property,
credit card sales drafts, credit card sales
slips or charge slips or receipts and other
forms of store receipts, letters of credit,
bankers' acceptances and guaranties;
(iv) all present and future monies, securities,
credit balances, deposits, deposit accounts
and other property of Debtor now or hereafter
held or received by or in transit to Lender
or its affiliates or at any other depository
or other institutions from or for the account
of Debtor, whether for safekeeping, pledge,
custody, transmission, collection or
otherwise, and all present and future liens,
security interests, rights, remedies, title
and interest in, to and in respect of
Accounts and other Collateral, including,
without limitation, (A) rights and remedies
under or relating to guaranties, contracts of
suretyship, letters of credit and credit and
other insurance related to the Collateral,
(B) rights of stoppage in transit, replevin,
repossession, reclamation and other rights
and remedies of an unpaid vendor, lienor or
secured party, (C) goods described in
invoices, documents, credit card sales
drafts, credit card sales slips or charge
slips or receipts and other forms of store
receipts with respect to, or otherwise
representing or evidencing, Accounts or other
Collateral, including, without limitation,
returned, repossessed and reclaimed goods,
and (D) deposits by and property of account
debtors or other persons securing the
obligations of account debtors;
(v) all Inventory (including, without limitation,
all Inventory in transit between the Debtor's
locations).
(vi) all Equipment;
(vii) all Real Property;
(viii) all Records; and
(ix) all products and proceeds of the foregoing,
in any form, including, without limitation,
insurance proceeds and all claims against
third parties for loss or damage to or
destruction of any or all of the foregoing.
(p) "Post-Petition Obligations" shall mean all now existing
and hereafter arising Loans, advances, Letter of Credit Accommodations, debts,
obligations, liabilities, covenants and duties of Debtor to Lender of every kind
and description, however evidenced, whether direct or indirect, absolute or
contingent, joint or several, secured or unsecured, due or not due, primary or
secondary, liquidated or unliquidated, arising on and after the Petition Date
and whether arising on or after the conversion or dismissal of the Chapter 11
Case, or before, during and after the confirmation of any plan of reorganization
in the Chapter 11 Case, and prior to the effectiveness of
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termination of the Loan Agreement pursuant to the terms thereof, including
without limitation Section 12.1 thereof, and arising under or related to this
Agreement, the other Financing Agreements, a Financing Order or by operation of
law, and whether incurred by Debtor as principal, surety, endorser, guarantor or
otherwise and including, without limitation, all principal, interest, financing
charges, letter of credit fees, unused line fees, servicing fees, line increase
fees, other fees, commissions, costs, expenses and attorneys', accountants' and
consultants' fees and expenses incurred in connection with any of the foregoing.
(q) "Pre-Petition Collateral" shall mean all "Collateral" as
such term is defined in the Loan Agreement and all other security for the
Pre-Petition Obligations as provided in the Existing Financing Agreements
immediately prior to the Petition Date.
(r) "Pre-Petition Obligations" shall mean all Loans, advances,
Letter of Credit Accommodations, debts, obligations, liabilities, indebtedness,
covenants and duties of Debtor to Lender of every kind and description, however
evidenced, whether direct or indirect, absolute or contingent, joint or several,
secured or unsecured, due or not due, primary or secondary, liquidated or
unliquidated, arising before the Petition Date and arising under or related to
the Existing Financing Agreement or by operation of law and whether incurred by
Debtor as principal, surety, endorser, guarantor or otherwise and including,
without limitation, all principal, interest, financing charges, letter of credit
fees, unused line fees, servicing fees, line increase fees, other fees,
commissions, costs, expenses and attorneys', accountants' and consultants' fees
and expenses incurred in connection with any of the foregoing.
(s) "Prime Rate Revolving Loans" shall mean any Revolving
Loans, or portion thereof, on which interest is payable based on the Prime Rate
in accordance with the terms hereof.
(t) "Prime Rate Term Loans" shall mean any Term Loans, or
portion thereof, on which interest is payable based on the Prime Rate in
accordance with the terms hereof.
(u) "Professional Expense Carveout" shall mean (a) amounts
payable pursuant to 28. U.S.C. ss. 1930(a) and (b) upon the occurrence and
during the continuance of an Event of Default, the payment of unpaid Bankruptcy
Court-allowed professional fees and expenses (whether incurred prior to or
subsequent to an Event of Default) of attorneys, accounts, financial advisors
and consultants retained by the Borrower or any statutory committee appointed in
the Chapter 11 Case pursuant to ss.ss. 327 and 1103 of the Bankruptcy Code (the
"Official Committees") (except to the extent that such fees and expenses
represent services or were incurred in the prosecution of actions, claims or
causes of actions against the Lender or its Collateral (collective,
"Professional Expenses"), provided, that the amount of Professional Expenses
entitled to priority under this clause (b) ("Priority Professional Expenses")
shall not exceed $2,000,000 in the aggregate (the "Priority Professional Expense
Cap"); provided, further that prior to the occurrence of an Event of Default any
payments actually made to such professionals under 11 U.S.C. ss.ss. 330 and 331
in respect of fees and expenses incurred shall not reduce the Priority
Professional Expense Cap; and provided, further, that the agreement to a limited
priority for Priority Professional Expenses shall not waive any right of the
Lender to object to the allowance of fees and expenses constituting such
Priority Professional Expenses;
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(v) "Revolving Loans" shall mean the loans now or hereafter
made by Lender to or for the benefit of Borrower on a revolving basis (involving
advances, repayments and readvances) as set forth in Section 2.1 of the Loan
Agreement.
(w) "Term Loan" shall mean the term loan made by Lender to
Debtor as provided in Section 2.6 of the Loan Agreement.
1.2 Amendments to Definitions in Financing Agreements.
(a) All references to the term "Collateral" in any of the
Existing Financing Agreements or any other term referring to the security for
the Pre-Petition Obligations shall be deemed and each such reference is hereby
amended to mean, collectively, the Pre-Petition Collateral and the Post-Petition
Collateral.
(b) All references to Debtor, including, without limitation,
to the terms "Borrower" or "Debtor" in any of the Existing Financing Agreements,
shall be deemed and each such reference is hereby amended to mean and include
the Debtor as defined herein, and its successors and assigns (including any
trustee or other fiduciary hereafter appointed as its legal representative or
with respect to the property of the estate of such corporation whether under
Chapter 11 of the Bankruptcy Code or any subsequent Chapter 7 case and its
successor upon conclusion of the Chapter 11 Case of such corporation).
(c) All references to the term "Financing Agreements" in any
of the Existing Financing Agreements, shall be deemed and each such reference is
hereby amended to include, in addition and not in limitation, this Agreement,
all of the Existing Financing Agreements as ratified, assumed and adopted by
Debtor pursuant to the terms hereof, as amended and supplemented hereby, and the
Financing Order, as each of the same now exists or may hereafter be amended,
modified, supplemented, extended, renewed, restated or replaced.
(d) All references to the term "Loan Agreement" in any of the
Existing Financing Agreements and the Financing Agreements, shall be deemed and
each such reference is hereby amended to mean the Loan Agreement, as defined
herein and amended hereby and ratified, assumed and adopted by Debtor pursuant
to the terms hereof and the Financing Order, as the same now exists or may
hereafter be amended, modified, supplemented, extended, renewed, restated or
replaced.
(e) All references to the term "Material Adverse Effect" and
"material adverse change" in this Agreement and in any of the Existing Financing
Agreements, shall be deemed and each such reference in the Existing Financing
Agreements is hereby amended to add at the end thereof: "provided, that, neither
the commencement of the Chapter 11 Case nor any Event of Default relating to any
act, condition or event occurring on or prior to the Petition Date, shall
constitute a Material Adverse Effect or material adverse change".
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(f) All references to the term "Applicable Margin" in Section
1.3 of the Loan Agreement and in any of the Existing Financing Agreements, are
hereby deleted in their entirety and each such reference shall be deemed and is
hereby amended to substitute the following therefor: "'Applicable Margin' shall
mean (i) one-half of one (1/2%) percent as to Prime Rate Revolving Loans, and
three-quarters of one (3/4%) percent as to Prime Rate Term Loans, and (ii) two
and one-quarter (2 1/4%) percent as to Eurodollar Rate Revolving Loans, and two
and one-half (2 1/2%) percent as to Eurodollar Rate Term Loans."
(g) All references to the term "Eurodollar Rate Loans" in
Section 1.28 of the Loan Agreement and in any of the Existing Financing
Agreements, are hereby deleted in their entirety and each such reference shall
be deemed and is hereby amended to substitute the following therefor:
"'Eurodollar Rate Loans' shall mean, individually and collectively, the
Eurodollar Rate Revolving Loans and the Eurodollar Rate Term Loans."
(h) All references to the term "Excess Availability" in
Section 1.29 and in any of the Existing Financing Agreements shall be deemed and
each such reference shall be deemed and is hereby amended by (i) deleting
therefrom each reference to "Loans" and substituting therefor "Revolving Loans,"
(ii) deleting from Section 1.29(b)(ii) the reference to "aggregate amount of all
trade payables of Borrower" and substituting therefor "aggregate amount of all
trade payables of Borrower arising after the Petition Date" and (iii) deleting
therefrom Section 1.29(b)(iii).
(i) All references to the term "L/C Line Base Availability" in
Section 1.39 of the Loan Agreement and in any of the Existing Financing
Agreements, shall be amended and each such reference shall be deemed and is
hereby amended by deleting Section 1.39(i) and substituting thereof "(i) the
amount equal to 100% minus the applicable Inventory Advance Rate multiplied by
the Cost of Inventory purchased with the applicable Letter of Credit
Accommodation."
(j) All references to the term "L/C Base Availability Block"
of the Loan Agreement and in any of the Existing Financing Agreements, shall be
amended and each such reference shall be deemed and is hereby amended by
deleting from Section 1.39(iv) the reference therein to ", excluding the Backup
Letter of Credit."
(k) All references to the term "L/C Line Block" in Section
1.40 of the Loan Agreement and in any of the Existing Financing Agreements,
shall be deemed and each such reference in the Existing Financing Agreements is
hereby amended by deleting therefrom: ", excluding the Backup Letter of Credit".
(l) All references to the term "Letter of Credit Limit" in
Section 1.44 of the Loan Agreement and in any of the Existing Financing
Agreements, are hereby deleted in their entirety and each such reference shall
be deemed and is hereby amended to substitute the following therefor: "`Letter
of Credit Limit' shall mean the amount of $10,000,000."
(m) All references to the term "Loans" in Section 1.45 of the
Loan Agreement and in any of the Existing Financing Agreements, are hereby
deleted in their entirety and each such
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reference shall be deemed and is hereby amended to substitute the following
therefor: "'Loans' shall mean, individually and collectively, the Revolving
Loans and the Term Loan as the case may be."
(n) All references to the term "Maximum Credit" in Section
1.47 of the Loan Agreement and in any of the Existing Financing Agreements,
shall be deemed and each such reference in the Existing Financing Agreements is
hereby amended to mean the following: "'Maximum Credit' shall mean $75,000,000,
provided, that, the Maximum Credit shall be permanently reduced without fee or
penalty to $60,000,000 in accordance with and subject to the following terms and
conditions: (i) Lender shall have received a written request from Debtor for the
permanent reduction of the Maximum Credit to $60,000,000, (ii) such request
shall be irrevocable once sent, (iii) such request, if received by Lender shall
become effective thirty (30) days following the date of such receipt, provided
that, such request shall not become effective if, upon the otherwise effective
date of such requested reduction, either (A) the outstanding amount of the
Obligations would exceed the Maximum Credit if such reduction were given effect,
or (B) prior to or after giving effect thereto an Event of Default or event or
condition that with notice or passage of time or both, would constitute an Event
of Default, shall exist or be continuing."
(o) All references to the term "Net Recovery Cost Percentage"
in Section 1.48 of the Loan Agreement and in any of the Existing Financing
Agreements, shall be deemed and each such reference in the Existing Financing
Agreements is hereby amended to mean the following: "'Net Recovery Cost
Percentage' shall mean the fraction, expressed as a percentage, (a) the
numerator of which is the amount equal to the median recovery on the aggregate
amount of the Inventory at such time on a "going out of business sale" basis as
set forth in the most recent acceptable appraisal of Inventory received by
Lender in accordance with Section 7.3 hereof, net of operating expenses,
liquidation expenses and commissions, and (b) the denominator of which is the
original Cost of the aggregate amount of the Inventory subject to appraisal."
(p) All references to the term "Obligations" in Section 1.49
of the Loan Agreement and in any of the Existing Financing Agreements shall be
deemed and each such reference in the Existing Financing Agreements is hereby
amended to mean the following: "`Obligations' shall mean the Pre-Petition
Obligations and the Post-Petition Obligations."
(q) All references to the term "Prime Rate" in Section 1.54 of
the Loan Agreement and in any of the Existing Financing Agreements, shall be
deemed and each such reference in the Existing Financing Agreements is hereby
amended to mean the following: "'Prime Rate' shall mean the rate from time to
time publicly announced by First Union National Bank, or its successors, as its
prime rate, whether or not such announced rate is the best rate available at
such bank."
(r) All references to the term "Prime Rate Loans" in Section
1.55 of the Loan Agreement and in any of the Existing Financing Agreements,
shall be deemed and each such reference in the Existing Financing Agreements is
hereby amended to mean the following: "'Prime
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Rate Loans' shall mean, individually and collectively, the Prime Rate Revolving
Loans and the Prime Rate Term Loans.
(s) All references to the term "Reference Bank" in Section
1.58 of the Loan Agreement and in any of the Existing Financing Agreements,
shall be deemed and each such reference in the Existing Financing Agreement is
hereby amended to mean the following: "'Reference Bank' shall mean First Union
National Bank or such other bank as Lender may designate from time to time."
(t) All references to the term "Revolving Loan Limit" in
Section 1.61 of the Loan Agreement and in any of the Existing Financing
Agreement, shall be deemed and each such reference in the Existing Financing
Agreement is hereby amended to mean the following: "'Revolving Loan Limit' shall
mean, at any time, the amount equal to (i) the Maximum Credit minus (ii) Total
L/C Usage at such time, minus (iii) the outstanding principal balance of the
Term Loan."
1.3 Interpretation.
(a) For purposes of this Agreement, unless otherwise defined
or amended herein, including, but not limited to, those terms used and/or
defined in the recitals hereto, all terms used herein shall have the respective
meanings assigned to such terms in the Loan Agreement.
(b) All references to the terms "Lender", or any other person
pursuant to the definitions in the recitals hereto or otherwise shall include
its respective successors and assigns.
(c) All references to any term in the singular shall include
the plural and all references to any term in the plural shall include the
singular.
(d) All terms not specifically defined herein which are
defined in the UCC shall have the meaning set forth therein, except that the
term "Lien" or "lien" shall has the meaning set forth in ss. 101(37) of the
Bankruptcy Code.
2. ACKNOWLEDGMENT
2.1 Pre-Petition Obligations. Debtor hereby acknowledges,
confirms and agrees that Debtor is indebted to Lender for the Pre-Petition
Obligations, as of May 17, 1999, in respect of the Pre-Petition Obligations
consisting of Loans made pursuant to the Existing Financing Agreements in the
principal amount of approximately $38,183,838.95, together with interest accrued
and accruing thereon, and in respect of the Pre-Petition Obligations, consisting
of Letter of Credit Accommodations in the amount of approximately $9,738,224.87,
together with interest accrued and accruing thereon, in each case together with
costs, expenses, fees (including attorneys' fees and legal expenses) and all
other charges now or hereafter owed by Debtor to Lender, all of which are
unconditionally owing by Debtor to Lender, without offset, defense or
counterclaim of any kind, nature and description whatsoever.
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2.2 Acknowledgment of Security Interests. Debtor hereby
acknowledges, confirms and agrees that Lender has and shall continue to have
valid, enforceable and perfected first priority (subject only to liens or
security interests expressly permitted under the Loan Agreement) and senior
security interests in and liens upon all Pre-Petition Collateral heretofore
granted to Lender pursuant to the Existing Financing Agreements as in effect
immediately prior to the Petition Date to secure all of the Obligations, as well
as valid and enforceable first priority and senior security interests in and
liens upon all Post-Petition Collateral granted to Lender under the Financing
Order or hereunder or under any of the other Financing Agreements or otherwise
granted to or held by Lender.
2.3 Binding Effect of Documents. Debtor hereby acknowledges, confirms
and agrees that: (a) each of the Existing Financing Agreements to which it is a
party has been duly executed and delivered to Lender by Debtor and each is in
full force and effect as of the date hereof, (b) the agreements and obligations
of Debtor contained in the Existing Financing Agreements constitute the legal,
valid and binding obligations of Debtor enforceable against Debtor in accordance
with their respective terms and Debtor has no valid defense, offset or
counterclaim to the enforcement of such obligations, and (c) Lender is and shall
be entitled to all of the rights, remedies and benefits provided for in the
Financing Agreements and the Financing Order.
3. ADOPTION AND RATIFICATION
Debtor hereby (a) ratifies, assumes, adopts and agrees to be bound by
the Existing Financing Agreements as modified by this Agreement and (b) agrees
to pay all of the Pre-Petition Obligations in accordance with the terms of the
Existing Financing Agreements as modified by this Agreement and the Financing
Order. All of the Existing Financing Agreements are hereby incorporated herein
by reference and hereby are and shall be deemed adopted and assumed in full by
Debtor, as Debtor and Debtor-in-Possession, and considered as agreements between
Debtor and Lender. Debtor hereby ratifies, restates, affirms and confirms all of
the terms and conditions of the Existing Financing Agreements, as amended and
supplemented pursuant hereto and the Financing Order, and Lender agrees to lend
and Debtor agrees to be fully bound, as Debtor and Debtor-in-Possession, by the
terms of the Financing Agreements as amended hereby to which Debtor is a party.
4. GRANT OF SECURITY INTEREST
As collateral security for the prompt performance, observance and
payment in full of all of the Obligations (including the Pre-Petition
Obligations and the Post-Petition Obligations), Debtor, as Debtor and
Debtor-in-Possession, hereby grants, pledges and assigns to Lender, and also
confirms, reaffirms and restates the prior grant to Lender of, continuing
security interests in and liens upon, and rights of setoff against, all of the
Collateral.
5. ADDITIONAL REPRESENTATIONS, WARRANTIES AND COVENANTS
In addition to the continuing representations, warranties and covenants
heretofore made in the Loan Agreement or otherwise and hereafter made by Debtor
to Lender, (which representations, warranties and covenants shall not be deemed
violated solely by Debtor's commencement of the
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Chapter 11 Case) whether pursuant to the Financing Agreements or otherwise, and
not in limitation thereof, Debtor hereby represents, warrants and covenants to
Lender the following (which shall survive the execution and delivery of this
Agreement), the truth and accuracy of which, or compliance with, to the extent
such compliance does not violate the terms and provisions of the Bankruptcy
Code, being a continuing condition of the making of loans by Lender:
5.1 Financing Order. Either the Interim Financing Order or the
Permanent Financing Order (as the case may be) has been duly entered, is valid,
subsisting and continuing and has not been vacated, modified, reversed on
appeal, or vacated or modified by any order of the Bankruptcy Court (other than
as consented to by Lender) and is not subject to any pending appeal or stay.
5.2 Use of Proceeds. All Loans and Letter of Credit Accommodations
provided by Lender to Debtor pursuant to the Financing Order, the Loan Agreement
or otherwise, shall be used by Debtor for general operating and working capital
purposes in the ordinary course of business of Debtor (except as may otherwise
be consented to in writing by Lender). No portion of any administrative expense
claim or other claim relating to the Chapter 11 Case shall be paid with the
proceeds of such Loans and Letter of Credit Accommodations provided by Lender to
Debtor, other than those administrative expense claims and other claims relating
to the Chapter 11 Case (i) directly attributable to the operation of the
business of Debtor, and approved by Lender, or (ii) as otherwise authorized by
the Bankruptcy Court.
5.3 Leases.
(a) Debtor shall grant to Lender liens upon and a mortgage and
security interests against the leasehold interests on the premises commonly
known as 5740 Broadway, Bronx, New York against which a leasehold mortgage was
granted to Lender prior to the Petition Date), as additional collateral for the
Obligations. Such leasehold interest shall at all times be free and clear of all
liens, claims and encumbrances of any nature or description, except for valid,
perfected and non-voidable liens or encumbrances granted in favor of third
parties prior to the Petition Date;
(b) Debtor shall remain current in the payment of all
post-petition rent and additional rent, including, without limitation, taxes,
insurance, and other charges or amounts due each of owner and/or lessor as
provided for in each Leasehold Interest, as well as remain in compliance with
all other terms of each Leasehold Interest, except for (i) amounts, the validity
of which is being contested in good faith by the Debtor and for which
Availability Reserves may be established at any time by Lender in respect of the
amounts due or amounts which may become due from Debtor to such owners or
lessors and (ii) with respect to amounts due each owner and/or lessor of any
Leasehold Interest identified by Debtor within five (5) days of the date hereof
as a retail store location (A) which Debtor intends to close immediately and (B)
with respect to which Debtor intends to reject the underlying Leasehold
Interest.
5.4 Additional Inventory Representations, Warranties and Covenants.
Notwithstanding anything to the contrary contained in the Loan Agreement or this
Agreement, (a) Debtor shall not more than once each calendar quarter, at
Lender's request, cause an approved appraiser satisfactory to Lender to conduct
an appraisal as to the Inventory in form, scope and
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methodology acceptable to Lender and shall deliver or cause to be delivered to
Lender as soon as available the written report with respect to such appraisal,
which shall be conducted at Debtor's cost and expense, and (b) Debtor represents
and warrants to Lender that, since May 1, 1999, through the date hereof and as
of the date hereof, Debtor has not received, and does not, as of the date
hereof, possess any Inventory which was reported to Lender as being Eligible
Inventory which was thereafter returned to a vendor without promptly reporting
to Lender such Inventory as returned, without a corresponding reduction in the
amount of Eligible Inventory.
6. DIP FACILITY FEE.
Debtor shall pay Lender a closing fee in respect of the
financing provided by Lender to Debtor in the Chapter 11 Case in an amount of
$500,000 which shall be fully earned and payable on the date hereof.
7. AMENDMENTS
7.1 Loans. Section 2.1(a) of the Loan Agreement is hereby deleted in
its entirety and the following substituted therefor:
"(a) Subject to, and upon the terms and conditions
contained herein, Lender agrees to make Revolving Loans to
Borrower from time to time in amounts requested by Borrower up
to the amount equal to: the amount equal to (i) the Inventory
Advance Rate multiplied by the Value of the Eligible
Inventory, minus (ii) the Total L/C Usage, minus (iii) any
Availability Reserves."
7.2 Inventory Advance Rate. Section 2.1(b)(iii) of the Loan Agreement
is hereby amended by deleting therefrom the reference to "eighty-two (82%)
percent" and substituting the following therefor: "eighty-five (85%) percent".
7.3 Revolving Loan Facility. Section 2.1(c) of the Loan Agreement is
hereby deleted in its entirety and the following substituted therefor:
"Intentionally deleted."
7.4 Revolving Loan Limit. Section 2.1(d) of the Loan Agreement is
hereby amended by deleting the first sentence thereof and substituting the
following therefor: "The aggregate amount of the Revolving Loans outstanding at
any time shall not exceed the Revolving Loan Limit."
7.5 Letter of Credit Loans. Section 2.2(a) of the Loan Agreement is
hereby amended by deleting the last sentence thereof and the following
substituted therefor:
"Any payments made by Lender to any issuer thereof
and/or related parties in connection with the Letter of Credit
Accommodations, including without limitation the Backup Letter
of Credit, shall be immediately due from and payable by
Borrower to Lender, without the need for demand for payment
thereof and shall constitute, at Lender's option, additional
Revolving Loans to Borrower in the amount of such payment."
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7.6 Letter of Credit Availability Reserves. Section 2.2(c) of the Loan
Agreement is hereby amended by (i) deleting the reference in Section
2.2(c)(ii)(C) to "other than the L/C Base Availability Block," (ii) deleting the
reference therein to "(x) one hundred (100%) percent of the aggregate face
amount of Letter of Credit Accommodations" and substituting therefor, "(x) one
hundred (100%) percent minus the applicable Inventory Advance Rate multiplied by
the Cost of Inventory purchased with the applicable Letter of Credit
Accommodations" and (iii) deleting the last sentence thereof.
7.7 Letter of Credit Limit. Section 2.2(d) is hereby amended by (i)
deleting therefrom the first sentence of such section and substituting thereof:
"Except in Lender's discretion, the amount of all outstanding Letter of Credit
Accommodations and all other commitments and obligations made or incurred by
Lender in connection therewith, shall not at any time exceed the Letter of
Credit Limit" and (ii) the last sentence thereof is amended by deleting
therefrom the reference therein to "the L/C Block and".
7.8 Availability Reserves. Section 2.3 of the Loan Agreement is hereby
amended by adding the following at the end thereof:
"Without limiting the generality of the foregoing,
the Loans and Letter of Credit Accommodation otherwise
available to Borrower shall be subject to an Availability
Reserve, in an amount equal to all claims for all outstanding
and unpaid administrative expenses or other claims which are
or may be senior or pari passu to Lender's liens in the
property of Borrower or Lender's super-priority claims
pursuant to the Financing Order, including, but not limited to
(i) the fees and expenses of the Clerk of the Court, (ii) the
fees of the United States Trustee, and (iii) the Professional
Expense Carveout."
7.9 Limits and Sublimits. Section 2 of the Loan Agreement is hereby
amended by adding the following Section 2.5 at the end thereof:
"2.5 All limits and sublimits set forth in the Loan
Agreement shall be determined on an aggregate basis
considering together both the Pre-Petition Obligations and the
Post-Petition Obligations and in respect thereof or with
respect to any formula or other provision to which a limit or
sublimit may apply."
7.10 Term Loan. Section 2 of the Loan Agreement is hereby amended by
adding the following Section 2.6 at the end thereof:
"2.6 Term Loan. Lender may make a single Term Loan to
Borrower in the original principal amount equal to the lesser
of (i) $3,500,000 or (ii) fifty (50%) percent of the fair
market value of Borrower's real property located at 2500
Halsey Street, Bronx, New York ("Halsey Property"), as
determined pursuant to an appraisal consistent with Section
2.6(ii)(c) below, so long as all of the following terms and
conditions are satisfied or waived in writing by Lender:
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(A) Lender receives a written request for such
Term Loan from Borrower at least seven (7)
days prior to the intended date of the Term
Loan;
(B) Lender shall have a first priority and only
lien on the Halsey Property and shall have
received title insurance with respect to the
Halsey Property, in form and substance
satisfactory to Lender;
(C) Lender shall have received an appraisal of
the Halsey Property satisfactory in form and
substance to Lender, performed by an
appraiser satisfactory to Lender;
(D) Immediately prior to making the Term Loan
and after giving effect thereto the
requested amount of Term Loan plus the then
outstanding amount of Revolving Loans and
Letter of Credit Accommodations shall not
exceed the Maximum Credit; and
(E) Immediately prior to and after giving effect
to the requested Term Loan, no Event of
Default, and no event or condition that with
notice or the passage of time, or both,
would constitute an Event of Default, would
exist.
The Term Loan is to be repaid, together with interest and
other amounts, in accordance with this Agreement and other
Financing Agreements, and secured by all of the Collateral.
The Term Loan shall be repaid in forty-eight (48) consecutive
monthly installments commencing on the first day of the month
immediately following the making of the Term Loan and
continuing on the first day of each of the immediately
succeeding forty-seven (47) months, of which the first
forty-seven (47) payments shall each be in an amount equal to
one-forty- eighth (1/48th) of the original principal amount of
the Term Loan and the forty- eighth (48th) and final
installment shall be in an amount equal to the entire unpaid
balance thereof, provided, that, notwithstanding anything to
the contrary contained herein, the entire unpaid balance of
the Term Loan shall be due and payable immediately, without
demand by Lender, upon the earlier of (i) the second
anniversary of the date of the Ratification Agreement and (ii)
the termination date of this Agreement. Interest on the Term
Loan shall be payable in accordance with Section 3.1.
7.11 Interest. Section 3.1(b) of the Loan Agreement is hereby deleted
in its entirety and the following substituted therefor: "Intentionally deleted".
7.12 Eurodollar Loan Conversion. Section 3.1(c)(vi) of the Loan
Agreement is hereby deleted in its entirety and the following substituted
therefor:
"the maximum amount of Eurodollar Rate Loans at any
time requested shall not exceed the amount equal to (A) fifty
(50%) percent of the aggregate principal amount of the Term
Loan outstanding as of the first day of the applicable
Interest
14
<PAGE>
Period plus (B) eighty (80%) percent of the lowest principal
amount of Revolving Loans which it is anticipated will be
outstanding during the applicable Interest Period, in each
case as reasonably estimated by Lender (but with no obligation
to make such Revolving Loans)."
7.13 Eurodollar Term Loans. Section 3.1(c) of the Loan Agreement is
hereby amended by adding the following at the end thereof:
"Notwithstanding anything to the contrary contained
herein, no more than fifty (50%) percent of the principal
amount of the Term Loan outstanding at any time may be a
Eurodollar Rate Loan."
7.14 Unused Line Fee. Section 3.4 of the Loan Agreement is hereby
amended by deleting therefrom the reference to "$50,000,000" and substituting
therefor "$60,000,000."
7.15 Payments. Section 6.4 of the Loan Agreement is hereby amended by
adding the following at the end thereof:
"Without limiting the generality of the foregoing,
Lender may, in its discretion, apply any such payments or
proceeds first to the Pre-Petition Obligations (as such term
is defined in this Agreement) until such Pre-Petition
Obligations are paid and satisfied in full.
7.16 Use of Proceeds. Section 6.6 of the Loan is hereby amended by
deleting the first two (2) sentences thereof and substituting therefor: "All
Loans and Letter of Credit Accommodations provided by Lender to Debtor pursuant
to the Financing Order, this Agreement or otherwise, shall be used by Debtor for
general operating and working capital purposes in the ordinary course of
business of Debtor (except as may otherwise be consented to in writing by
Lender). No portion of any administrative expense claim or other claim relating
to the Chapter 11 Case shall be paid with the proceeds of such Loans and Letter
of Credit Accommodations provided by Lender to Debtor, other than those
administrative expense claims and other claims relating to the Chapter 11 Case
(i) directly attributable to the operation of the business of Debtor, and
approved by Lender, or (ii) as otherwise authorized by the Bankruptcy Court."
7.17 Inventory Covenants. Section 7.3(c) of the Loan Agreement is
hereby deleted in its entirety and the following substituted therefor:
" (c) Borrower shall at least once in each calendar
quarter, or during the occurrence and continuance of an Event
of Default more frequently as Lender may request, and at
Borrower's expense, deliver or cause to be delivered to
Lender, written reports or appraisals as to the Inventory in
form, scope, methodology acceptable to Lender and by an
appraiser acceptable to Lender, addressed to Lender, or upon
which Lender is expressly permitted to rely;"
15
<PAGE>
7.18 Additional Financial Reporting Requirements. Section 9.6 of the
Loan Agreement is hereby amended by adding the following new Section 9.6(d):
"(d) Borrower shall also promptly provide Lender with
copies of all financial reports, schedules and other materials
and information at any time furnished by Borrower, or on its
behalf, to the Bankruptcy Court, or the U.S. Trustee or to any
creditors' committee or Borrower's shareholders, concurrently
with the delivery thereof to the Bankruptcy Court, creditors'
committee, U.S. Trustee or shareholders, as the case may be."
7.19 Store Closings. Section 9.7(b)(iii) of the Loan Agreement is
hereby deleted in its entirety and the following substituted therefor: "(iii)
sales or other dispositions by Borrower from and after the Petition Date of
assets in connection with the closing of an aggregate of up to ten (10) retail
store locations of Borrower, provided, that, as to each and all such sales or
dispositions (A) the Bankruptcy Court shall have approved such sale or other
disposition and (B) except as may be otherwise ordered by the Bankruptcy Court,
any and all net proceeds payable or deliverable to Borrower in respect of such
sales or dispositions shall be paid, or caused to be paid or delivered, to
Lender in accordance with the terms of this Agreement for application to the
Obligations.
7.20 Encumbrances. Section 9.8(j) is hereby deleted in its entirety and
the following substituted therefor: "(j) the liens and security interests set
forth on Schedule 8.4 hereto and Permitted Liens."
7.21 Bronx IRB Refinancing. Section 9.9(e) of the Loan Agreement is
hereby deleted in its entirety and the following substituted therefor:
"Intentionally deleted."
7.22 Credit Card Agreements. Section 9.13 of the Loan Agreement is
hereby amended by adding the following Section 9.13(g):
"(g) obtain within sixty (60) days of the date hereof
either (i) the written consent of each Credit Card Issuer
and/or Credit Card Processor or (ii) an Order of the
Bankruptcy Court, pursuant to either of which Borrower is
authorized to maintain in full force and effect, during the
period this Agreement remains in effect, each of the Credit
Card Agreements, including the direction letters sent by
Borrower to each Credit Card Issuer and/or Credit Card
Processor in the Chapter 11 Case."
7.23 Events of Default. Section 10.1 of the Loan Agreement is hereby
amended as follows:
(a) Sections 10.1(f), (g), (h), (j) and (l) are hereby deleted
in their entirety and the following substituted therefor: "Intentionally
deleted".
(b) Section 10.1(i) is hereby deleted in its entirety and the
following substituted therefor:
16
<PAGE>
"(i) any judgment, order or any other relief is
obtained by any person in the Bankruptcy Court, which results
in a lifting of the automatic stay or the exercise by any
person of any rights or remedies that in any way impairs the
value of the Collateral as a result of any default by Borrower
under any agreement, document or instrument, mortgage,
security, agreement, indenture, pledge or other agreement,
relating to any indebtedness for borrowed money owing to any
person other than Lender or any capitalized lease obligations,
or any default by Borrower, under any contract, lease, license
or other obligations owed to any person other than Lender
where such agreements, documents or instruments under which
such defaults arise or exist, relate to indebtedness or
obligations in an aggregate amount in excess of $100,000;"
(c) Section 10.1 is hereby amended by adding the following
Sections:
"10.1(n) the occurrence of any condition or event
which permits Lender to exercise any of the remedies set forth
in the Financing Order, including, without limitation, any
"Event of Default", as defined in the Financing Order; or
10.1(o) the termination or non-renewal of the
Financing Agreements as provided for in the Financing Order;
or
10.1(p) Borrower suspends or discontinues or is
enjoined by any court or governmental agency from continuing
to conduct all or any material part of its business or if a
trustee, receiver or custodian is appointed for Borrower or
any of its properties, other than as expressly permitted under
Section 9.7(b)(iii) hereof; or
10.1(q) any act, condition or event occurring after
the date of the commencement of the Chapter 11 Case that has a
material adverse effect upon the assets of Borrower or the
Collateral or the value of the rights and remedies of Lender
under the Loan Agreement or any other Financing Agreements; or
10.1(r) entry by the Bankruptcy Court of an order
converting Borrower's Chapter 11 Case to a Chapter 7 case
under the Bankruptcy Code, and such order is not stayed or
enjoined by a court of competent jurisdiction within two (2)
days of the entry of the order and such stay or injunction
remains in full force and effect; or
10.1(s) entry by the Bankruptcy Court of an order
dismissing Borrower's Chapter 11 Case or any subsequent
Chapter 7 case either voluntarily or involuntarily and such
order is not stayed or enjoined by a court of competent
jurisdiction within two (2) days of the entry of the order and
such stay or injunction remains in full force and effect; or
10.1(t) the grant of a lien on or other interest in
any of Borrower's property, where the aggregate amount of
indebtedness secured by all such liens and interests exceeds
$100,000, other than a lien or encumbrance permitted by
Section 9.8 hereof
17
<PAGE>
or by the Financing Order or an administrative expense claim
other than such administrative expense claim permitted by the
Financing Order or this Agreement by the grant of or allowance
by the Bankruptcy Court which is superior to or ranks in
parity with Lender's security interest in or lien upon the
Collateral; or
10.1(u) the Financing Order shall be modified,
reversed, revoked, remanded, stayed, rescinded, vacated or
amended on appeal or by the Bankruptcy Court without the prior
written consent of Lender (and no such consent shall be
implied from any other authorization or acquiescence by
Lender); or
10.1(v) the appointment of a trustee pursuant to
Sections 1104(a)(1) or 1104(a)(2) of the Bankruptcy Code which
appointment is not stayed or enjoined by a court of competent
jurisdiction within one (1) day of the entry of the order and
such stay or injunction remains in full force and effect; or
10.1(w) the appointment of an examiner with special
powers pursuant to Section 1104(a) of the Bankruptcy Code
which appointment is not stayed or enjoined by a court of
competent jurisdiction within one (1) day of the entry of the
order and such stay or injunction remains in full force and
effect; or
10.1(x) the filing of a plan of reorganization by
Borrower which does not provide for payment in full of the
Obligations on the effective date thereof; or
10.1(y) Borrower fails to obtain within sixty (60)
days (i) the written agreement of each Credit Card Issuer, or
Card Processor or the order or orders of the Bankruptcy Court
required by Section 9.13(g) and (ii) the written agreement of
the Blocked Account Bank to the continued effectiveness of the
Blocked Account Agreements; or
10.1(z) Notwithstanding anything to the contrary
contained herein, the commencement of the Chapter 11 Case
shall not constitute an Event of Default under Section
10.1(a)(ii) or Section 10.1(b) hereof.
7.24 Governing Law; Choice of Forum; Service of Process; Jury Trial
Waiver. Section 11.1(a) of the Loan Agreement is hereby amended by adding the
following at the end thereof: "except to the extent that the provisions of the
Bankruptcy Code are applicable and specifically conflict with the foregoing."
7.25 Notices. Section 12.2 of the Loan Agreement is hereby amended by
adding that any notices, requests and demands also be sent to the following
parties:
If to Debtor with a copy to: Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019
Facsimile No. (212) 757-3990
18
<PAGE>
Attn: Alan W. Kornberg, Esq.
If to Lender with a copy to: OTTERBOURG, STEINDLER, HOUSTON
& ROSEN, P.C.
230 Park Avenue
New York, New York 10169
Facsimile No. (212) 682-6104
Attn: Jonathan N. Helfat, Esq.
7.26 Term. Section 12.1(a) of the Loan Agreement is hereby amended by
deleting the first two sentences thereof and substituting the following
therefor:
"(a) This Agreement and the other Financing
Agreements shall continue in full force and effect for a term
ending on the earliest of (i) the second anniversary of the
date of the initial loans to Borrower under the Initial
Financing Order, (ii) the effective date of a Plan of
Reorganization in the Chapter 11 Case, and (iii) the last
termination date set forth in the Financing Order. Lender, at
its option and in its sole discretion, may extend the
effectiveness of this Agreement and the other Financing
Agreements for a period to be determined by Lender, in its
sole discretion."
7.27 Early Termination Fee. Section 12.1(c) of the Loan Agreement is
hereby deleted in its entirety and the following substituted therefor:
"(c) If for any reason this Agreement is terminated
prior to the second anniversary of the date of the initial
loans to Borrower under the Initial Financing Order, in view
of the impracticality and extreme difficulty of ascertaining
actual damages and by mutual agreement of the parties as to a
reasonable calculation of Lender's lost profits as a result
thereof, Borrower agrees to pay to Lender, upon the effective
date of such termination, an early termination fee in the
amount of one (1%) percent of the Maximum Credit; provided
that, if this Agreement and the other Financing Agreements are
terminated at Borrower's request in compliance with the terms
hereof and in connection with a refinancing by Lender or an
affiliate of Lender of the Obligations, and provided no Event
of Default, and no event or condition that with notice or
passage of time, or both, would constitute an Event of
Default, exists or has occurred and is continuing, then
Borrower shall not be obligated to pay the early termination
fee otherwise payable under this Section 12.1(c) in respect of
such termination.
Such early termination fee shall be presumed to be
the amount of damages sustained by Lender as a result of such
early termination and Borrower agrees that it is reasonable
under the circumstances currently existing. The early
termination fee provided for in this Section 12.1 shall be
deemed included in the Obligations. Borrower shall not be
obligated to pay to Lender an early termination fee solely
arising from the commencement of the Chapter 11 Case.
19
<PAGE>
8. CONDITIONS PRECEDENT
In addition to any other conditions contained herein or in the Loan
Agreement, as in effect immediately prior to the Petition Date, with respect the
Loans and other financial accommodations available to Debtor (all of which
conditions, except as modified or made pursuant to this Agreement shall remain
applicable to the Loans and be applicable to other financial accommodations
available to Debtor), the following are conditions to Lender's obligation to
extend further loans, advances or other financial accommodations to Debtor
pursuant to the Loan Agreement:
(a) Debtor shall furnish to Lender all financial information,
projections, budgets, business plans, cash flows and such other information,
including a budget, as Lender shall reasonably request from time to time;
(b) as of the Petition Date, there shall have been no
termination of the Existing Financing Agreements;
(c) no trustee, examiner or receiver or the like shall have
been appointed or designated with respect to Debtor, as Debtor or
Debtor-in-Possession, or its business, properties and assets;
(d) the execution and/or delivery of this Ratification
Agreement and all other Financing Agreements which Lender may request to be
delivered in connection herewith by Debtor in form and substance satisfactory to
Lender;
(e) delivery to Lender of evidence of insurance coverage
acceptable to Lender, including as to casualty insurance, Lender's Loss Payee
Endorsements in favor of Lender;
(f) Debtor shall comply in full with the notice and other
requirements of the Bankruptcy Code and the applicable Bankruptcy Rules with
respect to any relevant Financing Order in a manner acceptable to Lender and its
counsel, and an Interim Financing Order substantially in the form annexed hereto
as Exhibit A, shall have been entered by the Bankruptcy Court (the "Interim
Financing Order");
(g) no Event of Default shall have occurred or be existing
under any of the Existing Financing Agreements, as modified pursuant hereto.
9. MISCELLANEOUS
9.1 Amendments and Waivers. Neither this Agreement nor any other
instrument or document referred to herein or therein may be changed, waived,
discharged or terminated orally, but only by an instrument in writing signed by
the party against whom enforcement of the change, waiver, discharge or
termination is sought.
9.2 Further Assurances. Debtor shall, at its expense, at any time or
times duly execute and deliver, or shall cause to be duly executed and
delivered, such further agreements, instruments
20
<PAGE>
and documents, including, without limitation, additional security agreements,
collateral assignments, Uniform Commercial Code financing statements or
amendments or continuations thereof, landlord's or mortgagee's waivers of liens
and consents to the exercise by Lender of all the rights and remedies hereunder,
under any of the other Financing Agreements, any Financing Order or applicable
law with respect to the Collateral, and do or cause to be done such further acts
as may be necessary or proper in Lender's opinion to evidence, perfect, maintain
and enforce the security interests of Lender, and the priority thereof, in the
Collateral and to otherwise effectuate the provisions or purposes of this
Agreement, any of the other Financing Agreements or the Financing Order. Upon
the request of Lender, at any time and from time to time, Debtor shall, at its
cost and expense, do, make, execute, deliver and record, register or file,
financing statements, mortgages, deeds of trust, deeds to secure debt, and other
instruments, acts, pledges, assignments and transfers (or cause the same to be
done) and will deliver to Lender such instruments evidencing items of Collateral
as may be requested by Lender.
9.3 Headings. The headings used herein are for convenience only and do
not constitute matters to be considered in interpreting this Agreement.
9.4 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
shall together constitute one and the same agreement.
9.5 Additional Events of Default. The parties hereto acknowledge,
confirm and agree that the failure of Debtor to comply with any of the
covenants, conditions and agreements contained herein or in any other agreement,
document or instrument at any time executed by Debtor in connection herewith
shall constitute an Event of Default under the Financing Agreements.
9.6 Costs and Expenses. Debtor shall pay to Lender on demand all costs
and expenses that Lender pays or incurs in connection with the negotiation,
preparation, consummation, administration, enforcement, and termination of this
Agreement and the other Financing Agreements and the Financing Order, including,
without limitation: (a) reasonable attorneys' and paralegals' fees and
disbursements of counsel to Lender; (b) costs and expenses (including attorneys'
and paralegals' fees and disbursements) for any amendment, supplement, waiver,
consent, or subsequent closing in connection with this Agreement, the other
Financing Agreements, the Financing Order and the transactions contemplated
thereby; (c) costs and expenses of lien searches, environmental surveys,
recording and filing fees and any other recording taxes associated with the
perfection of Lender's interest in the Leasehold Mortgages; (d) taxes, fees and
other charges for recording any agreements or documents with any governmental
authority, and the filing of UCC financing statements and continuations, and
other actions to perfect, protect, and continue the security interests and liens
of Lender in the Collateral; (e) sums paid or incurred to pay any amount or take
any action required of Debtor under the Financing Agreements or the Financing
Order that Debtor fails to pay or take; (f) costs of appraisals, inspections and
verifications of the Collateral and including travel, lodging, and meals for
inspections of the Collateral and the Debtor's operations by Lender or its agent
and to attend court hearings or otherwise in connection with the Chapter 11
Case; (g) costs and expenses of preserving and protecting the Collateral; (h)
all out-of-pocket expenses and costs heretofore and from time to time hereafter
incurred by the Lender during the course of periodic field examinations
21
<PAGE>
of the Collateral and Debtor's operations, plus a per diem charge at the rate of
$650 per person per day for Lender's examiners in the field and office; and (i)
costs and expenses (including attorneys' and paralegals' fees and disbursements)
paid or incurred to obtain payment of the Obligations, enforce the security
interests and liens of Lender, sell or otherwise realize upon the Collateral,
and otherwise enforce the provisions of this Agreement, the other Financing
Agreements and the Financing Order, or to defend any claims made or threatened
against Lender arising out of the transactions contemplated hereby (including,
without limitation, preparations for and consultations concerning any such
matters). The foregoing shall not be construed to limit any other provisions of
the Financing Agreements regarding costs and expenses to be paid by Debtor. All
sums provided for in this Section 9.6 shall be part of the Obligations, shall be
payable on demand, and shall accrue interest after demand for payment thereof at
the highest rate of interest then payable under the Financing Agreements. Lender
is hereby irrevocably authorized to charge any amounts payable hereunder
directly to any of the account(s) maintained by Lender with respect to Debtor.
9.7 Effectiveness. This Agreement shall become effective upon the
execution hereof by Lender and the entry of the Interim Financing Order and
shall continue in full force and effect for a term ending on the termination
date set forth in Section 7.26 hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
LOEHMANN'S, INC.
Debtor and Debtor-in-Possession
By:____________________________
Title:_________________________
CONGRESS FINANCIAL CORPORATION
By:____________________________
Title:_________________________
22
<PAGE>
EXHIBIT A
FORM OF INTERIM FINANCING ORDER
23
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEC
FORM 10-Q AND IS QUALIFIED IN ITES ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-29-2000
<PERIOD-START> JAN-31-1999
<PERIOD-END> MAY-1-1999
<CASH> 2,082
<SECURITIES> 0
<RECEIVABLES> 6,917
<ALLOWANCES> 0
<INVENTORY> 83,732
<CURRENT-ASSETS> 92,731
<PP&E> 70,419
<DEPRECIATION> 0
<TOTAL-ASSETS> 203,972
<CURRENT-LIABILITIES> 158,506
<BONDS> 0
0
0
<COMMON> 90
<OTHER-SE> 649
<TOTAL-LIABILITY-AND-EQUITY> 203,972
<SALES> 108,231
<TOTAL-REVENUES> 108,231
<CGS> 73,679
<TOTAL-COSTS> 73,679
<OTHER-EXPENSES> 31,543
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,660
<INCOME-PRETAX> (3,841)
<INCOME-TAX> 38
<INCOME-CONTINUING> (3,879)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,879)
<EPS-BASIC> (0.43)
<EPS-DILUTED> (0.43)
</TABLE>
